Money Laundering - Project

Rizvi Institute of Management Studies and Research
Project report on
“Detail Study of Money Laundering”
In partial fulfillment of the requirements of
Master of Management Studies
conducted by the University
of Mumbai through
Rizvi Institute of Management Studies & Research
under the guidance of
Dr. Shariq Nisar
Submitted by
Imran Shaikh
MMS (Finance)
Batch: 2018 – 2020

Certificate
This is to certify that Mr. Imran Shaikh, a student of Rizvi Institute of Management
Studies and Research; of M.M.S. ( S e m . III) bearing Roll No. 042 and specializing in
Finance has successfully completed the project titled –
“Detailed Study on Money Laundering”
under the guidance of Dr. Shariq Nisar in partial fulfillment of the requirement of Masters of
Management Studies by University of Mumbai for the academic year 2018 – 2020.
Dr. Shariq Nisar Prof. Umar Farooq Dr. Kalim Khan

Project Guide Academic Coordinator Director
Acknowledgement
I take this opportunity to express my sincere gratitude to my guide Dr. Shariq Nisar for his
valuable guidance, monitoring and regular encouragement throughout this project. The help and
guidance given by him from time to time shall always help me in my long way in the journey of
life.
I also take this opportunity to thank my college, Rizvi Institute of Management Studies and
Research, the Director of the Institute Dr. Kalim Khan and the Academic Coordinator Prof.
Umar Farooq.
Lastly, I would like to thank all my classmates, friends and family members who supported me,
directly and indirectly, to complete my project on time.
Imran Shaikh
M.M.S (Finance)
2018-2020
Executive Summary
In the eyes of Law, Money Laundering is one of the atrocious crime to commit. This project
summarizes the concept of money laundering and describes the three stages i.e. Placement,
Layering and Integration that are involved in committing the crime. Not all money laundering act
involves all the three distinct phases and some may involve even more. However, these three
stages are the stages that are involved in most of the money laundering process.
The project covers the various techniques used by money launderers to successfully complete the
money laundering process. It also covers how money laundering leads to the financing of
criminal activities such as terrorism. It is not possible for a single person to commit this crime.
Therefore, a single process of money laundering requires the help of many people for it to get
completed. Money launderers deal in converting a huge amount of black money into legal
money, hence they don't find it problematic to share some of their money with the person who
helped them. Some of the money laundering processes also involve the help of financial
institutions. Whereas, some of the money laundering processes are committed due to the failure
of following proper guidelines by the financial institutions.
The project also covers the various impact of money laundering on the economy, the social life
of common people, Government revenue, etc. Often times money laundering activities are
international in nature. Hence, it has a great impact. Two Money laundering cases are also
involved in this project to understand how money-laundering activity is carried out. This
document also focuses on the various initiatives taken by the Government to combat money
laundering.
Later in the project, I have also mentioned some of my suggestions on how the government can
take a few more steps to combat money laundering.
Contents
Introduction ............................................................................................................................. 2
Stages Involved in Money Laundering ................................................................................... 6
Various Techniques of Money Laundering .......................................................................... 10
Impact of Money Laundering ............................................................................................... 14
Money Laundering and Financial Crimes............................................................................. 24
Government Initiatives to Prevent Money Laundering ........................................................ 28
Money Laundering Case Studies .......................................................................................... 34
Case 1 - Wachovia - estimated £292.5 billion? .................................................................... 34
Case 2 – 8 Charged With Highly Sophisticated $1.2 Billion International Money

Laundering Conspiracy ......................................................................................................... 35
Conclusion ............................................................................................................................ 39
Suggestions ........................................................................................................................... 41
Bibliography ......................................................................................................................... 42
Chapter 1
Introduction
1
Introduction
What is money laundering?
Money laundering is the general term used to describe the procedure by which criminals disguise
the original proprietorship and control of the proceeds of illegal behaviour by making such incomes
appear to have derived from an authentic source.
The processes by which illegally derived property may be laundered are widespread. Though
criminal money may be effectively laundered without the assistance of the financial sector, the truth
is that hundreds of billions of dollars of illegally derived money is laundered through financial
institutions, annually. The nature of the services and products offered by the financial services
industry (namely managing, controlling and possessing money and property belonging to others)
means that it is vulnerable to abuse by money launderers.1
The goal of a large number of criminal acts is to generate a profit for the individual or group
performing the act. Money laundering is the accusation of these criminal resources to mask their
illegal origin. This process is of fundamental importance, as it allows the offender to enjoy these
benefits without compromising his source.
The illegal sale of weapons, trafficking and organized crime activities, including for example drug
trafficking, can generate huge amounts of income. The schemes of embezzlement, insider trading,
corruption and computer fraud can also generate large profits and create the incentive to
"legitimize" manageable profits through money laundering.
When a criminal activity generates a huge amount of profits, the individual or group involved must
find a way to control the funds without drawing attention to the underlying asset or the people
involved. Criminals do this by masking the sources, changing the shape or moving the funds to a
place where they are less likely to attract attention.2
1
https://www.int-comp.org/careers/a-career-in-aml/what-is-money-laundering/
2
https://www.fatf-gafi.org/faq/moneylaundering/
2
How is the offence of money laundering committed?
Money laundering offences have similar characteristics globally. There are two key elements to a
money laundering offence:
 The necessary act of laundering itself i.e. the provision of financial services; and
 A requisite degree of knowledge or suspicion (either subjective or objective) relating to the
source of the funds or the conduct of a client.
The act of laundering is committed in circumstances where a person is engaged in an arrangement

