AS INDIA DROPS HIGH VALUE NOTES TO CRIMP CRIMINALS, STREET LEVEL BULK CASH TO GET HIT THE HARDEST

India

The sudden demonetization in India last month of the 500 and 1,000 rupee notes in a bid to crack down on criminal activities and their stores of black money has resulted in protests, long lines and a rush to deposit bills that will soon be worthless.

But the move, announced by Prime Minister Narendra Modi in a surprise televised appearance November 8, stating the bills would cease to be legal tender the next day, begs the question of what criminals and activities would be most affected by such a move, given the creativity of criminals and diverse nature of organized groups with multiple funding methods, transport avenues and stores of value.

U.S. criminal investigators at the state and federal levels say the move will have an immediate effect on certain crimes, some at the street level, that generate enormous amounts of cash, such as drug sales, and make it more difficult to move those funds, as they would double or even triple the space needed to conceal the same amount of money.

The decision, however, would likely have less of an effect on other white collar crimes, such as securities frauds or online scams, where people wire their money to scammers or give their account details over the phone. In those cases, cash is not moved until it is outside of India in regions where large bill denominations are more easily withdrawn and transported.

“By taking those larger notes out of the game, you make it a little bit harder for every crime that generates a lot of cash,” said a federal investigator, who asked not to be named. “Regardless of the crime, you want the cash to be in a form that’s as small as possible to make it easier to transport.”

In the United States the $500 bill has “gone the way of the dinosaur,” as well, the EU in recent years has dropped the 500 euro note, which many in law enforcement referred to as the “Bin Laden note.” There have even been efforts in Congress to eliminate the $100 bill, but there was not enough political support to follow through on the initiative.

The move will deal a blow to “street level crime, that generates a lot of cash and leads to bulk cash smuggling,” said the person. “That will be wounded for sure because you naturally will have large bundles of cash. And now those bundles will be twice as a big, meaning you will need more human resources to move them and larger bags to hold them or places to hide the money.”

The issue for criminals is only magnified when the funds involved spiral into the “millions and tens of millions of dollars” as those bulk cash movement schemes must involve larger vehicles and containers, increasing the chance that law enforcement could spot them.

Criminal ‘path of least resistance’ made more difficult

Dropping the large notes is an immediate blow to rank and file criminal groups that generate cash and need to launder that money and potentially move it to region where the laundering will be less noticed by law enforcement or compliance officers, said a state investigator.

“Money launderers are looking for the path of least resistance, like any criminal,” said the person, who asked not to be named. “So they are looking for the easiest way to move that money and introduce it into the financial system to enrich their organization and keep it going.”

The move will likely “be effective in the short term,” but will also drive the creativity of criminals to find a way around it.

That is something investigators in India will have to be wary of and press banks and compliance personnel to look for account changes beyond cash deposits tied to legal tender.

The unexpected move was designed to fight against corruption, money laundering and terror financing, Modi said in televised and published reports, calling them “diseases” and “obstacles” to the country’s overall economic prosperity and business climate. Some operations have been able to extend the deadline to this week.

The genesis of the demonetization is the belief that Indians who have stockpiled undeclared income would be forced to come out of the shadows and exchange the money for lower ranking bills. Indians can also wait to exchange demonetized currency for new 500 and 2,000 rupee notes, though these are currently in short supply and in some cases flawed and also worthless, according to news outlets.

At its heart, the decision was needed, Modi said, because various policy changes had largely failed to root out corruption. As an example to buttress that claim, two years ago, India was ranked 100th in terms of global corruption perception, and the country has only improved to 76th.

“This step will strengthen the hands of the common man in the fight against corruption, black money and fake currency,” said Modi, who leads the ruling Bharatiya Janata Party, in an article in CNN.

The transition, thus far, has been challenging, with widespread cash shortages and some deaths even being reported as people rushed and crushed to turn in their old bills.

That is chiefly due to the number of people holding on to the larger notes, which equate to $7.32 and $14.64 respectively.

The Reserve Bank of India (RBI) estimates that there are 16.5 billion 500 rupee notes and 6.7 billion 1000 rupee notes currently in circulation. ATMs were also shuttered on Nov. 9 and 10 to force people to change funds in person.

Criminal desperation could equate to new intelligence

The decision to drop those bills could also hurt in other crimes, like corruption, as it would make it harder slip someone one, or a few, large bills when no one is noticing. Or give a small item, or bag, containing enough money to bribe someone.

“In the short term, it might be effective, but in many cases, by the time you reach the deadline of this new initiative, the criminals will have outpaced the strategy,” said the state investigator, adding that criminals will simply use things like virtual currency or try to quickly put the large bills into areas that will keep value, like gold, jewelry, real estate or even charities.

That desperation, however, could actually help law enforcement. That’s because depositing funds, or buying items, past a certain threshold, typically requires certain customer identification details, new threads that can start investigations or be the missing link in other ongoing cases when combined with other intelligence.

Law enforcement generally is a “reactive industry. We aren’t really great at preventing. We have to catch up once the scheme has started. It’s kind of like playing whack-a-mole.”

But many large scale criminal groups, and even opportunistic smaller organizations, scammers and fraudsters, have turned to white collar financial crimes that don’t involve cash, so the demoniitzation won’t have much of an affect there – unless the criminal groups are trying to take out some of their funds through ATMs and move them, said the person.

For instance, in a lot of phishing, credit card schemes and social engineering scams, such as someone from Nigeria saying you won money, or have been left money by a rich person, the person victim “voluntarily gives up their money and wires to the foreign person or gives up their money over the phone. No cash changes hands.”