How Suspected Kickbacks Happened at Yes Bank that Led to the Arrest of its Founder?

By Debdutta Ghosh

Bank scandals are a new trend in white collar crimes in India. This became evident once again after one of the youngest and significantly large bank of the country – Yes Bank, ran into trouble for bad debt in February. The Reserve bank of India (RBI), the central bank of the country was forced to stop all transactions of the bank and call in other state run banks to save Yes Bank from collapsing.

The calamity that was inflicted on the bank was blamed on its founder and former chairman Rana Kapoor, who was arrested by Indian investigating agencies over allegations of him doling away huge amounts of loan from the bank to unworthy companies against kickbacks while he headed the bank.

While crimes relating to bank officials resorting to such criminal ways of earning money is not new to India – and indeed in many other parts of the world, this was the first instance that a bank official of the and stature of a founder and CEO of a bank was accused of such a criminal act.

In one of the cases, the ED alleged that Kapoor obtained undue financial advantage from DHFL (Dewan Housing Finance Corporation) against convincing the bank that Kapoor controlled to invest in the debenture of DHFL via that the companies that were owned by Kapoor’s wife and daughters. The ED also suspects that Kapoor had used his influence and stature at Yes Bank to gain financial advantages in several other transactions. He obtained illegally kickbacks form such deals either directly or indirectly through entities and firms that were under the control of or owned by him or his family members

The primary case was against Kapoor was filed by the Enforcement Directorate (ED) of India. The investigating agency alleged that Kapoor and his family had set up more than a dozen shell companies which were used to receive the kickbacks. According to estimates of investigators, Kapoor and his family managed to siphon off as much as Rs 4,300 crore or about $646.349 million in kickbacks against loans granted to suspect companies and had then invested the money in purchasing properties illegally.

In one of the cases, the ED alleged that Kapoor obtained undue financial advantage from DHFL (Dewan Housing Finance Corporation) against convincing the bank that Kapoor controlled to invest in the debenture of DHFL via that the companies that were owned by Kapoor’s wife and daughters. The ED also suspects that Kapoor had used his influence and stature at Yes Bank to gain financial advantages in several other transactions. He obtained illegally kickbacks form such deals either directly or indirectly through entities and firms that were under the control of or owned by him or his family members. It has been alleged that Kapoor and his family had got a kickback of Rs 600 crore ($90 million) from DHFL which was deposited in one of the family ventures of the in exchange of the bankrupt company not repaying its loans.

Kapoor has been booked under the Prevention of Money Laundering Act (PMLA) of 2002, while the investigators are now trying to uncover the money trail of the kickbacks that were allegedly received by Kapoor and his family members.

The investigators have also found that Kapoor had used the money generated from the kickbacks for purchasing properties valued at Rs 2,000 crore ($298 million)– which currently has a market value of more than Rs 5,000 crore ($746 million), according to the ED

Investigators said that Kapoor and his family had purchased such properties illegally mostly in foreign countries with the investigators examining the valuation of one such property that was bought in London. 44 high value paintings were also seized from Kapoor’s residents whose value could also run into millions.

The ED has lareaud initiated a process to attach and auction six plush properties of Kapoor worth thousands of crores – all located in Delhi. The investigators have also identified more than seven additional properties of the tainted banker in Mumbai and four properties in foreign countries. The foreign properties include two luxury hotels — one each in New York and London, and two residential apartments in London worth millions of pounds. All of these properties were allegedly purchased by Kapoor and his family with kickback money.