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Project Report on

Legislative & Executive actions to prevent corruption


with special emphasis on Demonetization.

Date Of Submission: 14/10/2019

Hidayatullah National Law University


Raipur (C.G) 492001

Submitted to:
Mr. Manoj Kumar
(Faculty: Socio Economic offences)

Submitted by:
Taruna Shandilya
Roll no. 180 Semester IX
DECLARATION

I hereby declare that the project work entitled “Legislative & Executive actions to prevent
corruption with special emphasis on Demonetization.” submitted at the Hidayatullah National
Law University, Raipur is a record of original work done by me under the guidance of Mr.
Manoj Kumar, faculty member. This project work has not performed the basis for the award of
any degree or diploma / associate ship / fellowship or similar project if any.

Taruna Shandilya
Roll No. –180
Semester IX
(SECTION B)

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ACKNOWLEDGMENT

The success and final outcome of this project required a lot of guidance and assistance
from many people and I am extremely fortunate to have got this all along the
completion of my project work. Whatever I have done is only due to such guidance and
assistance and I would not forget to thank them.

I respect and thank Mr. Manoj Kumar, for giving me an opportunity to do the project and
providing us all support and guidance which made me complete the project on time. I am
extremely grateful to him form providing such a nice support and guidance though he had
busy schedule managing the school affairs.

I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the Library and through internet. Some printing errors might
have crept in, which are deeply regretted. I would be grateful to receive comments and
suggestions to further improve this project report.

Taruna Shandilya
Semester - IX
Section - B

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TABLE OF CONTENTS

Introduction……………………………………………………………………….05

Objectives & methodology………………………………………………………..07

Chapter one- Corruption-its origin and causes....................................08

Chapter Two- Legislative and Executive measures…..............................10

Chapter Three- Demonetization and corruption………………………………..14

Conclusion…………………………………………………………..…………….18

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Introduction

Corruption in India can be traced back to the country’s colonial past, analysts say. The British
Raj period, beginning in 1858, excluded Indian citizens from political participation by dividing
the country into districts with provincial governments controlled by a commissioner. The 1923
Official Secrets Act made it an offense for officials to reveal state information to citizens,
ostensibly to protect military and government intelligence.

After India gained independence in 1947, the new regime implemented heavy economic
regulations intended to develop domestic markets; the 1951 Industries Act, for instance, required
all new industrial operations to obtain a license from the central government. The policy limited
foreign investment and stifled competition, and bribery became part and parcel of doing
business. The period up to 1991 was dubbed the “License Raj” as a result of the government’s
excessive oversight of the economy. The poor often suffered most from the widespread
corruption, which diverted large amounts of public revenue intended for public works, aid, and
social welfare programs.

Corruption in India has become deep-rooted and is galloping unchecked and unhindered. Very
often, we hear the top politicians at the centre and in the states talking of ‘waging war against
corruption’, ‘fighting the evil of corruption’, ‘no compromise on corruption’, ‘not to spare any
corrupt person, howsoever high’, yet it is well known how our country appears to be sinking
deeper and deeper in corruption.

Concept:
Corruption in simple terms may be described as “an act of bribery”. It has also been described as
“the use of public power for private profits in a way that constitutes a breach of law or a
deviation from the norms of society”. Corruption has been explained as “misuse of authority as a
result of consideration of personal gain which need not be monetary”,1 “the use of public power
for private advantage in ways which transgress some formal rule or law”,2 “corruption is

1
D.H. Bailey (in Doughlas and Jhonson, 1971)
2 Andriski (in Machael, 1983)

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behaviour which is deviance from norms and duties governing the exercise of public role or
office for private gains”,3 Corruption is also described as “deviation from formal duties of public
role for pecuniary or status gains”.

Corruption is spread over in the society in several forms. Of these, the major ones are: bribe
(money offered in cash or kind or gift as inducement to procure illegal or dishonest action in
favour of the giver), nepotism (undue favour from holder of patronage to relatives),
misappro­priation (using other’s money for one’s own use), patronage (wrong
support/encouragement given by patron and thus misusing the position), and favoritism (unduly
preferring one to other).

