Topic – MONEY LAUNDERING AND ITS PREVENTION
What is Money Laundering?
MONEY LAUNDERING is the process by which large amounts of illegally obtained money is given the appearance of having originated from a legal source.
Stages of Money Laundering –
It has three stages,
1. Placement stage – at this stage, vast amount of money generate from an illegal source(e.g., drug dealing, terrorist activity or other serious crimes) placed into the financial system or retail economy or smuggled out of the country. The aim of this stage is to remove the cash from the location of acquisition and then transform it into other assets.
2. Layering stage – at this stage, complex layers of financial transactions designed to disguise the audit trail and provide anonymity.
3. Integration stage – at this stage, money is integrated into the legal economic and financial system and is adopted with all other legal assets in the system.
Methods of MONEY LAUNDERING –
1. Structuring or Smurfing - in this method cash is broken into small deposits to prevent the suspicion of MONEY LAUNDERING.
2. Casinos – in this method, an individual transform its illegal money into legal money by playing for a while, and get all his cash back as gambling winnings.
3. Real Estate – in this method, an individual buy property from illegal money and then sell it to gets his money back in a legal way.
4. Cash intensive businesses – in this method, a business typically involved in receiving cash uses its account to deposit both legal are illicit money, claiming all of it as legitimate earnings. Examples are strip clubs, casinos, parking buildings, etc.
5. Black salaries – a company may have unregistered employees without a written contact and pay them cash salaries. Black cash might be used to pay them.
Above list is not exhaustive.
Prevention of MONEY LAUNDERING –
At international level –
1. United Nation Convention in 1988 against the Illicit Traffic in Narcotic Drugs and Phychotropic Substances is the first international legal instrument to embody the MONEY LAUNDERING. Also the first international which criminalizes MONEY LAUNDERING.
2. UN convention against TransationalOrganized Crime in 2003 and UN convention against Corruption in 2005 came into force.
a. Both convention states that MONEY LAUNDERING should not only apply to the proceed of drug trafficking, but should also cover the proceeds of all serious crimes.
b. Both convention urge states to create domestic supervisory and regulatory regime for banks and non-financial institutions
c. Both conventions also call for the establishment of Financial Intelligence Units (FIUs).
3. Financial Action Task Force(FATF) –
a. FATF is an inter-governmental body that sets standards, develops and promotes policies to combat MONEY LAUNDERING and terrorist financing for countries around the world.
b. In 1990, FATF issued a set of 40 recommendations for improving national legal systems. These recommendations were revised and updated in 1996 and in 2003.
c. FATF on MONEY LAUNDERING has identified certain choke points in its process. These choke points are –
• entry of cash into financial system
• transfers to and from the financial system
• cross border flow of cash
Prevention in India -
1. The financial intelligence unit-India (FIU-India) which is the nodal agency in India for managing the anti-MONEY LAUNDERING ecosystem. It helps in co-coordinating and strengthening efforts to reduce MONEY LAUNDERING and related crimes in India.
2. Prevention of MONEY LAUNDERING Act, 2002 has been the core framework for combating it.
3. In 2010, India admitted as the 34th country member of FATF.
4. This membership helped Indian enforcement agencies to exchange information and financial institutions to gain much better access to markets of other member countries.
5. Prevention of MONEY LAUNDERING (Amendment) Bill, 2012 passed in LokSabha and Rajyasabha.
6. The Enforcement directorate carries out investigations. The ED is also empowered to attach property entities involved in money laundering.
7. The investigation begins with filing an Enforcement Case Information Report(ECIR), which is comparable with an FIR. The adjudicating authority under prevention of MONEY LAUNDERING act then decides whether the attachment is valid or not. The courts take the final call on punishment.
Key amendments to the Prevention of MONEY LAUNDERINGAct –
Expanded the definition of offence of MONEY LAUNDERING to include activity like concealment, acquisition, possession, and use proceeds of crime.
Removed the upper limit of fine of Rs. 5 lakh.
Expanded the scope and duration of attachment of property to 180 days.
Introduced the concept of reporting identity.
Increased the powers of the director to call for records and conduct enquiries.
Clarified that prosecution extends not only to individuals but also to the company.
Current status of money laundering in India -
• India has considerablystepped up its investigations into money laundering and terror funding with the number of cases under probe rising to 1704, even though a low conviction level remains a "serious effectiveness issue".
• The current status of money laundering in India can also be evaluated by looking at the Basel index prepared by the Basel Institute on governance, Switzerland. The Basel AML index scores countries on the basis of AML laws, financial regulations, political disclosure, etc. in that country. The overall score, which ranges from 0 (low risk) to 10 (high risk) .Out of 140 countries, India has been ranked 93rd(score- 6.05) .
Recommendations –
1. To strengthen international co-operation on information exchange and law enforcement
2. Proper mechanisms for handling suspicious reports
3. To increase public awareness of the threat from MONEY LAUNDERING
4. To focus on new technologies and increase counter measures to combat their use for MONEY LAUNDERING
5. Introduce measures that make the movement of money more visible
6. Increasing co-ordination b/w the multiple agencies involved and to improve the limited intelligence sharing
byNeha Mittal
References-
1. www.indianexpress.com
2.www.laundryman.u-net.com
3. www.unodec.org
4. www.lawyersclubindia.com
What is Money Laundering?
