In Kerala, a tangled web of gold

The seizure of contraband gold from a diplomatic consignment in Thiruvananthapuram has come as a major embarrassment for the Kerala government. It has not only put the spotlight on gold smuggling in the State, but has prompted the Centre to despatch the National Investigation Agency.

July 25, 2020 12:15 am | Updated July 26, 2020 11:53 am IST

The police attempt to disperse Indian Youth Congress and Bharatiya Janata Yuva Morcha activists who tried to barge into the NIA office in Kochi when the prime accused in the gold smuggling case were brought there.

The police attempt to disperse Indian Youth Congress and Bharatiya Janata Yuva Morcha activists who tried to barge into the NIA office in Kochi when the prime accused in the gold smuggling case were brought there.

Wearing a flowing black gown and a bewildered expression on her face, Swapna Prabha Suresh stood in the wooden dock at the special court of the National Investigation Agency (NIA) in Kochi on July 12. The accusations against her were grave. The special public prosecutor spelt out the primary inferences drawn by the agency in the case. Gold in cylindrical form and concealed in plumbing material had travelled in diplomatic cargo to Thiruvananthapuram. The consignment was addressed to the Charge d’Affairs of the United Arab Emirates (UAE) Consulate. It had been kept unopened for five days pending Customs clearance at the international airport. The UAE Consulate had denied any knowledge of the smuggling operation. The lawyer suggested that the proceeds from the smuggled gold may have been used to fund acts of terror. Swapna shook her head, mumbled something incoherent, and broke down. P. Krishnakumar, the special judge who presided over the trial, assured her that her version of the story would be heard too. Swapna was inconsolable when the judge remanded her to custody of the NIA .

Also read: Kerala gold smuggling case: Swapna Suresh says she acted under instructions from UAE Consulate

It was an unusual Sunday in Kerala, a State that is no stranger to gold smuggling — more so as these events were unfolding in an election year. The sudden disappearance and dramatic arrest of Swapna, a former executive secretary at the UAE Consulate-General’s office, and her proximity to M. Sivasankar, Secretary to the Kerala Chief Minister , who has since been removed from his post and then suspended, was enough to kick up a political storm.

The seizure of 30 kg of gold, worth ₹14.82 crore, at the Thiruvananthapuram International Airport on July 5 would have ended up as another routine seizure made by the Commissionerate of Customs (Preventive) if not for the fact that the contraband had arrived in a diplomatic consignment meant for the Charge d’Affaires of the UAE.

As news channels chased the NIA vehicle carrying Swapna, and the co-accused in the case, Sandeep Nair, all the way from the State border at Walayar to Kochi, four hours away, youth activists of the Congress and the Bharatiya Janata Party (BJP) defied COVID-19 restrictions to stage marches to the NIA office. The police had to use batons to disperse the swelling crowds.

Swapna Prabha Suresh at the NIA special court in Thiruvananthapuram.

Kochi/Kerala,12/07/2019.Swapna Suresh, one of the accused in the gold smuggling case, at NIA court premises on Sunday. Photo: Spl.


Also read: ED launches probe into Kerala gold smuggling case

People were quick to draw comparisons between the solar panel scam that broke out towards the end of the previous Congress-led government’s term and this case. The Centre, on its part, quickly ordered parallel investigations by the NIA and the Enforcement Directorate (ED). The NIA invoked the Unlawful Activities (Prevention) Act (UAPA) of 1967, while the ED initiated a money laundering probe. For the Left government, which was riding high on its relative success in handling the COVID-19 pandemic, the embarrassing episode couldn’t have come at a more inopportune time: the local body elections are just a few months away.

On the gold trail

When Customs officials in Kerala got wind of a plot to smuggle in gold in bulk from the UAE , in June, they set up a core team to keep a tab on consignments, according to Sumit Kumar, Customs Commissioner, Kochi. But apart from routine seizures, nothing big was discovered. Once international travel resumed following the easing of lockdown restrictions, rumours about a syndicate pushing gold into Kerala from Dubai via air freight, in consignments addressed to the UAE Consulate in Thiruvananthapuram, reached the ears of officials.

“We used data analytics to pore over air freight imports from Dubai to identify patterns, if any. We used technical intelligence and we also got inputs from other agencies and paid informants,” said an official, refusing to be named. In June, intelligence about an impending shipment to the UAE Consulate likely containing the contraband sent the officials into a tizzy. They decided to risk precipitating an awkward diplomatic situation by seeking the permission of the Ministry of External Affairs to inspect the suspected shipment in the presence of UAE Consulate officials.


Also read: NIA suspects terror-funding in Kerala gold smuggling case

Officials said consular staff made desperate attempts to return the consignment to its port of origin when Customs officials insisted on examining its content. When the gold was discovered, Customs officials arrested P.S. Sarith, a former employee of the UAE Consulate who had attempted to clear the air freight, on the charge of abetment to smuggling. Sarith pointed a finger at Swapna, his former colleague, and Sandeep, according to a petition filed by Customs at an economic offences court in Ernakulam. Sandeep, who had worked with Sarith at a supermarket in Thiruvananthapuram years ago, had appeared on the Customs radar in 2016 when he was named as an accused in a case of smuggling 1.5 kg of gold through the airport. However, the case went into a limbo after officials failed to recover anything from him.

