Axis Bank IT raids show how crooks have found a way around note ban

The fake accounts found in Axis Bank’s Noida branch, which were opened in the names of workers posing as directors of shell companies to deposit Rs 60 crore, shows the cracks in Prime Minister Narendra Modi’s demonetisation plan. This is just one example how crooks have found a way around to get their ill-gotten wealth into the formal system through benami bank accounts.

Representational image. Reuters

Representational image. Reuters

The reports quote investigators saying these bank accounts were opened using forged documents, which tells us that it can’t possibly happen without the active connivance of bank officials. This needs to be probed. Remember, Axis Bank isn’t witnessing this problem first time. A few days back, IT sleuths had found 44 fake accounts in the same bank’s Chandni Chowk branch, where about Rs 100 crores were deposited. But, in a larger perspective, Axis Bank incident is only a symptom of a larger problem of how tax cheats use the benami channel to give the laundered money a legitimate colour.

This raises a big question that how much illegal money would have entered to the banking system since note ban through benami accounts with or without the knowledge of bank officials. How much of such unaccounted wealth has already come out is another unknown information.

As Hasmukh Adhia, revenue secretary, said black money doesn’t turn white just because it is deposited in a bank account. It could also be a way of diverting the illegal cash to other forms of assets. For instance, in the Axis Bank case, tax officials suspect that these funds would have been routed through the bank to buy gold. By doing so, the original tax cheat escapes by paying nominal penalty but in the process turning his whole booty safe.

Now, extrapolate this situation to the entire banking system, where close to Rs 13 lakh crore deposits have already come since 8 November, including those in the Jan Dhan accounts. It shows the challenge of the taxmen to unearth the significant lot of black money from the banking system. Like fake accounts were opened in Axis Bank branches, many employers have passed bundles of old Rs 500, Rs 1000 notes in small units to their employees asking them to deposit in their accounts with an understanding to return it later. In such a scenario, the original taxcheat, unless gets caught, will not pay any penalty. He holds a good chance of escaping without any trouble.

The Axis Bank episode should put taxman’s attention immediately to three other issues:

First, the record surge of deposits just before the demonetisation announcement. There has been an increase of close to Rs 6 lakh crore in bank deposits in the three months leading up to September — the highest ever recorded quarterly jump in the past 19 years at least, according to an analysis by Firstpost's research team. How do the government and the RBI explain the unusual surge in bank deposits in the July-September quarter, something that has surprised most economists given that in the previous quarters, most banks reported a negative growth in deposits, and the economy is still in a slowdown phase. In the light of the Axis Bank episode, there are reasons to thoroughly probe the July-September deposit surge where there is a strong possibility that black money hoarders, who somehow knew about the demonetisation plan, would have injected their funds through benami accounts to escape trouble.

Two, then there is a dubious jump of Rs 21,000 crore in Jan Dhan Yojana accounts in just two weeks post the demonetisation points to multiple possibilities--the dark side of the loose Know Your Client (KYC) rules that were used to open these accounts. Also, the vulnerability of poor for exploitation by smart crooks who could have used these accounts to make part of their ill-gotten wealth legit, may be paying a commission to the account holder. Remember, some of these are accounts where, at one point, bankers had to put Re 1 coin from their own pockets to technically erase zero balance status. How did these bank accounts, supposedly held by the unbanked poor, suddenly turn cash-rich needs to be investigated in detail.

Third, the spike in cooperative bank deposits into commercial banks in the initial days of demonetization. According to a report in Times of India, the district credit cooperative (DCC) banks in Maharashtra alone got Rs 5,000 crore in old notes in banned denominations of Rs 500 and Rs 1,000 in just four days, between 10 November to 14 November, when they were allowed to accept old currencies. Soon, the government banned cooperative banks from collecting old notes in exchange of new notes. But, here too, there is a likelihood of massive foul play since these institutions have a reputation of being connected to politicians.

It is foolish for someone to believe that crooks will walk into the bank, disclose their ill-gotten wealth and pay the 85 percent penalty. As former RBI governor, Raghuram Rajan said, they will always find a way around. Axis bank episode is only one. There are many. The challenge lies with the tax officer.


Published Date: Dec 15, 2016 05:10 pm | Updated Date: Dec 15, 2016 05:35 pm


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