The Curious Case of Black Money and White Money: Exposing the Dirty Game of Money Laundering!

248 Pages·2017·5.55 MB·English

by  Varun Chandna

Notion Press Old No. 38, New No. 6
McNichols Road, Chetpet
Chennai - 600 031
First Published by Notion Press 2017
Copyright © Varun Chandna 2017
All Rights Reserved.
ISBN 978-1-946822-30-7
This book has been published with all reasonable efforts taken to make the
material error-free after the consent of the author. No part of this book shall be
used, reproduced in any manner whatsoever without written permission from the
author, except in the case of brief quotations embodied in critical articles and
reviews.
The Author of this book is solely responsible and liable for its content including
but not limited to the views, representations, descriptions, statements,
information, opinions and references [“Content”]. The Content of this book shall
not constitute or be construed or deemed to reflect the opinion or expression of
the Publisher or Editor. Neither the Publisher nor Editor endorse or approve the
Content of this book or guarantee the reliability, accuracy or completeness of the
Content published herein and do not make any representations or warranties of
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of merchantability, fitness for a particular purpose. The Publisher and Editor
shall not be liable whatsoever for any errors, omissions, whether such errors or
omissions result from negligence, accident, or any other cause or claims for loss
or damages of any kind, including without limitation, indirect or consequential
loss or damage arising out of use, inability to use, or about the reliability,
accuracy or sufficiency of the information contained in this book.
Dedicated to
All those who are fighting Money Laundering
in any and every way they can
In this Book, You will find ‘How’ all of these
…may be related with Money Laundering
Contents
Preface
Acknowledgements
The Great Demonetisation of India and the Check Mate Moves Played by
Both Sides
Union Budget 2017: Directions Towards Clean India – Directions
Towards Clean Money
Introduction to the Book
Ways to Transfer Money and Hawala
Method 1: Colombian Peso Exchange
Method 2: Layer of Trusted Lieutenants
Method 3: Gifts
Method 4: Unsecured Loans
Method 5: Assignment of Fixed Deposit (FD)
Method 6: Fake Creditors
Method 7: Donations to Political Parties
Method 8: Charitable Trusts
Method 9: Earning Agricultural Income
Method 10: Real Estate
Method 11: Doing Bogus Business/Front Companies
Method 12: Shell Corporations
Method 13: Penny Stocks
Method 14: Fake Contract Notes
Method 15: Sale and Buy-Back of Physical Shares
Method 16-A: Derivative Trading – Futures & Options (F&O) Segment
Method 16-B: Derivative Trading – Futures & Options (F&O) Segment
Method 17: Change of Client Code in Trading in Real Contract Note
Method 18: Small Merger & Acquisition (M&A)
Method 19: Share Premium Companies
Method 20: Convertible Financial Instruments
Method 21: Stake Sale at Discount
Method 22: Evasion of Stamp Duty Tax
Method 23: Private Placement or Preferential Allotment of Securities
Method 24: Issuance of Shares to the Marginalised
Method 25: Trade Based Money Laundering (TBML): A New Approach to
Money Laundering
Method 26: Taking Benefit of Special Economic Zones (SEZ)
Method 27: Gold, Diamonds, Gems and Jewellery: Let’s Know a Bit More
About Them
Method 28: Bitcoins and Digital Currencies: Understanding their ‘Wow’
Effect
Method 29: Gambling
Method 30: Start-Up Companies
Method 31: Tax Amnesty Schemes
Thought of Finding Black Money on Street
Conclusion
References
About the Author
Preface
“I’m tired of dreaming. I’m into doing at the moment.”
– Bono (Irish Singer and Writer)
hile I was preparing for my Chartered Accountancy Exams in
early 2000s, some of my friends and relatives used to tell me that the
main business of a Chartered Accountant (CA) is to manage the money
of his High Net worth clients and convert their black money (Dirty Money
or No. 2 money) into white (Clean Money or No. 1 Money). I had no real
idea of this business and had doubts over their knowledge on black and
white money too but their comments gave me an innocent kind of a proud
feeling that like a pilot flies an aeroplane so intelligently pushing a lot of
buttons up and down, I too would be doing some complex and
sophisticated kind of a job.
However, in my entire CA curriculum, there was no subject that would
teach me about this intricate job. After completing my CA, I went into the
financial and banking sector jobs where trainings on legal compliances
and Anti-Money Laundering were a regular affair but still they never
focussed on how the launderers actually worked. While working with
Bank of Tokyo-Mitsubishi UFJ, I used to think about generation and
laundering of black money being a big menace to our country and a lot of
statistics also suggested the size of this shadow economy to be no lesser
than the real economy.
This made me even more interested in this topic and I decided to look
