‘Black money is so much a part of our white economy, a tumour in the centre of the brain – try to remove it – and you will kill the patient’, said Robinton Mistry.  That tells us White could also mean mere shades of Grey – and it could be spiritually challenging to many and [...]

The Sunday Times Sri Lanka

‘Black and White Money’: Catch-22 in Business


Iceland's Prime Minister Sigmundur David Gunnlaugsson arrives at Iceland president's residence in Reykjavik, Iceland, April 5, 2016. REUTERS

‘Black money is so much a part of our white economy, a tumour in the centre of the brain – try to remove it – and you will kill the patient’, said Robinton Mistry.  That tells us White could also mean mere shades of Grey – and it could be spiritually challenging to many and practically puzzling some to make it spotless White.  The generic notion around suggests that it is the governments and fiscal monitors which should fight money laundering and black money menaces. Yet, when we look deeply, businesses at micro, moderate, macro or transnational strata too can (and need to) deliver a vital contribution to the landscape by making their respective business cleaner and translucent – and also not to become a dummy cleansing tool in the infected wheel of swindling.

As the doctrine goes ‘Purification of our own stream is everybody’s business’. Let us call it dream status – yet in reality – we find some who are corrupting the stream as their primary business.  How clean a business motive is, how clean an investment is, how clean the statutory subscription is and how clean the yield is, are a few key questions that spring up. And how comfortable are we with these questions – both morally and legally – tells the true story and generates reality vibes within us – yet only if we are sincerely willing to heed.

‘A solitary man can secretly run an illicit brewery – and his earnings are strictly black money recorded nowhere. He craftily can show that money as a loan and start up a decent bookstore, purchase shares in the stock market, make some donations on record, do some camera charity, pay some taxes, provide few jobs – and over the time he appears respectfully White. See, all his recorded revenue looks authentic on surface and by now he has made his own money whitening mechanism. Thus, true motive in business matters big time’ – this is how an esteemed veteran corporate personality described the scenario in a nutshell.

Like in many other dimensions in life, whether a business remains clean or shady mostly rests on those who actually hold the reigns at the start or at some point of its journey.  The motive of the founders creates the business blueprint that gives birth to its operating concept and strategic objectives. Some businesses are started at the outset with the motive and strategy of making dirty money over a pre-defined timeline and then cease to exist without traces – or to convert them into unsuspecting white money.

Those who are engaged in creating and laundering black money are masters of the craft. They are deceivingly skillful and allied with equally or better corrupt points of contacts in diverse domains – both locally and overseas. They know the art, science and the commerce of dismantling the dirty money, transfiguring them from cash to assets (and vice versa) a few times, transfer them into few relaying hands via few banking entities – perhaps in a few countries until it is cleansed enough – and then create a clean looking front or an investor to penetrate into your business as a stakeholder via public or private equity streams.

Black money made through high-pitch looting, forceful acquisition, ultra illicit trading, terrorism or mammoth corruption within one country can be smuggled out to another country – either by physical trafficking or electronic maneuvering of funds. And they surely tap the bad eggs in the system at all facets to beat even the well set filtering.  Like magnets, the corrupt attract corrupt – and that combination can beat many safeguards, filtering protocols and risk controls, unless we are fully and constantly awake. No matter at what magnitude a business could be operating, we need to be critical, sensible and watchful of wooing offers and efforts by the fronts of launderers.

Channels of investment are exploited as a mechanism for making black look like white. This however does not mean that every investment is an attempt to launder black money – but schemers use the channel to make it work for them.  Black money can infiltrate your business as local or offshore funding – sometimes responding to your own exploration and other times as lucrative expansion or startup offers – or even as low interest lending. Such off-shore funds are usually established in tax-haven countries or ‘no – questions – asked – and – sworn – to – secrecy’ financial systems. When vigil is slack, a clean business could be trapped in the money laundering web without realizing the ploy.

In some cases, those who operate legitimate business in one country eventually get into illegal business in another conducive country or territory. Greed and haste take them there. The gains therein are black money, but shown as foreign revenue of the original business – and the monitoring and filtering mechanisms get wedged in catch-22 situation.  In certain cases, black money not only reached clean businesses disguised as investments or share purchases, but eventually they attempt or succeed in acquiring the control of the business too, powered by the equity ratio over the table – and acting under the table. This is notoriously branded as ‘corporate raiding’ – and some clean companies made themselves vulnerable to such strategic heists in the past.

Risk Posturing:
When your capital is adulterated, return too gets tainted – and that’s risky. If you mean clean business – your personal and professional reputation, corporate brand image, personal and corporate legal accountability and social responsibility mean a world to you. They can seriously be ruined or questioned when black money finds its way into your demesne by any mean at any stage of the voyage.  Be it start up, expansion, acquisition or merger, If removing the cancer in the centre of the brain is beyond feasibility, then the best safeguard is to prevent a cell getting-in and snowballing.

Thus, risks in managing in your enterprise (or diverse group) need to be elevated to safeguard the business from black money infiltration – and also from swindlers merrily using your hard-built business as a washing machine.  It’s about time that risk managers, fund managers, investment managers, financial heads and key stake holders of responsible and authentic businesses start diving deep.  As Darren Sammy and a bunch of West-Indies Cricketers displayed in the T20 World Cup concluded last week, when the playing field is unjust, when support is lacking from the ones who should be doing it, even by fighting alone with that magical thirst for DOING THE RIGHT THING can make them unpolluted Champions !

(The writer is a foremost enterprise risk management specialist and a seasoned corporate risk trainer who serves as the CEO of Strategic Risk Solutions. He could be reached at solutions@sltnet.lk)

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