ED probe reveals money laundering racket involving 10 senior IRS officials

New Delhi: The discovery of an inconspicuous accountant running at least 98 shell companies from a dingy office space in North Kolkata has now opened a Pandora's Box, revealing a chain of alleged kickbacks received by some of the most powerful revenue officials of the country.

A series of search and seizure operations at the offices of Govind Agarwal, the low-profile Kolkata-based accountant, has resulted in the recovery of a bunch of incriminating documents in the nature of various hospitalities extended to these senior bureaucrats, indicating that this case could be akin to the infamous Jain Hawala Diary if not more sensational.

According to an investigation by the Enforcement Directorate, more than "10 senior bureaucrats are directly connected" to a tight-knit circle of civil servants who are dubiously linked to racketeering with Govind Agarwal and his shell companies, where their alleged ill-gotten wealth might have been parked.

This list of senior officials includes the likes of a former Central Vigilance Commissioner, a former member (Investigation) CBDT, an Ex-DG (Investigation) posted in Kolkata and at least five other Commissioners/Chief Commissioners of Income Tax.

Travel documents and hospitality receipts so far seized by the police and ED from Agarwal show that luxurious 5-star hotel rooms were booked under fictitious names, where, sources said, senior officials used to visit for several hours to "be entertained by female visitors". The ED had also visited the Oberoi Grand Hotel in both Delhi and Kolkata, only to find that there were more than 200 days of bookings allegedly made on behalf of these public officials, under the names of random people, without their knowledge.

Such was Agarwal's clout in bureaucratic circles that he had entered restricted sections of the Netaji Subhas Chandra Bose International Airport more than 100 times using a daily permit issued by the Air Intelligence Unit of the I-T Department under his name. Neeraj Singh (a now-suspended IRS official) was Additional Director (Investigation) in charge of Air Intelligence Unit at that time.

Besides, the accountant was somehow in possession of a number of folders mentioning names of senior officials working with the Directorate of Revenue Intelligence, CBI and tax department, along with appraisal and survey reports of several I-T investigations, including those from the Financial Intelligence Unit. The confidential search and survey reports of various groups including Microsec Group, Ruia Caterers Group and others were prepared under the guidance of none other than Singh, with him having denied any connection.

Agarwal's job in the racket was simple — if tax officials conducted raids or started any serious investigation, the accountant would broker a deal to settle the case and accept kickbacks on behalf of the concerned public official, which he would then launder through his web of paper companies. One senior official said such payments to the civil servants were part of the racket and were laundered with extreme care to avoid detection, with complex layers of structuring that veiled the money-trail.

Officials with direct knowledge of the matter said several private entities that were under the scanner of probe agencies would pool their resources, earmarked for pay-offs in a host of shell companies — run and operated by the likes of Agarwal. The accountant would then bounce the money across the paper concerns through fictitious transactions to finally reach the end benefactors — in this case, senior revenue officials.

The ED has already registered a money-laundering case against Agarwal and Neeraj Singh, a now-Commissioner level I-T official last posted in Chennai, after a slew of documents recovered by Kolkata Police revealed Singh's links to various business houses when he was posted as Additional Director of I-T (Investigation) in Kolkata.

While Singh was quietly placed under suspension by the CBDT after questions about his dubious activities started surfacing; the ED's probe has now expanded to look into whether prominent Kolkata–based HM Diwan Jewellers also had a role in the racket. Officials have said they have so far been able to trace Rs 5 crore in bribe payments to Singh through Agarwal's shell companies.

According to the financial probe agency, ED officials are in the process of interrogating Vijay Diwan, the beneficial owner of many companies, including H M Diwan and are also confronting him with transaction records showing payments made to Singh's relatives.

A senior official said H M Diwan had paid Rs 50 lakh to Singh's mother-in-law which was then allegedly laundered by Agarwal to acquire a property in Navi Mumbai, registered to Singh's relative. While examining the documents of H M Diwan group, the ED also stumbled upon cash transactions worth crores during the demonetisation period. The Diwan group is known to be closely connected to a number of I-T officials.

When the I-T department was probing the jeweller, a huge amount of loans and capital from the shell companies were discovered with the group having booked long-term capital gains (which is tax exempt) from alleged paper entities. Legal experts said that even though an assessee offers tax on such transactions or has paid tax under the IDS 2016 scheme, it does not get immunity under the Prevention of Money Laundering Act. It now remains to be seen as to where this line of inquiry leads investigators.

Other city-based jewellers and some businessmen are also under the ED scanner for their alleged role in helping these senior officials launder their wealth. The ED's investigation in the case has now been able to identify at least two of Agarwal's shell companies — Tobu Engineering Limited and Lilac Suppliers Private Limited, in connection with which agency officials had raided the offices of one Anup Killa, listed as director in Lilac Suppliers.

Interestingly, Killa is listed as a director in at least three separate companies all registered at the same address in Kolkata — Lilac Suppliers, Transways Wine Private Limited, and Essencia Beverages Private Limited — of which Lilac has previously been booked by the Kolkata Police for propping-up paper companies to launder illegally acquired wealth.

Sources in the know said investigators probing the case are now starting to face pressure from top IRS officials in Delhi and are being asked to take it easy on Singh. A senior official added that Singh continued to deny any wrongdoing during his interrogation, all the while asserting his influence.

As far as middlemen with connections to powerful civil servants are concerned, the ED had also arrested one Sudipto Roy Choudhury in the Rose Valley case last year, when it was found that he had collected large amounts of money from the chit fund group, allegedly in exchange for settling their cases with both the CBI and ED.

With preliminary investigations into Roy Chowdhury's connections showing links with senior CBI officers, senior state government officials, ED officials and several top Intelligence Bureau officials, Roy Chowdhury was granted bail within days of his arrest, while many others in the same case were kept in custody for nearly a year.

While the CBI is probing all and sundry in the Ponzi cases, it has remained mysteriously reluctant to pursue leads showing possible complicity of their own officials in the chit fund cases.

Interestingly, a Joint Director of the CBI in Kolkata, who was at the time in charge of the SIT probing Ponzi companies is a relative of Singh.

The ED's probe has considerably broadened since Millennium Post first reported on Singh's connection to Agarwal, the dubious accountant, with one official saying: "That he (Neeraj Singh) received these payments one way or the other is clear but the nature of the racket is so complex that it will take time to unearth which entity has paid which public official in exchange for which favour."

With growing pressure from some senior officials to stall this investigation, a highly-placed source added that some IB officials are also suspected of trying to protect many in the ever-growing list of powerful bureaucrats accused in the quid-pro-quo money-laundering racket.

In fact, the ED is looking into the role of another IRS officer, with officials saying that he had invested funds in a Mauritius-based concern and a Kolkata-based clothing company. When this official had applied for Voluntary Retirement, sources in the know said senior officials in the Finance ministry had approved the VRS without scrutiny.

However, while the ED can only probe money laundering, it remains to be seen whether CBI — the top anti-corruption agency — acts on the highly placed officials whose alleged involvement has surfaced from the investigation into the Singh-Agarwal nexus.