The list given below shows Business frauds, some involving mind-boggling sums. Frauds were committed in ingenious ways. Some frauds led to the creation of new safety mechanisms. People’s trust was grossly misused, greed for more knew no bounds. Most of the mentioned frauds in this list are India centric.
India being a diverse Country with diverse cultures and a huge population, different types of frauds were perpetrated in different parts of the country. Fraudsters were able to correctly gauge the average man’s mindset and behavior, devised cunning ways to fool them, and executed their plans. Some of them escaped with the booty, some of them were caught.
6 High Magnitude Business Frauds
1. US$ 250 million shocking fraud in International trading- 2008 & 2009:
Indian Company – Spices Trading Corporation Limited (a Government of India Company) placed orders for Copper and Nickel scrap valued @ USD 250 million in 2008, to 3 Companies domiciled in Dubai, Singapore, and USA, between May and September 2008. Supplies were to be made to Hong Kong based buyers with ports of landing as Busan in Korea and Vietnam. Copper scrap price was fixed @ US$ 6614 per ton, Nickel scrap @ US$ 16804 a ton.
Indian Company signed 134 sales contracts with these 3 Sellers, while it signed an other 134 contracts with 3 Hong Kong based buyers. Letters of Credits (Bank Guarantees) were opened in favor of the 3 Sellers, by the Indian Company for a total of US$ 250 million. Hong Kong Buyers were supposed to open Letters of Credit in favor of the Indian Company, when shipments reach Busan and Vietnam. Shipments were made by the 3 Sellers.
Surveyor certificates and shipping documents certified that the cargo shipped was Nickel and Copper scrap. When the shipments reached Busan, buyers did not open LC in favour of the Indian Company as per agreement. Indian Company while negotiating with these Buyers tried to see if they can find alternate buyer. A new buyer voluntarily came into the scene. But this Buyer quoted a price of USD 100 pmt, a measly sum for Copper and Nickel scrap, arousing the Indian Company’s suspicions about the contents of the cargo.
They opened the containers at Busan and they were Shocked. Material that arrived was scrap Iron and Steel worth not more than US$ 5 Million while shipment was supposed to contain high value Copper and Nickel scrap. All the Shipping Bills and Inspection certificates were found to be fake. Massive fraud was committed with Iron and Steel scrap masquerading as precious Copper and Nickel scrap. Investigation revealed that all the 3 Sellers and 3 Buyers were found to have common Directors. The Indian Company went bust. No trace of US$ 250 million.
2. Austrian rogue trader’s fraud via his website- 2011:
An Austrian rogue trader through his company lured gullible metal scrap traders from Asia (mainly India), with rock bottom prices of metal scrap. He built a cunning website that showed his company in wonderful light with the website showing massive (fake) go downs stocking huge volumes of metal scrap, littered the internet with false fictitious media reports glorifying his company.
Whenever a Google search of the company was made, it showed up impressive results of the company, sales turnover showed millions of dollars, assets in millions of dollars, glowing tributes to the promoters of the company by leading industry experts and complete with impressive audited financial results. Many Companies fell into the trap, and paid Millions of Dollars in advances.
The trader just vanished with the money. Many companies opened multimillion dollar letters of credit. This trader fooled the Banks and en-cashed the LCs with complete set of false documents right from bills of lading, to fabricating drivers’ license of a few people to customs papers et al and vanished. Taking with him all the millions.
This trader also had the knack of providing tracking numbers of shipping containers which were later found to be retired container numbers. When the cheated traders went to his office in Austria, it was found he operated in a single room with a table and chair and nothing more. No trace of him till now. This is ‘CEWM – Central European Waste Management, Austria’, for you. Amount siphoned off was more than US$ 30 million.
3. Empty containers fraud all the way from Dubai- 2009:
Metal scrap traders from India were horrified to see at-least 600 Containers empty, with nothing inside, while the respective shipping papers indicated that these shipping containers contained Metal scrap from Dubai. Ports of Nhava Sheva, Kandla, and Chennai could only see in despair this spectacle. Traders lost millions they paid as advance for metal scrap. The fraudster encashed all orders through Banking Channels.
How the fraudsters were able to ship empty containers hoodwinking the Dubai customs, obtaining fake bills of lading, fake inspection certificates is still mystery, while the perpetrator – Dubai trader of Indian origin who shipped these 600 containers has vanished. Average value of 1 container (around 24 metric tons Steel scrap) was around USD 10000 (US Dollars ten thousand). 600 containers average value: US$ 6 Million.
The rogue trader had lured gullible buyers with samples, attractive discounted prices, fake demeanor, fake infrastructure et al. Hoodwinking Dubai customs transporting empty containers with fake papers, is simply out of the ordinary.
