Fintech cos, NBFCs funded by Chinese money generated Rs 950 Cr slush funds in India: ED

A number of fintech companies and NBFCs backed by Chinese funds have generated proceeds of crime worth more than Rs 940 crore by indulging in predatory lending activities and violating the RBI guidelines while operating in India, the Enforcement Directorate (ED) has said.

The federal probe agency has mounted a crackdown on such companies who, it said, were "operating on the basis of instructions from Chinese, Hong Kong persons" as they inked agreements with a clutch of domestic non-banking financial companies (NBFCs) to enter into the business of providing illegal "instant personal loans" to gullible public of the country, a money laundering investigation found.

The Enforcement Directorate (ED), therefore, recently attached Rs 86.65 crore worth funds lying in a total of 155 bank and payment gateway accounts of NBFCs like Kudos Finance and Investments Private Limited, Acemoney (India) Limited, Rhino Finance Private Limited, and Pioneer Financial and Management Services Private Limited and their linked fintech companies.

A provisional order was issued under the criminal sections of the Prevention of Money Laundering Act (PMLA) to carry out the attachments, it said.

"ED has been conducting money laundering investigation against a number of NBFC companies, which are in the business of instant personal micro loans."

"It was found that various fintech (financial technology) companies backed by Chinese funds have made agreements with these NBFC companies for providing instant personal loans of term ranging from 7-30 days," the agency said in a statement.

Fintech companies brought the funds to be lent to the public and did MoU (memorandum of understanding) with "defunct" NBFCs for their lending licence, it said.

"Since the fintech companies were unlikely to get a fresh NBFC licence from the RBI, they devised the MoU route with defunct NBFCs via media to do large-scale lending activities," the ED found.

It was "projected" that the NBFCs had hired fintech companies for customer discovery, but in reality they were piggybacking on the licence of the NBFCs and doing large-scale lending business, the agency said.

Entire decision regarding fixation of interest rate/processing fee/platform fee etc., were taken "on the basis of instructions from Chinese, Hong Kong persons," it said.

"An amount of Rs 940,46,39,498 has been considered to be proceeds of crime as the same was gained by way predatory lending activities in violation of RBI guidelines," the ED said.

The agency had earlier attached funds of Rs 72.32 of Kudos Finance and Investments Private Limited and its fintech partners.

The total attachment in this case stands at Rs 158.97 crore now, it said.