CENTRAL Bureau of Investigation

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CENTRAL Bureau of Investigation (CBI) probes run to a type. A case is lodged. Investigations begin. The trail invariably leads to Switzerland or Europe. And then it goes cold. Last week, the federal agency seemed to be experiencing similar pangs in the Rs 1,300-crore fertiliser import scam that is expected to assume larger proportions in the weeks to come. The facts of the case remain depressingly simple, and yet highlight a classic example of how quickly files can move in a system notorious for being deadly flatfooted. On October 30 last year, the Union Ministry for Chemicals and Fertilisers opened up one of its largest tender bids f rom a total of 14 applicants wanting to import two lakh tonnes of urea into the country.

Prabhakar Rao, Narasimha Rao’s son, reportedly insisted that the fertiliser deal be made available to a little-known Turkish company.

By October 31, the tenders were examined and the committee of technical experts was of the opinion that the Turkey -based Karsan exporting company was unfit for the kind of ure are quired. Then came the catch. Well-placed sources confirm that despite the verdict, Karsan made certain ‘amendments’ in its tender; and when it was finally opened up on November 1 for a decision, the amendments had come handy. Karsan had been selected "for quoting the lowest rates possible".

By November 9, a high-voltage ure a import deal had been signed between the public sector National Fertiliser Limited (NFL) and Karsan. Even before the terms of the agreements could be worked out, the NFL seemed unusually keen to provide the advance money to the Turkish company. Without any guarantees or letter of credit or even any earnest money, which is generally the rule, the money was forwarded in two instalments. On November 2, within 24 hours of the final decision, 1 per cent of the total money ($380,000) was moved from the State Bank of India (SBI) branch at South Extension in Delhi to the SBI’s New York branch, which is the designated bank for foreign clearances. By November 14, the remaining 99 per cent ($36.62 million) was also transferred, the conduit being the same— SBI Delhi to SBI New York and from then on to Ankara’s Amuk Bank. But by January, the scene began to get positively murky. Amuk Bank in Ankara wrote back to S B I New York saying they had no account in Karsan’s name and they would not be in a position to accept the money. When the S B I got in touch with the N F L, their Indian re presentative, M. Sambasiva Rao, said: no problem, move it into the Banqua Indo-Suez (a Geneva-based bank). But the Swiss were equally prompt. They too declined to accept the money because they had not heard of Karsan. By February, it was becoming clear that no one was willing to touch the money. But as far as the NFL and Rao were concerned, there was no undue cause for alarm. "If none is willing to take the money, move it into the Pictet bank at Geneva," a senior NFL official said, quoting one of his bosses. The money was finally accepted at the Pictet Bank and remained there for a solid one month.

