Modus operandi of DeMo money laundering revealed

Traders made backdated entries in their tally software, petrol-pump owners inflated their actual daily sales and shell companies made fictitious entries to launder black money.

These revelations emerged at the end of taxmen’s post-demonetisation swoop on dubious cash deposits.

Investigations during Operation Clean Money (OCM) have also found that jewellers and bullion traders split bills to avoid PAN reporting, layered transactions to hide actual beneficiary and showed cash in old notes as advance for future sales.

Top co-operative bank officials used new notes from the local currency chest to exchange their own old notes instead of catering to customers.

Most account-holders whose cash transactions came under scrutiny in the first phase of OCM claimed cash sales as their source of deposits.

Among various sources of such large deposits, cash sales accounted for 57.5 per cent, followed by cash out of earlier income at 20 per cent.

The income tax (I-T) department had identified 17.92 lakh persons during this phase, suspecting them to have indulged in illegal cash transactions.

Out of this, more than 9.72 lakh taxpayers submitted their response online, providing responses for 13.33 lakh accounts involving cash deposits of around Rs 2.89 lakh crore. They also gave details of additional 41,600 bank accounts in which large cash was deposited.

On November 8 last year, prime minister Narendra Modi announced the government’s decision to scrap high value notes of Rs 500 and Rs 1,000, claiming that the move will curb the flow black money and use of unaccounted and counterfeit cash to fund illegal activities and terrorism.

The decision turned almost 86 per cent of bank notes (in terms of value) illegal in just one stroke sucking all of them overnight.

The government provided a 50-day window to people for exchanging old notes by depositing them in their bank accounts. It allowed exchanging old notes of up to Rs 4,000 over the counter at banks.

The government hoped that people, who would not be able to explain the deposits, would not deposit Rs 3-4 lakh crore.

But contrary to this, most money was deposited. The latest RBI report says that almost 99 per cent old notes came back to banking systems, putting a big question mark on the government’s estimate. Both businesses and individuals found ingenuous means to deposit their unaccounted cash. This is why demonetisation has turned out to be one of the most controversial decisions of the Narendra Modi government.

Seeking to catch hold of tax-dodgers, the I-T department launched Operation Clean Money in January this year with the aim to scrutinise suspicious deposits made during the 50-day period post demonetisation.
The probe report accessed by Financial Chronicle shows how black-money hoarders across the country tried to trick the government. In one case, a Hyderabad-based jeweller took cash advances of Rs 90 crore on November 8 from 5,200 customers. Declaration letters were, however, furnished for only 65 persons. It was also seen that cash receipts and sale invoices for these advances were for amounts below Rs 2 lakh and did not have PAN details.

An analysis of cash deposit data during the demonetisation period revealed that there were more than 110 petrol pumps under the Rajkot charge, which had deposited cash of Rs 190 crore during demonetisation.

“On an average, it was found that one-fifth is excess cash deposited in the pumps over and above the sales were made in the corresponding period,” the internal report found.

In case of a bitumen and jewellery trader based in Delhi, cash of Rs 150 crore was deposited in the bank accounts post November 8, 2016. These deposits were explained as cash sales by making backdated entries in the tally software, with all entries of local cash sales of Rs 1,99,500 each.

The enquiry into two major civil contractors of Bangalore found them to be engaged in massive inflation of expenses and investment of unaccounted income in purchase of immovable properties. 

A Kolkata-based entry operator provided entries of Rs 103 crore during note-ban to more than 120 beneficiaries, most of which were in Delhi. Entries were provided through 198 bank accounts linked to shell companies through RTGS and cheques. The I-T department has prepared the cash trail of Rs 103 crore for further action.