On Money Laundering:Solutions(Part-3)

 

Continuing the topic of money laundering[Link o part-1, link to part-2 ], in this third and final post on the topic, I want to suggest some of the solutions which can decrease the incidents of money laundering or/and can reduce the number of people involve in money laundering business. Two questions arise when we talk about stopping the money laundering:

1.) How can we change the attitude of common mass about the system of getting services from government offices by paying extra money i.e. bribe to them? Every legal resident of India is already paying taxes to government for getting these basic healthcare, education and judicial facility. On a estimated scale, average household income in India is INR 250,000 and 10 per cent of which is tax deductible. It means, on an average INR 7300(considering that 250000 comes in the slab of 10 per cent tax deduction) from each household go to government for providing them the fundamental amenities. A chunk of it is used to pay salaries to these government employees. Now when we are already paying them for the services they are providing, why should we pay them extra bucks!!

2.) Will it ever be possible to change the action of politicians and authorities sitting in helm of governance? A good article which had been really popular on Facebook about corrupt practices of the party- which has been in government most of the times- since Independence has been given in the link provided here. Definitely,the things said in that article could be false as there is no evidence, but we all know there is a good possibility these rumored facts to be true.

The above two- certainly pessimistic- questions would make anyone think that nothing can be changed. It took me 1 week to think about the ways which can curb the menace of money laundering; how many years would it take for the whole India to think and act on the issue! I believe the process will be really slow and will evolve with time when people will be better educated; and more than being educated, when they will better know how to go against the corrupt practices in the system in feasible ways which would have no harm on their personal or professional life. Following paragraphs address the solutions for different segments that are somehow, directly or indirectly are the parts of money laundering in India.

Firstly, I would like to address the common man of this nation. You think that you can only make expression of grief on the money laundering and black money, when you see in reports on news channels about how much money has been put by some smart devils minds of India into his offshore accounts? Answer is definitely no! Technology has been transforming the way we live and it can transform the way we can lodge a complaint against a corrupt official, making high authorities to take an action. For example, in Haryana state, there is a toll-free helpline number (18001802022 )where you can put your complaints.[link to State Vigilance Bureau, Haryana] .Vigilance bureau of any state get paid for this job of catching the corrupt officials red handed. Don’t make them sit idle doing nothing. ;)
Common man should be aware of using the RTI act for his benefit. It is the government’s duty to give them a right platform. In many states like Andhra Pradesh[link to Andhra Pradesh Information Commision], Bihar, Punjab etc, good steps has been taken to provide a platform to general public to acquire information available in public domain. A Best Practice example is ‘Jaankari Call Center’ setup in Bihar. It has enabled information attainment by Right To Information act easier for the people of Bihar. Jaankari is not only a helpline for RTI related queries but it has grievance redress mechanism also for those who have had a bad experience while filing a request in person.Best of the fact, it has a dedicated helpline for the filing of RTI requests.Jaankari Helpline in Bihar has empowered masses to make information requests from the far unreachable regions of the state. It saves a lot of money and time of the appellant also thus making it convenient for each and everybody to get the required information. Definitely general public can also escape the unfriendliness of officers in this way.It has just got its 100,000th caller in December 2011 since its inception in 2007.This number could have been reached earlier if a campaign to aware people would have been on place.

Second, what politicians or big corporates can do? Can we expect anything from them? In 1970, Nobel Prize winner Milton Friedman said that, the Social Responsibility of Business is to Increase its Profits. Most of the time in each corporate house’ Mission and Vision, this statement remain disguised, no matter what they say. In such developments, any smart company will do anything to gain profit whether the profit making action is against the environmental condition or against the economic condition of the nation. I personally don’t think it a good thing to preach them anything. It is the action of government only which can control anything bad happening in a business. For example, if there is large scale mining activities are taking place in Yamuna river, government/High court may ban the activities. Similarly, it is the job of government to control the money laundering. In our country where economic growth devastation and terrorist activities are two such important points to halt our progress against becoming a wholesome nation, it is really important for government to not play role of mischief-makers.

