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Multi-national re-insurance brokers violate Indian laws.

New Delhi, Oct. 9 -- Multinational Insurance brokers are expected to infuse knowledge and expertise into insurance and reinsurance business in India. However, instead of supporting the Indian insurance industry and the Country, multinational brokers have started large-scale alleged cheating and looting the industry and finding ways and means to breach or circumvent Indian laws, insurance experts say.

After the Insurance Regulatory and Development Authority of India, (IRDAI) cancelled the license of Wills India - the third largest re-insurance brokers in the world - for financial irregularities; it still continues to do huge business in India - backdoor through Almondz Brokers, India.

Clandestinely all expenses are reimbursed to Almondz by Wills Risk Services India, as it does not need IRDAI clearance to operate or move funds in and out of the country - a clear case of cheating that is challenging the foundation of the IRDAI, the reinsurance experts aver.

To quote a recent example there was a serious fraud committed by Almonds re-insurance Brokers, in Aug 2014, to the tune of Rs.13 Crores. Interestingly, Swan Insurance Company, Singapore paid re-insurance premium to Willis, Singapore, who had to pay to the re-insurer, namely KILN Singapore, for a Trade Credit Insurance.

Surprisingly Willis, Singapore chose to route the re-insurance premium through Almondz Brokers in India. The re-insurance money was required to be paid to KILN Singapore, but it never reached KILN. Almondz had opened a fictitious Bank Account in the name of KILN Global Pte Limited and transferred the money in to that account by using forged documents and siphoned the funds. Technically there is no re-insurance cover since the re-insurance premium was never paid and the client and the insurance company were fooled, the experts who are in the know of things say.

Opening a Bank Account through forged documents by a broker, for that matter by any entity, is a serious criminal offence. The matter was reported to the Deputy Commissioner of Police, Economic Offence Wing New Delhi for necessary investigation. The matter was also reported to IRDAI, which had remained a mute spectator till date.

Banking System was thus used for these illegal transactions and there has been no inspection by the RBI, FERA or by IRDAI to know the volume of illegal business done. Being a banned entity, this transaction exposes either the weakness or hand in glove operations of the Regulator, and thus the industry can't depend on the either the Regulations or the Regulator, the experts aver.

Rerouting the Business through this mode, ends the insurer with no re-insurance but given to believe that he had been covered. When the insurer is in Singapore, reinsurer is in Singapore, bank too is in Singapore, there is no reason to route the transaction through India, except to siphon the money, by ulterior motives.

Similarly, Indian operations of Marsh, one of the largest brokers in the world, are under Government scanner for illegally transferring large sums of money out of the country to their overseas companies in low tax regimes. The Enforcement Directorate and Research and Analysis Wing (RAW) are now seized of the matter.

Marsh began operations in India seven years ago through the FDI route by investing 26 percent in Marsh India as per the Insurance Regulations. The license fee for the composite broker license is Rs.2.5 Crores which for 26 percent translates to Rs. 65 lakh.

During the first four years, they have transferred out of the country, approximately Rs.40 Crores by way of "service charges" and "risk management fee" to Marsh Overseas operations, primarily in Singapore. This was a serious objection from the Income Tax Department under the "transfer pricing rules" and the matter has simultaneously been referred to the Enforcement Directorate (ED) for foreign exchange violations and misuse of the FDI rules. The Indian partner has been cheated of these profits, says insurance experts but the union government chose to turn a blind eye to the large scale fraud, they say.

The Income Tax (IT) department has ordered a penalty of Rs.4.84 Crores and will initiate further legal proceedings against Marsh India Insurance Brokers, a joint venture of US based Marsh USA and Marsh India. Marsh India is facing transfer pricing charges for transferring large sums of money out of India to associate enterprises in low-tax regimes.

The IT department assessed Marsh India's books for the assessment year 2010-11. During the period, Marsh India had posted an operating income and profit of Rs.62.33 crores and Rs.17.8 crores, respectively, against Rs.52.07 crores turnover in assessment year 2008-09. In assessment year 2010-11 Marsh India reported total income from international transactions are Rs.20.29 crores.

