How gold smuggling facilitates black money circulation in India

The election season has activated the syndicates that are helping unscrupulous elements launder money stashed abroad

Mumbai: The electoral bonds issue may have caused a flutter in political circles. However, probable funding through back channels is leading to concern about black money entering the country in high volume.

The concern was following the recent attempts at gold smuggling in huge quantities that have led to suspicion that the illegal money earned through its sale would be used by some unscrupulous elements to influence voters as elections are getting closer.

In the latest case, the Directorate of Revenue Intelligence (DRI) had on March 12 and 13, seized over 61 kg of foreign-origin gold worth Rs 40 crores, in a meticulously planned and coordinated operation across four states.

Sources in Central agencies said that it is not only the additional money earned by evading import duty and other taxes but there is also suspicion that a part of the smuggled gold could have entered the country in place of the unaccounted money stashed abroad.

Sources further said that gold is a high-value, low-volume item, making it an attractive mode for money laundering. The syndicates involve multiple carriers to carry gold in small quantities by using different modus operandi to hide the same.

Gold smuggling gaining popularity

A 2022-23 ‘Smuggling in India’ report by the DRI said that the smuggling of gold in compound form has gained currency among smugglers due to ease of concealment in the body, difficulty in detection, and easy availability of carriers. The report also said that smuggling by deep concealment in various electronic devices, iron boxes, machine tools, etc, is being adopted to avoid detection. The report goes on to list different concealment methods used by the syndicates to smuggle gold.

It adds that the smuggled gold in compound form is often agglomerated at melting units for reconversion into a metal state.

Talking about the money laundering aspect, the report said that gold smuggling with its transboundary linkages is bound to create the illicit flow of funds. “Informal money transfer system known as ‘hawala’ remains the lifeblood of gold smuggling,” the report said.

200 metric tons of gold smuggling

Though there is no official figure on the volume of gold smuggling in India, market sources estimate it to be anywhere around 200 metric tons per annum. Only a small fraction of this is seized.

Sujay Kantawala, a senior lawyer specialising in Customs and DRI cases said that it is common knowledge that gold is instantly encashable at any time.

He said that as a lawyer he has been seeing huge seizures happening at the airport almost every night. “There has been a sudden huge surge in the amount of seizures of gold in recent times daily,” he said.

Moreover, there are a few jewellers in the country who are willing to buy the smuggled gold as it is cheaper compared to the one bought officially by paying 15 per cent import duty. The smuggled gold is Rs 7 lakh per kg cheaper than the official ones as the smugglers evade the import duty.

Agreeing with this, Kumar Jain, spokesperson of the India Bullion and Jewellers Association Ltd (IBJA), said that such unscrupulous jewellers make pieces of jewellery from smuggled gold and sell the same in the market without Hallmark. “Some customers fall for it as they get the same cheaper because it is sold without bill and without payment of the GST, which is three per cent,” Jain said.