Back home in India, the movement of urea was being closely monitored . Came March 1996 and it was clear that not a single drop of the two lakh tonnes of urea promised was going to materialise. The Union Ministry of Chemicals and Fertilisers and the N F L jointly got back to the Karsan representative, who said that due to some ‘technical’ difficulties, the consignment had been withheld. What then were the technical difficulties? In a rare gesture to prove their bonafides, Karsan flashed back, saying that certain ‘contractual obligations’ had not been ful filled and so the urea could not be sent to India. Well-placed sources in the banking sector reveal that the main contractual obligation refers to the non-payment of the 1 per cent advance that was actually paid on November 2, but had to be turned down because no bank was willing to accept it. They say that the money is now back lying unclaimed at the S B I’s headquarters in New Delhi. WORSE was to follow. When key Indian officials led by Cabinet Secretary Surinder Singh tried to retrieve the money, the Pictet Bank informed them that the $36.62 million, deposited under account number 91923, had been taken out from its numbered account and its whereabouts were unknown. "It is clear that the money paid has disappeared and there is little chances now of the urea seeing the light of the day," says an official close to the investigation. He is also not ruling out the fact that the Turkish company may also disappear, leaving the trail very cold and dead for Indian officials. But if there is hope for investigators, it lies in India. In a spate of arrests, the CBI had picked up some officials who may be connected to the deal. Among them Sambasiva Rao, described as an ‘Andhra-based broker’, who re p resents Turkish interests (among others) in the name of the Hyderabad-based Sai Krishna Impex trading company, could be crucial. Rao has told CBI interrogators about his proximity to P.V. Narasimha Rao’s family in Andhra Pradesh as well as in Delhi. But one key source told Outlook that Sambasiva Rao was introduced to the NFL bigwigs by the former prime minister’s son, Prabhakar Rao, who reportedly insisted that the fertiliser deal be made available to this little-known Turkish company. Sources also say that Prabhakar Rao’s visit to the NFL was followed by a telephonic call from a leading light in Rao’s PMO, though CBI officials are not willing to go on record. CBI officials also disclaim any knowledge that Prabhakar Rao was on the board of directors of Sai Krishna Impex, but say that the "probe may go beyond Sambasiva Rao". But in effort to control public outcry, some minor heads have rolled. A variety of deputy general managers dealing with finance, marketing and company law have been sacked— on the orders of its Managing Director C.K. Ramkrishna, who himself is high on the list of accused— and arrested by the CBI. Another important accused, D.S. Kanwar, who was executive director (marketing), has also been picked up. But CBI officials admit that their interrogation so far has failed to throw any significant light, except on little procedural details. "The question of who the recipients are is untouched," they say. Prima facie, investigators say, the deal points out to involvement of Congress bigwigs. For instance, Sai Krishna Impex does not exist in the address available with N F L records. But it now seems that the office operated out of the residence of a former Congress M L A, C. Narsi

Reddy, in Hyderabad. Reddy himself denies any link with Sai Krishna Impex, but says they hire d his premises for a ‘few months’ and then left. The CBI role in the probe would again be dictated by "factors beyond its control". Already a letter sent to Interpol Turkey seeking information about Karsan has been met with a blanket reply asking them on the status of the case and whether a case had been registered in the connection. Letters rogatory or letters of request are going to be sent to Turkey and CIS countries, but officials say the whole process could take a minimum of six months. And then even a letter rogatory would need the approval of a Union Cabinet that is dependent on P.V. Narasimha Rao for survival. The uniqueness of the fraud can only be matched by the number of probes that have been launched after the details became public. Apart from the C B I, a former agency joint director, Shantanu Sen, has been hired by Surinder Singh to head a parallel investigation, though it will have no legal validity. Sen’s brief: to examine the criminal intent in the case. N F L Executive Director (Vigilance) Chattrasal Singh, who initially failed to take preventive action, has now submitted a report on the deal. Prabhakar, the deputy chief, has submitted his findings after a prolonged stay in Ankara. Executive Director N.K. Gupta has given his inputs after a 20-day sojourn abroad while another official, S.K. Ray, has given his report to the N F L board . Clearly, if the idea has been to stall invesigations, then its backers have been successful. In the next month or so, officials will be travelling abroad to get fresh inputs. But if the past record of investigating pay-offs on foreign lands is anything to go by, the fertiliser scam seems headed the way of Bofors, HDW and St Kitt’s.

India's National Magazine From the publishers of THE HINDU Vol. 15 :: No. 26 :: Dec. 19, 1998 - Jan. 01, 1999

ECONOMIC OFFENCES

On the urea deal trail Separate investigations by the CBI and the E.D. into aspects of the complex transactions in the urea deal case reach a curious phase.