(i.e. by providing a service or product) and that arrangement involves the proceeds of crime. These
arrangements include a wide variety of business relationships e.g. banking, fiduciary and investment
management.
The required degree of knowledge or suspicion will depend on the specific crime, but will generally
be present when the person providing the agreement, service or product knows the suspects or has
reasonable grounds to suspect that the property involved in the agreement represents the proceeds of
the crime. In some cases, the crime can also be committed when a person is aware or suspects that
the person he is dealing with is involved or has benefited from criminal behaviour.3
Why is money laundering illegal?
According to the law, money laundering occurs when someone tries to hide or hide the nature,
location, source, property or control of the proceeds of the crime. Money laundering generally
involves two crimes: the initial crime that criminals benefited from and the crime of attempting to
legitimize that income by exploiting financial institutions.
Terrorists and terrorist organizations also depend on money to support themselves and carry out
terrorist acts. Money for terrorists comes from a wide variety of sources. While the terrorists are not
very concerned about hiding the source of money, they are worried about hiding their fate and the
purpose for which it was collected. Terrorists and terrorist organizations, therefore, employ
techniques similar to those used by money launderers to hide their money.
The ability to prevent and detect money laundering is a highly effective means of identifying
criminals and terrorists and the underlying activity from which the money is derived. The
3
3
application of intelligence and investigation techniques can be a way to detect and interrupt the
activities of terrorists and terrorist organizations.
As they treat each other's money, financial institutions rely on the reputation for integrity and
integrity. A financial institution that has contributed to money laundering will be rejected by
legitimate companies. An international financial centre used for money laundering can become an
ideal financial haven. Developing countries that attract "dirty money" as a driver for short-term
growth may find it difficult to attract the kind of solid long-term foreign direct investment based on
stable conditions and good governance, and that they can help them support development and
promote long-term growth. Money laundering can erode a nation's economy by changing the
demand for cash, making interest and exchange rates more volatile and causing high inflation in
countries where criminals operate.
Most disturbing of all, money-laundering fuels corruption and organized crime. Corrupt public
officials should be able to recycle bribes, bribes, public funds and sometimes even loans for the
development of international financial institutions. Organized criminal groups must be able to
recycle the proceeds of drug trafficking and product traffic. Terrorist groups use recycling channels
to get money to buy weapons. The social consequences of allowing these groups to launder money
can be disastrous. Taking the proceeds of crime from corrupt public officials, traffickers and
organized criminal groups are one of the best ways to stop criminals.
In recent years, the international community has become more aware of the threats that money-
laundering poses in all these areas and many Governments and authorities have committed
themselves to take action. The United Nations and other international organizations are committed
to helping them in any way they can.
Criminals are now taking advantage of the globalization of the world economy by transferring funds
quickly across international borders.4
4
https://www.unodc.org/unodc/en/money-laundering/introduction.html?ref=menuside
4
Chapter 2
Stages Involved in Money

Laundering
5
Stages Involved in Money Laundering

The money laundering cycle can be broken down into three distinct stages; however, it is important
to remember that money laundering is a single process. The stages of money laundering include the:
Placement Stage
Layering Stage
Integration Stage
The Placement Stage
The placement phase represents the initial entry of "dirty" money or the proceeds of crime into the
financial system. In general, this phase has two purposes: (a) frees the criminal from retaining and
protecting large amounts of cumbersome money; and (b) putting money into the legitimate financial
system. It is during the placement phase that money launderers are the most vulnerable to capture.
This is due to the fact that the introduction of large sums of money (cash) in the legitimate financial
system can generate suspicion against officials.
The placement of the proceeds of crime can be done in a number of ways. For example, cash could
be packed into a suitcase and smuggled to a country, or the launderer could use smurfs to defeat
reporting threshold laws and avoid suspicion. Some other common methods include:
 Loan Repayment - Repayment of loans or credit cards with illegal proceeds

 Gambling - Purchase of gambling chips or placing bets on sporting events
 Currency Smuggling - The physical movement of illegal currency or monetary instruments
over the border
 Currency Exchanges - Purchasing foreign money with illegal funds through foreign currency
exchanges
 Blending Funds - Using legitimate cash focused business to co-mingle dirty funds with the
day's legitimate sales receipts
This environment has given rise to a situation where officials from these jurisdictions are unwilling
to comply with the regulations or refuse to cooperate in requests for assistance during international
money laundering investigations.
6
To combat this and other international impediments to effective money laundering investigations,
many countries with similar ideas have come together to develop, coordinate and share model
legislation, multilateral agreements, trends and intelligence and other information. For example,
international monitoring groups such as the Financial Action Task Force (FATF) have evolved from
these discussions.
The Layering Stage
After placement, it reaches the layering phase (sometimes called structuring). The layering phase is
the most complex and often involves the international movement of funds. The main purpose of this
phase is to separate the illicit money from its source. This happens through the sophisticated overlap
of financial transactions that hide the audit trail and cut the link to the original crime.
During this phase, for example, money launderers can start moving the funds electronically from
one country to another and then dividing them into investments placed in advanced financial
options or in foreign markets; Moving them constantly to avoid detection; Every time the gaps or
discrepancies in the legislation are exploited and delays in judicial or police cooperation are
exploited..
The Integration Stage
The final phase of the money laundering process is called the integration phase. It is in the phase of
integration in which money is returned to the criminal from what appear to be legitimate sources.
Initially placed as liquidity and stratified through a series of financial transactions, criminal
revenues are now completely integrated into the financial system and can be used for any purpose.
There are many different ways in which money laundering can be integrated again with the
criminal; however, the main objective at this stage is to raise money with the criminal in a way that
does not attract attention and appears to be the result of a legitimate source. For example, property
purchases, works of art, jewellery or high-end cars are common ways in which the washing machine
can enjoy its illegal profits without necessarily attracting attention.5
5
https://www.moneylaundering.ca/public/law/3_stages_ML.php
7
Stages of Money Laundering 6
6
https://people.exeter.ac.uk/watupman/undergrad/ron/methods%20and%20stages.htm
8
Chapter 3
Various Techniques of Money
Laundering
9
Various Techniques of Money Laundering

