THIS is why so many money launderers are getting caught. And it will only get worse

By bwoyblunder

Posted on December 11, 2016

The past one month has seen people discuss the impact of demonetisation threadbare. Right from the positives, to the negatives to the fake rumours, all have been debated in media and social media. The latest thing catching the eye of the public are the frequent reports of major raids in some or the other part of the country where-in huge stashes of gold, old demonetised cash, or new currency have been seized by the tax authorities.

The country-wide total of seizures till date is staggering:

Demonetised old currency Notes (Rs.in Lakhs)        6709

New 2000 Rs Notes (Rs.in Lakhs)                             4603

Gold (Kilograms)                                                         262

Update: As a benchmark, one can see the figures of assets seized in raids in earlier periods. For example, as per this report, the first seven months of 2015 saw Income Tax raids seize assets worth about Rs 102.50 crores. The same figure for the same seven months of 2016 was about Rs 330 crores. We are just 4 weeks into demonetisation, and the raids have started just 2-3 weeks back. In this short span, the value of assets seized has easily surpassed the 7-months figure of 2015 and is all set to overtake even the 7-months figure of 2016.

What explains this sudden spurt in successful raids? How are the authorities getting information about such huge hoards of cash? Is it due to the rumoured “GPS chip” in the new Rs 2000 notes?

The most likely reasons are these:

Firstly, the tax authorities are liasoning with various other intelligence authorities like CBI etc.  Such swoops based on the information available only to the tax department are not so common. This kind of targeted attacking works best when information is shared among various agencies.

Secondly, there has to be a clear-cut instruction from above. And it has to come from the very top, i.e. the Prime Minister, flowing to the Finance Minister, and then all the agencies. The instruction is most probably to aggressively chase such money launderers. It is even possible that the IT sleuths have been given targets, failing which they are answerable to their higher-ups.

Thirdly, there is one key feature regarding demonetisation which ensures that information flows rather easily: Whether you are getting rid of old notes or getting new notes, you eventually have to go to a bank. Sure, you might unload your old wealth with some other launderer but the final point in this chain has to approach a bank. So also, the source of any new currency has to be a bank.

And that is where everyone leads a trail.

The entire chain of launderers is only as strong as its weakest link. The tax authorities have to crack only one of the agents in the chain, and a quick look into his communication records like phone, sms or email would reveal all the people he has been dealing with.

There are multiple ways to get to such people. All data of bank transactions is on record and is reported to tax authorities. Any spike or high value transaction in a normally defunct account can be traced easily using data analytics tools. From there on it is just a matter of tracing the branch, the account holder, and using the branches surveillance systems to catch any more accomplices.

Even if the entire exercise has been done via the connivance of the bank branch manager, he will still leave some or the other trail in the bank’s system to account for the sudden disappearance of a huge stash of cash received from the RBI. The RBI maintains a record of cash supplied to each and every branch and will obviously check the outflow of such cash too, to see that it reconciles with the inflow. And that can be enough to probe deeper and reveal more leads. As has been seen in many raids, even when the bank manager was hand in glove, the IT sleuths have caught up with him and the launderers.

And this is just the beginning.

We are right now in a dynamic situation since the window till 30th December to deposit old notes is still open. Banks are still accepting old notes and data is being generated even as we speak. Come January or February, all this data will be frozen and will be a gold-mine for analysts.

Any dormant account suddenly being triggered (egs: shell or dormant companies being used to launder cash) or any account which usually has lower volumes, or any newly opened accounts showing sudden increase, or any accounts showing a deposit and an instant transfer or withdrawal, all these anomalies will be crystal clear from the data of the banks. It would be only a matter of time before sleuths begin identifying and investigating the parties concerned.

This is as far as hard cash is concerned. How do they tackle any other forms of conversions? One of the popular modes could be the real estate sector. Deals could have been struck to sell properties at lower than fair values, with the difference being paid in old cash, basically the purchaser off-loading his cash onto the seller. The seller obviously has to get the cash to a bank, but there is another way they can get caught.

For the past few years, sub-registrar offices have been insisting on PANs of the parties involved in real-estate transactions. This data is then passed on to the Income Tax authorities. Till now such data was only used by the Income Tax Department in scrutiny assessments or in case of major mis-matches in tax returns and their data. But going forward, one wouldn’t be surprised if they start using this data more actively.

One possible move in the future could be opening up all the cases where properties were transferred from 9th November 2016 till 30th December 2016. Auto-generated notices can be sent to the concerned persons and where satisfactory replies are not received, or where some other parameters are inconsistent, further details can be asked for.

The fact is in today’s digital world, much more data is available and one needs only the will and skill to parse through all the data to catch the crooks. Hence it is only a matter of time rather than anything else, even though the party seems to have begun. And if you think this is the end, wait till GST comes. Once GST is implemented, the data at hand of the tax authorities will make tax evasion much harder.