India’s demonetisation may have positive impact on TBML

India’s so called demonitisation measure under which 500 and 1,000 rupee banknotes are being withdrawn appears to be having some positive impact on the fight against trade-based money laundering (TBML).

Earlier this month, an expert in illicit fund flows (IFFs) said that India’s decision to withdraw large denomination notes from circulation will damage the economy but it will not have a big impact on money laundering.

Profits slashed

According to media reports, a New Delhi-based importer of electrical goods from China stands to see its profits cut by 50 per cent now it is no longer be able to under-invoice the goods it buys.

The company has reportedly been importing goods from China for years while under-invoicing them to save on customs and taxes in India.

Hawala remittances

The shortfall between the amount due to the Chinese supplier and the invoice value has historically been paid into the bank account of the seller in Hong Kong through hawala cash remittance channels.

But since the government banned 500 and 1,000 rupee banknotes the company has found it harder and more expensive to use the hawala system.

Vast differences

One customs officer is reported as saying that it is not unusual for traders importing goods from China to show just 10-20 per cent of the true price of goods on invoices.

But the impact of the demonetisation process on TBML will nevertheless be limited according to IFF expert, Professor Arun Kumar. He reckons cash is used in just 2-3 per cent of transactions in India’s entire economy (Trade Based Financial Crime, 2 December 2016).



Categories: Trade Based Financial crimes News