Sucheta Dalal :Anatomy of Swiss Banking Trails
Sucheta Dalal

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Anatomy of Swiss Banking Trails  

March 24, 2010

On 5 August 2009, the Financial Services Authority (FSA), London, slapped a penalty of £8 million against UBS’s wealth management business for unauthorised foreign exchange and precious metals trading across 39 customers from January 2006 to December 2007, causing losses to customers. FSA also ordered a compensation of $42.4 million to these 39 customers. UBS, we learn, reacted like all multinationals caught with their pants down. 

Interestingly, on 23 November 2009, Froriep Renggli, again wrote to the FSA saying that this did not cover the transactions in the books of its clients, which were a little different. Daniel Bloch, writing for the firm, claims that unauthorised trades in the books of his clients—particularly in REL and RNRL—had the ‘active connivance of the Anil Dhirubhai Ambani Group (ADAG) in India’ and the ‘top management of UBS’.

He then mentions the role of Sachin Karpe, head of the London wealth management team who was removed by UBS sometime in 2008, along with the entire team comprising Jaspreet Ahuja, Rohit Uppal and Andrew Cummins. This was a year before SEBI's action; we know that SEBI and RBI were aware of the actions against UBS.

The Zurich law firm says that it is only then that its ‘clients’ discovered vast amounts of unauthorised trades in their accounts, some ‘booked in Zurich’.  The sums were, indeed, huge. While the clients apparently had deposits of under $2.5 million in three accounts at any point of time, the unauthorised foreign exchange trades were worth $3.2 billion (the trading volumes are claimed to be even higher). In addition, there were loans by UBS to these accounts, which are unauthorised. This does not even include the trades in RNRL and REL. There are clear indications that as much as $68 million was transferred from RNRL to Pluri Emerging Companies, a Mauritius-based entity.

SEBI’s orders of January 2010 show that Pluri routed this money into the Indian capital market through Barclays Bank and Société Générale—registered as FIIs—through other layers (including an entity called Hythe Securities and another called Opportunité SA) to cash in on the booming stock market. After a few months, the money (along with the profit of $1.348 million) was returned to Pluri. The profit was transferred to another firm—Brockway Inc. Other investigations reveal that the original amount of $68 million went back to RNRL. An identical operation was repeated with REL; this time, the amount was not returned to Pluri, but remains in the books of FIIs.

SEBI’s orders do not go into details of the London operations but have barred Barclays Bank and Société Générale for the relatively minor transgressions of fudging their reports with regard to the beneficial owners of these transactions.

The Zurich lawyer’s letter is a dream for any investigator wanting to understand how Swiss banks work. It explains how the wealth management team created a dozen entities to route the transactions of these ‘clients’.  It says, “The clients were given the impression that all service providers, directors and nominee shareholders were in-house employees or entities managed or controlled by UBS  and, therefore, there was no need for Sachin Karpe to give our clients’ their names.” If this is the menu of services offered by Swiss banks to help wealthy Indians to cover their trail into the capital market, it is clearly easy for them to beat SEBI’s disclosure requirements for Participatory Notes (PNs).

-- Sucheta Dalal