Investigators said a dry run of the operation was held in June last year to see how Customs inspectors at the Thiruvananthapuram airport dealt with cargo meant for the UAE mission.

Also read: Gold smuggling case: NIA, Customs probes gather momentum as accused is brought to Kerala

The Dubai end of the cartel was headed by Fazil Fareed, a businessman from Thrissur. Fareed allegedly used to ship smaller amounts of gold concealed in canisters containing car wash; bigger quantities were hidden in microwave ovens and white goods. Over time, the cartel perfected hiding gold in cylindrical form in bathroom fittings and piping, they said.

In her bail plea before the NIA court, Swapna claimed that she had dialled Customs officials to inquire about the delay in release of the consignment at the instance of the Charge d’Affairs, Rashid Khamis Al Shemelli, for whom she worked on “request basis”. She also said she was not aware of the freight content and was being made “a scapegoat for political gain”. Meanwhile, Al Shemelli quietly left for Dubai.

Customs officials suspect that a “Consulate insider”, an Emirates citizen, might have facilitated the operation from Dubai. “The person might have offered the papers to generate the shipment from there,” they said. The cartel, they maintained, succeeded in smuggling gold into India using the diplomatic channel over a dozen times. They allege that Sarith and Swapna provided the Consulate paperwork for Customs exemption and also “lobbied” with officials for expeditious release of the diplomatic cargo.

Also read: Gold smuggling case | Kerala Govt. suspends Sivasankar, pending inquiry

Sandeep, they said, would transfer the contraband to K.T. Ramees, who sold the metal to jewellers and ornament makers, and handled bookkeeping. “He was also responsible for raising funds for the purchase of gold. A part of the profit was shared with his handlers in Dubai, which would again be ploughed back into the hawala trade,” officials said. The agencies investigating the case have arrested Ramees from Malappuram and a few others.

Kerala’s gold rush

Afsal (name changed) owns a small jewellery shop in Ruby Nagar in Thiruvananthapuram’s Chalai market. Before the pandemic hit, he would regularly travel to Koduvally in Kozhikode district along National Highway-766, to buy machine-crafted jewellery at the cheapest rates available in the State. The tiny neighbourhood boasts of more than a hundred jewellery-making units. There are people loath to putting money in the bank, but invest in this line of business, said Afsal’s partner. The intelligence wing of the Kerala Police has drawn the NIA’s attention to Koduvally’s jewellery trade.

Also read: Kerala gold smuggling case: Former Principal Secretary Sivasankar grilled on association with Swapna

A senior bureaucrat with over a decade’s experience in leading the Directorate of Revenue Intelligence (DRI) and Customs ascribes Kerala’s rush for Arabic gold to a host of factors that have been deeply entrenched in the State for decades. “Kerala used to send the highest number of expatriates to countries in the Persian Gulf till the late 1990s. Most of them had little access to formal banking. As a result, networks moving money through hawala routes mushroomed across the State,” he said. They traditionally used gold to move money from abroad, he said. The country has witnessed a surge in smuggling since 2013 after the Centre raised the import tax on the metal to 10% in a bid to tide over India’s yawning current account deficit, he pointed out.

The sheer number of direct flights from the Gulf to Kerala, the well-entrenched networks, and the absence of turf wars with fellow racketeers have all fuelled the flow of gold into the State. In Kerala, gold gets recycled with old jewellery, and the newly made ornaments are shipped to stores in Chennai, Bengaluru, Hyderabad and even Mumbai.

“Even if a particular racket is busted, retrieving the booty becomes an impossible task as the metal is melted the moment it reaches the market. A sizeable chunk of this smuggled gold is believed to land in the jewellery-making units of Koduvally,” said the officer.

On occasion, raw gold gets transported directly across the State border as is evident from the inflow of unaccounted money through border checkposts. But jewellery makers choose not to invest in smuggling syndicates for the simple reason that it is not worth the risk. “Why would anyone do that when you have the option of buying cheap gold without actually getting involved in the racket,” the officer said.

Also read: NIA to investigate Thiruvananthapuram airport gold smuggling case

In June last year, Kerala Finance Minister T.M. Thomas Isaac flagged the issue of widespread tax evasion on gold. He promised to initiate an enforcement exercise to audit the manufacture and sale of gold ornaments and check stock to detect the presence of unaccounted gold. The move was made after court affidavits of the DRI suggested that there was large-scale smuggling of gold into the State and after the arrest of two Customs officials in the Thiruvananthapuram and Kochi airports by the Central Bureau of Investigation (CBI) for their purported role in smuggling.

