ED searches Deloitte, BSR offices in IL&FS money laundering probe

The Enforcement Directorate (ED) on Wednesday conducted searches in the Mumbai offices of two auditing firms — Deloitte Haskins and Sells and KPMG subsidiary BSR & Associates — in connection with a money laundering investigation into alleged financial irregularities at IL&FS, a senior official told Business Standard.

Searches were also conducted at the office and residences of the former partners of the two audit firms responsible for the legal audit of IL&FS Financial Services (IFIN), a subsidiary of the IL&FS group, which filed for bankruptcy in 2018.

This follows the Supreme Court’s order to set aside the Bombay High Court’s ruling that quashed SFIO’s investigation against the two companies, paving the way for action against them under the Companies Act and allowing the National Company Law Tribunal (NCLT) to proceed with its investigation against them.

The ED initiated a money laundering investigation into alleged financial irregularities at IL&FS in 2019 after the federal agency became aware of the Delhi Police Economic Crimes Wing (EOW) FIR filed against IRL, ITNL (IL&FS group of companies) and its key management personnel (KMPs).

The CEO also took note of a complaint filed by SFIO against IFIN and its officials.

According to the ED, the statutory audit of IFIN was performed by Deloitte Haskins & Sells LLP between fiscal year 2009 and FY18 and by BSR & Associates for fiscal year 2018.

Udayan Sen (CA) and Kalpesh Mehta (CA) were joint partners of Deloitte Haskins & Sells LLP and N Ganesh Sampath was a partner in BSR & Associates. The two audit firms have been appointed by IFIN to perform statutory audits and identify errors, omissions and irregularities in the company’s books of accounts and to ensure that the company’s financial statements comply with widely accepted accounting rules.

The agency’s findings showed that both auditors were familiar with IFIN financing to defaulted borrowers through their group companies more frequently. The auditors were also aware of IFIN’s NPA, suppression of NPA provisioning, no write off loan loss investments by IFIN and other shady and illegal practices being adopted in IFIN by IFIN’s KMps clique.

“The auditors, although aware of all the shady and illegal practices adopted by IFIN’s KMPs for illegitimate personal gain, did not report the same despite being legally obligated to do so,” said the CEO.

This led to the auditor’s collusion and collusion with IFIN’s key management personnel to knowingly and fraudulently conceal material information and falsify books of accounts and financial statements from fiscal year 2014 to fiscal year 2018, the agency’s findings said.

The CEO is of the opinion that the auditors deliberately and knowingly did not report the true state of the company and helped green the loans obtained from the IL&FS Group, resulting in the loss of the company’s creditors who lent and invested in the company’s NCDs.

Sen, Mehta and Ganesh were charged in the SFIO complaint.