Temple handi to NGOs: How launderers are still beating the govt on note ban

From flying the cash to northeastern states to using back-dated bills, the methods are aplenty

Demonetisation took the country by storm and disrupted normal life for most people. The key word here is "most" because it seems that black money launderers have continued their operations; which is nothing to brush off given that the government's justification for the suddenness of the measure was that it did not want black money hoarders to escape. 

Be it billing bogus transactions in the names of unsuspecting people to depositing unaccounted wealth in someone's Jan Dhan account, the methods vary but the theme is the same: The government's noose is just not tight enough. 

Business Standard lists out some of the methods which have been uncovered:

1) Generating bogus sales invoices: One such method has been described

2) Routing it as donations to an NGO, then getting it back as white money: An IndiaToday investigative report unearthed another  method, this time using non-governmental charitable organisations. According to the head of one such organisation, who was approached by an undercover journalist, here is how this scheme operates: Any person looking to keep the tax man away from his or her unaccounted wealth can deposit it with the NGO. The NGO, in turn, will show this amount to have been received through donations. In the case of the NGO approached by the journalist, its head said: "I have told you already that we have 10-11,000 members. We can show donation of five thousand rupees from each member...." After this, the NGO will return the money to you as white, as supposed to payment for amenities it is supposed to purchase to administer its charitable cause. The money could be returned in the form of a cheque or as a "black transaction", the latter of which will cost you a hefty commission. 

3) The Jan Dhan route: As reported by Business Standard, almost the entire Rs 29,000 crore in increased deposits in Jan Dhan accounts – meant for the very poor – till December 2, 2016, have gone into just 3 crore bank accounts out of the total of 25 crore Jan Dhan accounts. This shows that a relatively smaller number of Jan Dhan accounts have been used to launder large sums. If these were genuine deposits, they would have been spread across 25 crore accounts in a more even manner. The tax department has no infrastructure or resource to investigate three crore Jan Dhan accounts where all the fresh deposits have gone.

4) Deposit your ill-gotten wealth in a temple hundi, get it back as clean cash in new denominations: A person looking to turn his black money into white can, according to reports, can deposit it in a temple's donation box. donation, while giving the depositor the amount deposited, minus a commission, in clean new denomination notes. The report cites an instance covered by ABP news, where a priest from a temple in Mathura was willing to convert Rs 50 lakh in black money through such a process, of course in return for a hefty 20 per cent commission. The government has already announced that cash deposited by temples from the offerings placed by devotees in donation boxes or 'hundis' will not come under the tax 
 

5) Take the North East route: First, let us look at certain tax exemptions, which are linked to the geographical location of the assessee, provided under Indian law. The Times of India explains: "... Among those exempt from paying income tax are members of scheduled tribe communities in Nagaland, Manipur, Tripura, Arunachal Pradesh and Mizoram. Scheduled tribes in North Cachar Hills and Mikir Hills in Assam, the Khasi Hills, Garo Hills and Jaintia Hills in Meghalaya and Ladakh in Jammu & Kashmir also don't have to pay income tax. The exemption applies to income arising from any source in these areas or from dividends or interest on securities from anywhere. A similar exemption is available to all those defined as "Sikkimese" in the I-T Act. This again is for any income generated from Sikkim itself and for income from dividend or interest on securities generated anywhere." These exemptions have provided a unique opportunity to launderers, who, according to a Bloomberg report, are flying people's unaccounted wealth by the planeload to these northeastern states. The money can then be rerouted as clean cash. 

6) Opening bogus new accounts in collusion with bank managers: Why not just exchange your black money at banks for new, clean notes? Impossible you say, what with the limit on the amount that can be exchanged and the scrutiny at banks? Not quite so, reveals a report by The Quint. Speaking to a "businessman" who decided to become a money launderer right after the demonetisation measure was announced, the online news portal's journalist dug up some shocking things. According to this businessman, or "Happy Singh" as the report called him, he recruited a few helpers and had them stand in queues to exchange the old cash for his customers. He even alleged that various bank managers and bank staff were in on the whole thing and colluding with him, which is how he was able to launder so much money, despite the various government restrictions, that he cannot even remember the exact amount. But how does this process work exactly? Once these excess old notes have been received by the banks, and the banks in turn have provided clean notes in lieu (how the banks were able to actually provide these new notes despite the severe shortage of new notes in the immediate aftermath of demonetisation was not explained), the excess amount of old notes is explained away by way of creating bogus accounts with the bank. But surely these bogus accounts will be caught out? Happy Singh disagrees and asks as to who exactly will ask questions about these accounts or hunt them down? The Reserve Bank of India, he adds, does not have enough employees to do so. According to Singh, nobody is bothered with documentation in such cases at the banks at this moment, instead they are focused on converting as much money as they can.