Rs.1250 crore of STC Scam

Breaking Story: The Rs 1,250-cr mega fraud involving two City firms and STCL kept under wraps for 10 months

A quarter billion dollars go to scrap

R Venkatesh, Bangalore, DH News Service:

In one of the biggest scams in Independent India, the Spices Trading Corporation Ltd (STCL Ltd.) has suffered a massive loss amounting to a quarter billion US dollars (Rs 1249.57 crore) allegedly at the hands of two Bangalore-based private trading firms.

The scam involved passing off iron ore scrap as nickel and copper scrap. The STCL, a wholly owned subsidiary of the State Trading Corporation of India Ltd, lodged a formal complaint with the Bangalore Police three weeks ago against Future Metals Pvt Ltd. (FMPL) and Future Exim India Pvt. Ltd (FEIPL) — the two affiliate/group companies based in Bangalore — for defrauding and misappropriating the staggering sum. The alleged mega fraud remained under wraps for a good 10 months. Between May and September 2008, the STCL, in accordance with an arrangement entered into with the two Bangalore companies in 2005, acted as their “facilitator” to arrange merchandising trade transactions in scrap metals in third countries. The STCL’s bankers issued Letters of Credit (LCs) in favour of three foreign companies — Asia Metals & Commodities Pvt Ltd based in Singapore, Al-Mustaqbal, Dubai and American Metal Management Inc, New Jersey — who were the scrap sellers to the two Bangalore companies. In all 134 merchandise trade transactions were facilitated involving the three sellers in favour of the two Bangalore companies for which the STCL, through its bankers, issued LCs for a period ranging from 90 to 120 days for a total sum of US$ 249.57 million. The three sellers and the two Bangalore firms declared that the trading in question involved scrap nickel and scrap copper. The average price of nickel scrap was valued at US$ 16, 804 (approx Rs 8.14 lakh) per tonne and the corresponding price for copper scrap was pegged at US$ 6,614 (approx. Rs 3.20 lakh). The LCs were issued in favour of the three sellers for US$ 249.57 million on the basis of this valuation. The two Bangalore companies also identified three overseas buyers of the consignments shipped by the three sellers. They were: Sino Asia Pacific (H.K) Ltd, Hong Kong, Haoweilai Jinsu Ltd, Hong Kong and Haoweilai Jinsu (HK) Ltd. STCL, which was to receive the payments from these buyers, also executed 134 sales contracts with the buyers. The port of landing for the shipments were in South Korea (Busan) and Vietnam. Two international surveyors certified — one on behalf of the STCL — the contents of the consignments from the sellers before they were shipped and had also certified that they contained scrap nickel and scrap copper. It would appear that the consignments at Busan landed just about when the LCs were to be devolved by the bankers of the STCL. On certification of the arrival of the consignments in Busan, the bankers released US$ 249.57 million in favour of the three sellers. However, the STCL did not receive the remittances from the three buyers though the two Bangalore companies were required to facilitate the payments. The non-receipt of the remittances from the buyers suggested something was amiss. STCL sought to take possession of the consignments in Busan in view of the non-receipt of the payments from the buyers. In came another company Mirae Metals whose director is one Ahmed Harris, a Bangalore resident, according to STCL. Mirae Metals, allegedly in collusion with the two Bangalore companies, approached the Busan District Court seeking an injunction against STCL’s bid to take possession of the consignments on the ground that the shipments belonged to it. But in the process, Mirae Metals told the court that the consignments were worth about US$ 100 a tonne whereas STCL had paid US$ 16,804 a tonne for nickel and US$ 6,614 for copper. In view of the suspicion that arose from the price quoted by Mirae Metals, STCL got opened five containers to inspect the contents of the cargo. Shockingly, it was found that the contents were scrap iron — not scrap nickel or copper! STCL, in its complaint, has mentioned that the directors of the two Bangalore companies and all the foreign companies involved in selling and buying had some common directors, leading to deeper suspicions. Indeed, Ahmed Harris of Mirae Metals was also identified as the CEO of Sino Asia Pacific (HK), one of the buyers. Mirae Metals withdrew its injunction in the Court but Sino Asia Pacific (HK) filed for legal proceedings in the same court against STCL. Containers opened Under court directions, more containers were subsequently opened and it turned out that the contents were all scrap iron. The entire lot of scrap iron consignments from the three sellers would not fetch more than US$4.58 million. But STCL, which paid US$ 249.57 million, hasn’t even got US$4.58 million. The reason being that it has not been able to take possession of the shipments. As per the court direction, the scrap iron consignments were to be auctioned to pay towards the pending shipments and storage costs. While STCL bled for ten months, the Directorate of Enforcement in the Union finance ministry initiated investigations into the scam in recent weeks under the Foreign Exchange Management Act (FEMA). It has raided the offices and residence of Director of FMPL (chairman?) Naveen Sriam in Bangalore. The residence of the managing director of the two companies, Sudeer Sriram, was sealed as he was “not available.” The Directorate of Enforcement, in a communication to Bangalore Police Commissioner, advised a week ago not to go ahead with filing an FIR as it would require at least two months’ time to investigate and gather basic evidence required to assess the gravity and extent of culpability of the parties involved. The main case, it said, would be under FEMA and added that any charges framed by the police under IPC could complicate the main case. It said the matter was sensitive and had international ramifications. The Directorate has also questioned STCL officials. When contacted, Naveen Sriram admitted that his house and office were raided by the Directorate, but declined to give any details immediately. Scrap Scam: Chain of dummy firms used R Venkatesh, Bangalore, DH News Service: The Enforcement