MONEY LAUNDERING is the process by which large amounts of illegally obtained money is given the appearance of having originated from a legal source.
Stages of Money Laundering –
It has three stages,
1. Placement stage – at this stage, vast amount of money generate from an illegal source(e.g., drug dealing, terrorist activity or other serious crimes) placed into the financial system or retail economy or smuggled out of the country. The aim of this stage is to remove the cash from the location of acquisition and then transform it into other assets.
2. Layering stage – at this stage, complex layers of financial transactions designed to disguise the audit trail and provide anonymity.
3. Integration stage – at this stage, money is integrated into the legal economic and financial system and is adopted with all other legal assets in the system.
Methods of MONEY LAUNDERING –
1. Structuring or Smurfing - in this method cash is broken into small deposits to prevent the suspicion of MONEY LAUNDERING.
2. Casinos – in this method, an individual transform its illegal money into legal money by playing for a while, and get all his cash back as gambling winnings.
3. Real Estate – in this method, an individual buy property from illegal money and then sell it to gets his money back in a legal way.
4. Cash intensive businesses – in this method, a business typically involved in receiving cash uses its account to deposit both legal are illicit money, claiming all of it as legitimate earnings. Examples are strip clubs, casinos, parking buildings, etc.
5. Black salaries – a company may have unregistered employees without a written contact and pay them cash salaries. Black cash might be used to pay them.
Above list is not exhaustive.
Prevention of MONEY LAUNDERING –
At international level –
1. United Nation Convention in 1988 against the Illicit Traffic in Narcotic Drugs and Phychotropic Substances is the first international legal instrument to embody the MONEY LAUNDERING. Also the first international which criminalizes MONEY LAUNDERING.
2. UN convention against TransationalOrganized Crime in 2003 and UN convention against Corruption in 2005 came into force.
a. Both convention states that MONEY LAUNDERING should not only apply to the proceed of drug trafficking, but should also cover the proceeds of all serious crimes.
b. Both convention urge states to create domestic supervisory and regulatory regime for banks and non-financial institutions
c. Both conventions also call for the establishment of Financial Intelligence Units (FIUs).
3. Financial Action Task Force(FATF) –
a. FATF is an inter-governmental body that sets standards, develops and promotes policies to combat MONEY LAUNDERING and terrorist financing for countries around the world.
b. In 1990, FATF issued a set of 40 recommendations for improving national legal systems. These recommendations were revised and updated in 1996 and in 2003.
c. FATF on MONEY LAUNDERING has identified certain choke points in its process. These choke points are –
• entry of cash into financial system
• transfers to and from the financial system
• cross border flow of cash
Prevention in India -
1. The financial intelligence unit-India (FIU-India) which is the nodal agency in India for managing the anti-MONEY LAUNDERING ecosystem. It helps in co-coordinating and strengthening efforts to reduce MONEY LAUNDERING and related crimes in India.
2. Prevention of MONEY LAUNDERING Act, 2002 has been the core framework for combating it.
3. In 2010, India admitted as the 34th country member of FATF.
4. This membership helped Indian enforcement agencies to exchange information and financial institutions to gain much better access to markets of other member countries.
5. Prevention of MONEY LAUNDERING (Amendment) Bill, 2012 passed in LokSabha and Rajyasabha.
6. The Enforcement directorate carries out investigations. The ED is also empowered to attach property entities involved in money laundering.
7. The investigation begins with filing an Enforcement Case Information Report(ECIR), which is comparable with an FIR. The adjudicating authority under prevention of MONEY LAUNDERING act then decides whether the attachment is valid or not. The courts take the final call on punishment.
Key amendments to the Prevention of MONEY LAUNDERINGAct –
Expanded the definition of offence of MONEY LAUNDERING to include activity like concealment, acquisition, possession, and use proceeds of crime.
Removed the upper limit of fine of Rs. 5 lakh.
Expanded the scope and duration of attachment of property to 180 days.
Introduced the concept of reporting identity.
Increased the powers of the director to call for records and conduct enquiries.
Clarified that prosecution extends not only to individuals but also to the company.
Current status of money laundering in India -
• India has considerablystepped up its investigations into money laundering and terror funding with the number of cases under probe rising to 1704, even though a low conviction level remains a "serious effectiveness issue".
• The current status of money laundering in India can also be evaluated by looking at the Basel index prepared by the Basel Institute on governance, Switzerland. The Basel AML index scores countries on the basis of AML laws, financial regulations, political disclosure, etc. in that country. The overall score, which ranges from 0 (low risk) to 10 (high risk) .Out of 140 countries, India has been ranked 93rd(score- 6.05) .
Recommendations –
1. To strengthen international co-operation on information exchange and law enforcement
2. Proper mechanisms for handling suspicious reports
3. To increase public awareness of the threat from MONEY LAUNDERING
4. To focus on new technologies and increase counter measures to combat their use for MONEY LAUNDERING
5. Introduce measures that make the movement of money more visible
6. Increasing co-ordination b/w the multiple agencies involved and to improve the limited intelligence sharing
byNeha Mittal
References-
1. www.indianexpress.com
2.www.laundryman.u-net.com
3. www.unodec.org
4. www.lawyersclubindia.com
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