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Money laundering: India Setting

Money Laundering: An Insight

Crime is a necessary evil, it should be nipped in the bud. Any act which is condemned
and punishable by the law of the state is a crime. It is difficult to universally define what
a crime is, because the notion of the word varies from place to place, acts which may
attract imprisonment and penalty in one country may not have the same consequence
in other part of the globe. Yet there are certain types of acts which in the modern day
can be termed as criminal activities, the definitions of which have been accepted by the
international community and it does have a global presence irrespective of the place of
occurrence, its nature and scope. The terminology used to refer to such types of
criminal activities is ‘White Collar Crimes’. The traditional concept of crime has
undergone a massive change in terms of its nature, characteristics, types .In the ancient
era acts which would hurt a human being physically such as murder, physical assault
etc would be termed as a criminal act but with the technological advancement the
parameters of judging a criminal activities have widened in its scope, this is not only
confined within the boundaries of traditional crimes such as murder, theft, robbery,
physical assault etc. There lie many differences between traditional and white collar
crimes, the main reason behind a white collar crime is only corruption, this is the root
cause of all the necessary wickedness whereas vengeance, lust, enmity could be the
reason for the commission of a traditional crime. A traditional crime can be perpetrated
by any stratum of the society, the categorization is very hard to make in case of a
traditional crime whereas the white collar crime is solely limited to the upper and middle
class people.

In the light of this argument let us discuss how does money laundering which is an
important ingredient of white collar crime take place in society as a whole. Say for
example, a person illegally gains some amount of money through various sources such
as smuggling of drugs, immoral trafficking et all, what does he do with that bulk of
money? Does he simply stash that money in his house or does he go to banking
institutions and declare the proceeds of crime he has obtained. If he eventually follows
the second option, he is bound to get caught by the investigating authorities because
the banking institution in every country follows a certain threshold limit of depositing
money in the concerned financial institutions and if that threshold limit exceeds the
given amount the suspicion grows amongst these officers who are recruited for doing
this job of keeping a close watch over these people. So, the second option can be
struck out and is pretty clear that the person would not dare going to the bank and
declaring his assets or money he is obtained through such means. So keeping the first
option as a viable medium of laundering of money, again the fear of income tax officials
raiding the house of that person and finding out the true source would be a cakewalk for
these experienced professionals. So what are the options available for this person who
has huge amount of illegal proceeds? Let us further look into what exactly is money
laundering.
Laundering of money in its simplest term means hiding the origin of money obtained
through illegal means such as gambling, corruption, drug trafficking etc. To quote
Jeffrey Robinson from ‘The laundrymen’ “ after foreign exchange and the oil industry,
the laundering of money is the world’s third largest business”. The origin of such a
menace can be traced back to the 13th century when waterways were used to transfer
money through international trade routes. With passage of time and advent of
technology money laundering has started to evolve as a prospective industry in the
society. Crimes go unnoticed if the process of money laundering can be successfully
accomplished. Alphonse”Al” capone the noted mob gangster earned an estimated
$100,000,000 of illegally gained proceeds annually which he laundered through a series
of business transaction. The Prevention of Money Laundering act (PMLA) 2002, defines
the offence of money laundering as “ engaging directly or indirectly in a transaction that
involves property, that is proceeds of crime(or) derived from proceeds of crime( or)
knowingly receiving, possessing, concealing, disguising, transpiring, converting,
disposing off within the territories of India, removing from or bringing into the territory of
India the property that is proceeds of crime”.
How does this process of money laundering work?
Before talking about the process to successfully launder money in details, let us
understand the concept of dirty or tainted money. The money obtained in an illegal
manner or through dishonest means may be termed as dirty or tainted money. It does
not have a legitimate source of origin, for eg, money obtained through drug trafficking or
smuggling may fall under the category of dirty or tainted money.

The process of laundering dirty money can be done in the following ways, they are as
follows:-
a) Placement- This is the first stage of introducing criminal proceeds into the economy.
The dirty money is deposited into a legitimate financial instituton. This involves a lot of
risks because the attention of the authorities can be attracted since a large amount of
dirty money is transacted. The launderer breaks up a large amount of transaction into
smaller ones which are generally below the reporting threshold. Say for eg, a criminal
organization has obtained a huge sum of Rs 30 lakhs after having successfully
committed a crime for which it was appointed. Now this entire amount needs to be
laundered in order to escape the origin of such a huge sum of money. The criminal
organization knows for a fact that if the entire amount is deposited on a single day at the
same branch without having broken up the transactions into smaller ones, it would
attract surveillance from the banking authorities, which in the process could expose the
origin of that sum of money. Hence the organization breaks up the amount into smaller
ones and deposits the money keeping in view the reporting threshold amount
prescribed by the banking regulatory authority.

b) Layering:- The next step is the process of layering in which the money deposited is
involved in a series of transactions to change the structure of its origin and put it away
from its true source. This may involve deposits in other accounts, wire transfers or
purchasing swanky cars, houses or jewellery etc. The strategy is to make the
transaction look so complex in nature that it gets difficult for the authority to track down
the origin. Now continuing from the above example, if the criminal organization having
broken up the amount into smaller, unnoticeable denominations deposits the amount in
different branches, makes offshore deposits, engages itself into wire transfers thereby
making the entire transaction look extremely difficult to understand its true nature and
scope then the process of laundering of money has been accomplished.

c) Integration:- This is the final stage of money laundering. The money re-enters the
economy thereby hiding the true origin of the dirty money and it appears to come from a
legal transaction. The legitimacy cannot be questioned as the money becomes clean
and pure. Investing a certain amount of money in a legitimate business completely
removes the tag of dirty money thereby camouflaging its actual identity.

Now, an important question which arises at this point is how should money laundering
be combated, because if this goes on forever then nabbing a criminal is going to be
tough for the concerned authority .The regulatory authority along with the financial
institutions in a country are trying their level best to fight such a crime with the
incorporation of rules and mechanism. Monitoring of suspicious transaction activities,
the up gradation of know your customer data base, other reporting activities such as
cash transaction reporting, counterfeit currency reporting, customer due diligence,
customer identification procedure etc are being continuously carried out by the
respective financial institutions to enhance the reporting obligations prescribed by the
country. But in spite of such an advancement another collateral question which comes
is that, could combating money laundering be such an easy task? The answer is a plain
NO, because if we compare money laundering to an ocean and catching whales to the
criminals involved in money laundering, then the scenario is slightly depressing because
finding a whale in an ocean in itself a very difficult task, leave behind catching them. So
practically speaking, money laundering can never be stopped and terminated from the
society, it can be reduced to a certain extent because this system is a chain of
complicated processes which might have started working since a long time but yes as
they say, every cloud has a silver lining. There are rays of hope too, each country’s govt
is working hard to fight money laundering in collaboration with the banking institutions.
The international community is more aware these days of the effect of money
laundering and is trying hard to fight it as never before, which is a positive approach.
The author can be reached at: soumiksaha@legalserviceindia.com