Detecting the movement of illegitimate funds is a challenging task

Detecting the movement of illegitimate funds is a challenging task

Money Laundering:

  • Money laundering is a process of converting illegitimate money into legitimate money to avoid law enforcement agencies scrutiny

Illegitimate Money and Money Laundering:

  • Illegitimate money drives the world of crime and money laundering is oxygen line which assist illegitimate money to thrive

Forms of Illegitimate Money:

  • Black Money: resulting from tax evasion
  • Pink Money: resulting from drug trafficking
  • Red Money: resulting from crime acts

Stages of Money Laundering:

  • Placement: refers to first use of illegitimate money which is in form of cash. For Eg. depositing illegitimate cash in bank or giving loan
  • Layering: refers to creation of paper trail to conceal origin of illegitimate money. For Eg. taking loan against bank deposit and buying property A (first layer) and then after some time sell property A and buy property B (second layer) and so on. Profits generated is used to pay loan making difficult for law enforcement agency to unravel source of money
  • Integration: refers to stage where number of layers leads to illegitimate money getting integrated into the financial system

Difficulties in Money Laundering Detection:

  • Cases where money laundering reach advance layers in layering stage and in integrating stage
  • Cases where money laundering structures involve various countries (tax havens), making it cumbersome and time consuming to trace the original ownership of money

Effects of Money Laundering:

  • Negatively Impact legitimate business, law abiding citizen, global economy
  • Costs nation’s economic progress, security and social justice

International’s Efforts to counter Money Laundering:

  • 1988: United Nations convention (Vienna convention) to prevent drug-related money laundering: includes international cooperation to fight money laundering and relaxation in bank secrecy law to curb criminal use of financial system
  • 1989: Basel Committee on Banking Supervision decided that banks should assist law enforcement agencies in tackling money laundering
  • 1989: Financial Action Task Force (FATF) a intergovernmental body created for development and promotion of national and international policies to combat money laundering and terror financing. India became its member in 2010
  • 1995: Egmont Group, consisting of Financial Intelligence Units (FIU) of 155 countries to enforce the international cooperation. India joined it in 2007

India’s Effort to counter Money Laundering:

  • 2005: Prevention of Money Laundering Act 2002 (PMLA): primary agency responsible for enforcing the act is the Directorate of Enforcement
  • 2004: Financial Intelligence Unit (FIU) : responsible for collecting intelligence from the financial sector and sharing it with investigative agencies
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