Ignorant To Intentional: How The Notes Ban Is Being Scammed

New Delhi: Till 10 days ago, 40-year-old Radha (name changed) used to make ends meet by stitching clothes out of her one-room house in Tughlaqabad near Delhi. But the stark dip in her earnings due to the ban on old notes has made her desperate enough to risk using her own bank account to exchange other people's old 500 and 1,000 rupee bills for a commission.

She does not know that she could get into serious trouble for offering to do this. "I am very poor. I work as a tailor. My income has stopped (after the notes ban). Now I want these people to give me their old notes, so I can put it in my account and make the exchange."

The Finance Ministry has warned those evading tax by using other people's bank accounts to convert 'black' or unaccounted money as well as those who are allowing this abuse, saying they will be prosecuted under the Income Tax Act and could be jailed for up to seven years.

While those like Radha are just trying to keep their heads above the water following the abrupt ban on old 500 and 1,000 rupee notes - a move aimed at curbing corruption and tax evasion - there are some who are vigorously trying to scam the system.

NDTV managed to meet a property agent-turned-money launderer who admitted that large tranches of currency was being swapped illegally and, in several cases, with the participation of bank officials.

He told NDTV that it was not about converting black money into white but ensuring it stays as unaccounted wealth. "It is just about converting the invalid currency into new notes."

He explained how the poor in India - who have bank accounts but no money in it - were being used for this.

"If you are willing to wait, then the rate is anywhere between 25 to 35 per cent. If you want your money right away there is a 40 per cent cut," he said.

"For people who agree to a 25 per cent to 35 per cent cut, the person interested in the conversion goes and meets the money launderer and deposits his Rs 10 lakh with him," he told NDTV.

The money launderer then goes to labour hubs like the ones in Fatehpur Beri and Kotla Mubarak in and around Delhi to pick up daily wage workers unsure of being employed that day.

"A day-wage labourer makes Rs 400 a day, and for that, he or she works hard from morning to night. We are giving them 400 each just to stand in a queue. Why won't they do it?" said the agent.

He said that small amounts are put in accounts of such daily wage labourers and Rs 24,000 per week is withdrawn as per the government's limit.

For the customers who agree to a 40 per cent cut but want the money in a day or two, he said people working in banks were involved. "That's why we take such a big cut of 40 per cent - because we have to pay them too. Without their help, this work cannot be done."

He said government introducing the indelible ink marks limits only the exchange of old notes. "That is true only for cash exchanges, not for deposits. With this way, I can keep depositing Rs 2-2.5 lakhs in people's accounts. There are numerous accounts with no money in it for this purpose. They will withdraw every week," he said.

As it becomes harder to find people with empty accounts and also as the risk goes up, the rates of exchange will keep increasing, he said.