Third and concluding role in controlling the money laundering activities is in the hand of Banking System of our country. It is a combined responsibility of economists, parliamentarians, bureaucrats and specially reserve Bank and bankers of India to device mechanism which can monitor and reduce the outflow of money from India to abroad. Definitely, India is one of the nation following Financial Action Task Force (FATF) recommendations in a blameless way. But can we do something more than this to make people believe in whole economics fundamentals, which are under doubts because of happenings of money laundering and black money creation? We need to resolve the technical inadequacies in the outlawing of money laundering. We need to have in place a framework suitable to the local needs of India for the repossession processes of laundered money. There is a need of identification and also the secure digitization of documents related to business accounts. At last I wish Financial Intelligence Unit, India  to have on place the awareness about their obligations towards the nation and a digital tool much more efficient than the WebFountain(about which I mentioned in the first post on Money Laundering) to identify the suspicious financial transaction activities. ;)

On Money Laundering: Tax Havens for Indians(Part-2)

One KPMG estimate says that from USD 800 Billion to USD 2 Trillion amount of money is laundered every year in the world. While it could be beneficial to financial institutions located in foreign- which are holy havens for Black money, it is making the economic growth of many countries in plunging situation. Black money has been resulting in transfer of funds from India to foreign countries where tax rates are quite low. Notably these countries are called as tax havens. The main features of most of these countries are their banking firms and tourism sector has a big share in their economy; the assets of banks in these countries is in disproportionate multiples of their total Gross Domestic product; and the client details remains very secret in the banks of these countries. Most of these countries are small and are governed in a good way. For example consider the case of Cayman Island spreading in an area of 264 km square and GDP of 2.25 bn. Assets of bank is approaching a figure of USD1305 bn there. Same is the case with many countries like Andorra, The Bahamas or British Island. Most of them are notably were once British colonies. It is just a myth that Switzerland is the favourite place for putting dirty monies.

It is not appropriate to close the discussion without citing the example of investment flowing from Mauritius to India. There is a treaty since early 90s that allow significant tax benefit from Investment made from Mauritius. India-Mauritius tax agreement suggests that capital gains created in India via security sales can be taxed in Mauritius only. There is no tax on such investments there, which implicitly leads to zero taxation on capital invested through Mauritius in India. Indeed, a lot of foreign direct investment comes to India via Mauritius. From April 2000 to February 2012 total inflow of FDI in India was 162 billion, out of which 39 per cent came via the route of Mauritius. Mauritius has been put into negative light in the economic circles of India after the instance of 2G scam and now IPL. The pain is that government cannot know the real person who has invested the money. Thought this year, government made it clear to have a Mauritius residency proof for people to invest in India, yet no substantial step has been taken because it is also the one way black money comes back into India.
From this what I infer is that if someone were earning 10 lacks in bribes, he can put it into some Mauritius account and then invest back into India to make it look legitimate. That’s how big fish make big money. For example Y.S. Jagan Mohan Reddy has been alleged to invest INR 124 Crores of his black money in Sandur Power Company, via Mauritius and Luxemburg.
In next post, you will read some of the aspects which are not allowing to curb the Money Laundering menace.

On Money Laundering: Part-1

Sitting in my newly allotted room- oblivion to what has been happening around- I was reading notes authored by Michael Meltzer over the topic Customer relationship management and Data Mining. Before the notes could make me sleep, I came across a software tool developed by IBM which can help in analysing the information in public domain over internet to identifying the cases of money laundering. The software mentioned in the notes is WebFountain and author gives a reference in footnotes to an article published in The Economist in 2004. I thought it would be great to start a new series of blog posts from money laundering issue which according to Baba Ramdev and other so called Indian nationalists, if resolved and if all money in those Swiss bank accounts could be brings back, would make me millionaire at least.

