The Electoral Bond Scheme could, the RBI had warned, during the consultations prior to the announcement of the scheme, be used for money laundering, as the bonds were bearer instruments, scrips, which were valid regardless of who bought it, whether it changed hands, and which political party ultimately redeemed it.
The intense concern visible in some quarters, finding articulation in a demand by the All India Bar Association president for a presidential reference to the Supreme Court for reconsideration of its verdict outlawing electoral bonds, suggests that such fears expressed by the RBI might not have been groundless.
Cloak of Anonymity
The electoral bond is a bearer bond with a validity of 15 days, and encashable only by a recognised political party. It had been introduced as an instrument to clean up political funding, notoriously taking place with unaccounted cash, taken off the books of companies. The electoral bonds, it had been argued by its backers, would allow money from legitimate, accounted-for sources to be routed to political parties, albeit anonymously.
This was always questionable. For one, much of political spending could never be done with accounted-for cash. There is the illegitimate activity, such as distributing cash and liquor on poll-eve, and the buying up of defector legislators. Then, there is the undignified expenditure, paying people to assemble as a crowd of enthusiastic supporters at political rallies. Then there is the legitimate activity that cannot be accounted for, because its scale exceeds the limits set by electoral law. So, electoral bonds could, at best, legitimise only a fraction of the funds going to a political party.
But electoral bonds could, by its very nature, also provide a means of laundering money — a fear that had been raised by many, including a collective of non-profits called the Financial Action Task Force Platform.
The sight of a butterfly evokes a sensation of beauty in the average human. You do not think of its prior, ugly shapes in its life cycle as a caterpillar or chrysalis. When average voters see an electoral bond, its innovators hoped, they would see white money flowing into the coffers of a political party, and cheer. But the world is full of people who are drawn not so much to the multi-coloured wings that flap aesthetic goodness into the soul of the beholder as to the misshapen pupal form that precedes the sprouting of wings.
Electoral bonds have a pupal stage in its 15-day life, before it emerges as an accounted-for contribution on the books of a political party. During that stage, the cloak of anonymity in which it is shrouded, lends itself to many activities that make the electoral bond during its fortnight prior to handover to a political party extremely valuable, more valuable than the face value of the bond. The filaments of silk that form the cocoon of a silk moth are, of course, far more valuable to humans than the moth itself.
Money Laundering Avenues
During those anonymous 14 days, the bond could perform many functions, ranging from conveniently moving large amounts of anonymous money from City A to City B, and settling shady transactions between parties who do not want their financial dealings to enter any banking record, to channelling money routed through shell companies to political parties.
This suggests that a buyer of an electoral bond could have a ready secondary market that values the bond much higher than its face value. He could sell it on the secondary market and make a tidy profit. Or he could sell it, make a surplus, and give all of the proceeds as an off-the-books donation to the political leader he wants to curry favour with.
In theory, there could be multiple such transactions, before it is handed over to a political party. The premium on the bond would come down towards the end of its 15-day cycle, unless the bond is picked up by someone who has a lot of black money that has to be converted into white and decides to make a large contribution to the ruling party, hoping for putative protection from the prying eyes of investigative agencies, by virtue of that donation. Since there was built-in anonymity guaranteed at the time of bond purchase, such secondary sale posed little risk of exposure — there was no provision of public reconciliation between the buyer of the bond and the donor of the bond.
Whether the bonds issued over the life of the scheme were subjected to such misuse is right now only a matter of speculation. The identity of the final donors could offer a clue. A bond donated by a well-known corporate entity probably led a blameless life over its short lifespan. But that cannot be taken for granted for all the Rs 16,518 crore worth of bonds issued over 2018-24. Perhaps, the government should initiate an investigation into the possible use of electoral bonds as instruments of money laundering.
TK Arun is a senior journalist. Views are personal, and do not represent the stand of this publication.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
