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What is Money Laundering?

Money laundering simply means conversion of black money (DirtyMoney) into white money (Clean Money) where the black money may not become white legally but appear to have become so. The process of Money Laundering is also known as Jama Kharchi in India. Some of the prevalent practical methods are discussed here.

1. Creditors:

Mr. Black Money who have crores of black money and wants to use it in his business then he uses modus operandi to straightaway buy Raw Material, Capital Goods or some other service in black money and show them in his books of accounts as a credit purchase. The catch here is that the actual payment has already been made in the Black Money. The above process gives rise to the fictitious creditors in the books of accounts.

2. Donations to Political Parties:

Black Money corporation decided to donate Rs. 1 crore to Political party. It saves tax to the extent of 25.17% (including cess) which comes out to be 25.17 lac rupees. When political party receives such donations of Rs. 1 cr, it again does not have to pay any tax over it. In this way the government loses Rs. 25.17 lacs as taxes. Now the political party who has black money returns the black money to the Black Money Corporation after charging their commission. In this way

The company got a deduction of Rs. 25.17 lacs, the political party got white money to spend on their campaign.

3. Assignment of FD’s

Mr. Blackmoney has Rs. 1 crore of blackmoney which he wants to convert into white money for use in his business. Mr. Blackmoney approaches Mr. bank manager who is working at Take and Give Bank. Mr. Bank manager also knows that one of the customer Mr. whitemoney has got sufficient money invested in the form of FD in his bank branch. Mr Bank Manager convinces Mr. whitemoney to assign his FD of Rs. 1 cr in the favour of Mr Blackmoney. The FD gets assigned in the name of Mr Blackmoney. Now Mr. Whitemoney receives Rs. 1 crore in the form of Black money from Mr. Black money.

Once the FD is assigned in favour of Mr. Black Money, Mr. Bank manager gets a loan of Around 90 lacs sanctioned to him from his Take and Give Bank after marking lien on the Fixed deposit assigned him. In this was Mr. Blackmoney got low cost borrowing, avoided processing fee from bank and also, he will get interest as allowable expense for his business. Mr. Whitemoney also got some more monetary benefits due to this whole process.

4. Overstating and laundering through fictitious sales

Mr. Whitemoney lends Rs. 20 lacs to ABC Construction company, at an interest Rate of 15% p.a. They do not want to show it as a loan transaction. This amount of Rs. 20 lacs are shown as sales by XYZ company and an apartment of Rs. 2 crores are booked in the name of Mr. Whitemoney, showing Rs. 20 Lacs as booking Amount. Now Mr. whitemoney is secured against his loan. Due to this whole transaction, ABC Construction increases sales in its books of accounts without recording the actual loan. Due to this when ABC Construction company actually go to any bank for a loan, then they can negotiate better terms as against sales.

Mr. Whitemoney is paid interest amount in black money and subsequently booking gets cancelled. The apartment comes back to ABC Construction Company and Mr. Whitemoney received back his principal amount.

Please note Government has Brought tough laws to tackle the issue of Black Money and none of the above method is such which is full proof and department always have ways to crack such modus operandies. Author strongly discourage use of Black Money or any kind of Tax Theft.

By CA Sanjeev Mittal


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May 2024