A joint working group of leading agencies, including the Income Tax, Enforcement Directorate, Serious Fraud Investigation Office and also having representatives of the RBI and Security Exchange Board of India, recently deliberated on unrestricted flow of black money through RTGS in different accounts before reaching actual beneficiaries. The agencies are of the view that all banks should integrate CBS with each other and use data analytics and artificial intelligence to trace end beneficiaries.
The government had in the past few years deregistered more than 6.5 lakh companies which were inactive and had not been filing their returns. Lakhs of these companies had no business activity but had significant monetary transactions. Investigative agencies like the Income Tax and ED identified thousands of them operating as shell companies merely to launder black money.
At a recent meeting of the joint working group, coordinated by the Central Economic Intelligence Bureau, an arm of the finance ministry, the matter came up for discussion where members suggested that tracking layered transactions of similar amounts could throw more light on several business enterprises still indulging in laundering of black money using the banking channel.
It has been proposed that using the data analytics flow of funds of similar amount into multiple bank accounts could easily be tracked if all banks integrate their CBS. The RBI, which regulates all banks, has been requested to look into the matter and work towards integrating these banks through a common CBS.
Each of the commercial banks have already integrated all their branches through own CBS, but once the funds are transferred to any other bank, the tracking is difficult at the source. After the Punjab National Bank fraud in the Nirav Modi case came to light, it was found that the bank had not been entering certain international transactions made through SWIFT software in their own CBS that made it difficult for detection of the fraud for several years. Soon after, the RBI in 2018 issued guidelines making it mandatory for all banks to integrate their SWIFT (Society for Worldwide Interbank Financial Transaction) with the CBS.
After demonetization of high value currency notes in 2016, the ED had drawn a list of top money launderers and number of shell companies they used to transact unaccounted money. At the top was one Afroz Mohammed Hasanfatta and Madanlal Jain of Surat who had remitted money to Dubai and Hong Kong through forged bills of entry. Together the duo had laundered Rs 5,400 crore through 30 of their shell companies.
Another company, NKS Holdings Pvt Ltd of Delhi, allegedly laundered Rs 3,790 crore using 95 shell companies, followed by an accused in the Bank of Baroda case in Delhi where 115 shell companies operated to launder Rs 3,600 crore and remittances sent abroad, according to ED report. These companies accepted black money of clients and converted them into share premium through shell companies to make them look as legitimate business transactions.