The drivers and dynamics of money laundering mechanisms: the case of India

This thesis examines the fundamental institutional changes and continuities in the Indian economy from an institutional-structural lens, i.e., India’s economic reforms of 1991. These reforms signaled a paradigm shift resulting in significant changes in monetary and fiscal policy. This study acknowledges preexisting systems of money laundering and explores whether, or not the introduction of open market reforms in India has facilitated the emergence of more complex money laundering mechanisms. These include capital flight and development of sophisticated book-entry mechanisms, all benefiting from convergence since the 1990s of IT technology, globalisation and free-market policies. The analysis traces the pre-existing practices related to money laundering including money transfer mechanisms of hundi and hawala. Furthermore, it provides rich empirical evidence to show how the Indian economy can be thought of as a complex eco-system in which the formal, the informal and the black (illegal) are continuously connected through the novel and interesting mechanisms that this study brings to light – namely ‘de-laundering’ and ‘parking.’ The thesis relies on primary and secondary literature as well as qualitative interviews with a range of policymakers, politicians, Members of Parliament, members of state legislatures, bureaucrats, business leaders, finance professionals, lawyers and accountants. These included actual players in the chain of money laundering and ‘de-laundering’. I argue that the existence of the black economy, as well as mechanisms of money laundering, are rooted in the socio-economic fabric of the Indian economy. I link the Indian black economy and money laundering to a nexus between politicians, businessmen and bureaucrats. This argument is illustrated through an analysis of selected mini-case studies from different sectors of the economy. The analysis shows that the black and the white economy are linked, and that money goes through cycles of laundering and de-laundering as it moves back and forth from black to white