Directorate, investigating the quarter-billion dollar fraud committed by two Bangalore-based trading firms, strongly suspects that a number of “dummy” companies were used to siphon off the money. The $250 million scam, which Deccan Herald broke in its edition on Thursday, is one of the biggest in post-Independent India and has the potential to blow the lid off the nexus between top government officials, owners of the two private trading companies as well as officers of Spices Trading Corporation Ltd (STCL) which suffered the massive loss of Rs 1,208.48 crores (when converted into Indian currency). The scam involved passing off iron scrap as nickel and copper scrap. While ED sources said they began investigations based on their own “intelligence inputs”, a formal complaint was lodged by STCL, a wholly-owned subsidiary of the State Trading Corporation of India Ltd, with the Bangalore police three weeks ago against Future Metals (Pvt) Ltd (FMPL) and Future Exim India (Pvt) Ltd (FEIPL). Senior ED officials in New Delhi said they strongly suspected the involvement of senior STCL officials and the owners of FMPL and FEIPL (Sriram Sudheer and Naveen Sriram) in defrauding the company of $250 million. “We are still in the process of ascertaining all the means they employed to cause STCL the huge loss,” an ED official said, adding that while several cases have been filed under the Foreign Exchange Management Act (FEMA), they were not ruling out using the provisions of the Prevention of Money Laundering Act. The Directorate is also investigating who the ultimate beneficiaries of the scam are. “We suspect senior government and STCL officials, but we are still trying to tie the loose ends to make a foolproof case,” ED sources in New Delhi said. Senior STCL officials have already been interrogated by the ED. There is little doubt that FMPL and FEIPL managing director Sriram Sudheer and the companies’ chairman Naveen Sriram Sathyanarayan Badri were the principal beneficiaries. The ED has interrogated Naveen Sriram, but is yet to examine Sriram Sudheer. Their houses in Bangalore’s Sahakar Nagar are locked and both brothers have left the city for unknown locations after the story broke. While the ED is keeping tabs on their whereabouts, it is enquiring into the origins of not just FMPL and FEIPL, but also some of the shell or dummy companies based in Singapore, Dubai and New Jersey, which are suspected to have masqueraded as the “sellers” of the scrap. Likewise, the antecedents of the “buyer” companies in Hong Kong and South Korea are also being verified. The ED is ‘almost’ certain that the front companies were being controlled by FMPL and FEIPL. In this context, ED sources said they are investigating whether FMPL and FEIPL are now operating under a different name on M G Road. Two months ago, FMPL and FEIPL shut shop and shifted to another buildings. Faced with a mammoth investigation exercise, the ED is trying to establish whether the Futures group of companies controlled the suspected dummy companies, including Mirae Metals in South Korea’s Busan province. In this context, ED sources said: “As per FEMA, Letters of Credit should have been issued from the buyers’ side”. They said, not even advance payment was made before the buyers took possession of the scrap consignment. Incidentally, ‘Mirae’ in Korean means ‘future’. Asked why it took STCL or the Commerce Ministry (which is in administrative charge of STCL) 10 months to report the loss to the ED and Bangalore police, Directorate sources said: “We are looking into all aspects, including suspected acts of collusion between STCL officials and FMPL and FEIPL”. Senior STCL officials like N Devaraje Gowda, General Manager Finance and Administration refused to comment on Deccan Herald’s question as to why his company took 10 months to file an official complaint. “I am sorry I cannot comment on any aspect of the case,” Gowda, who is one of the two STCL officers, who submitted the written complaint, said. The other complainant is General Manager (Marketing) K L Anand Sai. Naveen Sriram said: “I am in a meeting and I will get back to you”. Subsequently, he responded via an SMS, saying: “I have nothing to comment as we are in the process of responding to clarifications sought by various sources. It would not be appropriate for me to come on record now. I would personally request you to understand”. ‘Follow-up action necessary as the case involves public money’ STCL asked to initiate steps to recover money Aditya Raj Das, New Delhi, DH News Service: The state-owned State Trading Corporation (STC) has directed its wholly-owned subsidiary Spices Trading Corporation Ltd (STCL)—currently in crisis after incurring massive losses caused by the 'fraudulent actions' of two Bangalore-based trading firms—to take 'necessary follow-up actions' to recover the money. “As soon as we came to know of the incurrence of losses by STCL (due to fraudulent actions of some of its clients), we asked it to take necessary steps, including filing of a police complaint, to get the money back,” highly placed sources in STC told this paper. Deccan Herald broke the story about STCL’s incurrence of losses amounting to nearly $250 million due to the alleged fraudulent activities of two Bangalore-based firms, Future Metals Private Ltd (FMPL) and Future Exim India Private Ltd (FEPIL). STCL has lodged a formal complaint with the Bangalore police against the two firms for defrauding and misappropriating the sum amounting to nearly Rs 1,249.57 crore. Asked why it took nearly 10 months to take action as the fraud surfaced sometime in September last year, STC sources said: “STC has nothing to do with the day-to-day commercial decisions taken by STCL. The Bangalore-based subsidiary has been given full freedom to take commercial decisions.” Normally, subsidiaries do not consult parent bodies while taking day-to-day commercial decisions, a senior STC official said on condition of anonymity. “The moment we came to know of the developments, we asked STCL to first lodge a police complaint and take necessary follow-up measures to recover the money. It is a matter of concern as it involves public money,” the sources said. “Whatever steps need to be taken will be taken by STCL. It will coordinate with the government agencies concerned as the case develops further,” sources said.