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 –
Ø Expanded the definition of offence of MONEY LAUNDERING
to include activity like concealment, acquisition, possession, and use proceeds
of crime.
Ø Removed the upper limit of fine of Rs. 5 lakh.
Ø Expanded the scope and duration of attachment of
property to 180 days.
Ø Introduced the concept of reporting identity.
Ø Increased the powers of the director to call for
records and conduct enquiries.
Ø 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
written by - Neha Mittal
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