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HindustanTimes Wed,26 Nov 2014

Easier said than done: Busting India's black money racket

Gaurav Choudhury, Hindustan Times  New Delhi, June 30, 2014
First Published: 14:16 IST(30/6/2014) | Last Updated: 16:53 IST(30/6/2014)

Combating the country's parallel economy has been at the top of the NDA government's agenda. It has written to Switzerland seeking details of Indians who have stashed away unaccounted money in the Alpine country and it has set up a special investigation team to look into the issue of black money and slush funds.

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Hindustan Times presents a lowdown on how deals thrive outside the financial system in a bustling cash economy, hoodwinking authorities by creating a web of layers to obscure the source of slush funds. Here is an explanation of how the hawala racket operates.

What is hawala

Hawala is an underground banking system based on trust whereby money is available internationally without actually moving it or leaving a record of the transaction.
 

What is money laundering

Money laundering is the process of concealing the source of illegally gotten money. It impacts a nation’s economy as dirty money moves rapidly across border to obscure the audit trail, mostly using the hawala route.

Read | Dark side of India's economy: How black money racket operates
 

Stages of money laundering

1. Placement: Separate the money from the source and place it in the financial system e.g. making small cash deposits in a bank account.
 
2. Layering: Create layers of transactions to disguise the origin and obscure the audit trail e.g rapidly moving funds across different accounts.
 
3. Integeration: Reintroduce the funds in the legitimate financial system to enable further use. e.g setting up front companies and using false invoicing.


Some recent real instances of money laundering and black money transactions

a) More than Rs. 700 crore were transferred among 30 bank accounts in an inter-account transfer in a single day by an individual.

b) An individual deposited a cheque of more than Rs. 14 crore in his dormant bank account claiming it be proceeds of sale of property. Part of this amount was withdrawn in cash and request placed before bank for a demand draft of a huge amount to purchase gold for business.

c) A husband and wife paid insurance premium of over Rs. 2.5 crore for 15 life insurance policies, out of which Rs. 80 lakhs was paid in cash in multiple installments of less than Rs. 50,000. http://www.hindustantimes.com/Images/popup/2014/6/gx-prominenttax.jpg

ReadIndia writes to Switzerland seeking black money info

Actions taken by the govt till date

# High powered Special Investigation Team (SIT) set up to clampdown on India’s bustling parallel economy

# Undisclosed income of Rs. 40,000 crore has been detected in the country in the last three years

# More than 7704 pieces of information on assets and payments received by Indian citizens in several countries have been obtained “which are now under different stages of processing and investigation.”

# Introduction of compulsory reporting requirement in case of assets held abroad.

# Allowing for reopening of assessment upto 16 years in relation to assets held abroad.

# Tax collection at source on purchase in cash of bullion or jewellery in certain cases.

# Taxation of unexplained money, credits, investments, expenditures etc., at the highest rate of 30% irrespective of the slab of income.
 
 
Black money estimates: It’s big and scary
 
# There are no official estimates of India's black economy.

# In 2011, the government had commissioned a joint study by three think-tanks—National Institute of Public Finance and Policy (NIPFP), National Institute of Financial Management (NIFM) and the National Council for Applied Economic Research (NCAER)—to estimate Indian entities’ unaccounted wealth both at home and abroad.

# The study’s findings have not yet been made public, but is speculated to have pegged the size of black economy at about 30% of India’s gross domestic product (GDP) or about Rs. 35 lakh crore.
 
Read | Data shows increase in Swiss bank stash of Indians

Other estimates:
 
$462 billion (about Rs. 28 lakh crore): According to Washington based think-tank Global Financial Integrity (GFI), Indians had salted away $462 billion (about Rs. 28 lakh crore in current exchange rates) in overseas tax havens between 1948-2008.
 
$500 billion (about Rs. 30 lakh crore): According to former CBI director AP Singh, Indians have stashed away $500 billion (about Rs. 30 lakh crore) in tax havens.
 
$500 billion ( about Rs. 30 lakh crore) and $1.4 trillion ( Rs. 84 lakh crore): A BJP task force report said in 2011 that Indians had parked $1.4 trillion ( Rs. 84 lakh crore) in undisclosed overseas accounts.
 
If hidden income of $500 billion were to be disclosed and taxed at 30%, it would generate Rs. 9 lakh crore. http://www.hindustantimes.com/Images/popup/2014/6/gfx-fivecountries1.jpg
 

5 possible ways this Rs. 9 lakh crore can be put to use
 
1. Directly transfer the cash to the poorest of the poor (405 million households) to lift them out of abject poverty.
 
2. Build 1,70,000 km of national expressways at an average cost of Rs. 5 crore per km entirely funded by the government.
 
3. The government can build a latest state-of-the-art super speciality hospital more than 2000 beds in each of the 626 districts in the country.
 
4. Offer a “zero tax” year for all individuals and firms and still announce a budget to fund its expenses including salaries and welfare schemes.
 
5. Offer guaranteed jobs to all members of poor rural households throughout the year, quadruple the wage payments and still be left with enough money


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