Nepotism:

Sociological analysis indicates that social bonds and kinship play an im-portant role in
corruption. The modernisation ideals upheld and practised by administrators today run counter to
the values and standards of public behaviour of the traditional society. Today, kinship ties and
caste and pa­rochial loyalties get precedence in a public servant’s mind. The first obligation of a
modern administrator is to his family members, followed by close kin, lineage, or ethnic group.
Such ties are more compelling than administrative rules and procedures. Kinship and caste
groups do not consider that behavior which deviates from the formal duties of a public role as
‘deviation’ or ‘corruption’ but view it as a ‘family obligation’. This explains corrupt actions of
many a public servant both at the lower as well as the higher levels.

3
Szeftel (in Machael, 1983)

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OBJECTIVES
 To study about Corruption and its Causes and Origin.
 To study about the Legislative and executive action taken by the government.
 To discuss the extent to which demonetization is able to prevent coruuption..

METHODOLOGY
The project is, in essence an essay. Hence, a descriptive and analytical method of approaching
the topic has been employed. The objectives of this project are enumerated above, to which end,
the Doctrinal method of research has been adopted.

Books and other references have lent a hand in making this project authoritative and accurate.
Secondary and other sources have been relied upon to gather information on the topic. Websites
and articles have also been referred to. Footnotes have been provided wherever required so as to
aid reference and give credit to the source of information.

Notes taken during classroom lectures have played a pivotal role in understanding of the topic as
well as the preparation of the entire report.

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Chapter one-
Corruption; Its Origin and Causes

Number of factors has been pointed out as causes of corruption or public dishonesty.

First cause is the emergence of political elite who believe in interest-oriented rather than
nation-oriented programs and policies. In fact, the post-British raj (rule) has been described as
the “Raj of ministers and bureaucrats”.
The political elite in the first two decades after inde-pendence was honest, dedicated and
nation-oriented to the extent that they always worked for the country’s progress. From the fourth
general elections in 1967 onwards, such persons came to hold political power both at the centre
and in the states about whom it was said that they worked only on the basis of some vested
interest, say, interest of self, fam-ily, caste, region, party, and so forth.
Their policies and programs incidentally might have been nation-oriented but essentially
they were ‘interested-based’. They also encouraged the bureaucrats to follow suit. A majority of
bureaucrats in our country are described as ‘ritualists’ who do not take much interest in the
‘development-oriented’ policies for the betterment of society. The politicians and bureaucrats
thus have started using their power and position for illegal benefits.
The emergence of the new business leaders who wanted profits even by sharing them
with the people in power became equally responsible for the mushroom growth of corrupt
practices among the public servants. Corruption also emerges from the power of the government
officials of taking decisions, say, issu-ing licenses, assessing income tax, giving extensions and
so on.

It is not the rules but the interpretation of the rules which enables officers to receive kickbacks
and pocket the bribe. Many officers pay lakhs and thousand of rupees to get themselves posted in
particular positions only because those positions enable them to earn thousands and lakhs of
rupees every month as illegal gratification.

The second cause is the economic policy of the government. Most of the recent scandals have
been in areas where either purchase policies or prices are controlled by the government. Sugar,
fertilizers,oil,military, weapons, electronic equipment’s are some examples.
Clear and transparent rules are needed. Arbitrary decision-making by certain individuals
(like minister, or director-general or secretary) is an invitation to corruption. The Enron project
in Maharashtra in 1995 ran into trouble because negotiations and terms of the deal were
shrouded in secrecy.

Thirdly, corruption is caused by scarcity. When things required are in short supply, people in
power demand ‘consideration’ to ensure their regular supply or increase their cost. This happens
whenever there is high demand but low supply of commodity of daily use like cement, sugar, oil,
etc.

Fourthly, corruption is caused as well as increased because of the change in the value
system and ethical qualities of men who administer. The old ideals of morality, service,

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honesty and sacrifice are regarded as non-utilitarian and accepting ‘favours’ as a ‘need’ than a
folly or aberrant behaviour. Fifthly, corruption can be traced to ineffective administrative
organisation.

