Demonetisation: Cash-in-hand entries, dummy accounts absorb old hot cash

With too many intermediaries in play, commission rate touches 50 per cent

Written by Jay Mazoomdaar | New Delhi | Published:November 26, 2016 1:57 am
Demonetisation, demonetisation banks, Banks notes, banks notes counting, old notes, Old currency, old Rs 500 , 1,000 notes, Currency demonetisation, demonetisation effects, old notes usage, old notes bundles, india news, demonetisation news, indian express news A bank employee takes out a bundle of old 500 Indian rupee banknotes from a sack to count them inside a bank in Jammu. (Reuters photo)

The black market margin for ‘parking’ or ‘changing’ illegally held cash in old notes has jumped to 45-50 per cent from 25-30 per cent charged in the first week of demonetisation. The catch: Neither parking nor changing can wash the money. After paying a cut, the rest will still be in black, only in new notes. Companies with false cash-in-hand entries are raking in the money by absorbing cash in old notes from clients for a margin of up to 50 per cent. According to market sources, this has been by far the quickest channel to park large stocks of high-value old notes since the demonetisation.

“This is a golden window for those who had channelled funds as undisclosed investments and dressed up their books with large entries of non-existent cash-in-hand. They had to anyway arrange for the cash and deposit it after demonetisation. With so many illegal cash holders willing to chip in, they are now also charging a hefty commission now,” said a Hyderabad-based chartered accountant who helped clients on both sides of such deals.

“The process allows money to be parked as white in the accounts of such companies only temporarily. When returned, it will be black again. Besides, those who falsely showed high cash-in-hand in their books anyway had to find the cash to take to the bank after demonetisation. Getting too greedy or waiting for deals with high cuts may backfire if they can’t arrange for cash in time,” cautioned a lawyer in Nagpur who claimed to have brokered such deals for under 35 per cent last week.

Besides the cash-in-hand route, some companies have opted for paying advance tax on high volumes of projected profit to absorb hot cash. “It’s risky if a company suddenly claims very high profit. But if one shows reasonable, say 20 per cent, surge in the books of hundreds of dummy companies, a lot of cash can be absorbed without necessarily alerting the authorities,” explained a chartered accounted based in Delhi.

Some are confident that they will be able to deposit old notes throughout the financial year. “Old notes being still accepted in fuel outlets, medicine and seed shops etc, there is no reason why a company can’t take old notes to banks till March 2017 as long as it can justify the source one way or the other,” claimed a Mumbai-based operator offering to park “unlimited old notes” for a 50 per cent cut.

The more elaborate means to park old cash is depositing up to Rs 50,000 each in hundreds of basic accounts under the Jan- Dhan Yojana. But it requires large networks to channel any substantial amount and may not escape the government’s radar, particularly if dormant accounts are used.

Instead, what has gained popularity among the hot cash holders is the parking service provided by a section of accountancy and trading firms who control hundreds of dummy demat accounts created for distributing dividend.

“We always had such accounts and also opened in bulk when the share market crashed a few months ago. Each dummy demat account is linked to a dummy bank account created with identity cards of mostly migrant workers without their knowledge. These are all doubling up now as parking accounts,” claimed a Bengaluru-based chartered accountant who offered to “settle any amount at Rs 2.5 lakh per account” for a 45 per cent commission.

“Unlike Jan-Dhan accounts, the advantage with these accounts is three-fold. First, these were already being used for trading and are not non-operational accounts with little or no balance where sudden cash flow would raise eyebrows. Second, you can park five times the money in each account. Third, the eventual withdrawal process will be a lot more organised,” explained a partner in a Kolkata CA firm that offered “more than 500 accounts for 40-50 per cent” depending on the transaction volume.

But even short-term parking of hot money requires trust. For those looking for immediate exchange, many intermediaries have entered the market and are pocketing an additional margin of up to 10 per cent.

“We are getting many new clients looking for on the table exchange. Few of them can contact the actual operators. Going through an agent keeps them insulated and makes it easy,” explained a Ghaziabad-based agent who offered to change up to Rs 3 crore daily “anywhere in South Delhi” at a 35-40 per cent margin.

Some of the agents The Indian Express could contact did not require a pre-introduction and were upfront and competitive about the services on offer. It all depended on their ability to generate “false white entries” in their accounts and their capacity to draw new notes far above the daily limit in arrangement with certain banks.

A Bengaluru-based “transport provider” who identified herself differently as Swetha and Saraswati to different clients, offered the service for “30-plus-10” per cent commission. “Our companies have paid advance tax. Then, there is white income from properties. We can do up to Rs 5 crore daily till mid-December but you have to tell us a day or two in advance. We have done for local clients but people are also coming from Hyderabad and Chennai,” she claimed.

The options on offer are simple:

If a client has “receiving capacity”, money will be transferred from a company account through RTGS as soon as the client deposits old notes in that account. An agent who offered the service on behalf of a “big leather company” claimed that the staff at two private bank branches in Bengaluru “have been paid off” to beat the “queues and chaos” at deposit counters.

Within 24-48 hours of striking a deal, the agent brings new notes — mostly 2000s, some also offer a limited number of 500s on demand — to the client at a safe place, usually a hotel room. Checking and counting old notes can take up to six hours depending on the amount before the new notes are handed over.

“The risk of carrying bundles of old notes is nothing compared to moving so many new notes. Yet, we are ready to bring the cash to any private place of your choice. Once you exchange, the new notes are your liability. High-value currency in smaller size is easier to handle. But I can also organise a safe transporter for an extra 2-5 per cent if you require,” said an agent who operates in Mumbai and Goa.

A Hyderabad-based agent who identified himself as Sanjay, however, discouraged shifting cash long distance. “Changing Rs 5 crore won’t take long and you can go back to Delhi the same day. But trains are risky these days and it’ll be a very long drive,” he cautioned.

The cuts are set to soar though. “If you confirm the amount now, we will offer you this rate (40 per cent) for the next three days. After that we will charge current market rate. If you delay, the cut may go up to 60-70 per cent by the end of the month,” warned the Bengaluru-based agent.