Given how money launderers have deposited over Rs 15,000 crore in various Jan-Dhan accounts in several states—and have even withdrawn over Rs 4,500 crore from these accounts—it is not surprising the government is investigating the matter. As in the case of those who have been exchanging old notes for new notes, those depositing the money could be mules acting on behalf of others with black money—this is why the government came out with the idea of inking depositors’ fingers with indelible ink. It could also be bank managers who were doing this without the account-holders’ knowledge—recall The Indian Express story some months ago on how, to reduce the number of zero-balance Jan-Dhan accounts, bank managers were depositing one-rupee of their own money into these accounts; if they could deposit that money, they could well have deposited this money as well. Though the Jan-Dhan accounts were set up with the noblest of intentions, there are clear loopholes if bank managers can operate the accounts—this applies to all accounts, not just the Jan-Dhan ones—without the knowledge of account-holders. The fact that Rs 49,000 can be deposited in bank accounts without a PAN card is another loophole that needs to be plugged.
While it was always expected that those with black money would find ways to convert this into white money after the demonetisation, the brazen manner of operations has probably taken the government by surprise. Along with Jan-Dhan, the North East route is turning out to be another favourite, based on the number of seizures of the demonetised notes being flown into the area. According to an analysis in The Times of India, this may have to do with the large number of tax exemptions given to members of various scheduled tribes in the area on their earnings from various sources—in one case of seized money, ToI has reported, the money was handed over by the CISF to the taxmen who returned it to a Naga businessmen who produced an income tax exemption certificate for the funds. The taxmen asking temples and charitable trusts to give them daily accounts of donations is another manifestation of the same problem—these institutions have been given tax exemptions and, not surprisingly, as in the past, enterprising businessmen or their accountants are looking to use them to launder their black money. The taxman, similarly, gives tax-exemption status to agricultural income—while this window has been abused in the past to launder black money, it is reasonably certain that it will be used this time around as well, it is just that reports of large-scale abuse have not surfaced so far. Ditto for educational institutions … the list goes on.
Despite talking of removing the plethora of such exemptions for years—especially when the direct taxes code was being discussed—no finance minister has done much so far. This time around, finance minister Arun Jaitley has to take a look at each one of these exemptions and eliminate them—those with illegal incomes will always look to find new ways to launder their funds, such as by showing huge capital gains in penny stocks, but the finance minister needs to start by at least plugging the obvious loopholes. If this is not done, not only will the current attempt to clean up black money be thwarted, there will be enough scope for laundering in the future.