At each of the three stages of money laundering, various techniques can be utilized. Following are
the various methods adopted all over the world for money laundering, even though it is not
exhaustive but it encompasses some of the most widely used methods:
DEPOSIT STRUCTURING /SMURFING
This procedure includes the making of several deposits of small amounts below a reporting limit, by
countless independent investors or in a large number of accounts. Money is therefore generally
changed to another record. Occasionally, some collection accounts are used and each assigns its
resources to another account, so the cash continues to run. The nations, to whom these resources are
exchanged, regularly discover that the assets are quickly expelled as money from beneficiary
registers.
Cash deposits followed by telegraphic transfers
Drug traffickers or other people who have smuggled criminal property can make large deposits in
cash outside the country where the crimes started. Often, the cash deposit is immediately dragged
by a telegraphic exchange in another room (which could be the first country in which the infraction
was presented), which reduces the danger of seizure.
Connected Accounts
The need for recognizable evidence tends to hinder, or perhaps make it difficult for offenders to
open accounts with false names. However, the accounts may currently be in the names of relatives,
partners or different people working for the benefit of the offender. Several strategies are used to
protect the beneficial owner of the property, including the use of shell organizations, which are
often merged into another location and experts, such as legal advisors or maritime consolidation
specialists. These methods are regularly consolidated with some levels of exchanges and the use of
various records, so efforts made after media review are more problematic.
Collection Accounts
The collection amounts are used by a wide range of ethnic gatherings. Foreigners pay a significant
amount of small sums in a solitary register and the collected resources are sent to another country in
10
a solitary exchange. Often the remote registers obtain quotas from different registers obviously
separated in the country of origin. While this payment technique is regularly used for legitimate
purposes by migrants and workers who send cash to their country of origin, it can be used by
criminal meetings to launder their illegitimate assets.
Payable-through Accounts
Payable-through accounts are sight deposit accounts held in financial institutions by banks or
foreign companies. The foreign bank channels the deposits and checks of its customers (usually
individuals or legal entities located outside the country) into a single account that the foreign bank
has in the local banks. Foreign customers have the authority to sign the account as holders of a sub-
account and, therefore, they can carry out normal international banking activities. Many banks that
offer these types of accounts have not been able to verify or provide any information on many of the
customers using these accounts. Therefore, the accounts to pay to represent a challenge to "know
your customers" criteria and requirements and guidelines for reporting suspicious activity.
Bank Drafts and Similar Instruments
Payment orders, money orders and cashier's checks purchased for cash are useful for money-
laundering purposes because they provide an instrument issued in a reputable bank or other credit
institution and thus break the money trail. Breaking this trail is vital for the money launderer, as it
makes it impossible, or at least very difficult, for an investigator to determine where the washed
funds ended up. This reduces the ability of the law enforcement authorities to request a court order
to allocate these funds.
Back-to-Back Loans
The action provisions for reserve loans can be used for cash smuggling. A launderer exchanges its
criminal profits in another nation as a guarantee or guarantee of a bank loan, which is then sent back
to the first nation. This strategy not only provides a real loan for money laundering but also
provides focal points for debit.
Remittance Services
Remittance systems operate in different ways. Often the remittance activity receives cash, which
transfers to the banking system another account held by a related company in the foreign
11
jurisdiction. There, the money could be available for the final recipient. Another technique
commonly used by couriers and currency exchanges is that the criminal organization receives the
funds in the destination country in the local currency, which is then sold to foreign entrepreneurs
who need foreign currency to finance the legitimate purchase of goods and export The
attractiveness of this road in some countries is often encouraged by the existence of strict exchange
control. Remittance services are a feature of many ethnic groups; they often apply a lower
commission rate than banks for transferring money to another country and have a long history of
use for money laundering, as they are often subject to few regulatory requirements, if any,
compared to institutions, such as banks, which are equivalent to the service.
Credit and Debit Cards
Structured cash payments for outstanding credit card balances are Visa's most widely recognized
use for tax evasion, often with moderately substantial payments in instalments and, in some cases,
with third party cash payments. Another method is to use the loans from the Visa registers to
purchase cashier's checks or transfer assets to outside destinations. In some events, the loans are
kept in mutual funds or current records. A considerable number of distinct situations include the use
of cards lost or stolen by outsiders.7
7
https://blog.ipleaders.in/techniques-money-laundering/
12
Chapter 4
Impact of Money Laundering
13
Impact of Money Laundering

Economic Distortions: Money laundering affects the development of the legitimate private sector
through the supply of products with a price lower than the cost of production, which makes
competition for legitimate activities difficult. Criminals can also convert companies that were
initially productive into sterile companies to launder their funds and ultimately reduce the overall
productivity of the economy. Furthermore, money laundering can also cause unpredictable changes
in the demand for money, as well as high volatility in international capital flows and exchange rates.
Erosion of the Financial Sector: While the financial sector is an essential component in financing
the legitimate economy, it can be a low-cost vehicle for criminals who wish to launder their funds.
Consequently, the flows of large sums of washed funds entering or leaving financial institutions
could compromise the stability of financial markets. Furthermore, money laundering can damage
the reputation of financial institutions involved in the schemes, with consequent loss of trust and
goodwill with stakeholders. In the worst-case scenarios, money laundering can also lead to bank
failures and financial crises.
Reduction in Government Revenue: Money laundering also reduces tax revenue as it becomes
difficult for the government to collect revenue from related transactions which frequently take place
in the underground economy.
Socioeconomic Costs: The socio-economic effects of money laundering are different because the
dirty money generated by criminal activities is laundered into legitimate funds; They are used to
expand existing and fund new criminal operations. Furthermore, money laundering can lead to the
transfer of economic power from the market, from the government and from citizens to criminals,
thus inciting crimes and corruption.8
Undermining of the legitimate private sector: Quirk (1997: 7-9) stated that the use of facade
companies by money launderers weakens the legitimate private sector, as money launderers are not
necessarily seeking to make a profit from the operations of the front company.
Undermining of the integrity of financial markets: The subsequent loss of reputation by financial
institutions results in a loss of consumer confidence in these interested financial institutions, which
can be perceived as involved in fraudulent activity. This could also affect a country's reputation and
8
http://www.fiumauritius.org/English/Pages/Consequences-of-Money-Laundering.aspx
14
force investors to invest in economies considered less exposed to the risk of money laundering.
Money laundering can have a negative impact on the veracity of financial markets and even weaken
a nation's reputation.
Loss of control of economic policy: The IMF reports (2003) indicated that the size of the funds is
being washed and that money launderers would like to recycle their funds through developing
economies to reduce the possible detection of their schemes, could affect the entry and outflow of
funds in these countries.
Loss of revenue: Many theorists such as Kovacevic and Fundanga have stated that money
laundering decreases the available budgetary funds to increase the economy and, consequently,
government revenue. As a result, governments may have to impose higher taxes to get the necessary
funds to fulfil their responsibilities towards their citizens.
Security threats to privatization efforts: According to Chossudovsky (a Canadian economist,