Lack of vigilance, enormous powers to the ministerial staff, unaccountability, defective


information system, etc., give scope to officials not only to be corrupt but also remain unaffected
even after following corrupt practices. Causes of corruption can also be categorized as
economic, social, political, legislative and judicial.

 The economic causes include: craze for higher living standards, inflation, license
system, profiteering tendencies, and lack of morality in business community.
 The social causes include: materialistic outlook of life, erosion in social values, illiteracy,
acquisitive cultural traits, feudalistic hangover, peoples’ toleration, public indiffer­ence,
and exploitative social structure. The political causes include: political patronage,
ineffective political leadership, political apathy, politi-cal immorality, election funding,
nexus of criminals with politicians, and political subculture.
 The legislative factors are Inadequate legislation, loopholes in law, and callousness in
implementation of laws.
 The judicial causes include: expensive judicial system, judicial indifference, lack of
commitment among judges, and frequent acquittal of the accused on tech-nical grounds.

Some factors promoting corruption could be described as:

 One, concentration of power in one officer for whom autocratic decision-making is


possible and the ‘aggrieved’ citizen is not in a position to obtain effective redress. Power
and discretion are vested in the executive, police and judiciary, all members of which do
not possess strength of character.

 Second factor which allows administrative corruption to thrive is the economic and social
backwardness..

 Third factor is the attitude of the public of unquestioning subjuga-tion to power bred by
colonial and feudal forces.

 Fourth factor is the unaccountability of officers and the administrative delay.

 Fifth factor is the clumsy handling of corruption cases. Those in the hierarchy vested with
disciplinary powers shirk accountability and show unwillingness to use these powers
against a corrupt subordinate. This is common in police, secretariat, PWD, customs, and
many other such departments.

 Lastly, lack of public outcry and lack of strong public forum to oppose corruption also
promote it.

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Chapter Two-
Legislative and Executive measures by Government.

Legislative Actions
Public servants in India can be penalized for corruption under the Indian Penal Code, 1860 and
the Prevention of Corruption Act, 1988. The Benami Transactions (Prohibition) Act, 1988
prohibits benami transactions. The Prevention of Money Laundering Act, 2002 penalises public
servants for the offence of money laundering. India is also a signatory (not ratified) to the UN
Convention against Corruption since 2005. The Convention covers a wide range of acts of
corruption and also proposes certain preventive policies
.
Key Features of the Acts related to corruption
Indian Penal Code, 1860:
 The IPC defines “public servant” as a government employee, officers in the military,
navy or air force; police, judges, officers of Court of Justice, and any local authority
established by a central or state Act.
 Section 169 pertains to a public servant unlawfully buying or bidding for property. The
public servant shall be punished with imprisonment of upto two years or with fine or
both. If the property is purchased, it shall be confiscated.
 Section 409 pertains to criminal breach of trust by a public servant. The public servant
shall be punished with life imprisonment or with imprisonment of upto 10 years and a
fine.

The Prevention of Corruption Act, 1988


 In addition to the categories included in the IPC, the definition of “public servant”
includes office bearers of cooperative societies receiving financial aid from the
government, employees of universities, Public Service Commission and banks.
 If a public servant takes gratification other than his legal remuneration in respect of an
official act or to influence public servants is liable to minimum punishment of six
months and maximum punishment of five years and fine. The Act also penalizes a
public servant for taking gratification to influence the public by illegal means and for
exercising his personal influence with a public servant.
 If a public servant accepts a valuable thing without paying for it or paying inadequately
from a person with whom he is involved in a business transaction in his official
capacity, he shall be penalized with minimum punishment of six months and maximum
punishment of five years and fine.
 It is necessary to obtain prior sanction from the central or state government in order to
prosecute a public servant.

The Benami Transactions (Prohibition) Act, 1988


 The Act prohibits any benami transaction (purchase of property in false name of another
person who does not pay for the property) except when a person purchases property in his
wife’s or unmarried daughter’s name.
 Any person who enters into a benami transaction shall be punishable with imprisonmen
of upto three years and/or a fine.

