Money laundering has been defined as the illegal process of concealing the sources of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the money to the launderer in an obscure and indirect way [1].The term was apparently first used with a legal meaning in an American judgment in 1982 concerning the confiscation of laundered Columbian drug proceeds [2].
History
More than 3000 years ago, merchants of China hid their assets and profits of trade, fearing forfeiture of the same from the Rulers The traders did so by converting their profits into readily movable assets, moved cash to outside jurisdictions, and did trade at inflated price to expatriate funds [3].
The organized crime during the nineteen century had received major boost from Prohibition in United States which attempted to end the trade in alcoholic beverages and large pool of funds were received from illegal sale of alcohol. The co-founder of Chicago outfit – Alphonse Gabriel Capone was successfully prosecuted during the prohibition era on the charge of Tax evasion which led to the new era in the state and law enforcement agencies trace the illegal money but laws against tax evasion were unable to be used against members of organized crime once they started paying their taxes. Money laundering rule was used a tool to trace and seize the proceeds of drug crimes during the 1980s. This turned the rules of evidence upside down and profited the law enforcement. According to the money laundering rule the money confiscated was required to be proved by individuals and not the law enforcers the source of money [4]. This term is apparently used by the law enforcer with the reference of the use of launderettes by mafia whose illegal profits were gained through launderettes and hence the word was coined as laundering.
Concept
Any process or activity connected with the conversion of proceeds of crime to project proceeds of crime as untainted property can be broadly stated as the term money-laundering [5]. It is process which transforms illegal inputs into supposedly legitimate outputs and allows criminals them to lead normal life with others without looking like criminals [6]. It is considered that those dealing with property which is produced by crime, but to be disguised as to be acquired otherwise than by crime [7]. Originally, money laundering was made regarding drug crimes but the definition included the types of crime also[8]. Its definition widened the ambit of money laundering to include the proceeds of all serious crime during the UN Convention against Transnational Organized Crime, 2003 gave legal force to a number of issues which were addressed in United Nations General Assembly Special Session’s Political Declaration [9].
Money Laundering in India
The Parliament of India in 2002 passed the Prevention of Money Laundering Act, 2002 with the main object to prevent money laundering and provided confiscation of property derived out of the money laundering. According to section 3 of the Act, Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering [10].
The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 ,
‘preventive detention in certain cases for the purposes of conservation and augmentation of foreign exchange and prevention of smuggling activities and for matters connected therewith’.
The Benami Transactions (Prohibition) Act, 1988
The object of the Act is to prohibit Benami transactions and the right to recover property held Benami and for matters corrected therewith or incidental thereto
According to section 2 (a) of this Act, Benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person;”
The Narcotic Drugs and Psychotropic Substances Act, 1985 – the NDPS Act
This Act’s essence is to prevent the illegal transportation of psychotropic substances. However the Act is not explicitly known for its provisions on money laundering but it implied that money laundering is generated through trade of narcotic substances.
Process of Money Laundering
Money laundering is the single process which is understood in three stages which includes placement stage, layering stage, and integration stage.
Placement
The funds are derived and introduced to in financial system. The dirty money is converted into a legitimate financial institution. This stage has the highest risk as laundering large amounts of cash broken into smaller sums are deposited directly into a bank account, and then collected and deposited into accounts at another location [11]. This process can be carried through currency smuggling (illegal physical movement of currency), Bank Complicity (when back control unscrupulous individual connected with organized crimes), currency exchange (easy movement of currency through liberalized economic market), etc.
Layering Stage
In this stage the illegal source is in a series of conversions of the money in order to change its form and make it difficult to follow. Several bank-to-bank transfers are involved between different accounts in different names in different countries, with varied deposits the changing the money’s and purchasing high-value items.
Integration stage
The final stage, the laundered money is re-introduced in the market. The money is now safe and can be used without getting caught invested the funds into real estate, luxury assets, or business ventures.
THE RECOMMENDATION MADE BY GLOBAL FINANCIAL INTERGRITY ON MONEY LAUNDERING [12]
The Global financial integrity has made several policies to address the issue of money laundering:
1. Make all felonies predicate the offence for money laundering
2. Countries should comply with all FATF standards.
3. Better enforce existing criminal laws.
“The views of the authors are personal“
Reference
- Oxford English Dictionary
- US Vs $ 4,255,625.39, Federal supplement Vol 551, South District of Florida (1982) 314) quoted in Stessens, Guy (2000) “Money Laundering – A New Law Enforcement Model”
- Seagrave, Sterling, Historian in his book “Lords of Rims” quoted in Cotteril, Nigel Morris “Money Laundering” Foreign Policy No.12 May-June, 2001
- Wouter H Muller (2007) “Anti Money Laundering- A Short History” , John Wiley & sons Ltd, England; p3
- Tushar V Shah (2009) “Commentary on PMLA” Current Publications, New Delhi, India
- Ashin, Paul “Dirty Money- Real Pain” Journal of Finance & Development June 2012;
- Unger, Brigitte & et al. (2006) “The Amounts & Effects of Money Laundering- Report for Ministry of Finance”:
- Alldridge, Peter “Money Laundering & Globalization” Journal of Law & Society, Vol-35, No-4
- Unger, Brigitte & et al. (2006) “The Amounts & Effects of Money Laundering- Report for Ministry of Finance”.
- Section 3, Prevention of Money-Laundering Act, 2002
- Sayyed Azhar Hussain Shah, Syed Akhter Hussain Shah and Sajawal Khan “Governance of Money Laundering: An Application of the Principal-agent Model