author and conspiracy theorist), it has been observed that money launderers who can obtain
previous government entities that have been privatized, can try to establish a legitimate front for
money laundering funds. This can weaken economic reforms since money launderers are not
interested in running these entities as ongoing businesses, but rather as a channel for money
laundering.
Reputation risk: Van Fossen has stated that nations that compete as destinations for legitimate
investments may face difficulties in doing so if they have the perception that the country has a
shortage of money laundering activities or is considered a recycling centre for money. This is
because legitimate investors are not associated with any country that has a negative reputation.
Other impacts of money laundering are as follows:
Increased criminality: Increased crime is a serious cause for concern for money laundering. The
triumph of money launderers is the distance they create between themselves and the criminal
activity that makes a profit so that they can live a luxurious life through this crime without attracting
attention and can even go so far as to reinvest their profits for finance other crimes Therefore, the
government, the legislative act and other compliance laws must implement policies in the legal
procedure to stop the crime.
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Social effect: Committing the crime of money laundering by transferring economic power from the
right people to the wrong ones. Good citizens and the government are deprived of their rights,
making criminals benefit from them and prosper in their crime. Money laundering damages the
financial institution, which is an important factor in the nation's economic development.
In developing countries where strict control does not exist, governments have no other choice but to
seek greater contributions from good citizens, make people suffer more and remain subject to
poverty. Companies cannot compete with operators financed by illegal funding, labours then
become jobless and the high rate of unemployment result in an increase in criminality,
dissatisfaction and insecurity. The burden on the government would, therefore, increase with the
need to provide security, thus reallocating resources from more productive companies to other
areas. This reduces productivity in the real sector of the economy by diverting resources from
production areas to social sectors; Increased crime and corruption will slow economic growth and
diminish human development.
Microeconomics effect: Money launderers generate and use the companies that support them.
These companies are not interested and pretend to be involved in them. Usually, companies are not
doing serious business. The revenue generated by the company does not generally come from the
business but from its criminal activities. Their decisions generally are not based on economic
considerations and would offer products at prices below the cost price, which makes companies that
have an unjustified competitive advantage. Legitimate companies lose when they compete, as there
is no fair competition and business closures due to the displacement effect of private sector
companies by criminal organizations.
Macroeconomic effect: There are numerous impacts of money laundering on the macroeconomic
situations. These include volatility in exchange rates and interest rates due to unanticipated transfers
of funds; fall in asset price due to the disposition of laundered funds; misallocation of resources in
relative asset commodity prices arising from money laundering activities; loss of confidence in
markets caused by insider trading, fraud and embezzlement. When businesses make less revenue
and pay fewer taxes, people become unemployed and dependent on social assistance which is most
times difficult to get in developing countries. When criminals use financial institution for
laundering funds, this creates negative promotional and it's enough to scare banks into striving to
keep criminals away from their terrain. Also, banks have a risk of performing a balancing act
16
between attracting new business and complying with the regulations and legislation. The securities
markets (especially derivatives) have become the attention of money launderers and are posing an
added risk to financial systems. Other indirect economic effects are higher insurance premiums for
those who do not make fraudulent claims and higher costs to businesses, therefore, generating fewer
profits which make it difficult to break even. Peter J. Quirk (in Finance & Development March
1997) stated that money demand can appear to change from one country to another resulting in
deceptive financial data. Income distribution also tends to be affected by money laundering because
it could be redistributed from high savers to low ones, sound investments to risky ones. Due to such
negative impact, policymakers have to face difficulty to devise effective responses to monetary
threats and it causes difficulties in the government efforts to manage economic strategy. Sensible
risks are prone to affect the reliability of banks and the management of economic policies. The
prudential risk might be as a result of the corruption of the bank manager when he/she begins to
accept a large sum of money from launders and this brings about non-market behaviour in the
financial system.
It has been cleared that the Money laundering has negative consequences on monetary
development. Money laundering constitutes a serious risk to national economies and respective
governments. The penetration and sometimes saturation of illicit money into legitimate financial
sectors and nations accounts can intimidate economic and political constancy. Economic crimes
have a disturbing effect on a national economy since potential victims of such crimes are far more
numerous than those in other forms of crime. Economic crimes also have the potential of
unfavourably affecting people who do not prima-facie, seem to be the victims of the crime. For
example, tax evasion results in forfeiture of government income and in turn affecting the potential
of the government to spend on development schemes thereby affecting a large section of the
population who could have benefited from such government expenditure. A company fraud not only
results in cheating of the people who have invested in that company but may also adversely affects
investors' confidence and eventually the development of the economy. Legislature body has
difficulty to quantify the negative economic effects of money laundering on economic development.
Such activity damages the financial-sector institutions that are critical to economic growth, reduces
productivity in the economy's real sector by diverting resources and encouraging crime and
corruption, which slow economic growth, and can distort the economy's external sector
international trade and capital flows to the detriment of long-term economic development.
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The Financial Sector: The financial sector can have negative effects of money laundering,
especially financial institutions, including banking and non-banking financial institutions and
securities markets, which can be affected directly or indirectly. Fundamentally, these institutions
facilitate the concentration of capital resources from national savings and foreign funds. These
institutions provide energy to promote investment prospects by providing a favourable environment
and an efficient allocation of these resources to investment projects that substantially contribute to
long-term economic growth.
Reports indicate that money laundering weakens the sustainability and development of financial
institutions in two ways –
First, financial institutions are directly weakened through money laundering, since there appears to
be an association between money laundering and fraudulent activities carried out by institution
employees. Similarly, with the increase in money laundering, the main parts of a state's financial
institutions are susceptible to crime by criminal elements. This strengthens the criminals of the
money laundering channels. This can lead to the elimination of less-equipped competitors and lead
to domination.
Secondly, customer confidence is important for the development of global financial institutions and
the perceived risk for the growth of solid financial institutions and the perceived risk for depositors
and investors in the face of institutional fraud and corruption. The real sector Money laundering
negatively affects economic development by diverting resources towards less productive activities
and facilitating corruption and domestic crime.
Money laundering has also been carried out through other channels in addition to financial
institutions that include more sterile investments, such as real estate, art, antiques, jewellery and
luxury cars or investments that offer less marginal productivity in an economy. These sub-optimal
allocations of resources offer a lower level of economic growth, which is a serious disadvantage for
the economic progress of developing countries. Criminals invest their profits in companies and real
estate to get more profits, legal or illegal. The real estate sector is the largest and most susceptible to
money laundering. Real estate is important for money laundering because it is a non-transparent
market where object values are often difficult to approximate and is an effective way to place large
amounts of money. Rising prices in the real estate sector are profitable and the annual benefits of
18
real businesses create a legal basis for income. The real estate has the following characteristics for
criminal money:
 A safe investment
 The objective value is difficult to assess.
 It allows realizing "white" returns.
The External Sector: Money laundering activities can weaken the financial growth of any nation
through trade and international capital flows. The excessive illegal escape of a state can be
facilitated by national financial institutions or foreign financial institutions. This flight of illicit
capital drains scarce resources especially from developing economies. In this way, the economic
growth of the corresponding economy is negatively affected. Money laundering negatively affects
the confidence of local citizens in their national financial institutions, as well as the confidence of
foreign investors and financial institutions in the financial institution of a state that ultimately
contributes to economic growth. Money laundering channels can also be linked to distortions of a
country's imports and exports. As with the involvement of criminal elements from the point of view
of import, they can use illegal revenues to buy imported luxury goods, both with washed funds and
as part of the process of laundering these funds. These imports do not produce economic activity or
internal employment and in some cases can drastically reduce domestic prices, thus reducing the
productivity of domestic companies. The reliability of the banking and financial services market
depends mainly on the perception that it works within a framework of high legal, professional and
ethical standards. A reputation for integrity is a financial institution's most valuable asset.
Reputational dangers can occur when a country intentionally claims to attract criminal money. If the
funds from criminal activities can be easily processed through a given institution, either because its
employees have been corrupted or because the institution does not pay attention to the criminal
nature of such funds, the institution could be actively involved with the criminals. and be part of the
criminal system itself. This network will damage the attitudes of other financial intermediaries and
regulatory authorities as well as common customers.
Money laundering also has other dangerous consequences. Not only does it influence the nation's
financial system by taking control of the government's economic policy, but it also diminishes the
moral and social position of society by exposing it to activities such as drug trafficking, smuggling,
corruption and other criminal activities. The global money-laundering sector has become a global
19
problem. Criminals attack foreign authority with liberal banking secrecy laws and weak regulators
against money laundering, as they transfer illegal funds through national and international financial
institutions often with speed and Internet transactions. This great penetration of criminal income
into the world market can destabilize and can have a degrading effect on those working within the
market system. The infiltration of criminals into authentic markets can also change the balance of
economic power from responsible entities to scoundrels who have no political or social
responsibility.9
Short term Effects of Money Laundering
Short term effects of money laundering are time-based effects which have an adverse effect on the
economy; either direct or indirect.
Losses to the Victim & Gains to the Perpetrator of a Crime: This is a direct short-term effect of
money laundering. Total money laundering generated worldwide can be attributed to drug
trafficking and fraud. The cost advantages are so high that offenders are tempted to launder money
by engaging in drug trafficking and fraud. Money laundering leads to an unjust redistribution of
wealth from good to evil, which makes detection extremely difficult and allows criminals to enjoy
the fruits of their crimes without being distributed. Money laundering helps make crime useful
because the benefits of recycling are afraid of overcoming its costs. The main criminal sources for
money laundering are fraud and drugs. Drug use reduces the productivity of labour that consumes it
and for a long time has a negative effect on the growth of the country's GDP. Other costs for the
company include higher insurance costs, health costs for the treatment of the drug addict, the legal
system, the costs of detention, etc. The tax fraud in question is an important concern for all
countries. Leads to tax evasion and loss of revenue for the government. At the company level,
monitor costs such as audit fees, the establishment of control systems, etc. to increase. Collins and
Lapsley (1996) have estimated 1.6 billion Australian dollars of tangible and intangible costs derived
from the abuse of illicit drugs in Australia in 1992. This equates to around 0.4 per cent of GDP. 45
per cent were due to lost productivity, 27 per cent were spent on law enforcement and 25 per cent
on health care. Similar studies are conducted in the United Kingdom, Canada and the Netherlands
with minor variations. The UN believes that drug abuse imposes high costs on countries.
9
https://www.civilserviceindia.com/subject/General-Studies/notes/money-laundering-and-its-prevention.html
20
Undermining the Legitimate Private Sector: One of the most serious microeconomic effects of
money laundering is felt in the private sector. Money launderers often use front-line companies,
which combine the proceeds of illegal activities with legitimate funds, to hide abused profits. In the
United States, for example, organized crime has used pizzerias to mask revenue from heroin
trafficking. These companies have access to important illicit funds, which allow them to subsidize
the company's products and services at levels well below market rates. In some cases, coverage
companies may offer products at lower prices than the manufacturer costs to produce. Therefore,
first-class companies have a competitive advantage over legitimate companies that obtain capital
funds from the financial markets. This makes it difficult, if not impossible, for a legitimate company
to compete against front-line companies with subsidized loans, a situation that can result in the
movement of private sector companies by criminal organizations. Clearly, the management
principles of these criminal enterprises are not consistent with the traditional principles of legitimate
free market activities, with consequent further negative macroeconomic effects.
Artificial Increasing in Prices: The main objective of money launderers is to increase the chances
of concealment instead of maximizing returns through investment in assets. Therefore, they are
willing to pay for particular activities more than their real value, as well as to buy properties that are
not attractive or increase their participation in a particular market. This will lead to an artificial
increase in prices, which will make it difficult for those who do not launder money to buy the same
goods for real uses.
Unfair Competition: Gresham's law that "bad money expels good money" also applies to money
laundering. Withholding illegally obtained money is a crime for criminals. As a result, they will try
to convert it into assets that are less visible and give the appearance of legitimate wealth. To achieve
this, money launderers make large purchases and, thanks to their high availability of funds, they can
outperform honest potential buyers.
Change in Imports and Exports: Composition of imports and exports due to money laundering.
Imports of luxury items will increase thanks to money launderers. As these products are expensive,
there will be a negative effect on the balance of payments. The scarcity of foreign currency in the
national economy will increase the exchange rate that could further discourage imports, especially
of basic products that increase growth. Secondly, this import does not generate national economic
activity or employment and has the potential to lower domestic prices, which reduces the benefits
21
for national companies. One of the most common tactics used to launder money and generate illegal
capital is to overestimate imports and underestimate exports, which can be understood through
insufficient export turnover (to keep export dollars abroad) or through excessive billing of exports.
imports (to send more dollars than is really necessary). Clearly, if these activities are carried out on
a recurring and large-scale basis, this can artificially affect import and export prices.
Raymond W. Baker, a Harvard and Brookings scholar in his book Capitalism's Achilles Heel - Dirty
Money and How to Renew Free Market System (2005) estimates that the stock of illicit money
amounts to $ 11.5 billion, to which adds a billion a year. About $ 500 billion a year flows to the rich
from the rest according to Baker. With the help of the Ford Foundation, Baker Headed Global
Financial Integrity (GFI) has estimated countries' illicit cash flows. It puts the outflow of India in
the period 2002-06 to 137.5 billion dollars. (Rs. 6.88 crore lac). The more the loot could have been
since 1947, Devkar, who participated in the GFI study, made it clear that the GFI estimate of India's
loot is lower merit. GFI ranks fifth in the ranking of 160 developing countries that suffer the release
of huge amounts of money through illicit channels.
GFI report came out in December 2008 GFI said total illicit financial outflows from India during
the period averaged from a low of $ 22.7 billion to high of $ 27.3 billion per year. As per the GFI
report China on tops list of countries for illicit outflows with $ 233 - $2.89 bn followed by Saudi
Arabia $ 54 bn - $ 55 bn, Mexico $ 41 bn - $ 46 bn, and Russia - $ 32 bn - $ 38 bn.
Higher Capital Inflows and Outflows: Money launderers can channel funds to financial
institutions or countries where money can be placed more easily without too many questions. This
can lead to capital flight from countries with strong economic policies and a higher rate of return to
countries with less efficient policies and lower interest rates.10
10
https://shodhganga.inflibnet.ac.in/bitstream/10603/89275/14/14chapter%205.pdf
22
Chapter 5
Money Laundering and
Financial Crimes
23
Money Laundering and Financial Crimes