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 All properties that are held to be benami can be acquired by a prescribed authority and no
money shall be paid for such acquisition.

The Prevention of Money Laundering Act, 2002


 The Act states that an offence of money laundering has been committed if a person is a
party to any process connected with the proceeds of crime and projects such proceeds as
untainted property. “Proceeds of crime” means any property obtained by a person as a
result of criminal activity related to certain offences listed in the schedule to the Act. A
person can be charged with the offence of money laundering only if he has been charged
with committing a scheduled offence.
 The penalty for committing the offence of money laundering is rigorous imprisonment
for three to seven years and a fine of upto Rs 5 lakh. If a person is convicted of an
offence under the Narcotics Drugs and Psychotropic Substances Act, 1985 the term of
imprisonment can extend upto 10 years.
 The Adjudicating Authority, appointed by the central government, shall decide whether
any of the property attached or seized is involved in money laundering. An Appellate
Tribunal shall hear appeals against the orders of the Adjudicating Authority and any other
authority under the Act.
 Every banking company, financial institution and intermediary shall maintain a record of
all transactions of a specified nature and value, and verify and maintain records of all its
customers, and furnish such information to the specified authorities.

Whistle Blowers Protection Act, 2011, which provides a mechanism to investigate alleged
corruption and misuse of power by public servants and also protect anyone who exposes alleged
wrongdoing in government bodies, projects and offices, has received the assent of the President
of India on 9 May 2014, and (as of 2 August) is pending for notification by the Central
Government.4

Executive Actions:

The existing CBI and the anti-corruption police have proved helpless in investigating, initiating
action and penalising corrupt ministers and high political persons. No wonder, in recent times
people have come to talk about ‘judicial activism’.
The CBI being a government agency cannot report to the judicial courts directly on a long-term
basis bypassing the government and without government supervision over its functioning. The
CBI officials have confessed to political pressures on them.
It, therefore, appears that the CBI will have the limited role of exer-cising vigilance on the lower
and middle categories of public servants. The Lokpal and Lokayukts will have to prosecute
ministers and highly-placed politicians. The society cannot depend on the police for surveillance
as it does not enjoy the reputation of being honest.

4
"Indian Parliament passes Whistleblowers Protection Bill 2011". Retrieved 21 February 2014.

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Allegations of police fabri-cating evidence, foisting false cases and manipulating evidence
against corrupt officials have been routinely and repeatedly made in our country.
A committee on Prevention of Corruption was appointed by the Government of India in 1962
under the chairmanship of K. Santhanam. This Committee gave its report in 1964. The
recommendations pertained to various aspects of corruption.

The measures suggested by the Santhanam Committee for efficient working of the department
were:
(1) Inde-pendence to vigilance officers to investigate complaints of corruption and malpractices.
(2) Assurance to vigilance officers of promotion for efficient work.
(3) Protection to vigilance officers against sending them back to their parent cadre for
investigating the cases of highly placed officials.
(4) Giving representation to Central Civil Services and technical services in the Central
Vigilance Commission. (This recommendation was imple-mented by reconstituting the Vigilance
Commission in the last few months of 1998).
(5) Intensive training to non-gazetted inspectorial staff of the Vigilance Department in
departmental rules and procedures since about 80 per cent of the vigilance cases are enquired at
the lower level.
(6) Cutting down the number of stages by the government to check delay in processing cases.

It was on the basis of the recommendations of this Committee that the Central Vigilance
Commission was set up in 1964 for looking into cases of corruption against the central
government and other employees.

The central government has set up the following four departments as anti-corruption
measures:
(i) Administrative Vigilance Division (AVD) in the Department of Personnel and Training
(ii) Central Bureau of Investigation (CBI),
(iii) Domestic Vigilance Units in the Ministries/ Departments/Public Undertakings/Nationalised
Banks, and

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(iv) Central Vigilance Commission (CVC).

