Six ways in which black money is created - Economic Times

http://articles.economictimes.indiatimes.com/2011-11-17/news/3041024...

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Six ways in which black money is created

John Samuel Raja D, ET Bureau Nov 17, 2011, 06.35am IST

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Tags: trade mispricing Mixed sales benami

| Smurfing | Obulapuram Mining Company | Multi-level marketing scheme | | FIU | Financial Intelligence Unit | Disguised ownership | Central Board of Direct Taxes |

Black money is turning out to be big issue with many political leaders and civil society members speaking a lot about it. ET brings out the ways in which the black money is created. Also read: What obstacles are preventing black money retrieval by the government Ten means to put an end to black money issue

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METHOD 1: MULTI-LEVEL MARKETING SCHEME A recent trend is to use international debit or credit cards issued by offshore banks. This enables easy usage. STEP 1: A group of individuals float a multi-level marketing scheme or investment scheme promising extraordinary returns to investors. STEP 2: Investors deposit cash or cheques in bank accounts floated by the firm. The firm, in turn, issues them post-dated cheques. STEP 3: The firm transfers the money to personal bank accounts of the promoters. STEP 4: The promoters wire transfer the money to an offshore bank account in a tax haven. They wire transfer it again to another offshore bank account, in another tax haven, to widen the trail. STEP 5: The offshore bank issues a credit or debit card valid anywhere in the world, which a promoter can use for transactions. LIVE EXAMPLE: In 2009, India's Financial Intelligence Unit (FIU) received suspicious transactions report from banks that a large number of deposits had been made in a few accounts. Further investigation revealed these accounts

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Six ways in which black money is created - Economic Times

http://articles.economictimes.indiatimes.com/2011-11-17/news/3041024...

had a common permanent account number (PAN), address and contact numbers, and that it was a multi-level marketing scheme promising extraordinary returns. As explained above, the firm transferred the money collected to personal bank accounts of its directors. Fifteen operators floated 10 firms, which in turn opened 35 bank accounts in 11 different banks. One operator alone received Rs 130 crore in his accounts over a period of 16 months, and the state police have attached Rs 190 crore of assets in various locations. INDICATORS: Lifestyle beyond known sources of income Ownership of assets abroad, but not declared in tax returns Large inter-account transfers with no economic rationale Cash transactions with unknown persons Withdrawal of large foreign remittance in cash METHOD 2: DISGUISED OWNERSHIP Increasingly, criminals want to own legitimate business. It could be to earn a return or to convert black money into white. A typical example of how this is done: STEP 1: Criminal X generates Rs 10 crore in cash from illegal activities in India, and wants to 'launder' it abroad. He uses the 'hawala' route to transfer the money: he gives the Rs 10 crore cash to a local hawala operator. The operator, for a fee, arranges to deposit the sum in an offshore bank account belonging to a company floated by X. STEP 2: The offshore company buys shares in a domestic company promoted by X, that too at steep valuations STEP 3: The domestic company pays a high salary and dividends to X. Black becomes white, and X can show the money as income. INDICATORS: International corporate structure with no visible benefits Shares of domestic companies sold at higher valuations Tax returns don't support capital contribution by investors
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Large cash holdings Offshore companies will do business outside the country where it is formed. Such companies can be run by a nominee director and are often not required to publish annual accounts. METHOD 3: MIXED SALES Mixing illicit money sources with legit ones is a popular method because it's hard to detect, especially if there is a large cash component in the legal business. STEP 1: Illegal money is mixed with actual sales, by depositing in the company's bank account. The cash deposit will be justified as legitimate business income, say, cash receipts in restaurant. STEP 2: The company projects the fabricated sales as total income and files an income-tax return. However, it avoids paying tax on the total income by showing losses in other business lines or by showing fictitious deductions. STEP 3: Black has become white, and promoters can use it to buy assets. INDICATORS: Large increase in cash turnover and sales No commercial reasons for money inflows

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Six ways in which black money is created - Economic Times

http://articles.economictimes.indiatimes.com/2011-11-17/news/3041024...