Money laundering and related crimes include in its definition "money obtained not only through
drug trafficking, but also the proceeds of other criminal acts, including terrorist activities". When
discussing the criminological aspects of money laundering, it is not possible to make a significant
distinction between the concepts of "organized crime" and "terrorism". Drug trafficking has become
a natural source of funding for both phenomena. Due to the globalization of the economy, criminal
organizations are not a local problem. They have become international, operating globally:
Criminals are now taking advantage of the globalization of the world economy by rapidly
transferring funds across international borders. Rapid developments in financial information,
technology and communication allow money to move quickly and easily anywhere in the world.
This makes the task of fighting money laundering more urgent than ever.
The deeper the "dirty money" in the international banking system, the more difficult it is to identify
its origin. Due to the hidden nature of money laundering, it is difficult to estimate the total amount
of money going through the recycling cycle. The estimated amount of money laundered worldwide
in one year is from 2 to 5% of world GDP, or from $ 800 billion to $ 2 billion in current US dollars.
Although the margin between these figures is enormous, even the lowest estimate highlights the
seriousness of the problem that governments have committed themselves to solve.
In recent decades there have been several developments in the international financial system that
have made it more difficult to discover, freeze and confiscate the revenues and activities derived
from criminal offenses of the three Fs: it is the "dollarization" (ie the use of the US dollar United in
the transactions) of the black markets, the general trend towards financial deregulation, the progress
of the Euromarket and the proliferation of financial secrecy paradises.
Fueled by advances in technology and communications, financial infrastructure has become a global
system that operates constantly where the "megabyte of money" (ie money in the form of symbols
on computer screens) can be moved anywhere in the world quickly and easily.11
Financial Crimes: Financial crime has been a key issue worldwide for several decades. The
authorities are constantly looking for new ways to track and prevent financial crimes, and criminals
are always developing innovative tactics to stay ahead of the game. If you are involved in the
11
https://www.unodc.org/unodc/en/money-laundering/globalization.html
24
financial or business sector, it is essential that you understand what a financial crime is and how it
works.
Financial crime is defined as a crime specifically committed against property. These crimes are
almost always committed for the personal benefit of the offender and involve an illegal conversion
of the ownership of the property in question. Financial crimes can occur in many different forms
and occur around the world. Some of the most common crimes involving the financial sector are
money laundering, terrorist financing, fraud, tax evasion, embezzlement, forgery, counterfeiting and
identity theft. These crimes are committed every day and governments around the world constantly
persecute financial criminals as they search for new ones.
The two most common types of financial crimes they face today are money laundering and terrorist
financing. Although the term "terrorist financing" is quite simple, money laundering can be a more
complicated concept to understand. In essence, however, money laundering is simply the act of
masking the profits gained from crime. Mafia posters and groups are some of the most important
money launderers in the popular media, but money laundering can also extend beyond organized
criminal groups and can take place on different scales.
Criminals who launder money and finance terrorists generally use very sophisticated techniques,
which means that they are difficult to detect and capture. Both crimes are often international, as
money launderers and financial terrorists must smuggle money across borders to facilitate their
plans. It is not uncommon for these criminals to have corrupt connections in government and
business; These could include employees of financial institutions, accountants, government officials
and other service providers.12
Who commits Financial Crime?
There are essentially seven groups of people who commit various types of financial crime:
 Organised criminals, including terrorist groups, are increasingly perpetrating large-scale

