Bareilly Police Bust ₹24-Crore Hawala & GST Fraud Racket: How Fake Firms, Mule Accounts, and Migrant Workers Were Used to Launder Money

In a significant financial crime breakthrough, Bareilly police have busted a suspected ₹24-crore hawala and GST fraud racket that relied on fake firms and manipulated bank accounts to move large sums of money, officials said on Tuesday. Two individuals have been arrested, and further investigations are underway to uncover deeper links and additional beneficiaries. 

How the Scam Surfaced

The racket came to light when a small zari (embroidery) artisan received an unexpected income-tax notice of nearly ₹1.5 crore for transactions he claimed no knowledge of, according to Bareilly Superintendent of Police Anshika Verma. This red flag prompted a detailed probe by local police. 

Police say the accused targeted vulnerable groups such as small traders and daily-wage workers, offering assistance to grow their businesses or enter export markets. In reality, this was a ruse to acquire their identity documents — including Aadhaar and PAN cards — without informed consent. 

Modus Operandi: Fake Firms and Mule Accounts

Using these identities, the accused opened multiple bank accounts in both private and public sector banks. These accounts were then used to channel large-scale, unauthorised financial transactions through shell companies that existed only on paper.

Officials identified several such entities, including:

Satya Sahab Traders

Mahavir Trading Company

Mahakal Traders

Sumit Traders

These firms had no real business activity but were used to generate fake invoices and bills, creating the appearance of legitimate GST filings while facilitating money movement and potential tax evasion. 

According to the police, about ₹24 crore in suspicious transactions were routed through these setups within roughly a year. While the scheme looked like a typical GST fraud at first glance, early investigations also point to possible hawala network involvement — an informal money-transfer system often used to bypass financial regulations. 

Arrests and Evidence Recovered

Two men, Shahid Ahmed (38) and Amit Gupta (38), were arrested from the Bhuta area of Bareilly. Police recovered several mobile phones and cash from their possession during the arrest

Authorities have registered a case under relevant sections of the Bharatiya Nyaya Sanhita (the Indian penal code substitute) and other applicable laws. The probe is ongoing to identify additional suspects and financial links, including a man currently under investigation from the neighbouring Shahjahanpur district.

This Bareilly case underscores the growing challenge Indian authorities face in combating GST manipulation and hawala networks — methods that enable tax evasion, money laundering, and illegal fund transfers. Tata* Government enforcement agencies have reported several high-value GST scams in recent months, including interstate fake-invoice rackets and complex shell company schemes across multiple states. 

The use of “mule accounts” and fake firms is a common tactic in large GST frauds, where criminals exploit gaps in documentation and digital processes to disguise illicit fund flows as legitimate business transactions.

The ₹24-crore scam caught in Bareilly highlights:

The vulnerability of small traders and labourers to exploitation due to trust and lack of legal awareness.

The sophistication of financial fraud syndicates that blend tax evasion with informal money transfers like hawala.

The need for robust monitoring of GST filings and bank account onboarding to prevent identity misuse.

As police extend their investigation, authorities aim to dismantle not just the surface-level fraud network but also the underlying mechanisms that allowed such large volumes of suspicious funds to circulate undetected.