'Fake Rs 10 shares sold for Rs 25,000': Ex-ED chief breaks down money laundering methods

Former Enforcement Directorate (ED) Director Karnal Singh has outlined how criminals and corrupt politicians launder black money in India - and how some, even after being jailed, have gone on to become ministers. "One of the most common ways people launder money is through the banking sector," Singh explained in a podcast conversation with Raj Shamani. 
 
"Funds are invested in real estate or routed abroad using hawala channels. Then there's trade-based money laundering - using over-invoicing or under-invoicing to move large sums out of the country. Within India, people invest in properties under benami names, or set up industries under someone else's identity."

He detailed how illegal money is turned white: "Let's say someone has proceeds of crime. They take a bank loan, start a business, and inject black money into it through fake invoices. The business may not even be operational, but they show revenue. Now that money appears legitimate."

He recounted how a politician in Maharashtra ran a network of 300-400 shell companies to launder cash from corruption. "He sent cash into these shell firms in tranches of Rs 45,000 - just below the Rs 50,000 threshold that triggers reporting to the Financial Intelligence Unit. These were then routed through layers of bank accounts and eventually reinvested in his own company. He sold Rs 10 shares for Rs 25,000, then bought them back later at Rs 2. Money returned, shares returned."

Singh, who served as ED chief from 2015 to 2018, clarified that not all shell companies are illegal: "You may open a shell firm to manage pre-launch costs of a future business. But when there's no actual work happening — only cash transactions — that’s where suspicion starts."

He added: "Some of these people were caught and jailed, but even after that, they became ministers again."

Singh recalled a 1999 case involving Rajan Tiwari, a contract killer who murdered a Bihar minister inside a hospital. "I was in the Crime Branch then. We traced him. Years later, in 2017, I was testifying in court and realised he was sitting behind me. He said, ‘Sir, you trapped me.’ That man had become a minister. The problem is, unless there's a conviction, such people can still contest elections. Voters don't always seem to care whether a candidate is a criminal or not."

Asked about the most creative laundering operation he'd seen, Singh pointed to the Bank of Baroda case, where Rs 3,600 crore was sent overseas under the pretext of advance payments for imports that never arrived. Thirteen accounts were used. When we traced them, we found the directors were slum residents paid Rs 10,000 a month. After KYCs were completed, offices were shut. Money was over-invoiced for exports. Someone would open a foreign company, send over-invoiced goods, and bring back inflated amounts, taking advantage of the government's duty drawback scheme."

In another case from Mumbai, Singh described how a company applied for a Rs 6,000 crore loan for importing diamonds, then diverted the funds. "They opened a company in Dubai with a local partner. The promoter fled, leaving his servants listed as directors back in India. He eventually took up a new citizenship."