The main functions of the CVC are:

 To undertake an inquiry into any complaint of corruption against a public servant;


 To advise the dis-ciplinary authority about the type of proceedings to be initiated against
accused person involved in corruption;
 To direct the CBI to register a regular case; and
 To exercise general check and supervision over the vigilance and anti-corruption work in
ministries/department/banks/public undertakings.

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Chapter three-
Demonetization and Corruption

This chapter focuses only the policy of demonetization which was announced by the Hon’ble
Prime minister on 8th of November 2016 with the promises of eliminating Black money,
Corruption and other mal practices like money laundering, human trafficking etc.
Now let’s see that to what extent this policy of Demonetization has been successful to prevent
corruption in particular.

Corruption According to Transparency International India Corruption is “the abuse of entrusted


power for private gain”5 Corruption is multidisciplinary and dispersed phenomenon with
multiple causes and effects. It is a root problem of politics and economics or it may also generate
from moral decay of society. This complex problem is prevalent in many societies very deeply
that is why the solution of this problem is also a matter of deep concern.

Link between corruption and black money:


Corruption has prevailed badly at every stage in India. After independence most political leaders
are involved in corrupt activities for self-interest which results in the encouragement of bribes in
administrative officers because they pay the share of this bribes to politicians. Gradually
corruption has paralyzed the whole country and its system. Black money is a threat for country
because it hinders the growth of various projects which may accelerate the development and
employment in the economy.

Demonetization and its objectives:


“Demonetisation is an act of stripping a currency unit of its status as legal tender” 6. The PM Mr.
Narendra Modi has given the following reasons behind the demonetisation Nov20167.
 To deal with black money in the economy

5
. Kandukuri, U. (2015). Corruption in India. Epitome Jounrals, 1(5), 2395-6968.
6
Mali, V. (2016). Demonetization: A step towards modified India. International Journal of Commerce and
Management Research, 2(12), 35-36.
7
The Economic Times. http://economictimes.iniatimes.com/ndews/econom y/policy/what-is-demonetisation-and-
why-was-itdone

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 To reduce the cash circulation in the country which will discourage the corruption
 To eliminate fake currency which supports terror groups to fund terrorism in India
According to the Gazette of India published on 8th November, 2016 reflected the following three
basic reasons behind demonetization of Rs.500 and Rs.1,000 notes8.
(1) Fake specified bank notes were largely in circulation and it was difficult to identify genuine
bank notes from the fake ones and that the use of fake currency notes was causing adverse effect
to the economy;
(2) High denomination bank notes were used for storage of unaccounted wealth as evident from
the large cash recoveries made by law enforcement agencies;
(3) Fake currency are giving promotion to terrorism and drug smuggling.

ANALYSIS OF IMPACT OF DEMONETIZATION ON BLACK MONEY


Depositing of Old currency Indian Express report dated 10 Jan 2017 States that Rs 500 and Rs
1,000 notes amounting to Rs 14.50 lakh crore have been deposited with banks till date. As per
the Times of India news dated 05 Jan 17, 97% of the scrapped 500 and 1000 notes have been
deposited with the banks.9 The same news also tells that RBI and Government of India had
expected that nearly Rs 3 lakh crore scraped currency would not be coming back to the system.
Raids in search of Black Money The demonetization was supported by official raids in search of
black money. During the period of 08 Nov to 30 Dec 16, there were large number of raids by the
Government agencies. Chief of CBDT (Central Board of Direct Taxes) Mr. Sushil Chandra
informed to India Today that they have seized Rs. 120 crore hard cash and detected 1500 crore of
undisclosed income upto first week of December 2016. In these raids black money not only in
the form of cash but also in the form of huge amount of Gold was captured. On 01 Dec 16 at
Bengaluru, Chennai and Erode (Tamil Nadu) and captured 7 Kg Gold and 5 Kg New and old
currency was captured. On 09 December 16, total assets worth Rs. 142 Crore were seized in
Chennai which included 127 Kg of Gold.

