NSEL fiasco: Probe indicates money laundering violations

Jignesh Shah

In a fresh twist to the NSEL payment crisis, regulators now suspect that large-scale money laundering might have taken place through the exchange and the funds involved in such activities could be much more than the reported default amount of Rs 5,600 crore.

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Those under scanner include many brokers, their HNI clients and some top officials of the National Spot Exchange Ltd (NSEL).

It is suspected that the necessary safety mechanism required to check money laundering activities could have been missing in their conduct, thus permitting large-scale movement of funds for illicit gains and the quantum of the money involved is feared to be at least a few billions dollars, sources said.

NSEL crisis: Jignesh Shah's exchange, brokers, HNIs' nexus now under scanner

Although NSEL and its activities do not fall under Sebi's jurisdiction, the capital market regulator has been looking into the matter for possible violation of rules governing brokers, portfolio management activities, insider trading, listing agreement, fraudulent and unfair trade practices, and the norms for promoter entities for stock exchanges.

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Initial investigations have suggested violations on the part of certain brokers, as also many of their clients, including high networth individuals and corporate bodies, who are active in different segments of capital markets, sources said.

Under Sebi regulations, brokers and other entities operating in the market are required to put in place strong checks against any money laundering activities, but these safeguards could have been either compromised or completely missing in this case, they added.

NSEL was promoted as a spot trading platform for agriculture and other commodities, but soon it is suspected to have begun providing trade in complex forward financial products.