The department said looking from the balance sheet the company was to receive Rs.7.29 crores from debtors, of which Rs.1.53 crores was receivable from its associate enterprises as on March 31, 2010. The department issued a show-cause notice asking why notional interest at 12 percent could not be calculated on the outstanding balance from the associate enterprises.

Marsh India has said "In connection with this query raised by the department, we are working with them to resolve this quickly. In the consulting sector, there is no custom to charge interest on delayed receivables. Unlike a trader, a consultant does not normally have a contractual right to receive interest on delayed receivables."

Even where a right is available, it has not come across instances where a consultant has charged the client interest on delayed receivables. It is only where the matter travels to the court and the court grants interest that a consultant actually receives such interest. Transfer pricing does not and cannot contemplate an adjustment which would result in a transaction that would be outside the ordinary court of business".

Another case of cheating was with Gujarat State Petroleum Corporation - GSPC. For many years, Marsh India was the broker placing the insurance of the GSPC assets on behalf of Oriental Insurance Company Limited. Two years ago, the management of GSPC decided to transfer the business from them and it was found that there were serious irregularities in the reinsurance made by Marsh India including grossing up the premiums.

Yet the union government and state governments did not wake up from the slumber. GSPC conducted detailed investigations by the ED who have called for all the files from Oriental Insurance Company Limited. GSPC has blacklisted Marsh India from all business. It also reported the matter to the central investigating agencies.

Three years ago Marsh India had messed up with the reinsurance placement of Air India. This had cost Air India and additional Rs20 Crores in premiums and could not recover the claim in full the unfortunate Mangalore air crash.

Marsh India is headed by CEO Sanjay Kedia who is responsible for the closure of JLT operations in India after a large Reliance Industries Limited SBM claim was not resolved due to incorrect reinsurance placement. The matter is in the courts and Oriental Insurance and New India have joint liability in excess of Rs.1000 Crores.

Strangely, JLT plans to return to the Indian market through another source although this huge money is due to India by foreign companies through the intermediary of JLT. Sanjay Kedia is known over the years for paying large sum of money to the PSU Insurance Companies namely, Oriental Insurance, New India Assurance, National Insurance, united India Insurance and GIC.

Similarly, it is learnt that Aon, one of the largest broker in the world, has taken more than 26 percent holding in the Indian joint venture against the Insurance Regulations. The matter was referred to IRDAI by FIB and ED and action from IRDAI is still pending.

IRDAI is taking serious action against such grave violation of the law by these large multinational brokers, who seem to simply want to take advantage of the Government regulations for their selfish benefits and urgent action is required to stop this blatant plundering of the country at cost of domestic insurance.

Experts say that Union Finance Ministry should step in at least now to stem the rot before it becomes too unwieldy and goes out of hands and ruin the Indian economy.

How does it affect the Indian economy?

Insurance experts aver that when the economy is opened for capital inflow through FDI, money is siphoned out of the country, through these means, with total disregard to the law of the land.

Total loss of money to the Government is yet to be estimated and if this goes unchecked India will become like Bermuda or Mauritius. Insurance Regulator, if equipped with powers of Government through the new insurance bill, and if the Regulator turns blind or is not aware of these type of transactions, the entire insurance industry will collapse because, the transaction relates to not for insurance but to "re-insurance."

The overseas entity, if allowed to get into these type of transactions, the entire broking system would collapse. If the Regulator either allows by remaining mute or the Regulator has no clue of what is happening, the entire insurance business will be in jeopardy. Also, these foreign entities, use regulators silence to these grave issues, even after repeated reminders from various lobby, as not just an opportunity, but the correct way to do illegal business and enrich through illegal means.

Published by HT Syndication with permission from Asian Tribune.

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Publication:Asian Tribune (India)
Date:Oct 9, 2015
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