CBI should probe Forex Derivatives scam, say exporters

The case filed by the Fixed Income Money Markets and Derivatives Association (FIMMDA) to stall the CBI probe ordered by the Hon'ble Orissa High Court against 22 erring banks in the forex derivatives transactions of 2007-08 will come up for hearing in the Hon'ble Supreme Court of India on November 8, 2010.

The Central Bureau of Investigation (CBI), in its counter affidavit filed before the Apex Court has said that the case should be handled by RBI and Enforcement Directorate. However, since the case pertains to an issue of international magnitude whereby several emerging economies had suffered worldwide, exporters in India are of the opinion that the probe must be handed over to the CBI.

“The issue is of paramount importance where several banks had sold illegal contracts to gullible exporters. The exporters have incurred unbearable losses that could have resulted in bankruptcy of many Indian Corporates,” avers Palanisamy , Managing Director, Armstrong Knitting Mills, Tiruppur.

“There is no disputing the fact that these contracts are illegal - a fact accepted by both RBI and CBI vide their reports submitted before Orissa High Court. The question here is why such reputed banks should stoop down to the extent of engaging in door-to-door marketing of illegal contracts?,” questions S Dhananjayan, Chartered Accountant and Advisor to the Forex Derivatives Consumers’ Forum.

“The answer to the above question lies in the fact that these banks were offered enormous profits and commission by their foreign counterparties to retail these illegal contracts. Enquiries into the commissions and profits made by these banks and the incentives paid to their treasury personnel etc need to be probed to find out the truth behind the scam. And there is no better agency for this except CBI,” argues Dhananjayan.

Explaining about the international repercussions of the scam, Raja Shanmugam, President of Forex Deivatives Consumers Forum and Managing Director of export firm, Warsaw International says, “The Korean Broadcasting Services in its recent program "Indepth 60 Minutes" analysing the ill effects of these exotic derivative contracts had presented convincing evidence as to how a US bank has paid upfront fee to local bank to sell these contracts thereby enticing them to market these contracts in Orissa. It was truly a shocking revelation.”

“The IMF Research paper by Randell Dodd also succinctly captures the issue while stating that the western economies have transmitted their economic crisis to the emerging economies through retailing these exotic currency derivatives,” cites Shanmugam.

It may be noted that the Hon'ble Orissa High Court had passed a judgment on Dec 24, 2009 in response to a PIL filed by an economist, Pravanjan Patra, ordering a CBI enquiry against 22 banks who were involved in selling exotic forex derivative products to exporters in 2007-2008, further to which CBI did begin the probe.

“In a preliminary report to the court, CBI had gathered data from the Reserve Bank of India that 11 banks had unrealized dues from customers of Rs 755.45 crore between April 2007 and December 2008, while the gross mark-to-market (revaluing assets at their current values) losses of the customers of 22 banks were Rs 31,719 crore between 2006 and 2008,” informs Dhananjayan.

“Hence, in the greater national interest the CBI and the ED should join hands to conduct this probe, since only a thorough and sophisticated probe by CBI and the ED can provide answers and solution to this great scam,” echo all.