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4 CENTRAL ECONOMIC INTELLIGENCE BUREAU
I. Organisation
4.1 The Central Economic Intelligence Bureau was set up in July,
1985 with the main objective of coordinating and strengthening the
intelligence gathering activities, the investigative efforts and enforcement
action by various agencies concerned with investigation into economic
offences and enforcement of economic laws. The Bureau was made
responsible for maintaining liaison with the concerned Departments and
Directorates both at the Central and State Government level and was also
made responsible for overall direction and control of the investigative
agencies within the Department of Revenue.
4.2 The Organisational Chart of the Bureau is at Annexure.
II. Intelligence & Investigative activities
4.3 During the year 1998-99, the Bureau continued with its efforts towards
gathering intelligence on various aspects encompassing the fields such as
smuggling, money laundering, the misuse of banking channels, benami
imports, under-invoicing of imports, over-invoicing of exports, evasion of
taxes and duties etc. The Customs and Income-tax Wing of the Bureau
continued their endeavor in investigating a number of cases and passing on
the intelligence to the concerned Enforcement Agencies. Broadly following
cases/investigative studies were done by the Bureau during the year:
* Telecommunication fraud: Supervised a multi-agency operation
consisting of officers of DRI, ED, VSNL and MTNL against a
firm, owned by a US National for providing ‘call back services’.
By misusing international leased circuits actully meant for
transfer of data, the firm had routed over 12 million ISD calls to
India. This had resulted in a loss of Rs. 250 crores to the VSNL.
Subsequent to the operation, the installations at New Delhi,
Mumbai and Chennai were shut down. The equipment found
installed at the premises was placed under seizure.
* Undertook an inquiry against one MNC tour operator having
branch office in India and found that they have been indulging in
violations relating to FERA, Insurance Laws of the country and
have also flouted the guidelines of the Reserve Bank of India.
Matter is being examined for any Income tax violations. The
total transactions of this operator amount to Rs. 6 to 7 crores.
* Detected a case of one Bangalore based company having its
Head-Office at Mumbai, indulging in concealment of income to
the tune of Rs. 3 crores involving income tax of Rs. 1.20 crores,
and passed on the information to concerned Department for
further action in the matter.
* Evasion of Stamp Duty by Companies: Collected intelligence
to the effect that the companies while transferring shares held
by group companies were paying stamp duty on a national cost
and not on transaction cost. It was also found that a similar
modus operandi was also followed when companies were merged
or acquired and as a result considerable amount of stamp duty
was evaded. A report in this regard was sent to all the Chief
Sercretaries, Secretary, Company Affairs, Comptroller and
Auditor General, and Chairman CBDT for further action by
them.
* In a specific case, the Bureau discovered sale of 149000 square
yards of land in Mumbai for a paltry sum of Rs. 33 lakhs. The
matter was brought to the notice of Govt. of Maharashtra and
Income tax Department. Govt. of Maharashtra has ordered an
enqiry and the DIG (Enforcement) Stamps, Mumbai has already
adjudicated one case involving 10000 sq. metres and revalued
the land for the purpose of stamp duty to Rs. 34 crores.
Investigations into the balance property are also continuing.
Enquiries into the evasion of Capital Gains Tax on the sale of
land are also being made by the Income Tax Department.
* Role of FI nominees on Board of Directors: Carried out a study
of the accounts of a company belonging to a large industrial
house revealing that the company had given large advances
amounting to Rs. 244 crores to its subsidiaries, which were not
secured loans and there was no stipulation regarding the payment
of the loans nor of interest on these loans. The company had in
turn borrowed over Rs. 600 crores from the financial institutions
at rates of interest varying from 14-15% and these financial
institutions were also represented on the Board of Directors of
the company. The Bureau had requested the RBI to ascertain
the reason why the FI Directors did not object to the loans
especially when the Auditors of the company had themselves
commented adversely on the loans. Following EIB’s report, the
RBI has issued circular to all the financial institutions, advising
them to undertake a detailed scrutiny of the assisted companies
and also ensure that such matters are not repeated.
* Soil Exports from Coastal Areas of India banned: Conducted a
study on indiscriminate exports of this non-renewable natural
resource, concentrating on the environmental aspect of exports
of soil/sands from India. It was seen that in the absence of a
clear cut EXIM policy on the export of sands, no checks are
presently being conducted regarding the nature, contents,
ultimate destination and end use of such exports. Considering
the negligible foreign exchange that India earns from the exports
of soil/sands which is a non-renewable natural resource, the
Bureau suggested that it is necessary to have an objective and
unbiased appraisal of such exports which fetch monetary gains,
but on the other hand put a great strain on the infrastructural
facilities alongwith irrepairable damage to the environment. Based
on the report prepared by the Bureau, the matter has been
considered by the Directorate General of Foreign Trade in
consultation with the Ministry of Environment & Forests and
a temporary ban on the export of soils/sands has been imposed.
