Kerala: Scams, charges, political showdowns plague co-op banking sector

On July 27, 2022, Philomina Devassy of Irinjalakuda in Thrissur district died due to a lack of specialised medical treatment, says her husband Devassy. The couple had put their money in the Karuvannur Service Cooperative Bank, where a multi-crore scam was exposed a year earlier. The bank didn’t return their life savings of Rs 28 lakh, which could have been used for the crucial medical treatment Philomina needed.

Devassy’s situation wasn’t unique; it is just one of many. The bank scam, orchestrated by certain members and staff of the governing body, involved siphoning off crores of rupees through fraudulent loans using fictitious accounts, causing immense distress to hundreds of investors.

As the bank was managed by the governing committee led by the CPI(M), and most investors were either party members or supporters, it was the ruling party that faced scrutiny for the fraud. Following the exposure of the scam, a Crime Branch investigation led to the arrest of 12 individuals. Additionally, the CPI(M) took disciplinary measures against certain local leaders.

In the past month, the Enforcement Directorate (ED) initiated an investigation into the case involving the Karuvannur Service Cooperative Bank under the Prevention of Money Laundering Act (PMLA). They alleged that a substantial amount of illicit funds had been routed through this bank, with Satheesh Kumar, also known as Velappaya Satheeshan, was identified as a key figure.

ED probes

The ED promptly established a connection between Satheesh and AC Moideen, a former minister and current CPI(M) MLA, as well as another member of the party’s state committee, MK Kannan, who is vice-president at the state-owned Kerala Bank. The agency raided various places, including the house of Moideen, and arrested four persons, including a municipal councillor of the CPI(M).

While the CPI(M) had previously acknowledged the scam and even conducted an internal investigation, in addition to the police inquiry, the ED’s actions are causing concern. The agency appears resolute in linking the dots and appears to be focusing on specific high-ranking party leaders.

“It was expected, especially with the elections approaching. They are making concerted efforts to implicate high-ranking CPI(M) figures, and they are getting significant backing from the mainstream media,” said KV Abdul Khader, a former MLA and a senior CPI(M) leader in Thrissur. “At the moment, there is no concrete evidence to charge or apprehend Moideen or Kannan. However, they are pressuring the other accused to testify against them and provide statements that could incriminate them. We are well-aware of this and are strategizing to address it legally and politically,” Khader told The Federal.

However, the Opposition, led by the Congress, insists the CPI(M) leadership is involved in the scandal. The BJP is also upping the ante against the ruling LDF, as Thrissur is one of the constituencies they aim to perform well in the coming general elections.

Congress gloats

“The CPI(M) is starting to feel the pressure, as their key leaders are under the ED’s scrutiny. We had predicted this a while back when the case first emerged. Instead of supporting the affected investors, the ruling party stood with the bank looters. Now, they are making empty promises about returning deposits to Karuvannur bank customers. The CPI(M) leadership and the government are responsible for this situation, and the ED and BJP are taking advantage of it,” said VD Satheesan, the Congress leader.

Sources indicate that the ED’s investigation primarily focuses on money laundering. It is also seeking additional evidence that could assist in a more thorough inquiry involving agencies such as the CBI. This is the reason behind their expansion of the investigation to other cooperative banks like the Trissur District Cooperative Bank, which has led to the questioning of MK Kannan.

The district bank came under the radar as the prime accused Satheesh kept several accounts in it.

“I have nothing to do with Karuvannur bank. I know Aravindakshan as a fellow comrade and Satheesh as a businessman and have no financial transactions with both of them. ED officials were threatening me with arrest and I am certain that they have beaten Aravindakshan. With the vast powers they have under the PMLA, they can arrest me. Let them do that and I will fight this out in the court and my party will fight it out politically as well,” says Kannan.

Marxists’ grouse

The CPI(M) views this as a direct assault on the cooperative movement in the state, especially following the establishment of the Cooperative Ministry under Amit Shah by the Union government.

“Now they (BJP) are attempting to destroy the cooperative sector in the state. They now have a special focus on Kerala’s cooperative sector. Because 10,000 crores of rupees are there in the cooperative banks here,” said Chief Minister Pinarayi Vijayan.

The cooperative movement in Kerala stands as one of the most dynamic and community-centric movements in the nation. It is rooted in a democratic ideological base, according to the cooperative policy.

According to the Registrar of Cooperative Societies, Kerala, 16,256 cooperative societies are functioning under its administrative control, of which 4,148 are credit societies.

Last month the Parliament approved the Multi-State Co-operative Societies (Amendment) Bill 2023, aiming to promote multi-state cooperative societies that are established and regulated by the Multi-State Cooperative Act of 2002. The amendment to this Act envisions the amalgamation of current state cooperative societies with these multi-state entities.

Cooperative movement

After the establishment of three new Multi-State Cooperative Societies, the Union Ministry recommended that state cooperative societies should become members of these multi-state cooperative bodies. The CPI(M) and the state government see red in this as they are concerned about the possible formation of a parallel cooperative movement funded by the Union government, which could effectively dismantle the state cooperatives.

As of now, there are 10 multi-state cooperative societies with more than a hundred branches operating within Kerala.

“Intentional efforts are being made to generate a state of panic and undermine the state’s cooperative sector. The ED and a segment of the corporate media are being utilized for this purpose. A significant number of investors who are withdrawing their deposits from state cooperative banks are shifting towards multi-state cooperatives. The scheme behind this is clearly visible,” says a three-time MLA.

The ED, according to the CPI(M) leaders, is leaking selective information to a section of the media and this being published without cross-checking.

CPI(M) leaders allege this is how the agency operates.

“The conviction rate of cases pursued by the ED is near zero. Many officers within the agency are aware that these cases are unlikely to reach a logical conclusion. As a result, they leak information to bolster the political legitimacy of their actions and shape public opinion. These actions are merely statements by a law enforcement agency. This is what we refer to as making the process itself a form of punishment,” stated PV Dinesh, a Supreme Court lawyer.