This would require identifying the last natural person behind the brokerages and investment entities whose money they were handling.
The Central Bureau of Investigation (CBI) and the Income Tax department are currently probing the matter. Other agencies may join if there are hints of possible money laundering transactions.
Identifying the beneficial ownership was not among the terms of reference to Deloitte, the consultancy firm which in 2017 had audited the brokers that were suspected to have colluded with a few exchange officials to receive price feeds and execute trades earlier than other brokers. In 2016, Deloitte had carried out a forensic review of the NSE facility.
Focus Also on ‘Yogi‘ Links
About a year ago, Deloitte at a meeting with senior officials of a government agency had said that while the co-location system was susceptible to manipulation, it was very difficult to quantify the money a handful of brokers made over the years due to the unfair advantage they enjoyed. While the CBI may have sensed that putting a number to the scam is tough, it would try to figure out the paper trail and money trail on the co-location issue.
“Who is this yogi? Who gained from the co-location scam? And, is the yogi connected to the co-location misuse? These are the three big questions before the CBI and I-T department and for this they would try to look into the real beneficiaries,” said a source.
A recent Securities and Exchange Board of India (Sebi) report mentions email exchanges between former NSE CEO Chitra Ramakrishna and her mysterious spiritual guide. It does not talk about any direct links between the ‘yogi’ and co-location trades.
Identifying UBOs of investors, particularly offshore investors, have never been easy. Big money typically changes hands overseas and people in question route funds through foreign portfolio investors (FPIs). Even though FPIs disclose the UBOs in a fund to custodian banks, there are ways to conceal the true identities of UBOs through nominee structures. Also, UBOs are investors with 25% or more contribution in a fund pool and 10% or more if the fund is set up in a high-risk jurisdiction.
More than seven years have passed since the irregular co-location trades scam took place and most service providers and banks do not store data beyond seven to eight years. Fishing out information would require establishing a criminal angle and convincing authorities in tax havens – a process that can run into bureaucratic hurdles.
The findings of the Deloitte report and a subsequent forensic report by EY would be used by the CBI to confront Chitra, her former boss Ravi Narain and other NSE officials.
Deloitte, which could not access enough information from the exchange, had nonetheless spotted that the co-location system was susceptible and some of the brokers were suspiciously outperforming the others. The consultancy firm found out that the exchange did not have a proper data retention policy then.