* Distance Learning courses offered by Foreign Universities in
India: Conducted a study on operation of foreign Universities,
offering distance learning educational courses in India through
coaching institutions, franchised for the purpose by the foreign
Universities. It was felt that the operations of such
establishments in India, especially in regard to the validity of
the fee structure of such courses, payments being made to the
faculty, and their trransactions in foreign currency need to be
examined. A report on the functioning of these institutes was
sent by the Bureau to the Enforcement Directorate, CBDT and
the All India Council of Technical Education for information
and further examiniation at their end.
* Over-invoicing of copper smelter plant: Conducted enquiries
on a complaint received by the Bureau regarding a company
which has allegedly over invoiced the plant and machinery for
their new copper smelter project being set up in Gujarat by
misdeclaring it as new. It was alleged that about Rs. 100 crores
had been retained abroad by the firm. Enquiries by the Bureau
revealed that the imports were effected through Mumbai
Customs House under 4 licences issued under the Zero duty
EPCG scheme for a total value of Rs. 182 crores purportedly
for new goods, and the Custom House records do not show any
import of second-hand goods. But the site inspection report of
the Commissioner of Customs, Mumbai indicates that
machinery appears to be old and rusted. Further enquiries by
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the Mumbai Commissionerate are in progress. The case is also
under scrutiny of the Enforcement Directorate.
III. Training courses in Intelligence Gathering
4.4 In order to enhance the investigative skills of officers of
Department of Revenue in intelligence gathering techniques, the
Bureau has been organising training courses for the officers of
enforcement agencies of Department of Revenue since 1995 at
the training institutions of specialised intelligence agencies of the
Government of India. During the year, the Bureau organised a
training course in intelligence gathering and intelligence tradecraft
at the Cabinet Secretariat (7 - 18 Dec. 1998) and Military
Intelligence (25th May to 6th June 1998) Training Institutions. It is
hoped that these courses will further upgrade the investigative skills
of the officers in investigating serious economic offences.
IV. Administration of COFEPOSA Act
4.5 The overall administration of the COFEPOSA Act, 1974
and monitoring of actions taken by the State Governments is one
of the functions performed by CEIB. Despite economic liberalisation
introduced during the past few years, acts of violation of economic
laws continue to take place on sufficiently large scale. As a deterrent
to such activities, the COFEPOSA Act (Conservation of Foreign
Exchange and Prevention of Smuggling Activities Act) was
administered vigorously during the year to tackle the menace of
smuggling and foreign exchange racketeering. During the period
from April 1998 to December 1998, 34 detention orders were issued
by the specialy empowered officer of the Central Government and
39 persons were actually detained, against whom detention orders
were issued by the Central Government during the period under
report and earlier.
V. Monthly Bulletin and Statistical Analysis
4.6 The Bureau brings out a monthly Bulletin on Economic
Intelligence in two parts, namely, Part-I Newsletter, and Part-II
Economic Intelligence Digest giving latest trends in economic
offences as also an analysis on various economic or enforcement aspects,
besides presenting a brief update on key economic and enforcement
indicators. During the year, the Bulletin was given a facelift and its
presentation was made more attractive. Analyses were carried out on
various enforcement as also economic aspects, and presented in the bulletin,
besides presenting latest trends in economic offences and latest enforcement
data with graphs/charts. During the year, analytical reports on aspects
like seizures at International Airports in India for the last 7 years; searches
and seizures under FERA and Customs Act during the last 11 years;
composition and direction of foreign trade in India during the last 5 years;
trend in drug seizures during the last twelve years; trend in seizures under
the Customs Act for the last 13 years; share of Custom Zones in India’s
Foreign Trade for the last six years; imported merchandise (subject to
Customs Duty) lying in the Custom Bonded Warehouses for the last six
years; Analysis on NRI remittances during the last 5 years; price situation
in the country during the last 17 years; Trends in Excise Duty Evasion for
last 13 years etc. were presented in the bulletin.
VI. Central Information Bank of major cases booked by all
the Enforcement Agencies of Department of Revenue
4.7 The work on setting up of the Central Information Bank of
major cases booked by enforcement agencies of the Department of
Revenue, with the twin objective of sharing details of cases done by one
agency with other relevant agencies; and analysing trends in economic
crimes, was expedited during the year.
VII. Web Site
4.8 In order to provide consolidated information about the intelligence and
investigating agencies of the Department of Revenue to organisations as
also to people in general on a global scale at one single place, a Web Site
was developed by CEIB and hosted by NIC, the idea being to make
Internet serve as a communication medium/link between the worldwide
people and organisations for increasing awareness about the existence,
role and functioning of these investigating agencies, as also to receive
information from people from different parts of the world about enconomic
crimes, criminals and to serve as a channel of communication.