A Beginner’s Guide To Laundering Black Money, As Seen Post-Demonetisation

The demonetisation of high-value notes on 8 November has, if nothing else, showed us how money is laundered. It will also give us a huge data cache that can be used to develop more foolproof anti-black money policies in future.

Given below are some of the known and less-known ways people have found to launder or use black money, some of them amusing. One example: Kolkata sex workers reported a surge in business for a few days after 8 November, as customers were willing to pay well if they accepted demonetised currency. As individuals with limited means, sex workers benefited as they could deposit the money in their own accounts, no questions asked.

Among the other ways to launder money were these:

One, huge donations have been made to temples, whose sources cannot be questioned by the law. Put another way, crooks have co-opted god in the hope that their sins too will be forgiven. We haven’t heard from gods on that deal yet, but the devatas could not have been amused over the clandestine exchange of high-value demonetised notes for lower-value notes already donated by devotees. It is worth noting that the southern states between them directly administer more than 100,000 temples. Enormous scope for laundering money by those who control these temples.

Two, electricity and municipal bills were payable in demonetised notes for a period. This allowed people to pay bills in advance, and exchange demonetised notes for non-demonetised notes already paid into their treasuries. The UP Power Corporation received a deluge of payments post-demonetisation. The same would have been the case with petrol bunks, which could accept old notes till 2 December. Ditto for toll booth operators, who can accept old notes till 15 December. One can expect huge exchanges of low-value notes for old notes behind the scenes, with premiums being charged for this service by toll operators.

Three, Jan Dhan accounts of the poor and of people employed by the rich have been another conduit. Some Rs 27,000 crore was poured into Jan Dhan accounts till 27 November; most of it could have been benami money deposited on behalf of the rich. And despite the Prime Minister Narendra Modi’s effort to ensure that such amounts can’t be withdrawn easily, those making these benami deposits seem to hold the upper hand (read here).

Four, over-invoicing of sales by small and under-noticed companies will spike. This enables companies to show sales income when sales may have been down post-demonetisation. This is how it works: if, say, Company A showed sales of Rs 70 for every Rs 100 of actual sale before 8 November (the balance Rs 30 not being shown in the books), post-demonetisation, even if sales have fallen, they can be shown as Rs 100, thus laundering what was earlier black.

Five, backroom deals with bankers with access to new notes surely happened. In Karnataka, raids by the taxman unearthed crores of new notes in the possession of two state government officials, and this may only be the tip of the iceberg. Bankers are always vulnerable to pressure from state government politicians and bureaucrats since they can make life miserable for honest officials if they don’t cooperate. In a Cobrapost sting operation in 2013, bankers from both the private and public sectors seemed more than willing to launder black money. Post-demonetisation, two Axis Bank executives have been arrested for helping launder money. Some 27 bank officials in other banks have also been suspended for allegedly aiding corruption.

Six, gold is one obvious candidate for shifting black money away from cash. Crooked bankers and jewellers can help launder money by showing gold sales against cash received in old notes. They can thus sell gold at a premium to the market price by undertaking this risky activity which can, if challenged by the taxman, land them in jail.

Seven, LIC annuities. Another milder, but quasi-legal, way to launder money is to buy a single-premium annuity, the LIC’s Jeevan Akshay. The Times of India reported that LIC sold a Rs 50 crore policy to one individual, and several other high-net-worth individuals have bought this policy in November, after which returns are proposed to be lowered due to the fall in interest rates.

Crooks always find a way, but maybe the government and the Reserve Bank of India can start closing the loopholes faster now.