Top 12 Ways Black Money Is Converted Into White in India

In India, black money refers to income earned through illegal means, kept away from taxes, and thus influencing the development of the country. The money is transferred through different methods, taking advantage of the gaps in the law. The twelve most popular ways are: putting money into houses, different businesses, and stocks, using fake companies to transfer money, and layering transactions, eventually making it look “clean” or legal.

Investing in the Stock Market:

The stock exchange is often used as a platform for money laundering through a collaboration with brokers or operators. The whole process begins with a person who has clean, tax-paid money buying shares of a small, easily manipulatable company at a low price. Subsequently, the person with black money purchases these shares from the first one at a very high price, paying a part of the difference in cash outside the market. To the outside world, this is just a normal trade. At last, the buyer resells the shares, getting the now-“white” money in his bank account as legit capital gains, with any loss written off as the cost of the cleaning service.

Benami Bank Accounts:

Benami Banker Accounts consist of the process of deceitful money laundering by opening an account in the name of another person (such as a family member or a worker). The person concealing the money puts the illegal cash in this account, usually in tiny pieces. Slowly, this money becomes part of the banking system. After that, it can be taken out or transferred back to the actual owner as a “loan” or “gift,” which makes the black money have a clean and documented source. Although this method is not legal according to the Benami Act, it is still used as a way of faking identities and exploiting trust to get undetected.

Agent-Mediated Currency Exchanges:

Agent-Mediated Currency Exchanges are a prime example of illegal forex networks being utilized to convert dirty money. A person hands over their black money which is in rupees to a local representative. The overseas partner of that representative then transfers an amount in foreign currency equivalent (such as dollars) into the person’s international bank account. This process results in creating clean money overseas.

In order to completely hide the transaction, the money that is out of the country already is then brought back to India through legal-looking channels like fake foreign investments, imports, or consulting fees. After it has entered the Indian banking system from abroad, it is treated as if it were legitimate foreign income thus really converting the original black cash into white money. This tracing is quite difficult because there is no direct connection between the domestic cash and the clean funds that are returning.

Shell Companies and Layered Transactions:

Shell Companies and Layered Transactions are ways of laundering money through creating fictitious, solely on paper businesses. The first step in the process is depositing the black money into the bank account of a shell company where it is masked as fake sales or loans. After that, the money is moved from one shell company to another and through various accounts, creating the “layering” effect. Every transfer makes it more difficult to trace back.

Eventually, after several layers, the money which has turned to be “clean” now gets into a legitimate business or personal account, looking like legal income or investment profits. This way, the illegal origin of the money is covered by a vast area of intricate transactions.

Producing or Funding Films in Bollywood:

Producing or Funding Films in Bollywood is a popular method for laundering money, mainly because of the industry’s considerable cash flow and creative accounting. Black money is invested as production capital, a large part of which is then used for expenses paid in cash. On paper, costs are ridiculously inflated – a ₹50 lakh set might be recorded as costing ₹2 crore. This inflated budget absorbs the black cash and thus the black cash gets a legitimate reason to exist in the project’s finances.

The film’s revenue coming from tickets, rights, or the like will be considered as clean and white money, received through official channels. Even if the film does not perform well commercially, the primary goal – turning black cash into accounted-for funds with an unassailable source (film business) – is accomplished, with any loss classified as a business expense.

Investing in Small Savings Schemes:

The Investing in Small Savings Schemes scheme involves using NSC (National Savings Certificates) or KVP (Kisan Vikas Patra), which are government-backed instruments, to carry out money laundering. Usually, the one who possesses the black money buys these certificates with cash and puts them in the names of family members. Thus, the cash has entered the formal system as a legitimate savings investment.

After the prescribed time limit, the certificates will be redeemed. The original investor is handed a clean cheque or a bank transfer of the principal amount and interest. The money is now turned into white, looking like a documented income from a government scheme. Even though there are stricter regulations now to monitor large cash transactions, this method was still a low-profile and easy way to convert black money.

Forfeiture of Advance Payments (Section 51 Exploitation):

Forfeiture of Advance Payments is a strategy that takes advantage of a real estate contract loophole. Someone with illegal cash plays the role of a non-existing buyer, pays a huge sum in black cash for a property in advance, and enters into a contract that includes a forfeiture clause. They then pull out on purpose, allowing the seller to legally keep the money.

The seller, in turn, gives back to the “buyer” the same amount out of his own legitimate, white funds – camouflaged as a loan or a fee. This process exchanges the black cash for clean money, and the legal forfeiture agreement creates a paper trail that supports the transaction.

Fake Loans from Friends or Relatives:

Fake Loans from Friends or Relatives generate a legal paper trail for unaccounted cash. A person gets a check or bank transfer as a “loan” from someone with legitimate money, and it is backed by a signed contract. This is now considered documented, white money.

In actuality, no genuine loan takes place. The person taking the loan clandestinely gives back to the lender through unaccounted cash offline the same amount. The money in the bank is now clean, and the loan documents act as an explanation that is ready for the tax authorities.

Donations to NGOs, Trusts, or Religious Institutions:

The process of Donations to NGOs, Trusts, or Religious Institutions consists in making a donation in the form of black money and receiving a valid receipt as a return. Subsequently, the organization gives back the same amount of white money to the donor or their associates through different means like overpriced contracts, fictitious allowances, or payment for services. Thus, the black money gets changed into clean, evidenced funds with a charitable paper trail.

Purchasing Gold or Jewellery:

Purchasing gold or jewellry makes the process of converting black cash into a physical, high-value asset easier. A buyer takes undisclosed cash and buys gold or diamond-studded jewelry, usually with a small amount or no receipt at all. After that, they sell it to another dealer, who insists on compliance, or a bank, receiving payment by check or bank transfer at the prevailing price. The whole process makes the black cash legitimate and documented as income from the sale of a personal asset.

Hawala Networks and Round-Tripping:

Hawala Networks and Round-Tripping are used for making illegal transfers of black money out of the country and then bringing it back in as foreign investment that is free of tax. Initially, the black money in rupees is handed over to a hawala broker in the local area. The foreign partner of the hawala broker deposits the same amount in a foreign currency in a foreign account.

Subsequently, the foreign money is returned to India through round-tripping as official Foreign Direct Investment (FDI) or business capital from a shell company located abroad. It is received by the Indian banking system as white money from a foreign source thus the original black cash is effectively laundered.

Real Estate Transactions with Partial Cash Payments:

Real Estate Transactions with Partial Cash Payments essentially mean that the sale price of a property is purposely stated lower on the official documents. The buyer hands the seller the difference in cash under the table. To illustrate, a flat worth ₹2 crores may get registered for just ₹1 crore, while ₹1 crore is paid in cash.

This enables the seller to possess black money that is tax-free and allows the buyer to get an asset at a lower official price. The black cash is thus incorporated into the real estate market, and the property in question becomes a means to keep and later change illegal money into legitimate money.

Conclusion

In India, black money laundering is an active process and it involves cash-heavy sectors, poor enforcement, and ingenious minds coming up with new ideas constantly. The 12 ways show how simply the ill-gotten wealth turns into legal through real estate, gold, hawala and Bollywood. The government’s demonetization, implementation of GST and monitoring of transactions have really impacted the old methods, however, the issue is still there. The real victory will require simplified tax system, tough enforcement, and a public that no longer accepts black money. Otherwise, it will always manage to sneak in the back door and convert itself into white.

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