8
Gazette of India, Part II—Section 3—Sub-section (ii) Sl. No. 2652 dated 08 Nov 2016 . Retrieved on 16 March 16
from http://www.finmin.nic.in/172521.pdf
9
Times of India. (2017). “97% of scrapped notes deposited with banks as on Dec 30: Report”. Retrieved on 06 May
2017 from http://timesofindia.indiatimes.com/toifeatures/business/97-of-scrapped-notes-depositedwith-banks-
as-on-dec-30- report

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Rise of Digital Transaction after Demonetization:
Hitting the black money transactions during the demonetization process, the Government of
India announced schemes to motivate digital payments. It announced 0.75% discount on digital
purchase of petrol and diesel. Economic Times report dated 11 Jan 2017 says that digital
payments at petrol pumps has raised from 10% of total sales before demonetization to 30% of
total sales after demonetization. Not only in petrol pumps but across all commercial ventures the
digital payments have increased. Action on ‘Benami’ Properties: The black money is mostly
invested in properties to escape from the Government agencies. Prime Minister Mr. Narendra
Modi on his last “Man Kee Baat” of the year 2016, announced to initiate action on “benami
Properties” to check the black money and corruption. It is a move seen as strong support for
demonetization in fighting against the black money. Government has already enacted the
“Benami Transactions (Prohibition) Amendment Act, 2016” which is effective since 01 Nov
2016[20]. Pradhan Mantri Garib Kalyan Deposit Scheme: “Pradhan Mantri Garib Kalyan
Deposit Scheme (PMGKDS)” was announced by the Government of India on 16 December
2016. It was announced to declare the undisclosed income. The amount was to be declared from
17 Dec 16 to 31 March 2017. The designated Reserve Fund in the Public Accounts of GOI was
created where RBI would transfer the declared amount10. Under this scheme the depositor has to
pay 30% tax + 33% PMGK Cess surcharge for the declared income apart from 10% penalty
amount.

Findings of the Research:


On the basis of above analysis and discussion the following findings are identified:
Direct Effect of the Demonetization
(1) The amount of old 500 and 1000 notes that could not be deposited with the banks is
considered as black or concealed money. This is the direct effect of demonetization on black
money. From the above discussion it is clear that it is less than expected as the Indian Express
report says “The government is resigned to the prospect of only about Rs 75,000 crore in
demonetised Rs 500 and Rs 1,000 notes not returning to the formal banking system”.
(2) Amount deposited under “Pradhan Mantri Garib Kalyan Deposit Scheme” can also be
considered as due to direct effect of demonetization.

10
RBI Notification, 16 Dec 2016. Retrieved on 09 May 17

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Indirect Effect of the Demonetization
(1) Assets in the form of Cash or Gold and Silver seized during demonetization period i.e.
November and December through raids.
(2) Action on “Benami Property” under the “Benami Transactions (Prohibition) Amendment
Act, 2016” is expected to take place which will be the toughest attack on black money and
corruption in India.
(3) Rising Digital payments are due to demonetization. During the period of November and
December 2016, people faced cash-crunch and they found the digital payment problem solving.
(4) After 08th November 16, the RBI, Income Tax department and other Central Government
departments have announced different rules and restrictions on cash transaction. This has
positively affected the mindset of people in India against accumulation of Black money through
corruption and other unfair means. This can be termed as “Psychological effect of
demonetization on Black Money”.

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Conclusion

Above reports and data concluded the positive effect of demonetization on black money.
Demonetization has drastically affected the black money existence in Indian economy and has
proven a courageous step to slash various illegal sources and activities in the country. Exact
calculation of black money is not possible but this analysis surely proved the exit of large
amount of unaccountable money from the system and source of demotivation for wrong practices
and black money. Although it is not the solution of all related problem but it is a successful step
to drain the black money and fake currency from the system and to put a check on black money
related practices in India.

Corruption in India is like water — it finds a way. It is marked by ingenuity, determination


and perseverance, qualities that could transform India if deployed for honest means. The most
ingenious method recently evident: Thousands of poor Indians with basic bank accounts
persuaded — for a fee, obviously — to rent their accounts to launder old bank notes into new.

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