frauds to fund their operations.
 Corrupt heads of state may use their position and powers to loot the coffers of their (often
impoverished) countries.
12
https://complyadvantage.com/knowledgebase/financial-crime/
25
 Business leaders or senior executives manipulate or misreport financial data in order to

misrepresent a company’s true financial position.
 Employees from the most senior to the most junior steal company funds and other assets.
 From outside the company, fraud can be perpetrated by a customer, supplier, and contractor
or by a person with no connection to the organisation.
 Increasingly, the external fraudster is colluding with an employee to achieve bigger and
better results more easily.
 Finally, the successful individual criminal, serial or opportunist fraudsters in possession of
their proceeds are a further group of people who have committed financial crime.13
13
https://www.int-comp.org/careers/a-career-in-financial-crime-prevention/what-is-financial-crime/
26
Chapter 6
Government Initiatives to
Prevent Money Laundering
27
Government Initiatives to Prevent Money Laundering

Prevention and Combat of Money Laundering
Legislators around the world have realized that concentrated efforts are needed to tackle illegal
financing and the control of money laundering.
India has several laws regarding drug trafficking, drugs, foreign trade violations, currency
manipulation and even special legal provisions for pre-trial detention and forfeiture of assets, which
were issued for a period of time to cope with to these serious crimes. Some of these measures have
been considered solid measures, but may not coincide with the post-September 11 measures
undertaken in the United States. UU. And the EU. In India, there were old-age practices to prevent
money laundering in the sense of seizure and recovery of the proceeds of crime. The statutes
predominant before the Prevention of Money Laundering Act, 2002 (Money Laundering Act of
2002) are:
 Criminal Law Amendment Ordinance (XXXVIII of 1944).

