Money-Laundering Networks Thrive in India Amid Cash Chaos: Bloomberg

The chaos caused by the sudden banning of Rs500 and Rs1,000 banknotes in India last month has led to the rise of money-laundering networks across the country. With the government scrutinizing large cash deposits and undeclared money, people are scrambling to convert their black money into legal tender.

Agents offering to launder money are using creative methods, such as flying banned cash to northeastern states exempt from restrictions or connecting people to businesses that can deem old cash as revenue. Premiums for these services range from 10% to 50%, depending on the difficulty.

Despite the government’s efforts to close loopholes, new ones are opening even faster. The policy aimed at reducing the black economy is, in the short term, leading to more money-laundering, tax-avoidance, and opportunities for organized crime.

The challenge Prime Minister Narendra Modi faces in stamping out corruption is evident as underground networks continue to thrive. The use of high-turnover businesses, hawala networks, and other methods to convert black money into white is on the rise.

Individuals are resorting to various tactics, such as using household staff to deposit currency into multiple bank accounts below the limit triggering tax inquiries. Temples and weddings are also being used to convert black money into new currency notes.

The real estate industry, which already had a significant share of illicit deals, is attracting further investments with banned notes. Sales of hard assets like gold are also increasing, with sellers accepting old notes despite the ban.

Modi has denounced the evasion networks that are emerging and has vowed to crack down on illegal means of reintroducing black money into the system. The government is working to plug loopholes and ensure the effective implementation of demonetization.

As the country awaits the final tally at the end of December, the effectiveness of these measures in curbing black money remains to be seen. The battle against corruption and money-laundering continues as India grapples with the aftermath of the currency ban.