Promoter has poor knowledge of business Transactions don't have supporting documents, and don't fit the company's profile Costs incurred but no corresponding increase in turnover METHOD 4: 'SMURFING' This type of transaction is usually done to evade notice by authorities monitoring transactions above a certain threshold. STEP 1: X deposits illegal proceeds into many bank accounts. The amount transferred is below the threshold level for reporting suspicious transactions. If Rs 10 lakh is the threshold level, deposits will be for Rs 9 lakh. This is called 'smurfing'. STEP 2: The money is transferred from these multiple accounts to an offshore bank account to take the trail away from the source. STEP 3: A loan agreement is signed between the holder of the offshore bank account and X. STEP 4: Once he receives the money, X can spend the money to purchase assets. INDICATORS
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Six ways in which black money is created - Economic Times

http://articles.economictimes.indiatimes.com/2011-11-17/news/3041024...

Readers' opinions (17)

Sort by: Newest | Oldest nikhil (mumbai) 19 Nov, 2011 03:27 PM Google is being run by Indians, managerially and technically. Even though Page and Schmidt are CEO and Executive Chairman of Big G, but still we cant forget that it was Amit Singhal, an IIT Roorkey Graduate, who re-wrote the whole algorithm of Google Search Engine in 2000 which made Google the best in the industry. Then, Nikesh Arora of BHU-IT is the Chief Business Manager; Vic Goundotra is the man behind the whole Google Plus and, many many more. Search FAMOUS INDIANS WORKING IN GOOGLE for more details. Grvgy (India) 19 Nov, 2011 12:53 PM This artilcle has been written to cover how black money is generated in business world. What about black money created by political affairs. It does not have such mention. Media should come with those cases too and not bring only a gloomy picture like advertisment.The amount generated through political is more than what is in real world. Please come with real issues. chhajuram advocate induscharwak (hisar,haryana,India.) 19 Nov, 2011 08:53 AM Parasites manage black money,remove them & no black money ,no economic crises,no debt and prosperity through out world. 4thaugust1932 (Tokyo) 18 Nov, 2011 09:21 PM Prior to globalization, white collar jobs, white collar crimes and corruption has been exclusively reserved to Forward caste. 90% of corrupt money is with the Forward caste. (2011) Black Money in Swiss banks = $1.4 trillion (FC) Goa mining scam = $700 million (FC) Noida Corporation farm land scandal = $40 million (SC) Bellary mines scandal = $3.2 billion (FC) BL Kashyap EPFO Scam = $118 million (FC) Hasan Ali Khan = $8 billion (MC) ISRO-Devas = $300 million (FC) Cash-for-votes = $715,000 (FC) (2010) 2G spectrum scam/Radia Tapes = $6.9 billion (BC) Adarsh Housing Society (FC) Commonwealth Games = $15.5 billion (FC) LIC Housing Loan scam = $200 million (FC) Belekeri port = $12 billion (FC) Lavasa = $80 million (FC) Uttar Pradesh Food Grain = $44 billion (BC) APIIIC = $2 billion (FC) IPL Cricket = $8 billion (FC) (2009) Madhu Koda = $800 million (SC) UIDAI = $1 billion (FC) Vasundhara Raje land scam = $4.4 billion (FC) (2008) Satyam = $1 billion (FC) (2006) Scorpene Deal = $10 million (FC) (2005) Oil-for-food programme (Natwar Singh) = $10 billion (FC) (2004) Gegong Apang PDS = $200 million (ST) (2003) Taj corridor = $44 million (SC) (2002) Kargil Coffin (MC) (2001) Ketan Parekh = $200 million (FC) Barak Missile = $200 million (FC) Calcutta Stock Exchange = $2 million (FC) (1997) Cobbler scam = $214 million (FC) Sukh Ram = $5 million (FC) SNC Lavalin = $10 million (FC) K Desikan (Singapore ) 18 Nov, 2011 06:35 PM The writer is intentionally writing a powerless essay on black money. Not that he does not know ,but for whatever reason he has simply fille pages. Big business creates max black money over invoicing,under invoicing,unrecorded business revenues, corruption ,gifts of various kinds. Only a benevolent dictator can hope torid India of this evil. No big wig will be punished.this will serve askeysubject for a few election given our legal system known for its protracted delay in delivering justice(?) READ ALL COMMENTS

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