Mar.31, 2010, 00:31 hrs IST

NEW DELHI: The Enforcement Directorate (ED) has registered a case under the Prevention of Money Laundering Act (PMLA) against Swan Telecom, nowknown as Etisalat, and is also investigating a second firm, Loop Telecom, for alleged violation of telecom policy.

Key officials of the ED, whose mandate is to investigate foreign exchange violations, said that the investigations of Swan pertain to the grant of telecom licences by the Department of Telecom (DoT) in January 2008 to new entrants and a subsequent investigation by the Central Bureau of Investigation (CBI) into alleged irregularities in the process followed by DoT.

Loop, where the Essar group owns a stake, is being investigated for its allegedly opaque ownership structure. DoT regulations ban companies from holding more than 10% stake in two service operators. The Essar group, one of the shareholders of Loop, holds 33% in Vodafone Essar, a major national player. Though Essar claims that its stake in less than 10%, investigators have not been convinced so far.

The investigations highlight the increasing attention sleuths are paying to industry dealings and the role government officials play. The telecom industry is worth more than Rs 2 lakh crore in market value, but has come under the glare of the country’s leading investigating agencies for alleged violations.

A Loop Telecom spokesperson strongly refuted all charges of violations. “The shareholding structure of Loop Telecom, up to ultimate beneficial owners, has already been provided to DoT, and is in full compliance with all relevant guidelines, including DoT guidelines relating to substantial equity, and Foreign Exchange Management Act (FEMA),” a company spokesperson said in response to ET’s query.

Swan Telecom, Unitech and others were among those awarded new telecom licences to offer services across the country by DoT in 2008. The process became controversial almost immediately after DoT advanced the cut-off date for submitting applications and incorporated a first-come-first-serve clause that some of the bidders got to know about.

CBI then filed an FIR against certain companies and officials of DoT. The agency alleged in the FIR that the government has lost Rs 7,105 crore by way of higher licence fees in just these two transactions. The licences were also sold at a very nominal rate based on prices fixed in 2001 without any competitive bidding, the agency said in the FIR.

The ED is using the evidence provided by CBI to launch an investigation into alleged money laundering. Swan officials were unavailable for comment. An e-mail sent to Etisalat officials in Dubai did not elicit a response. The agency has also written to the CBI accusing Loop Telecom of “fraudulent conduct” stating that the company has violated the telecom policy and that the DoT ignored the shareholding structure of Loop Telecom while awarding the 2G license.

“The conduct of Essar group of companies indicates that by way of fraud they claimed that Loop Telecom Private Limited is not their associate. The investment structure given shows that the whole conduct was fraudulent. This, therefore, is submitted that we may forward this complaint to CBI as well for their necessary action,” said the internal ED file on the firm, contents of which have been shared with ET.

The Enforcement Directorate has said that preliminary investigations reveal that one of Loop Telecom’s shareholders, a Mauritius-based entity, Capital Global, has the same registered address as the Essar group of companies. Four other Mauritius-based companies — Aidtel Holdings, Deccan Asian Infrastructure, Black Lion and Inditel Holdings — are also under the ED lens for alleged FEMA violations.

The Reserve Bank of India (RBI), some time ago, had given a clean chit to the Essar Group, saying that there were no violations of foreign investment policy. DoT is in the best position to judge whether the telecom policy has been violated, it had added.

RBI has also stated that transfer of shares from Mauritius-based firms Capital Global to Kaif Investments, both shareholders in Loop Telecom, were transactions between two entities situated outside India and therefore did not come under the ambit of FEMA.

Capital Global had transferred shares to Kaif Investments for Rs 184 crore. ED has alleged that the market price of those shares were in excess of Rs 2,000 crore and the deliberate undervaluation caused non-repatriation of share value to India. ED has also alleged that another shareholder of Loop, Santa Trading, is an associate of Essar, in which Essar has invested more than Rs 1,000 crore.

While Essar did not respond to a query from ET on the issue, a company source said that Santa Trading is not an associate of Essar. Essar had invested Rs 1,600 crore in debentures of Santa Trading in 2005-06, but the money was returned before Loop got a telecom license allotted. The agency has also observed in its investigations that prima facie Essar might have a controlling stake in Loop Telecom through various Marutius-based firms.

“The investment structure created by Loop Telecom is deliberately so created as to control the stakes by Essar, that is already a player and to whom a license could not have been issued,” it has said in its internal investigation file on Loop.