Government to Plug Loophole Exploited for Illegal Forex Transfers

The Indian government is moving decisively to block a critical loophole that has allowed some companies to move large sums of foreign exchange abroad illegally, using tampered chartered accountant (CA) certificates and fake Unique Document Identification Numbers (UDINs). A digital revamp of the remittance verification process is being implemented to curb misuse and ensure bank accountability in cross-border transactions.

How the Forex Loophole Was Exploited

At the heart of the fraud is Form 15CB, a crucial remittance certificate issued by a CA, which includes digital signatures and a UDIN. After uploading it to the Income Tax portal, an acknowledgement number is generated, which the client then uses in submitting Form 15CA. Both forms are typically submitted to banks for remittance processing.

The flaw lies in the fraudulent manipulation of these documents using basic PDF editing tools. Companies would forge Form 15CBs or duplicate them with identical or fake UDINs, which went unnoticed by banks either due to negligence or complicity. One case saw ₹700 crore remitted overseas using certificates linked to a single orchestrator via a major private sector bank.

New Safeguards to Prevent Misuse

The Central Board of Direct Taxes (CBDT) is set to introduce electronic transmission of Form 15CA directly to banks, bypassing manual submission by clients. Online verification of UDINs will become mandatory. Banks will be required to check the UDIN’s authenticity against the ICAI’s portal and validate critical details, including transaction amounts and CA identity.

This digital integration aims to enforce immediate detection of forged documentation, closing the door on any intentional or accidental oversights by banking personnel. The details of authorised dealer banks will also be captured within the document for accurate tracking.

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Strengthening Due Diligence Responsibilities

Chartered accountants will be expected to maintain stringent due diligence before issuing Form 15CB. Supporting documents such as Tax Residency Certificates and Form 10F must be vetted. Meanwhile, banks cannot rely solely on presented forms. Confirming the credentials and matching submitted data to official portals will be essential to avoid scrutiny under laws like the Prevention of Money Laundering Act (PMLA).

Conclusion

The government’s push for digital validation of remittance forms aims to fortify systemic checks and prevent illegal forex outflows. By automating verifications and making banks directly accountable for document review, the changes promise to reinforce the compliance framework surrounding international fund transfers.

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