 The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976.
 Narcotic Drugs and Psychotropic Substances Act, 1985.
Criminal Law Amendment Ordinance (XXXVIII of 1944): Under this law, the police can obtain
the proceeds of the crime related to corruption, lack of trust and deception confiscated by a seizure
order and by completing the criminal trial it is possible to obtain a court order that loses the product.
This order was amended in 1946 and the defendant's responsibility for the trial. In the case of a
crime under the law on the prevention of corruption, implementation is the responsibility of the
CBI. However, this law only covers the proceeds of certain crimes such as corruption, breach of
trust and deception and not all offences under the Criminal Code of India.
The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976:
According to this law, there is a penalty for illegally acquired properties of smugglers and currency
manipulators and for matters relating to them and accidents. The application of this law is limited to
persons convicted under the Customs Act of 1962 or the Maritime Customs Act of 1878 or other
exchange laws. Under this law, no person may possess any property acquired illegally, alone or
through any other person on their behalf. The word "illegally acquired property" has been well
defined in section 3 (c) of the law.
28
There is very extensive legislation in India on money laundering which includes all types of money
laundering related to all crimes and crimes covered by Indian laws, with the exception of crimes
related to drug trafficking or the crimes provided for by the Criminal Code from India Regarding
drug-related crimes, the prevention of money laundering is responsible for the Psychotropic and
Narcotic Substances Act of 1985.
Narcotic Drugs and Psychotropic Substances Act, 1985: The 1985 law on drugs and
psychotropic substances stipulates the sanction of products derived or used in illegal drug
trafficking. Sections 68 A to 68Y of chapter VA of the law establish the loss of activities derived or
used in illegal traffic. The provisions are so broad that the authorities that manage the law have
enormous powers, including the power to trace the source of money or property related to drugs
and, subsequently, proceed with the freezing of the accounts and the seizure of property and
delivery to the government.
Other analogous statutes: In addition to these laws, there is a law on the regulation of foreign
contributions in 1976, according to which the central government regulates the flow of funds to
various organizations. If the central government believes that some organizations are acting against
the national interest, it can block its funds. In addition to the Reserve Bank of India, which manages
the Foreign Exchange Administration Act, 1999, it has the powers set out in section 11 of the Law
to give appropriate instructions to authorized dealers to avoid violation of any law. In addition to the
above, Section 102 and Sections 451 to 459 of the Criminal Procedure Code of 1973 permit the
seizure and confiscation of the proceeds of crime.
The purpose of the 2002 Money Laundering Prevention Act (PMLA) is to combat money
laundering in India to prevent and control money laundering, confiscate money laundering assets
and deal with any other related problems in India. It came into effect as of 1 July 2015. The law
establishes that any person who seeks, directly or indirectly, to cuddle or consciously help, that is,
knowingly, is a part or really participates in any process or activity related to the proceeds of the
crime and project it as a pristine property. He will be guilty of money laundering offences. For the
purposes of money laundering, the PMLA identifies certain crimes under the Indian penal code, the
law on psychotropic and narcotic substances, the law on weapons, the law on the protection of
29
wildlife, the law on the prevention of traffic. corruption and immoral, whose revenues would be
covered by this law.
International initiatives are also taken to combat drug trafficking, terrorism and other organized and
serious crimes, which have concluded that financial institutions, including stockbrokers, must
establish internal control procedures to prevent money laundering, dirty money and terrorist
financing. In other nations such as the United States, The United States Congress approved the law
on US patriots. From 2001 within 43 days after 11 September of 26 October 2001. This law has
made up to 52 amendments to the Banking Secrecy Act of 1970 (BSA). The range of these new
provisions has affected all financial institutions and companies, not only in the United States but
also in many countries of the world. One of the changes made to the BSA requires that each
financial institution establish anti-money laundering programs. Furthermore, the list of companies
defined as financial institutions is broad and includes banks, brokers and operators of securities or
commodities, foreign exchange agencies, insurance companies, credit card operators, distributors of
precious metals, stones and jewels, travel agencies, busy business. in the sale of vehicles, including
cars, aeroplanes and ships, casinos and gaming establishments, and even telegraphy services
companies and postal services in the United States. It also adds secret banking systems, such as
"hawala", to the description of financial institutions. Create customer documentation and due
diligence duties. At the same time, it guarantees immunity to financial institutions and their staff to
share dubious activity reports with any government agency or between them. It also makes it a
crime to hide more than $ 10,000 in cash or monetary instruments when entering or leaving the
United States. As a result, a large number of financial institutions and corporations, which
previously did not deal with money laundering, now have to maintain anti-money laundering
programs that require them to "develop internal policies, procedures and controls", "choose a
compliance officer," conduct "training programs for current employees" and perform "independent
audit functions".
Currently, the US intelligence agencies can have access to reports and records of financial
institutions and businesses including suspicious activity reports filed by them. One of the major
changes is the ban of correspondent accounts for foreign shell banks, which have no physical
presence anywhere. A foreign bank must have a fixed address, employ at least one full-time
employee, maintain operating records and be inspected by a banking authority to qualify for a
correspondent account. Besides amending the BSA, the USA Patriot Act of 2001 also modified in
30
the Money Laundering Control Act of 1986. It now acquires extra-territorial jurisdiction to combat
terrorist funding and criminal proceeds. The law covered funds representing proceeds of nearly 200
specified unlawful activities such as fraud, kidnapping, gambling, espionage, drug trafficking, etc. It
now covers bribing of a foreign public official, embezzlement of public funds, smuggling or export
control violations involving items covered by the Arms Export Control Act as well as crimes of
violence. The new law requires the financial institutions to provide information regarding customers
within 120 days if the account is in the US and within seven days if the records are maintained
outside the US in respect of correspondence accounts. The new law also supports forfeiture powers
over funds of foreign persons and institutions. The US authorities now have vast power to track and
grab laundered money that runs terrorist activities and to penalize the criminals involved. The USA
Patriot Act of 2001 has also seen a jump in filing SARs. The US Finance Crimes Enforcement
Network reported an increase in SARs by over 40 per cent in the year 2002 compared to the
preceding year. The compliance costs for the financial institutions have also gone up but many think
that this may be a small price to pay to be able to live in a world with reduced risks of terrorist
assaults.
Procedures for Anti Money Laundering: Each registered intermediary must implement written
procedures to implement the Anti-Money Laundering provisions as envisaged under the Prevention
of Money-laundering Act, 2002. Such procedures should include inter alia, the following three
specific parameters which are related to the overall 'Client Due Diligence Process:
 Policy for acceptance of clients

 Procedure for identifying the clients
 Transaction monitoring and reporting especially Suspicious
In India, to combat the threat of money laundering crimes, the government entrusts the work related
to the investigation, to the seizure of assets / proceeds of crime relating to the crimes provided for
by the law and to the filing of complaints, etc. . to the executive management, which currently deals
with offenses under the currency management law
Summing up, money laundering is spreading at an accelerated rate globally and is a serious issue for
legislative authorities that must be stopped for the proper functioning of society and the economic
31
improvement of all nations. All nations must work together to combat this devastating criminal
activity. Money laundering is basically the process of transforming the product of illegal or criminal
activities into apparently legitimately acquired funds through a series of steps. Today, due to
technical modernization, criminals are highly intelligent and deceptive law enforcement agencies,
deploying a team of experts such as accountants, lawyers, banker gangsters, to cover their illicit
money and simulate it as legal income. These professionals charge a commission of between 10 and
15% of the amount in question. The connection between criminals, politicians, police agencies and
collective gangs is so strong that it is difficult to break. Bankers also have a vital role and without
their participation, the operation cannot succeed. Its numerous payment options, such as electronic
funds transfer, have further aggravated the difficulties in identifying the movement of sludge funds.
The international type of money laundering requires that international cooperation for law
enforcement officers effectively examine and accuse those who initiate these complex criminal
organizations. Money laundering must be fought mainly by criminal means and in international
cooperation between judicial and police authorities. It can be said that the mere promulgation of
anti-money laundering laws will not solve such a serious crime, but that the law enforcement
community must remain tied to the constantly changing dynamics of money launderers who are
continuously developing advanced techniques. They help them implement strict laws to stop money
laundering.14
14
https://www.civilserviceindia.com/subject/General-Studies/notes/money-laundering-and-its-prevention.html
32
Chapter 7
Money Laundering Case
Studies
33
Money Laundering Case Studies
Case 1 - Wachovia - estimated £292.5 billion?