SUDHA MAHALINGAM in New Delhi EVEN as Justice V.B. Gupta of the Special Court administered a rap on the knuckles of the Central Bureau of Investigation (CBI) on November 17 by asking it to examine whether the agency did not have sufficient grounds to file charges against P.V. Prabhakar Rao, son of former Prime Minister P.V. Narasimha Rao, in the urea deal case, the Enforcement Directorate (E.D.), which is independently pursuing the foreign exchange violation angle in the matter, went ahead and arrested Prabhakar Rao and got him remanded to judicial custody for 15 days from November 30. The E.D., which claims to have tracked down the trail of the complex transactions leading to the ultimate beneficiaries of the alleged Rs.10.8crore payoffs involved in the deal, will soon issue show-cause notices to all the accused, including Prabhakar Rao. The charge-sheet filed by the CBI in May 1996 named nine accused including M. Sambasiva Rao and B. Sanjeeva Rao (associates and relatives of Narasimha Rao), who put through the deal; the then top executives of National Fertilisers Limited (NFL), the public sector company involved in the matter; officials of the Turkish firm, Karsan Limited, which defaulted on the supply of urea but allegedly paid kickbacks to certain individuals in India; and Prakash Chandra Yadav, son of Ram Lakhan Singh Yadav, the then Union Minister for Fertilizers. The charge-sheet did not mention Prabhakar Rao, one of the alleged recipients of kickbacks. A few months ago the CBI told the Special Court that it did not have any charges to level against Prabhakar Rao. However, in the first half of June 1996 the CBI

had produced records that apparently led the trail to the doorsteps of Prabhakar Rao. If the court calls for the CBI case diaries and notes of the investigating team, it will find that the officials had gathered enough evidence to charge-sheet Prabhakar Rao. For some reason this situation was not reflected in the chargesheet filed by the agency. V. SUDERSHAN

P.V. Prabhakar Rao at the CBI office in New Delhi in 1996. The CBI team had traced a cheque for Rs.10 lakhs, dated March 16, 1996 and drawn in favour of B.V. Rama Rao, an executive of Sinclair Electronics Industries Limited, a company owned by Prabhakar Rao. The amount had been deposited in the current account of Rama Rao. The individuals concerned, when questioned by the CBI about the transaction, said that it was a personal loan given to Rama Rao and produced records in support of this claim. However, further investigation, including the questioning of an auditor of the company, apparently revealed that the loan documents had been fabricated hastily to conceal the identity of the real beneficiary. The CBI obtained statements from the auditor to the effect that the document was fake and that the payment was intended for Prabhakar Rao. Thereupon, the investigating team sought to arrest the persons concerned in Hyderabad, but the then CBI Director reportedly turned it down. The CBI team had found that the cheque originated from S.R.R. Investment & Finance Limited, a company owned by B. Sanjeeva Rao. The CBI had also established that another firm owned by Sanjeeva Rao, Medicon Marketing Private Limited, an intermediary in the urea deal, had received an identical sum from Mallesham Goud a couple of days earlier, and that it was this sum that was transferred to the account of Rama Rao. Mallesham Goud, alongwith Sambasiva Rao, was a director of Sai Impex Private Limited, the Indian agents of Karsan Ltd. NFL had remitted the entire sum of $38 million (Rs.133 crores, at the exchange rate prevailing at that time) as 100 per cent cash prepayment for the supply of urea into the accounts of Karsan Ltd. While 1 per cent of the amount had been remitted into Karsan's account in Ankara, 99 per cent had been remitted into the company's account in Pictet Bank, Geneva, in November 1995. Two other Swiss banks had refused to accept the funds, citing stringent disclosure requirements for such transactions. The CBI team found more evidence. It established that Sai Krishna Impex had purchased air tickets from Hyderabad to Delhi for Sanjeeva Rao and Prabhakar Rao on March 11, 1995 and the journey was undertaken on March 12, 1995, around which time the deal was planned and executed. It also established that Prabhakar Rao was in Delhi when the deal was struck. It also traced certain leads

