Black Stash Of Secret Money

Money laundering haunts governments as they struggle to adapt to crypto-currencies

- Ushinor Majumdar

When the Income Tax Dep­artment raided nine Bitcoin exchanges across the country on December 13, they did so suspecting money laundering. This was far from una­nticipated. In 2016, former Res­earch & Analysis Wing official R.K. Yad­av wrote a 46-page letter to PM Narendra Modi and Minister of Fin­ance Arun Jaitley, alerting them to closed-door seminars on crypto-currencies organised by a visiting Swiss national in the capital and in Chennai.

“High-profile persons attended the seminar and when I found out about it, I wrote a cautionary note to the PM and the FM. The Swiss national was urging people to get involved with crypto-currency. It was timed in November 2016, right after demonetisation,” says Yadav.

Yadav also pointed out that crypto-currency was being used in money-laundering and hawala to fund terrorism. In 2014-15, investigative reporters found that the Eastern European mafia were using crypto-currency to launder their proceeds from running guns and drugs.

A traditional way to launder money is to park dirty cash (earned from crime or corruption) into a business. This is done through fake invoices generated in the company’s books for non-existent or fake transactions. That cash is then dep­osited into the business’ bank accounts and declared to be income, and tax is paid on it, thus cleaning the dirty cash into “legitimately earned” income.

In the case of crypto-currency, one can convert the illicit cash into digital coins and pump it into a business to launder it. The other way is to take the converted digital currency, park it in accounts and reveal it as a capital gain on trading cry­pto-currency through exchanges.