out for the modus operandi that worked behind the scene in conversion
of black money into white money and bring them out in public glare so
that everybody understands it and there is nothing that is known only to
launderers, government and a few professionals.
Knowing the ways in which money launderers abuse laws will also help
people in understanding the complexity of these schemes which
government agencies deal with and at the same time appreciate the
steps government is taking in this direction.
As I studied the topic with greater interest, I thought of putting in some
sincere efforts to help my fellow countrymen and people around this
world tackle this menace of black money by spreading awareness and
thought of coming out with a book on this topic. I believe if criminals fear
that no matter how successful they are at the crime itself, there will still
be problems in disposing off the loot, crime rate will definitely fall.
There are various people from different facets of society – professionals
as well as students who want to know ‘how’ exactly the game of black to
white is played. They may or may not be financial experts or finance
enthusiasts but anyone who is interested in financial and economic
activities should find this book useful.
Revenue and tax officials across the world would most likely be aware
of most of the methods discussed here but a revisit to the basics is
always beneficial and if they can effectively address all that, what is
written here, Money Laundering is sure to get a big blow.
When I moved towards this subject in Feb’ 2016, there was a buzz
around this black money word but there wasn’t much that was done to
prevent money laundering. However, things have changed significantly
since then. Government of India has taken various measures to curb
black money and money laundering. It had enacted a draconian Black
Money Law in 2015 and then came out with an Income Disclosure
Scheme in 2016 whereby it gave a window to black money holders to
disclose their black money or else face prosecution.
Continuing the series, it demonetised high value currency notes of INR
500 and INR 1000 in 2016, extended the tax amnesty schemes and then
legislated various Anti-Abuse measures in Union Budget of 2017 which
shall become law effective from 01st April, 2017. It has since revised Tax
Treaties with few Tax Haven countries also.
The above measures are not all; the Government is stead-fast on this
issue of Black Money and is working on various facets related to it, be it
Benami (Anonymous) Transaction Law, revisions in Income Tax Law,
enacting Goods & Service Tax (GST) Law to replace existing Indirect Tax
Laws, revisions in Corporate Law, Securities Law etc. Going through the
methods stated in this book, readers will be able to evaluate the
complexity embedded in the schemes and the changes made in various
laws with respect to them.
Many of the measures taken by the government have already curbed
and/or killed certain methods mentioned in this book while others may
become redundant due to future legislations coming from government but
they shall always be present here and relevant for academic purposes. I
believe that besides garnering interest of various professionals like CAs,
CSs, CMAs, MBAs and the students pursuing these courses, this book
shall be relevant for bankers especially Credit Analysts, Relationship
Managers and Trade Finance officials; Stock Brokers, Revenue Officials
as well as public at large who is in anyways interested in Black Money
and White Money.
Getting into the book: Few requests please Please note that all the
Money Laundering transactions are complex because if they are not
devised that way, they would be easily identified. The Money
Laundering game played between government and money
launderers is like Tom and Jerry contest where whoever can think
from other’s perspective will most likely win and therefore it’s
marred with complexity and shrewdness. However, I have tried to
keep it simple so that the idea easily creeps into everybody’s mind.
The amounts used are also small for understanding purposes. I
have generally used INR 1 Million (or Mio) in most of my examples
and INR 1 when read as USD 1 automatically becomes 70 times
higher.
I humbly request the readers to read through all sections and pages
sequentially – page by page from the very first page to the last one to
have a better understanding of the subject as well as author’s
perspective. After all, it’s just 200 pages of real content that is presented
before you.
Try to keep a pen and paper with you while analysing the figures stated
in some of the methods.
Though every care has been taken to avoid mistakes, yet it is futile to
expect no mistake due to a lot of legality and figures involved. Further,
the room of improvement is always there. Therefore I shall be obliged to
receive all sorts of comments, suggestions and criticisms from my
readers. My e-mail id is:
[email protected] Disclaimers and Representations: This
book – The Curious Case of Black Money and White Money… Exposing