Money Laundering

Money laundering meaning is defined as the transaction of money gained from illegitimate business or unethical ways into legitimate money. In simpler terms, the question of what is money laundering can be defined as converting illegitimate money or black money into legitimate money. Money laundering is considered a crime in many jurisdictions with varying definitions. The definition of the term varies from country to country, the money laundering in India is commonly known as the Hawala transactions.

The term has a much wider sense in the United Kingdoms, initially, the term was only used to define the financial transaction that involved money now the exchange of illegitimate property or substance that has a financial value is incorporated in the definition. 

There are several laws to prevent money laundering, it is because the process is essentially a way to evade tax from the government. There are preventive laws against money laundering in India, which is known as the Prevention of Money Laundering Act of 2002. There are several laws for prevention in different countries as well. The Prevention of Money Laundering Act (PMLA), the bill was p[assed in the year 2002 but was enacted in January 2003. 

The article describes the concept of money laundering meaning, money laundering in India, and the process. The article then describes the law formulated against it, its jurisdiction and the statutory framework of the preventive law. 

Steps in Money Laundering

As we have already established the concept of money laundering and the meaning of the term, we can now define the steps that are involved in the process that is performed by illegitimate business owners. In the money laundering process, the asset is invested in such a manner that the actual source of the money is concealed, the person performing the money laundering process is known as the launderer. There are the following steps in the money laundering process, these steps are mentioned below as follows. 

Placement 

It is the first step in the process of money laundering, it is defined as the step where the launderer introduces cash into the financial system, in simpler terms, it is the step where the illegitimate or black money is entered into a legitimate financial system by investing through various bank accounts or cash.

Layering

Layering is defined as the process in which the launderer conceals the original source of money. It is done by investing in various bonds, stocks, and traveller’s checks or in their bank accounts abroad. A common approach involves opening banks in countries that do not disclose the information of the account holder. All this leads to the disguise of the original source and the owner of the money. 

Integration

It is defined as the final step in the money laundering process. As money laundering meaning itself comprises the transaction of black money into legal money, the final step is the assimilation of the invested funds back into the original account.

The concept and the process of money laundering can be better understood by the following representation.  

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Image illustrating the process of money laundering

The process of money laundering is complicated and corrupt, a general trend seen in such cases is the establishment of a shell company. The term is used to define a fake company that only exists on paper and no production takes place in the company. These shell companies are used to show transactions like getting loans, using tax redemption schemes of the government. These documents are gained to confuse the investigating government bodies.

Prevention of Money Laundering

The main law against money laundering in India is the Prevention of Money Laundering Act of 2002. The law was passed in the session of 2002, while the law was enforced in the year 2003. The main purpose of the law is to prevent money laundering and to provide for the confiscation of property derived from money laundering. The law is often is known as PMLA, an interesting point to note is that the rules were in effect from the month of July in 2005. The Prevention of Money Laundering Act mainly made it obligatory for organisations like banking companies, financial institutions and intermediaries to verify the identity of clients, maintain records and provide information in the prescribed form to the Financial Intelligence Unit of India.

The Three Main Purposes That the Law Served Were As Follows,

• It aimed at preventing and controlling money laundering in India.

• Confiscate and seize the property of those who are involved in money laundering.

• The law also deals with the other branches and issues related to money laundering. 

An important point to note about the Prevention of Money Laundering Act of 2002 is that the violation of the law can result in up to seven years of imprisonment. The act was later amended in the years 2009 and 2012. The PMLA (Amendment) Act, 2012 enlisted the following acts in the criminal list.

•  concealment of funds,

•  acquisition of a possession,

•  use of proceeds of crime or possession of money earned from the crime.

The preventive measures are taken by the Financial Intelligence Unit of India, (FIU-IND) is a government organisation that was established on 18 November 2004. This central government body is primarily responsible for receiving, processing, analyzing and disseminating financial information related to suspected transactions. This organisation also maintains the global relation of the country and help reduce the crime of money laundering with the help of other countries. The organisation, FIU-IND is an independent body, it answers directly to the Economic Intelligence Council

Examples of Money Laundering in India

Although there are laws to prevent money laundering in India there is a significant number of examples of money laundering, some of the most famously known incidents are listed below.

• Common Wealth Games Scam of 2010, was a 70,000 crore scam, where only 70000 crores were spent on the Games and the rest of the money went into money laundering.

• Group financial scandal of  2013, was a 4000 crore scam

• Indian coal allocation scam 2012, a 185,591 crore scam

• 2G scam of 2008, a 176,000 crore scam

In conclusion, it can be said that money laundering is a criminal offence in India, there are laws for the prevention of this. The process of money laundering is complicated and corrupt the sole purpose of this is to evade tax.