Data Suggests Jan Dhan Accounts Were Used for Money Laundering

The government is caught in a Catch-22 situation. On the one hand, banks appear to have been the biggest laundry for unaccounted cash, with 99.3% of demonetised currency having returned to the banking system. But, on the other, it now turns out that the Pradhan Mantri Jan-Dhan Yojana (PMJDY), which is touted as a ‘boon to the poor people’ of India, was an important route for laundering this cash and depositing it in banks. Many experts had warned that this would happen, especially after the Aadhaar linkage. We now have proof.

The sums deposited are staggering, as revealed by Right to Information (RTI) queries by Moneylife. United Bank of India alone has admitted to a gigantic deposit of Rs93.82 crore in a single Jan Dhan account. While this was, by far, the largest deposit, several nationalised banks have also admitted to deposits running into crores of rupees in Jan Dhan accounts.

The largest single deposit in Bank of India was a hefty Rs3.05 crore; Union Bank of India admitted to Rs1.21 crore; Bank of Maharashtra to Rs98.45 lakh and Dena Bank admitted to Rs94.45 lakh as the highest deposit in a single account. This information is not complete. It pertains only to those public sector banks (PSBs) that bothered to respond to RTI queries. It is another matter that one bank now claims that it has converted the Jan Dhan account into a regular one. That and other issues is the subject of another article.

Moneylife also sought information on the number of accounts with deposits of over Rs1 lakh. Of the 16 banks that provided this information, only Indian Bank appears to have been fairly circumspect in accepting large deposits. It had only 198 accounts with deposits of over Rs1 lakh. United Bank of India has 1.18 million Jan Dhan accounts with deposits of over Rs1 lakh. Union Bank of India had 0.32 million, Oriental Bank of Commerce had 0.28 million, Bank of Baroda 79,240 and IDBI Bank 68,147.

The government has been emphatic in asserting that Jan Dhan accounts were aimed at financial inclusion and to provide basic banking facilities to unbanked Indians and a small insurance cover.

These accounts were for the very poor Indians who have no access to the formal banking system and need to be included so that subsidies and State benefits and pensions can be credited to their accounts without being gobbled up by corrupt intermediaries.

With this objective, Jan Dhan accounts were allowed to be opened with just an Aadhaar card (which is an incomplete and unauthenticated identity proof) or job card issued under MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) duly signed by a government officer, or a letter issued by a gazetted officer accompanied by an attested photograph of the applicant.

The Reserve Bank of India (RBI) also allowed these accounts to be opened on the basis of a self-attested photograph and a signature or thumb print (affixed in the presence of a banker). But account-holders with no identity needed to apply for some form of identification within 12 months and this low-level KYC (know your customer) would be valid for another 12 months thereafter.

The PMJDY website makes it clear that there would be specific restrictions on such accounts. They cannot have aggregate credits of over Rs1 lakh in a year, or aggregate withdrawals of over Rs10,000 in a month. Importantly, the balance in the accounts cannot be more than Rs50,000 at any point of time. This is stated on the Jan Dhan website. However, such is the confusion and lack of clarity about these accounts, that one academic has been arguing that all restrictions on such accounts have been withdrawn. More on this later.

Now consider this. The bulk of Jan Dhan accounts were opened in the massive drive that started after 15 August 2014 with banks resorting to all kinds of subterfuge and trickery to fulfil the stiff targets imposed by the government for opening such accounts.

Jan Dhan was declared a spectacular success and even made it to the Guinness Book of World Records for most bank accounts opened in one week. Over 325.4 million accounts have been reported on the PMJDY website, at last count.

It is not that the government was unaware that Jan Dhan accounts would be misused. Problems had surfaced soon after the scheme was launched. Speaking at a bankers’ conference on 24 May 2016, RBI’s then deputy governor SS Mundra had said that Jan Dhan accounts ‘very vulnerable’ to misuse for ‘money muling’.

This was nearly six months before demonetisation was announced, when there were only around 220 million Jan Dhan accounts. He cited the specific case of a labourer in Punjab in whose account Rs1 crore was deposited, which came to light only when the income-tax (I-T) authority served a notice on the account-holder.

On 5th September, the Business Standard (BS) reported that over 60% of Jan Dhan deposits after demonetisation, amounting to Rs42,200 crore (Rs422 billion), were classified as ‘suspicious’. The PMJDY website reports total deposits of Rs82,039 crore into Jan Dhan accounts, as on 29 August 2018.

The BS report quotes the finance secretary, Hashmukh Adhia, as saying that the Central Board of Direct Taxes has received 30 one-time reports from 187 reporting agencies and investigations were on. He also insists that these deposits will be considered illicit only after an investigation and validation by the courts.

This is rather surprising because we have no way of knowing whether this covers every suspicious account. It will soon be two years since demonetisation and we don't even know if all Jan Dhan accounts with crores of rupees have been frozen or whether banks have been colluding with depositors and allowing withdrawals. Given the many cases of scams in collusion with bankers, this is a high possibility, since we have only had silence from the government.

Finance minister Arun Jaitley was rather more forceful. On 6th September he tweeted: “Cash once deposited removes anonymity of its owner. Accordingly, post-demonetisation about 1.8 million (18 lakh) depositors have been identified for enquiry. Many of them are being fastened with tax and penalties. Mere deposit in a bank does not lead to a presumption that it is tax-paid money.”

Mr Jaitley does not say if these are Jan Dhan accounts; also, he is only partly correct. Cash deposited in regular, KYC-compliant savings accounts is not at all anonymous; it could be a problem only in Jan Dhan accounts. A detailed inquiry may reveal that the beneficiary account-holders may be entirely fictitious or are being used as ‘money mules’.

There is a clear case for marking every Jan Dhan account with a deposit of over Rs1 lakh as suspicious since they were never meant for stashing large sums of money; sadly however, if the account-holder has been victimised and used as a money mule, making the depositor responsible for proving the source of funds may only harass many innocents.

Our RTI application reveals that as many as 2.08 million Jan Dhan accounts in just 18 banks (which provided data) ought to be classified as ‘highly suspicious’. The actual number will be significantly higher if all nationalised and scheduled commercial banks as well as cooperative banks are included. Are these separate from the 1.8 million accounts that the finance minister has referred to?

Curiously enough, the government is not in a hurry to go after these deposits. After all, India’s political machine is greased by cash and over 69% of political funding comes from unknown sources (says the Association of Democratic Reforms). This government has only made the process less transparent with its electoral bonds. Further, one academic who works in the banking sector has been sending us long emails that are very agitated at the suggestion that there are restrictions on withdrawal from Jan Dhan accounts with full KYC. This adds another shady dimension to the whole business, since we have no idea whether all "suspicious" accounts have been detected and frozen or a few thousand or more have had the deposits transferred and withdrawn as clean, white money.

Two years is a very long time for the tax department not to show results, especially when general elections are less than a year away. What will happen with a new government at the Centre is anybody’s guess.