4. Citibank employee’s massive fraud- 2010:
An employee of Citibank branch in New Delhi lured High Networth Individuals with fabricated nonexistent schemes. He showed fake Citibank papers to his target audience, which showed Citibank approval of these investment schemes that promised very high returns. He also faked market regulator SEBI’s notification of the fraudulent scheme.
The target audience were impressed and convinced about the genuinity of these schemes, then invested huge sums of money in such schemes through his front company. The money the High Networth Individuals invested was around US$ 70 million. He used that money to invest in the share market and trade in shares.
The fraud came to light in the course of a casual conversation one of the target audience had with an other Official who revealed that no such scheme existed. The employee was arrested and investigations are on. Investigations showed that the greedy fraudster invested 50% of the 70 Million he duped from the high networth individuals, in the share market, and lost everything. Citibank was fined by Reserve Bank of India for their lax control mechanisms that allowed this employee to commit this fraud.
5. US$ 100 million Gold export fraud with fake papers- 2008:
Certain Indian Government Companies have an export promotion scheme where they finance smaller private companies for export orders but exports need to be in Government Company’s name. A group of 6 Mumbai based Firms approached MSTC (Metal scrap trading corporation which is a Government Company), stating they have export orders worth Rs 600 Crore – US$ 130 million for Gold Jewellery to UAE.
And asked for MSTC to finance for this order. An agreement was worked out for MSTC to finance this order, to the extent of 80% of the order value, and MSTC was to be paid 1.5 to 2% as commission, with money repayable in 170 days. The 6 Firms then created fake export orders for gold jewellery purportedly seeming to originate from genuine buyers.
MSTC got these export orders to be checked for credit insurance verification with ECGC (Export Credit Guarantee Corporation of India- the insurance Company that certifies about whether a certain Foreign Buyer is genuine. After the insurer finds them to be genuine, credit insurance companies assume risk coverage and undertakes to pay the exporter if the foreign buyer becomes insolvent or if buyer is unable to pay due to political situation etc).
Two credit insurance Companies (ECGC, and ICICI Lombard) certified to MSTC that these were genuine foreign buyers and gave approvals of them to MSTC, undertaking payment risks. On this basis, MSTC gave advances of 80% of the order value – Rs 480 crores (US$ 100 millions) to these 6 Companies. After obtaining money, these 6 companies procured gold jewellery using this money.
Then, instead of selling it to buyers shown in their papers to MSTC, they sold it in the Dubai open market. They collected the proceeds US$ 100 million, and brought it to India via hawala channels (illegal channels). They used that money for personal means buying property, splurging, etc. Then they prepared fake shipping documents and provided to MSTC to make it look like they have made the export of Gold Jewellery as per their agreement, to the designated Buyers.
Now MSTC had to wait for 170 days to realize their payment. Date of payment arrived, nothing happened. No payment was forthcoming from the foreign buyers. MSTC conducted investigation and found that all orders these 6 firms submitted were fake orders. Buyers were genuine, but they had not placed such orders. Genuine Buyers’ names were misused as a ruse to obtain ECGC cover.
Otherwise, MSTC will not give loans to the 6 firms if their Foreign Buyers are not in the approval list of ECGC. All shipping papers which the 6 firms provided were found to be fake. MSTC could not lodge claims with ECGC on the basis of forged documents.
Further investigation revealed that these 6 fraud firms created their own associate Companies in Dubai for perpetrating this fraud to sell the Gold in the open market. Former Managing Director of MSTC was found to be an accomplice to this fraud along with a few former senior Officials. They are in jail now. The 6 firms’ properties have been confiscated, and trial is on.
6. Telgi’s pan India fake Stamp paper fraud- 2002-03:
Abdul Karim Telgi masterminded India’s mammoth stamp paper scam worth Rs.32000 crores (US$ 7610 million on those period Dollar rates). He printed counterfeit Government stamp papers. Then along with a few Officials created an artificial shortage of Government stamp papers, developed a 500 strong agency network, used this network to supply these fake stamp papers across 72 towns and cities across 18 states in India to needy Government departments.
All agents received 2% commission. Business flourished for more than 10 yrs. Governments unknowingly purchased these fake stamp papers for their transactions for more than 10 yrs. Telgi not only printed Counterfeit papers but a whole gamut of other (counterfeit) Government papers like judicial court fee stamps, revenue stamps, special adhesive stamps, notarial stamps, foreign bills, brokers notes, insurance policies, share transfer certificates and insurance agency stamps.
Huge volumes of Genuine Government Stamp papers that were dispatched from India Security press to various places dramatically got lost in transit. Because of a lack of security features in those periods of Stamp papers, Telgi and his associates printed Stamp papers anywhere in India, and supplied anywhere. Scam was exposed after 10 yrs, after which he was caught and jailed. Not before he created a loss of a staggering Rs 32000 crores ( US$ 7610 million) to the Government.
The above mentioned are the top six high magnitude business frauds. If you find this information useful, then do share it with your friends on major social networks.