 "Black money")
Over the past couple of weeks, the problem of undisclosed money has shot back to focus. After the lower than expected haul of Rs 4,150 crore in the disclosure window that closed on September 30, investigative agencies such as the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) have launched raids and probes on banks, and arrested black money hoarders and generators, including some bank executives.
Several names have come out.However, one gets a feeling that the big fish are still swimming freely in the high seas. Also if one reads the exchange announcement from Bank of Baroda, the timeline of alerts and investigations which eventually led to these arrests tells its own story.
The 5,853 transactions found to be in breach of the Foreign Exchange Management Act guidelines took place between May 2014 and August 2015. The bank came to know about irregularities in the 59 current accounts handling these transactions as early as mid-July. Some 79 cash transaction reports were generated and sent to the Financial Intelligence Unit, the national agency responsible for receiving, processing, analysing and disseminating information on suspect financial transactions to enforcement agencies and foreign counterparts.
Yet, the entire anti-laundering mechanism took over two months to react and even longer to take action. First there was some internal investigation. The regional office was sitting on it till August 31. Then, the corporate office ordered ‘detailed investigation’, which started 22 days later. Finally, on September 24, the CBI, ED and finance ministry received the complaint. The Reserve Bank of India received a telephone message on the 26th, followed by a letter on 29th.
In an age, when transactions happen at the swipe of a screen, is this the optimum speed at which the crime response system can function? Or, were they all waiting for the government window to close for starting the action?
Detailed press releases and updates from the bank, agencies and the ministry gave reporters a feeling that the government was very keen to help “accurate and detailed reporting” of this particular crackdown. It would be of great help if such best practices are followed on all future “raids” and “crackdowns”.
The operating method in this trade-based money laundering scandal confirms some other disturbing doubts.
About three months earlier, I met a former bank executive, who had been bitten by the start-up bug. He had launched an e-commerce platform which sold certain niche products. When I casually asked him if he was doing COD (Cash on Delivery), he answered in the negative. He said it did not suit him since he was still small but coming from a banking background, he had “several apprehensions” and that it was a “grey area.” Actually, he was hinting it was more of a “black” area.
Top e-commerce market places allow purchases of up to Rs 50,000 on a COD basis. According to some estimates, these account for 60 per cent of the multibillion dollar sector. Since that meeting several accounts about phantom sellers, non-existent buyers and fake orders in different e-commerce platforms have surfaced.
What if someone applies the BOB model minus the duty drawback on these e-commerce portals? All this money launderer, who has unaccounted cash of, say, Rs 5 lakh, has to do is list himself as a manufacturer/seller on one of these sites. Then, log in as a buyer and order hundreds of items. Pay for these in cash and get it back from the portal, washed and white.
If our money launderer friend is lucky, the e-commerce portal would reward him with discount vouchers for ordering in bulk and sellers’ incentives for delivering these promptly.
