The investigations have been ongoing for four to five years on multiple fronts against the three top brokers, who are the leaders of corporate organizations.
Senior officials announced on Sunday that three of the country’s leading brokers have come under the scrutiny of multiple regulatory and enforcement agencies, including for suspected money laundering and fraudulent trading activities involving several thousand crores of rupees.
Investigations are presently being conducted by SEBI, RBI, and ED against the top three brokers.
The officials also stated that the three brokers, whose identities they refused to reveal due to the ongoing nature of the investigations, have been linked to politically exposed persons (PEPs), and that the role of a key family member of a senior political leader in a key industrial state is also under investigation.
The investigations have been ongoing for four to five years on multiple fronts against the three top brokers, who are in charge of organizations with businesses in numerous segments of the capital markets and the financial services sector, including brokerage, investment advisory services, portfolio management, asset management funds, and non-banking financial services.
The agencies and regulators involved in the investigations thus far include the Securities and Exchange Board of India (Sebi), the Reserve Bank of India (RBI), and the Enforcement Directorate (ED); these three have now made references to bringing the CBI into the picture due to the suspected involvement of PEPs, according to officials.
While suspected money laundering activities facilitated by capital market brokers have always been under scrutiny, this could be the first major case of high-ranking brokerage and financial services sector players being apprehended for the complex financial market transactions they use to conceal their money laundering activities, they added.
The investigations have included the examination of complex financial and banking transactions, the transfer of funds to multiple tax havens, call data records, and social media conversations.
Requests for administrative assistance in tracing the origins of transfers totaling thousands of billions of rupees were also sent to several foreign jurisdictions.
Despite the fact that some of these jurisdictions, such as Switzerland, have already responded, the affected parties have objected to any information sharing on the basis of confidentiality clauses.
Before disclosing client information to a foreign country, banking and financial institutions in accordance with the regulations of their respective nations provide clients with an opportunity to opt out.
The officials stated that the three brokers initially came under scrutiny for their role in a case involving a spot commodity exchange, but it was soon discovered that they were engaged in extensive money laundering, including for their brokerage and fund management clients.
They added that the investigation’s scope was expanded after politically connected individuals were discovered to be involved.
In the majority of instances, Sebi suspected a potential money laundering angle in the activities of these brokers, and as a result, the matter was flagged for further investigation by other agencies and departments.
A senior official stated, without identifying the brokers, that these were among the top players in the market until about two to three years ago, when the market witnessed the emergence of some online players at the top during the COVID-19 pandemic, which actually pushed those traditional players into areas that were prohibited in a highly-regulated market.