The Enforcement Directorate has charged BCCI with FEMA violations running over Rs. 1600 crore
There’s more trouble ahead for Team BCCI and its chief N. Srinivasan. And it goes way beyond the spot-fixing controversy or even the CBI’s charge-sheeting of the Board President in a corruption case involving YSR Congress leader Jagan Mohan Reddy. The Enforcement Directorate has charged the world’s richest cricket body, its top officials and bankers with a welter of foreign exchange violations running to over Rs 1600 crores.
The probe had hit a wall as two officials issued show-cause notices approached the Bombay high court. But highly placed ED sources say the case is going to resurface soon as court hearings wind up. “The charges are very serious and involve huge sums of money,” sources from the ED Special Director’s office told The Hindu. Violations of the Foreign Exchange Management Act (FEMA) can lead to penalties three times the amount of the sum involved.
News of the violations had briefly appeared and vanished. Now The Hindu has gained exclusive access to details of the ED’s complaint, investigation and conclusion reports.
The BCCI has been accused of illegally “routing” crores worth of foreign exchange through an account in South Africa where the IPL tournament was shifted in 2009. A case that led the ED to issue 24 show cause notices to the BCCI’s biggest names. These include N Srinivasan, at the time the honorary secretary, then IPL commissioner Lalit Modi and former BCCI president Shashank Manohar. The ED alleges they were aware of the rules and party to the FEMA violations, charges the BCCI’s lawyers have denied.
The Hindu has made repeated attempts to contact the parties named including by phone and email. We met with no response.
The crux of the ED case involves a sum of Rs 243.45 crores worth of foreign exchange which the BCCI transferred to Cricket South Africa (CSA) between 2009-10. The CSA was meant to assist the BCCI in organising the matches for a fee. Of the sum received, the CSA transferred Rs 203.38 crores to a bank account it had formed on behalf of the BCCI, called IPL South Africa. An account whose operations were to be controlled solely by the BCCI according to an agreement inked with CSA on March 30, 2009 before the tournament.
This involved a maze of transactions which the ED says was intended to circumvent the law. In a scathing report, the ED says setting up the IPL South Africa account was a “device engineered to create a veil in respect of the foreign exchange transferred by the BCCI and was designed to circumvent the provisions of FEMA.” The only purpose of forming the account,” it points out, “was to enable the BCCI to transfer substantial amounts of foreign exchange and simultaneously prevent its bank in India and the Reserve Bank of India to monitor foreign exchange transactions.”
While the main case involves a sum of Rs 243.45 crores, portions of the sum have been transferred several times and count for separate violations. Also revenues received separately by the IPL South Africa account have also been included in the violations, taking the figure to more than Rs 1,600 crores, ED sources say.
The ED’s case is that the IPL SA account itself was illegal because it was set up without RBI clearances. The RBI’s go ahead is mandatory for accounts from which foreign exchange from India is routed. The BCCI was well aware that it needed the clearance but did not obtain it, the ED’s investigation report says.
The BCCI responded to the ED through N Srinivasan who was then its honorary secretary. Srinivasan claimed the BCCI had nothing to do with the IPL South Africa account. He said the account was operated by the CSA and that it had no knowledge of its transactions. “We are not aware of the amounts transferred by Cricket South Africa to IPL South Africa since the BCCI is not controlling the bank account of IPL South Africa. (That) bank account is operated and controlled by Cricket South Africa,” his statement to the ED of August 2011 says.
He adds, “No payments were made by the BCCI to the IPL South Africa bank account. We are not aware of any other amounts transferred into the bank account of IPL South Africa.” He also asserted that no officer bearers of staff of the BCCI were signatories to the bank account. However, he admits that the BCCI made no application to the RBI in connection with the IPL.
This rebuttal has been swiftly discredited by the ED. “Although Shri N Srinivasan has claimed the IPL South Africa account was an independent company under the control of the CSA, the investigation clearly shows the company was incorporated for the specific purpose of opening a bank account for receiving foreign exchange transferred by the BCCI,” the ED’s investigation report concludes.
It points to an earlier statement that Srinivasan gave the ED in 2010. In it he said that all debits from the IPL South African account were made only on the explicit instructions of the BCCI, after the bills were approved by Lalit Modi.
In fact, the ED report exposes the key role played by both Srinivasan and Modi in the entire affair. First, the agreement between BCCI and CSA on the formation of the IPL South Africa bank account was signed by Srinivasan on behalf of the BCCI. The agreement clearly says the IPL South Africa account will be operated by the BCCI. Secondly, payments from the IPL South Africa account were released only after the “two tier approval” of Modi and Srinivasan. And third, Modi signed several agreements on behalf of IPL South Africa. “This proves that Shri Lalit Modi has the authority to sign on behalf of IPL South Africa and bind it under legal obligations,” the investigation report says.
The Hindu has a copy of the agreement signed between the CSA and BCCI. It says, “CSA shall open and operate a dedicated bank account in the name of IPL South Africa. Monies will be deposited to CSA bank account from time to time and CSA will transfer these funds into the IPL South Africa account....No sums shall be released from the said account without explicit written authorisation by BCCI-IPL.”
The ED report also points out that the BCCI’s argument just doesn’t add up, financially. The CSA was meant to receive a fixed fee of $ 30 lakh (Rs 18 crores) from the BCCI. Its services did not match the sum of Rs 243.45 crores which the BCCI transferred. The BCCI also did not have a budget projection showing the sum would be required during the tournament for other expenses. This meant the bulk of the money sent by the BCCI to CSA was meant to be transferred to the IPL South Africa account. The ED report draws this significant conclusion: “The only purpose of the remittances was to place the money at the disposal of the BCCI itself.”