THE finance ministry is investigating the rampant misuse of bank drafts, which have turned tools for money launderers to transfer big sums of money.
According to a report of the economic intelligence bureau of the finance ministry, ‘street financing’ is the latest method through which bank drafts are used for money laundering. The amount of transaction through this route may be in excess of Rs 5,000 crore annually, said a finance ministry official, who asked not to be named.
The finance ministry is expected to discuss this issue with public and private sector banks and banking regulator RBI. “This is a serious concern as a lot of benami transactions are being done. Further, there is also a loss on taxation,” the finance ministry official said.
This is how Street Financing works: a person makes a draft payable in the name of another person from any particular bank for an amount less than Rs 49,000. This person on whose name the draft is made further endorses it in the name of another in lieu of payment for purchase of goods or services. However, the chain doesn’t end here and the draft is used as a payment check, without real money changing hands. In the end, there is a clique, who deposit these drafts in their bank accounts and take a commission of 1-2% to encash them.
According to an official with a Delhi public sector bank, street financing may involve people who deal in unaccounted money or traders who want to avoid the tax net. “Traders have been using this channel for long, especially those involved in cross-state transactions. They don’t want to deal in huge amounts of cash and drafts serve the purpose as they are easily transferable. But it’s possible that some people can use this facility for nefarious reasons,” he said, requesting anonymity.
Source: The Economic Times, 21/05/09
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