{"id":5524,"date":"2017-08-09T09:30:42","date_gmt":"2017-08-09T09:30:42","guid":{"rendered":"http:\/\/indiaforensic.com\/certifications\/?p=5524"},"modified":"2023-12-29T10:02:29","modified_gmt":"2023-12-29T10:02:29","slug":"techniques-laundering-stock-markets","status":"publish","type":"post","link":"https:\/\/indiaforensic.com\/certifications\/techniques-laundering-stock-markets\/","title":{"rendered":"Stock Market Money Laundering Techniques"},"content":{"rendered":"

Stock market laundering is a popular mechanism among financial criminals. Launderers have often targeted the stock market. We’ve seen cases where people involved in Indian stock markets tried to hide their wrongdoings within the market itself.<\/p>\n

Back in August 2017, The Securities Exchange Board of India shared a list of 331 companies. This list came from the Ministry of Corporate Affairs. You can find the complete list on the BSE website<\/a>. These 331 companies raised suspicions because they might have been avoiding paying taxes properly. Some of these companies were also found to be doing tricky things with stocks, which is called Stock Market Laundering. Because of these actions by the regulators, I’m going to explain how some people try to avoid taxes in the stock market, and sadly, this can sometimes lead to money laundering<\/p>\n

Techniques of Laundering<\/h3>\n

There are many tricks of stock market laundering. One of the most prominent is layering and also wash trading. Think of layering like mixing up clean and dirty money in a blender. Someone might make a bunch of rapid stock trades, making it hard to track where the money comes from. This confuses investigators and helps bad guys hide their illegal money.<\/p>\n

Wash trading is another trick. Imagine trading stocks with yourself to make it look like there’s a lot of activity. This can fool others into thinking a stock is popular, and they might invest too. In reality, there’s no real trading happening, just a fake show to attract people.<\/p>\n

However, there are some more methods that involve tax evasion. There is a possibility that the Securities Exchange Board of India penalized these 331 companies for possible tax evasion schemes through the stock markets.<\/p>\n

Tax Evasion through Stock Market<\/h3>\n
Usually, the process starts with you buying a bunch of shares of a not-so-popular company. This is done through a broker, who helps you make the purchase. These shares aren’t traded much because not many people want to invest in them. Let’s say you bought them at Rs 10 per share.<\/div>\n
The buyer pays purchase consideration in cheque and shares are transferred to the demat account of this buyer. Everything is perfect till the investments in illiquid scripts.<\/div>\n
Over a period of 12 months, the stock price is rigged up typically by big brokers and also operators acting on the instructions of the promoters of the company to say Rs 100.<\/div>\n
Here investors sell the shares they bought at Rs. 10 for the artificially manipulated price of Rs.100. This money is received back in the bank account of the investors. However, here the laundering operation starts. The money, in this case, Rs. 88 (Rs.100 Sales price-Rs.10 Cost price-Rs.2 as service fee), which is received by the investors is paid back to the promoters in cash.<\/div>\n
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Indian real estate and infrastructure companies require this money to purchase land and cover various expenses in cash. In certain situations, they even use it for buying properties. SEBI comes into the picture because these cash generation techniques could potentially lead to the violations of insider trading norms if the nexus between investors, operators and promoters can be proved.<\/p>\n

Income Tax Evasion<\/h4>\n

Once the stock market price starts growing up, pink newspapers would rush to cover the news with flashy headlines. Now the investors who generated Rs. 88 as gain on paper will file their tax returns under the shadow of the long-term capital gains. Tax evasion through shares is a common mechanism in financial criminals. Which attracts no or very little taxation in India. This causes damage to the government treasury. Tax evasion through shares is the probable reason why Indian IRS departments went further and co-ordinated their efforts to penalize the companies who<\/p>\n

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  1. Indulged in the generation of cash<\/li>\n
  2. Evading the taxes and causing damage to the treasury<\/li>\n
  3. Indulged in the Insiders trading<\/li>\n<\/ol>\n
    However, this is just the first part of the story. The same script can be used for laundering the dirty cash collected out of the corruption money.<\/div>\n

    Certified Stock Market Forensic Accountant<\/h3>\n
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    The Certified Stock Market Forensic Accountant is a really important program that the Indiaforensic Center of Studies offers. It’s not just about stock market stuff; it also talks about how bad guys can use the stock market to do money tricks. If you’re interested, you can learn more about this program in the certification section.<\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n\n