London banker banned for procuring breaches of Indian investment law
The UK’s Financial Services Authority has banned Jaspreet Singh Ahuja, a Client Adviser in UBS’ international wealth management business in London, and fined him £150,000, for breaches of Principle 1 of the Statements of Principle for Approved Persons, which requires authorised individuals to act with integrity in carrying out controlled functions.
The penalties relate to Mr Ahuja’s involvement in assisting an Indian client to breach the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations 1995 (the “Regulations”). Under the Regulations, an Indian investor (either resident or non-resident in India) is not permitted to invest in Indian securities through a Foreign Institutional Investor (“FII”) vehicle, except in certain specified circumstances.
The FSA also co-operates extensively with foreign regulators. In investigating and taking action against Mr Ahuja, the FSA is very likely to have provided information regarding the investment structure to the Indian regulator, and the FSA’s investigation and penalties should serve as a reminder that conduct which causes breaches of local law may also be investigated where the FSA’s own rules have also been breached, and information regarding breaches of local law is likely to be passed on to the relevant local regulator.
The investment structure and Mr Ahuja’s conduct
Mr Ahuja used an existing investment structure, a fund set up as a Protected Cell Company (“PCC”) in Mauritius, to allow a customer company (the “Customer”) to invest in an Indian company within its own group. Three companies within the Customer’s group invested over US$250 million in a cell specifically set up for the purpose within the PCC (the “Cell”). The Cell then invested in Indian securities through FII vehicles. In addition, the structure was set up so that the fund manager of the PCC appeared to be directing the cell’s investments, whereas in reality the Customer was doing so. The effect of the structure was that the Customer, which was resident in India, was investing through an FII vehicle in breach of the Regulations.
Mr Ahuja also took steps to obscure payments so as to conceal the true party behind the investments, to the extent that he used another customer’s account to route a transfer of US$68 million from the Customer to the cell, without that customer’s knowledge.
Mr Ahuja was found to have deliberately misled UBS’ legal and compliance functions so that the true nature and purpose of the structure would not be discovered, in breach of UBS’ guidelines relating to the requirement that investments are made in accordance with relevant local law. Mr Ahuja withheld information, repeatedly provided false and misleading information to legal and compliance functions, signed payment instructions routing payments through third parties without their knowledge, and created internal memoranda setting out false reasons for transfers, all to prevent UBS becoming aware of the true nature and purpose of the structure. Mr Ahuja appears to have been aware of the specific issue that Indian investors are prevented from investing in Indian securities via FIIs, because he repeated told UBS compliance function that the beneficial owners of the account were French nationals.
Penalties
The FSA found that Mr Ahuja was not a fit and proper person to perform any function in related to any regulated activity carried on by any authorised or exempt person or exempt professional firm, and has therefore made a prohibition order preventing him from exercising any such function. In addition, he was fined £150,000. The FSA noted specifically that Mr Ahuja had used an investment structure which was designed to breach Indian law, and had therefore showed a disregard for legal and regulatory requirements.
Lawyers Laurence Lieberman, Paul Glass