Kerala has the highest monthly per capita expenditure on gold ornaments, but the State’s GST revenue from gold has only tanked, said Paravur MLA and Kerala Pradesh Congress Committee vice president V.D. Satheesan. “As against the Value Added Tax of ₹750 crore in 2017, GST income has plummeted to ₹300 crore in 2020. This comes against a rise in the effective tax rate from 1.25% to 3% while the retail price of the metal shot up from ₹2,600 to ₹4,000 per gram,” he said.

Also read: No hasty govt. action in gold smuggling case

Data sourced from the Customs (Preventive) Commissionerate, Kerala, show that between 2017 and the first week of July, 2020, 932 kg of gold valued at over ₹304 crore were seized in the State. An affidavit filed by the DRI in the Bombay High Court last November, in response to a habeas corpus filed by Mayank Dhakad seeking the release of his father, Arvind Kumar Dhakad, showed that the agency had unearthed gold hidden in brass scraps at Gujarat’s Mundra Port, which had come from Dubai. Between January 2017 and March 2019, gold weighing about 4,522 kg and worth ₹1,473 crore was smuggled by a gang. The kingpin of that gang was Nissar P. Aliyar, a UAE-based businessman from Perumbavoor in Kerala. The agency succeeded in arresting Nissar and a few of his alleged accomplices.

“The cartels are spread across the country. But most cases in the past would hit a dead-end. Rarely were influential, overseas kingpins of the rackets netted,” said a senior IRS officer.

The UAPA question

The NIA has approached the Thiruvananthapuram airport gold smuggling case as one with ramifications for national security. The use of a diplomatic bag as a cover could mar India’s diplomatic ties with the UAE besides upsetting the country’s economic security, it has argued. The vaguely worded sections of the anti-terror law are expected to come in handy for the agency.

Also read: Sivasankar summoned in Kerala gold smuggling case

The case fits the NIA’s bill, said T. Asaf Ali, former Director General of Prosecution, Kerala. “One can find the offences alleged to have been committed by the accused in the list of unlawful activities mentioned in the Act,” he said. At present, the NIA has invoked Sections 16, 17 and 18 of the UAPA. The real challenge before the NIA would be to prove Section 17 (punishment for raising funds for terrorist act), Ali said. Whoever raises, provides or collects funds, or attempts to raise, provide, or collect funds with the knowledge that such funds are likely to be used by persons or organisations to commit a terrorist act can be held accountable under the Section. If found guilty, a jail term of not less than five years, which could be extended to life imprisonment, awaits them.

While Section 16 deals with punishment for making demands for substances for committing or abetting a terrorist act, Section 18 deals with punishment for conspiring to commit a terrorist act or any act preparatory to the commission of a terrorist act, explained Ali.

However, said Ali, the NIA seems to have missed out a crucial legal aspect. The case, which revolves round the allegation of using diplomatic baggage meant for the UAE Consulate as a cover for gold smuggling, has already dented the image of the country in the eyes of the world. Therefore, the act qualifies to be punishable under Section 13 of the Act, he said. In order to attract UAPA, all acts alleged against the accused need not be necessarily violent ones, he said; any act causing disaffection against India is also a terrorist act punishable under the 1967 law. Section 15 (1) (3a) speaks about terrorist acts and covers the damage to the monetary stability of India by way of production, smuggling or circulation of high-quality counterfeit Indian paper currency, coin or of any other material, which can be gold as well.

An embarrassment for the Left

The seizure has opened a political Pandora’s box in Kerala. The Congress and the BJP lost no time in demanding the Chief Minister’s resignation citing the suspension of his “all-powerful” Secretary, who, according to a preliminary inquiry conducted by a committee headed by the Chief Secretary found, had recommended Swapna’s appointment in the Space Park project, an undertaking of the Kerala IT Department. Meanwhile, the State Police has registered a complaint against her and the consultancy firm, PricewaterhouseCoopers, which is dealing with the project and which endorsed her credentials, over questions about the veracity of her qualification documents.

“The episode has no doubt embarrassed the government. The impunity with which fraudsters are able to forge top-level connections is sure to be used by the ultra-nationalist party at the Centre to allege that the State government has harboured smugglers who were trying to imperil national security. They were quick to put the NIA on the job,” said A. Jayasankar, lawyer and political observer.

Also read: Gold smuggling case: Kerala CM writes to PM for probe

Although the Congress has moved a no-confidence motion against the State government alleging misuse of the Chief Minister’s Office in the case, V.D. Satheesan rubbished the attempts being made to cite the case to suggest that the engine of Kerala’s political economy is hawala-driven. “That is just to malign the non-resident Keralites who’ve been a great pillar of support for the political parties in the State,” he said.

Chief Minister Pinarayi Vijayan has welcomed a probe by any Central agency and has offered full cooperation. He has also reiterated that there is zero tolerance towards anyone found guilty, regardless of their stature. But protests, often in violation of COVID-19 protocols, have been widespread.

“That is expected,” said Jayasankar. “After all, with its previous attempts having misfired, it’s a now or never chance for the Congress to use this as a stick to beat the government with. Doesn’t it have all the ingredients of a political thriller?”

K.S. Sudhi and Hiran Unnikrishnan contributed to reporting

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