A businessman has been accused by India's enforcement directorate (ED) of using fraudulent letters of credit (L/Cs) and a network of shell companies to cheat banks out of the equivalent of around US$6.8 billion.

The accusations follow the arrest last week of promoter and former managing director of Bhushan Steel, Neeraj Singhal. He has been remanded in custody until 20 June.

Discounted L/Cs

In what is considered one of India's biggest bank frauds to date, Singhal is accused of creating a network of shell companies through which funds were "circulated to infuse capital, buy property and other personal purposes," the directorate claims.

It says that directors, promoters and executives at BSL prepared forged documents and made fraudulent representations to banks to discount L/Cs and divert funds through the web of companies with the intention of siphoning off funds for their own personal use.

Banks share sale proceeds

State Bank of India (SBI) and Punjab National Bank (PNB) filed complaints of heavy losses in the alleged fraud while around 30 banks are thought to have sustained losses as a result of their dealings with Bhushan Steel. In 2018, PNB said it had lost the equivalent of around US$556 million in the fraud allegedly perpetrated by the steelmaker.

SBI and PNB subsequently benefited by receiving a substantial share of the proceeds of the sale of Bhushan Steel to Tata Steel. Other banks that received significant shares of the sales proceeds included Canara Bank, Bank of India, Syndicate Bank and Oriental Bank of Commerce.

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