that showed that the money from Karsan's account found its way to Hyderabad to finance the purchase of land at Nampally in the city by the recipients of the funds. Yet, it told the Special Court that it did not have any charge against Prabhakar Rao. THE E.D.'s remand report on Prabhakar Rao has made comprehensive disclosures about various transactions in the deal. The charges are that $4 million out of the total of $38 million remitted by NFL to Karsan Limited found its way as commissions to Edible Foodstuff Trading in Dubai, from where it came to India through hawala channels. The remand report alleges that in the process Rs.10.8 crores came into the country, of which Rs.40 lakhs was handed over to Sambasiva Rao by Mallesham Goud who, in turn, issued three cheques, for a total amount of Rs.32 lakhs, all of which found their way to Prabhakar Rao. The report alleges that Sanjeeva Rao used his kinship with Prabhakar Rao to procure the order for the supply of two million tonnes of urea by Karsan Ltd. It alleges that Sambasiva Rao had negotiated/deliberated with Karsan Ltd for the payment of a commission of $4 million out of the total payment of $38 million. It further alleges that Prabhakar Rao was one of the beneficiaries. M. Sambasiva Rao. In support of its claim, the E.D. has said that it has obtained statements from Mallesham Goud saying that a secret commission of 8 to 10 per cent was to be paid to 'bigwigs' including Prabhakar Rao, who helped clinch the deal. According to the E.D., a secret commission of between Rs.5 crores and Rs.6 crores was received by Prabhakar Rao and others through hawala channels arranged by one Rajinder Babani. The E.D. also claims that according to another statement, made by D.S. Kanwar, Executive Director of NFL, on July 15, 1996, Sambasiva Rao had claimed to be working for Prabhakar Rao, and this was corroborated by a statement made by one Deepak Lal, an associate. Rajinder Babani had claimed in a statement made on October 17, 1995 that a secret commission of Rs.10.8 crores reached Hyderabad through hawala channels and was paid to Sambasiva Rao; the E.D. claimed that this had been confirmed also by the CBI, in its charge-sheet. The E.D. claimed that it was the hawala money that was used to purchase the land at Nampally. According to the E.D., that Prabhakar Rao was the beneficiary of the commission was confirmed also by a statement made by one S. Nuthi, another associate. Yet another statement made to the E.D., by Anand Mohan, an intermediary, says that he delivered Rs.2 crores to an emissary sent by Prabhakar Rao. The E.D. claims to have in its possession confidential papers seized by the CBI from Sai Krishna Impex showing a detailed plan for securing contracts and parking outside India secret funds received as commissions. It has also obtained a

statement from Rama Rao, who was issued a cheque for Rs.10 lakhs by Sanjeeva Rao, that the amount was paid to Prabhakar Rao. The CBI, on the other hand, had tended to go with the version that the amount was a personal loan to Rama Rao, although the recipient himself has now admitted to the E.D. that he was merely a conduit passing on the amount to Prabhakar Rao, the ultimate beneficiary. Now that the E.D., whose probe into the urea scam was conducted independent of the CBI, would soon issue show-cause notices to the accused, including Prabhakar Rao, for alleged foreign exchange violations in the deal, the CBI may have little option but to re-examine the issue of framing charges against Prabhakar Rao, especially since the court has ordered it to do so. With the E.D. having identified the ultimate beneficiaries, if the CBI demurs at this stage its credibility will take another beating. This is also a test case for the scope for coordination among various agencies investigating different angles of a such a case. The Supreme Court had, while hearing the Jain hawala case, directed the establishment of a nodal agency to pool intelligence and evidence in cases involving a nexus among politicians, bureaucrats and criminals. The Special Court's direction to the CBI to re-examine the non-inclusion of Prabhakar Rao's name in the charge-sheet came in the wake of arguments advanced by Ashok Kumar Arora, counsel for Prakash Chandra Yadav, one of the accused named in the CBI charge-sheet. Arora argued that the CBI had named Prabhakar Rao even during the remand proceedings. He pointed out that if the Minister in charge of NFL, namely, the Minister for Fertilizers and Chemicals, himself was not taken into confidence when the deal was struck, it only pointed to the possibility of the involvement of someone even more powerful than the Minister, which could only be the Prime Minister or persons close to the Prime Minister. Arora also argued that the fact that the Supreme Court had denied anticipatory bail to Prabhakar Rao in August 1997 showed that even the apex court was not convinced of his innocence. The court accepted his arguments and ordered the CBI to file a status report in two months' time.

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