Money laundering: Did RIL subsidiary violate norms?

Reliance had said in February this year, "Regulatory authorities have fully investigated the matter and have found no substance in the allegations of money laundering." 

An investigation by government agencies is under progress into the alleged violation of rules in investments made by Singapore-based Biometrix Marketing, a Reliance Industries (RIL) group firm. 

An indirect subsidiary of Reliance Life Sciences, it had invested Rs 6,500 crore ($1.7 billion at the then foreign exchange rates) in 2007-08 through some exotic instruments in Reliance Gas Transportation, Relogistics Infrastructure, Reliance Ports and Reliance Utilities.

The investments were considered to be the largest foreign direct investment (FDI) from Singapore.

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"The matter is still under investigation by the relevant authorities in India," Paramita Tripathi, deputy high commissioner, High Commission of India in Singapore, said in a written response on July 15 to a query from Business Standard under the Right to Information (RTI) Act. 

This could either mean fresh investigations have been initiated or the old ones are not over.

Reliance had said in February this year, "Regulatory authorities have fully investigated the matter and have found no substance in the allegations of money laundering."

By regulatory authorities, RIL was referring to the income tax (I-T) department and the enforcement directorate (ED), according to its spokesperson.

While the I-T department investigates violations such as unaccounted income and tax evasion, the ED is responsible for enforcing the Foreign Exchange Management Act (Fema) and regulations of the Reserve Bank of India (RBI) in this regard.

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Countering allegations made by Aam Aadmi Party leader and senior advocate Prashant Bhushan in February, RIL had said, "The investments by Biometrix were open, transparent and perfectly legitimate transactions ,in full compliance with the extant regulations. These investments in the Indian companies were made by Biometrix out of loans raised from ICICI Bank, Singapore branch. ICICI Bank has confirmed this fact to the regulators."

The high commission declined to reveal other details sought under RTI. In response to an email questionnaire sent by Business Standard, an RIL spokesperson said, "We are not aware of any other authority initiating a probe into the matter."

He added the I-T department and the ED had not again contacted any of the entities involved in the investments. 

Biometrix, which invested Rs 6,500 crore (Rs 65 billion) in compulsorily convertible preference shares (CCPS) of the four companies, was incorporated in Singapore at the address of a corporate services firm. One of the consultancy's senior employees was a director on Biometrix's board.

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The high commission, in a commercial intelligence report in August 2011, had said Biometrix was jointly owned by Atul Dayal, a legal expert associated with RIL and Genmedix Plc. Genmedix is the UK-based subsidiary of Reliance Life Sciences, a Reliance group firm dealing in pharmaceuticals. 

Biometrix did not have any major assets or business, the high commission had found.

Filings with Singapore's Accounting and Corporate Regulatory Authority (ACRA), reviewed by Business Standard, showed that between May 2007 and September 2008, Biometrix made a loss of $106 million (Rs 400 crore) on a revenue of $121,433.

Its total liabilities to equity ratio was an improbable 4,637 times because it had pulled off a $1.7 billion (Rs 6,500 crore in 2007/08 exchange rates) loan with a capital of 110,000 Singapore dollars (Rs 46.2 lakh).

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Its key profitability ratios, which banks often use for taking decisions on loans, were in the negative. The operating profit margin was -4,198 per cent, while the net profit margin was -87,574 per cent.

Biometrix reported an interest coverage ratio of -0.05 against an ideal 1.5 times. Biometrix raised this loan from ICICI Bank, Singapore, by pledging an option agreement it had entered into with Ekansha Enterprises, which owned shares of RIL. 

By the time the ED raised the issue about the option agreement allegedly being violative of FDI Policy and RBI regulations, Biometrix had exited the investment by selling it to India-based entities.

It also paid off the loan and was subsequently dissolved. ACRA showed the present status of Biometrix as 'Dissolved- Members Voluntary Winding-up.' 

Reliance Life Sciences had filed a compounding application with the central bank.

Compounding is a process under which Fema allows entities contravening its provisions to apply for settlement by payment of a certain sum. Asked about the status of this application, the RIL spokesperson said, "The compounding application has been accepted and the matter is closed." 

HIGHLY PLACED WEB

• Holding structure of Biometrix and its transactions:
• Atul Dayal, legal advisor, Reliance Industries, owns 100 per cent in Strasbourg Holdings
• Strasbourg owned 91 per cent of Biometrix Marketing, rest by Genmedix Plc
• Genmedix owned by Reliance Life Sciences
• Biometrix borrows $1.7 billion from ICICI Bank to invest in RGTIL, RPTL, RUL and Relogistics Infra
• Loan taken on the pledge of option agreement between Biometrix and Ekansha Enterprises. Ekansha owns RIL shares
• After queries raised by government agencies, Biometrix sold its holdings in 4 companies
• Biometrix has repaid ICICI loan and been dissolved
• Source: ACRA, High Commission letter, court documents