Macro Moves

Money Laundering: Most Infamous Scams in India

Created on 11 Nov 2021

Wraps up in 6 Min

Read by 10.6k people

Updated on 12 Sep 2022

We've all heard the phrase, "Money is the root of all evil", well as far as history suggests, the original phrase goes in the Bible, "For the love of money is a root of all kinds of evils." Money inherently isn't evil; it is the human aspect of an unhealthy love towards money that gives rise to problems. Well, unfortunately, this unhealthy obsession has survived the trial of time, and some people have taken it too far by finding loopholes in the monetary and legal system to feed their greed.

Today we tread some grim grounds as we look at the criminal aspect of money laundering that plagues the global monetary system. But before that lets understand what money laundering actually is. So, Let's dive in!

What is Money Laundering?

Money laundering is a criminal activity through which illegitimate money is turned into a legitimate source of income. The money is passed on through multiple complex transactions to make it look like it originated from clean sources. The principal reasons for this are the existence of corruption in the system. 

These actions have adverse effects on the economies of the different nations. Every year trillions of dollars are operated through money laundering. Though there are laws to control this, they are not very effective. 

Every year, money laundering accounts for 2-5% of the global GDP.

A lot goes into doing this dirty business. Let’s look at what it takes to launder money and how it works.

How does Money Laundering work?

In simple sense, money laundering is just a process of converting illegal money into legal and this process is quite complex and goes through various phrases where the money is transferred to an authentic institution then the conversion starts. 

To understand it clearly read further about how money laundering works. Which is formally divided into following processes.

1. Initial Placement

In this stage, the illegal money is transferred for the first time. It is transferred to some legitimate institution. As this money enters the banks in such a manner, default cannot be predicted. Usually, large amounts of money are admitted into the financial system in small batches to ignore any suspicious activity.

2. Layering

The stage where traces of criminal activity is removed with the help of complex financial transactions. Here, money is also transferred to countries with strict secrecy laws to erase the origin of the funds. This is done through shell companies as well.

3. Final Integration 

Here, the money can be used legally. Now it has become legitimate in the eyes of others without hiding its origin. And at last, laundered money enters into the banks again.

Although there is a long list of ways through which this could be done, here are just a few ones ranking on top.

Money laundering is and has always been illegal there are various measures taken by governments around the world to curb it. Some of the actions that can be taken to control it are as follows.

Actions to control Money Laundering

A large chunk of people involved in money laundering do it through fake exports,  They also do it through expensive antiques & paintings and even through stock markets. To curb these practices a lot of measures can be taken such as:

  • An unorganized and underdeveloped economy needs to be controlled to keep a check on money laundering. 

  • Government should design policies so that tax evasion becomes impossible for the companies. 

  • All the money transactions from production to consumption need to be monitored to prevent any kind of illegal activity. 

  • Banks should enhance their due diligence and know their customer processes before dealing with their customers to put a stop to money laundering practices. 

There are authorities on national and international level to keep a check on this issue. Below you’ll find out more about them.

Authorities in charge of Money Laundering Investigations

Money laundering is not specific to any country but is a global issue. The G-7 formed the Financial Action Task Force on Money Laundering (FATF) to produce more effective financial regulations and anti-laundering laws. Because money laundering is a critical component of terrorist organizations that are typically supported through illicit activities, the FATF has been tasked with preventing unlawful financial flows to terrorists and terrorist organizations. In India, the Directorate of Enforcement in the Department of Revenue, Ministry of Finance is responsible for investigating offences of money laundering. 

Now, you are in an interesting section. Who doesn’t love to hear gossip about scams and scandals! Below are some of the most famous money laundering cases in India.

Past infamous cases of Money Laundering in India

Let’s visit some fabled money laundering scams in India that mostly everyone has heard of. From commonwealth games to group financial scandals.

Commonwealth Games Scam

This scam happened in 2010. The amount of money involved in this scam is INR 70,000 crores. It was being said only half of the amount allocated for commonwealth games is spent on the event and the sportspersons. There were delays in the payments to actual workers while suspicious payments were made to non-existent parties. And equipment prices and other expenses were overinflated, and there was misappropriate use of funds.

Sheila Dixit, then chief minister of Delhi, and Suresh Kalmadi were involved in this scam. 

Indian Coal Allocation Scam 

This scam happened in 2012. It consists of INR 185,591 crores. It is one of CBI's most longing cases. The government chose to allot coal blocks to private firms that were not part of Coal India Ltd's and Singareni Collieries Company Limited production plans (SCCL) in the early 1990s. But they were just allotted and not auctioned, leading to the loss of INR 185,591 crores as reported by the Comptroller and Auditor General of India.

The Supreme Court of India has cancelled the allocation of all the 214 coal blocks given since 1993. Now, these blocks need to be reallocated. 

Group Financial Scandal

This scandal happened in 2013. This occurred when a Ponzi scheme by Saradha Group ( a consortium of 200 private companies) collapsed. The money was collected from various small investors. This scheme became popular due to its promise of higher returns in just a few years. It raised around INR 2500 crores. The total number of investors who invested in this scheme is around 1.7 million. In January, it was found that the company's inflows were lower than its outflows.

The Supreme Court of India transferred all investigations related to this case and other Ponzi schemes to the Central Bureau of Investigation (CBI).

There are so many more such cases in line but this might do for today.

The Bottom Line

Greed can be a strong driving force of destruction, with money laundering hurting economies by creating lopsided demand for money as well as the destruction of private sectors by cutthroat competition or sterilization of thriving companies to act as fronts for laundering. 

On a micro-scale, the general public suffers too, as damage to the economy on the larger scale also hurts its residents, the stagnation of money in fewer hands causing greater income disparities between the rich and poor. 

A stronger legal system with proper consequences to those who choose this crime along with a system that recognizes the efforts of those who do contribute might be necessary, as realistically speaking, greed(the real problem here) might be a bit too deeply seated into the human mind to so easily remove.
Let us know what you think of the current state of money laundering, and share this article with your friends to spread awareness.

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Kanishka Tayal

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Kanishka is a finance enthusiast, currently pursuing her master's in Banking and financial services domain. She loves to doodle in her spare time. She is a keen learner and is willing to pursue her career as a financial analyst.

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