Money laundering is the route by which enormous amounts of illegally obtained money (from drug, terrorist activity, trafficking or other severe criminalities of the same stature) is made to be disguised as if created via a lawful source. In layman terms, black money gets transformed into stainless white money. In India, it has been a common perception that all the big corporate fishes do the acts of peculation, all the politicians and government bodies took bribes, lawyers embezzles funds from their clients and all the common men at some instance either take white money or bribe it to help convert it into black money.

Money laundering has not been any recent trend in world. Consider a bank robber in old times. After the robbery, he would put his money deep down the earth somewhere to escape incarcerations. When common people forgot the incident, he would use the same money to live a wealthy life. It used to happen in china 2000 years before Christ where merchants used to hide their money from Kings; they used to invest it in other business in remote areas or even outside China. Talking about the last century, Al-Capone, the notorious mobster had been charged with tax evasion and money laundering in 1931.Today, politician and businessmen in India are not different from those Chinese merchants or Al-Capone case.

Let’s see how the money laundering system does work. Firstly, the dirty money is placed into the system via a lawful financial institution. It is the most fragile step in the process because banks need to report all of their high value transaction and dubious transaction may lead to complete trace of source of money laundering. Second step, layering involves processing that money through different transactions to make it difficult to track. It could be a transfer of money from one bank to another bank, from one account to another account, from one currency form to another currency form or from currency to some other asset like diamonds, houses etc. After placement and layering third step involves sending back the black money into mainstream via some bank account transfer or business investment.

It was money laundering due to which, in 1989 the then non-Russia G7 to introduce Financial Action Task Force. India has been ranked as a country which “extensively employed the standards” convened by the FATF. Prevention of Money-Laundering Act came into existence quite back in 2005. It makes it mandatory for banks, intermediaries and other financial institutions to maintain detailed records of value and nature of transactions happened. But was it really working? Still why there are so many hue and cries in the political and social atmosphere? That’s the question we need to find an answer for.

I will continue with the same issue in my next post. Till then let me again go back to remaining 15 pages of the CRM and Data Mining notes.

Roses are still red

She was beautiful; she is still. Her cerise nails with cerise lips, mannequin figure and a heart of angel. One day she told me about love,”hey Hari! Look these red roses. Love is of the same color, red. They are so cute.” It was the last days of our baccalaureate at DU. She was so good for me. Thinking of her, I buy a bouquet of red roses for Anvesha. The date is 14Feb, 2021. We were in love. India was shining, better than 5 years before when I met her studying high school commerce at DPS. She was intelligent at mathematics. I was good at English. We both got admission at DU, St. Stephens College. The friendship of high school blooms into love of college. Bunking classes; wandering here and there; still it feels like we had our coffee in the same cup yesterday. We shared a great solidarity. She loved to drink on weekends with me and there were times that we had spent unsheltered whole night on roads of South Delhi. She still starts whispering in my ears so many times in winy voice of her. I sometimes watch her jogging with me near Qutub Minar’s road. Yes she love to ran fast. She was cute and innocent like child and the same time her dreams run to infinities.

One day, she drained me, left me live solitary life. I met her recently in Annual re-union. Her cerise nail polish still attracts me in the same way. White still makes her beautiful, when I see her roaming near Andrew’s gate in beautiful sun of December. She now lives in Philadelphia with his father who runs a chain of restaurant. She studies at university of Pennsylvania pursuing her Business administration studies and is going to handle all the business of her father soon. That’s the benefit to be only one child of parents. Riches here prefer one child now, even though we don’t have strict one child policies like communists.

I still go for jogging with my old friend Parnav and my valentine Anvesha. Anvesha is a chief chef at Presidential office. I met her once when I was for an interview with Mr. President on behalf of Parsaar Bharti on the evening of 26th Jan. It was not a big deal to get Anvesha in my life. Parnav introduced Anvesha Jain,his chief chef to me. We exchanged our numbers and it all started. Today I am going to meet her 9th time; I am falling in love for her this valentine’s day. She too said yesterday love is like roses…….. And roses still red. Are not they?

  

As was written on MyPoeticAccent in December, 2010.