Innovations in Money Laundering

Chit Fund Companies: Were the looted or Were it a well-crafted plan? Continues…

Dictionary meaning of "Laundering" is washing clothes and bed linens. Thus the meaning of Money Laundering is evident washing black money and making it clean.

Let us understand the process through which money laundering activity takes place in brief:

1^st Step Placement            : Introducing cash into Financial System by some means.

2^nd Step Layering               : Carrying out complex financial transaction to camouflage the illegal source.

3^rd Step Integration          : The final step entails acquiring wealth generated from the transaction of illicit funds.

Some or any on these steps may be omitted, depending on the circumstances.

Money laundering takes several different forms:

Structuring (smurfing): cash is broken into smaller deposits of money, to defeat suspicion of money laundering.

Bulk cash smuggling: physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy.

Cash-intensive businesses: a business involved in receiving cash uses its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Service businesses are best suited to this method.

Trade-based laundering: This involves under- or overvaluing invoices to disguise the movement of money.

Shell companies and trusts: Trusts and shell companies disguise the true owner of money.

Round-tripping: Money is deposited in a controlled foreign corporation offshore, preferably in a tax haven, and then shipped back as a foreign direct investment, exempt from taxation.

Bank capture: In this case, money launderers a controlling interest in a bank, and then move money through the bank without scrutiny.

Casinos: an individual walks into a casino with cash and buys chips, plays for a while, and then cashes in the chips, taking payment in a check, or just getting a receipt, claiming it as gambling winnings.

Gambling: Money is spent on gambling, preferably on higher odds. The wins are shown if the source for money is asked for, while the losses are hidden.

Real estate: Someone purchases real estate with illegal proceeds and then sells the property.

Black salaries: A company may have unregistered employees without a written contract and pay them cash salaries. Dirty money might be used to pay them.

Tax amnesties: that legalizes unreported assets in tax havens and cash.

Fictitious loans

Cash at Home

We suppose we could explain the readers in nutshell the process and methods utilized for money laundering. Mostly money-laundering is done by terrorist to fund terror in different countries, drug peddlers to get their sales proceed and by businessmen to hide their illegal income. To prevent terrorists and drug-peddlers from free money transfer, United Nations has urged every country to introduce anti-money laundering bill and in response to it India introduced The Prevention of Money Laundering Act, 2002 (PMLA).

Now let us come back in context of West Bengal. Since 2011 we have been listening that earlier Left Government has incurred so much loan that this government exhaust its earnings for repayment of loan and interest. In every meeting and rally our Chief Minister claimed it. She appealed Centre for 3 years moratorium and special financial package for West Bengal, which Centre declined to provide. At last she pulled out her support from UPA 2 Government at Centre.

West Bengal Government had to run the show on its own as UPA 2 Government didn’t extend it helping hand to one of its allies. Below mentioned two tables will explain how WB Gov. ran the show without the help of Central 

Government.

In the above table the figures circled in red are the Internal debt (market Loans) which the Government takes from people by issuing bonds (10yr, 15yr, etc.). Government pays 5-8% interest per annum to the bond owners, as mentioned on the bond and pays back the Face value of the bond at the end of the term.

If Chit Fund Companies were a well-crafted plan, the proceeds out of those companies needed protection or to be camouflaged so that they don’t appear to be from illegal source and Integration (remember the 3^rd step above) can be done at a suitable time. A recent incident can give an insight to this matter. Enforcement Directorate (ED), while investigating money trail of Chit Fund Scam in West Bengal, attached Rs 10 Crores of Government Bonds of Mr Srinjoy Bose, Trinamool Congress Raja Sabha MP! Wow! Government Bond used as tool for money laundering! Absolutely new and a brilliant idea! It may be used by others also to park money, and can be withdrawn at a suitable time, even if they are not in Government. They are law-makers and if they resort to such activities people will lose faith on the largest democracy.