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Written by : Raveen kaur
Contents:
Introduction
To lay down in simple words, Money laundering is a crime of finance. The procedure of converting funds obtained from illegal means to be listed as legitimate money is known as Money Laundering. In India, Money Laundering is also referred to as “Hawala" transaction. It’s a system used by criminals to hide the money obtained by them by performing illegal acts and who wish to escape the legal implications of such illegal acts.
The rise in Money Laundering cases divided money into two categories such as “White Money" and “Black money". White money being classified as the money obtained through legal means and Black money as the name suggests refers to money obtained via illegal transactions.
History
Historian Sterling Seagrave in his book explained how the concept of money laundering was first adopted by the wealthy Chinese merchants around 2000 years before Christ, after the rulers would take away their money and banish them[i] The technique was later adopted by the Chinese Merchants in order to hide unaccounted wealth from the government so that they wouldn’t have to pay heavy taxes to the Government after regrout restrictions were imposed on certain commercial activities.
The study of Money Laundering is incomplete without reference to the infamous Al Capone, also known as “Scarface", the notorious American gangster and mastermind behind the $100 million tax evasion crime. The term, Money Laundering owes its origin to Capone, it was his master plan of setting up ‘laundromats’ all over the city in order to guise the money which was actually generated via sale of alcohol. The crime syndic mafia was put on trial for heinous crimes like bootlegging, prostitution, extortion. It was from these illegal activities that he generated income but unfortunately was held liable only for Tax evasion because the law at that time had no provision for money laundering.
Money Laundering process
The process of money laundering is carried out in three stages being placement, layering and integration[ii]. The placement stage refers to moving the illegal money into legitimate sources via financial institutions or financial instruments and at the same time hiding its sources. Layering, also known as the structuring stage, refers to the process of breaking down the funds into small transactions thus making it difficult to trace the crime. Here the criminal makes use of the banker’s draft or invests in some asset which can easily be sold off, or he chooses to trade in stocks. The last stage is the integration stage. In this stage the criminal receives his previously illegal money which has been transformed into legal money.
Money Laundering mostly takes place in the form of cash smuggling, formation of shell companies or front companies, offshore accounts, real estate transactions, casino games, smurfing schemes, foreign investments, round-tripping around the globe, carrying out renovations, purchase of expensive cars, heavy investments in art pieces, and so on.
Drug Trafficking and Terrorism are the major areas of concern which are associated with Money Laundering. Money laundered is used to promote arms trafficking. Illegitimate money is used to promote terrorism. Terrorism financiers use new payment methods such as bitcoin and ripple apart from the traditional methods such as cash couriers, trade-based money laundering and hawala especially in countries where it’s not easy to locate the source of such funding and don’t have the Anti-money Laundering/countering the financing of terrorism tools[iii].
Recent cases
In India, many cases of money laundering have cropped up over the years. Some of the most scandalous cases have been the Vijay Malia scam, Coal gate scam, 2G spectrum scam, Commonwealth Games scam, and the Nirav Modi PMC Bank fraud which shook the nation. The PMC Bank Fraud created apprehension in the minds of the account holders of the bank as they had deposited their life long savings in the bank and were left feeling cheated. Whenever these financial crimes take place, somewhere they have a grave impact on the common man. The year 2021 brought into the limelight Money Laundering carried out by Amnesty International which has been accused of alleged violation of laws pertaining to Rs 36 crore foreign funding; Actor-Business man Sachin Joshi, Mehbooba Mufti, Franklin Templeton and a few others.
Indian provision
Global body for prevention of Money Laundering is the Financial Action Task Force (FATF). It is an inter-governmental body and its purpose is the development and promotion of policies, both at National and International Level to combat money laundering and terrorist financing.
In India, Provisions of Money Laundering is made for in the Prevention of Money Laundering Act, (PMLA) 2002. It is an act of the Parliament of India enacted by the NDA Government to prevent money laundering and to provide for confiscation of property derived from money laundering. The amendment made to the Act in 2019 have made changes in eight clauses of the Prevention of Money Laundering Act, 2002.
Enforcement Directorate (ED) is one of the most powerful agencies in India which investigates high profile corruption and money laundering cases including bank frauds and Corporate crimes.
Punishment
Apart from furthering crime and corruption, Money Laundering damages the economic growth. It creates unpredictable fluctuations in international capital flows. Since Money Laundering is a global phenomenon, its primarily causes a decrease in the tax revenue which gravely affects the national economy as well.
Provision for punishment for Money Laundering resides in S. 4 of the Prevention of Money Laundering Act. The period of punishment shall extend from a span of three years to ten years, apart from rigorous imprisonment the perpetrator shall also be liable to pay fine.
Money Laundering is an interesting subject and a relevant one considering the present scenario where tax evasion is one of the most significant economic offences in our country to study because it actually shows how the human mind is capable of carrying out such criminal acts so meticulously. How creative one can get to carry out such a scandal and most of the times they do manage to get away with it. However, over the years the intelligence agencies and enforcement agencies have adopted advanced tools and strategies to locate such criminal activities and have tried to curb them. With the advancement in technology and with the help of qualified officials hopefully there will be a decline in such criminal activities.
[i] Sterling Seagrave, Lords of Rim. (Corgi, 2nd edn. 1996) [ii] Courtney Lau, 3 Stages of Money Laundering and 5 ways to combat it, https://blockpass.org/2020/08/06/3-stages-of-money-laundering-and-5-ways-to-combat-it/
(Last Visited on March 07, 2021) [iii] Anti-Money Laundering and Countering the Financing of Terrorism https://www.state.gov/anti-money-laundering-and-countering-the-financing-of-terrorism/
(Last Visited on March 07, 2021)