Standard Chartered did dummy deals'

BOMBAY (Reuter) - A new report on India's biggest financial scandal accuses two foreign banks of transacting dummy deals to cover up losses or camouflage transactions by favoured Indian brokers.

The report from the Reserve Bank of India (RBI) exposes what it calls the nexus between Indian brokers and two foreign banks, Standard Chartered and Australia and New Zealand Banking Group's ANZ Grindlays Bank.

The report accuses Standard Chartered of entering into 'wholly fictitious transactions' to cover up an ever-increasing number of unaccounted deals on its investment portfolio.

It alleges that Standard Chartered's dealers handed over de facto running of its securities operations to a prominent Indian broker, Hiten Dalal. They looked to Dalal to bail them out for big losses they incurred. 'As a consequence of this loss of independence, the safeguards customarily used in securities transactions were abandoned.'

The report says ANZ Grindlays violated its guidelines by financing certain stock market operations, as well as helping out a favoured broker, Harshad Mehta, by putting through a number of dummy transactions.

ANZ refused to comment, but a spokesman for Standard Chartered said some of the report was misleading, particularly the conclusion that senior managers were aware of the fraud.

Barry Northrop, who heads a Standard Chartered team trying to recover the bank's losses in the scandal, said the fictitious deals were created without the knowledge of senior management and in defiance of both internal and RBI guidelines. Individuals involved had been dismissed and procedures tightened.

Standard Chartered is suing Citibank to recover dollars 41m it alleges it lost in the scandal.