The mystery of Nu 1 bn+ cash still circulating in Jaigaon despite a closed border

The Royal Monetary Authority (RMA) had planned to set up exchange counters in Phuentsholing to exchange more than Nu 1 bn in cash in Jaigaon by releasing INR of an equivalent amount, however, that plan has hit a snag for now.

The problem has come in the form of enquiries by the corresponding bank of the Bank of Bhutan which is the Standard Chartered Bank through which it has to deposit and remit the INR to the Indian accounts across the border.

A RMA official said that before the pandemic the RMA was more than happy to facilitate such exchanges by opening rupee counters which gave out INR in exchange for the Ngultrum to Jaigaon business people where Bhutanese people went shopping in large numbers.

Once the border closed the RMA continued this service on 7 occasions giving out INR 1.5 bn with the largest and last one being in October 2020 at INR 845 mn.

The official said that until that point the BoB and DrukPNB which did the exchange could justify it to the corresponding banks in India through which the money went that it was leftover money from past cash transactions by Bhutanese who had shopped in Jaigaon.

Normally, when one makes a cash deposit in any bank in the world if it is above a certain level then one has to mention or show the source of income. In Bhutan that limit is Nu 500,000.

So in the past seven exchanges when Bhutanese officials asked the Indian merchants and others to show the paperwork for the source of such large amounts of cash they resisted, but RMA anyhow facilitated it to honor the currency and avoid inconveniences for people in Jaigaon.

However, such an informal past practice has now come to a screeching halt with the enquiries from BoB’s corresponding bank in India

The DrukPNB is also expecting a similar enquiry coming their way.

The RMA official said that the corresponding bank in India is not ready to allow such large amounts of money to go through it again without proper paperwork to show the source of the money being deposited into Bhutan.

The larger issue here is that Bhutan and India are both part of the larger Asia Pacific Group (APG) which requires its members to have strict anti money laundering systems and rules and makes it mandatory for banks to not allow money laundering through its system.

So while Bhutan and the RMA are ready to exchange the Nu 1 bn plus cash floating in Jaigaon the corresponding bank in India is not willing and demanding more paper work.

The RMA official said that a big danger of still trying to go ahead is that Bhutan’s banks could be delisted by the corresponding banks and banks across the world who will no longer allow for cross border money transfers, which will not only be economically disastrous for Bhutan, but also invite international ill repute.

Also, unlike in the past, Bhutan can no longer offer the excuse of active cash exchange due to Bhutanese shopping in Jaigaon to correspondent banks in India, because all cash transactions were stopped once the border was closed and all payments have been facilitated using the banking channels against invoices. 

This is also after Bhutan offered 7 opportunities to exchange all the Ngultrum in Jaigaon till October 2020 with no paperwork required.

What has raised suspicions is that Bhutan did not formally allow any cash to leave the country since the lockdown and so any cash that has reached there may have also gone through illegal means.

There is suspicion that the large and growing Ngultrum stash in Jaigaon may include payments made illegally for tobacco and other smuggling into Bhutan, illegal cash payments for under invoicing of goods from Jaigaon to avoid paying taxes, people engaging in illegal exchange of Ngultrum and INR for a commission and also possible money hoarded over time.

It is also not in Bhutan’s interest to keep offering INR without any paperwork for such unaccounted and growing Ngultrums in Jaigaon, despite a shut border since March 2020 that does not allow the movement of cash.

The RMA in Thimphu has been having meetings on the issue and has had discussions with the government.

It has been learnt that the Foreign Ministry in Bhutan is in the process of informing the Ministry of External Affairs in India over the correspondent bank problem, international requirements and the need for documents.

The aim is to inform the Government of India of any issues and problems in advance as any problems on the ground in the future will eventually reach the GoI in Delhi.

The RMA official said that the RMA is willing to provide all the INR needed for the Ngultrums, but due to international regulations the people depositing the Ngultrums must show some paper work in bills and invoices for the money being deposited.

“We will not require 100 percent paper work as if they can even show it for around 80 percent then we will use know your customer and release all the amount,” said the official.

The RMA official said that the Indian side cannot be blamed here as it is actually the Bhutanese people who should not be making such payments in cash when the borders are closed.

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