In 2010, one of the biggest banks in America, Wachovia (now part of Wells Fargo), entered into a
DPA (which has since expired) after the biggest ever action was brought under the Bank Secrecy
Act.
An investigation was started in 2005 by the Drug Enforcement Agency (DEA) in the US. During
the course of the investigation, it was discovered that Mexican cartels were smuggling US dollars,
gained from selling illegal drugs in America, across the Mexican border.
The money was then given to the money exchangers who deposited it into their Mexican bank
accounts. The origin of the money wasn’t investigated by the Mexican banks (as their regulatory
requirements weren’t comparable to the US) and this allowed the criminals to place their illegal
earnings into the legitimate sector.
These funds were then wired back to Wachovia’s accounts in America, whose origin, again, wasn’t
checked. Any remaining banknotes were shipped back to America using Wachovia’s ‘bulk cash
service’ provided to their correspondents. By using these two methods provided by Wachovia, the
criminals were able to integrate their illegal funds into the financial system and then return the
funds back to their starting country.
Wachovia paid federal authorities a total of £123.7 million for willingly failing to establish an
adequate AML programme and subsequently allowing, from 2004 to 2007, the transfer of an
estimated £292.5 billion into dollar accounts from money exchangers or ‘Casas de Cambio’ in
Mexico that the bank did business with.
This included nearly £10 million that went through correspondent banking accounts at Wachovia to
buy aeroplanes to be used in the drugs trade – more than 20,000 kg of cocaine was seized from
these planes.15
15
https://www.int-comp.com/ict-views/posts/2016/07/22/top-5-money-laundering-cases-of-the-last-30-years/
34
Case 2 – 8 Charged With Highly Sophisticated $1.2 Billion International Money

Laundering Conspiracy
On July 24, 2018, the Federal Prosecutor's Office for the Southern District of Florida filed a
criminal complaint (the "cause") that accused eight people with conspiracy to commit money
laundering under the 18 United States of America 1956 (h) and 1956 (a) (2) and interstate and
foreign travel to help blackmail companies under the age of 18.U.S.C. 1952 for its alleged
participation in a sophisticated international anti-money laundering conspiracy for 1,200 million
dollars. Among the accused were four Venezuelan citizens with various ties to Venezuelan public
officials and the state's oil company; Colombian citizen, national and US, connected to US financial
companies; a Portuguese citizen and alleged "professional money launderer"; a German citizen
described by the government as a "high-level banker in a large Swiss bank"; and a Uruguayan
citizen with participation in at least one US bank known to the government to facilitate money
laundering. The cause also identifies nine unnamed conspirators and involves numerous unnamed
US and international financial institutions.
The lawsuit, the result of a joint investigation conducted by the Department of Justice and
Immigration and Application of the national security authorities, presents accusations of conduct
aimed at stealing 1.2 billion dollars from a Venezuelan oil company and laundering the money
through fraudulent transactions involving the sale of fake products. high-end securities and real
estate and through fraudulent contractual relationships in the United States and Europe. Defendants
refer to themselves as "sophisticated operators with respect to the international banking system
[who] know the general diligence of banks and anti-money laundering practices, including the
requirements to" know your client (KYC) ". Establishes an elaborate story that includes a litany of
current "hot" issues about money laundering and of which we have written the blog, including the
alleged corruption in the Venezuelan oil industry, shifting the product of official corruption through
the international financial system, potential laundering of foreign assets through high-end properties
in the United States and misuse of fictitious companies to hide actual real owners.
The Initiating Transaction
Like a spider's crack in a windshield, the charges in the lawsuit begin in a relatively simple and
central transaction and extend from there to various interconnected and complex relationships and
patterns. In 2014, two conspirators approached a person identified in the complaint only as a
"confidential source" ("CS") with a proposal to benefit from the fixed currency exchange system of
Venezuela. In Venezuela, the government defines the exchange rate for the Venezuelan currency
(bolivar) and has maintained this exchange rate well below the real bolivar exchange rate. As of
2014, the government's fixed exchange rate was around six bolivars per US dollar, while the real
economic exchange rate was about sixty bolivars per US dollar. Therefore, in an unauthorized
transaction by the government, an individual could exchange $ 1 million for $ 60 million of bolivars
and therefore, with access to the government fixed rate, could convert those same $ 60 million
bolivars to $ 10 million, actually buying $ 10 million for $ 1 million through two transactions
35
In order to offer to capitalize on the manipulability of exchange houses in Venezuela, the

conspirators approached the CS with a $ 100 million sale offer at a favourable exchange rate for
bolivars. Since he had Venezuelan customers to whom he could sell US dollars and, therefore,
benefit from the exchange, CS accepted. The transaction was intended to be remembered in a
standard forex trading ("forex") contract. However, after the financial transaction was initiated
through a European regulated asset management company ("European Financial Institution 1")
which transferred the funds of the conspirators to an account belonging to a trust of which CS was
the sole beneficiary, the conspirators had not yet been able to provide CS with a forex contract.
The Money Laundering Scheme Revealed

Over time, the CS has pressured the conspirators to obtain the contract because the CS bank's
compliance department required the appropriate documentation for the transaction. However,
instead of providing a forex contract, the conspirators sent CS a fake joint venture contract between
a Hong Kong roofing company ("HK shell") and the CS trust, which involved a $ 600 million joint
venture HK shell and CS trust. The CS requested further documentation after questioning the joint
venture agreement. The conspirators provided him with three main documents that, instead of
setting the terms of the currency exchange, designed a plan to steal $ 600 million from a
Venezuelan state-owned oil company.
The first document was a loan agreement between the Venezuelan oil company and a Venezuelan
ghost company in which the Venezuelan ghost company agreed to lend 7.2 billion bolivars to the oil
company. Thus, through a sale contract between the Venezuelan oil company and HK Shell, the
Venezuelan oil company assigned its creditor rights to the oil company to HK Shell and the oil
company received the right to cancel the 7.2 loans. one billion bolivares paying HK Shell $ 600
million. Third, in an allocation letter notice, HK Shell informed the oil company about the
allocation and suggested that it exercise its right to cancel the debt and pay the equivalent in euros
of $ 600 million during the transfer of these funds to the institution European Financial 1. The
question summarizes the transaction: "[i] n briefly, [HK Shell] has terminated the right to pay [to
the oil company] about 7.2 billion bolivars (valued at about 35 million euros) and receives about
510 million euros, of which around 78.8 million euros were sent to the SC ".
Therefore, it became clear to CS that he was not involved in currency exchange, but in a money-
laundering plan, which included conspiracy CS transactions to launder their undue earnings and
36
make cash payments to Venezuelan officials. In the end, CS refused to continue participating in the
plan, arguing that it could not continue to facilitate laundry transactions without the proper
documentation required by its bank's compliance department. This complaint prompted a sit-in
between the CS and three co-conspirators during which, with "a gun on the table" and "a German
shepherd with a shock collar" on the heel, the conspirator said to the CS: (1) I could not completely
control the German shepherd; (2), despite the previous guarantees, had provided the false joint
venture contract to the banks of the European financial institution 1 in Malta and Canada and,
therefore, it would have been impossible to replace this contract with a simple currency agreement;
and (3) transfers of funds to the CS trust that had already occurred could not be reversed.
Subsequently, the CS began to record his conversations with the conspirators, capturing the
numerous conversations of the following month, in which the conspirators recognized their
activities of embezzlement and money laundering, also discussing their plans to launder the
appropriation funds undue through funds in New York, Miami, Panama and through US brokerage
firms and mutual funds. Extending this last method, in April 2016, the conspirators explained in
conversations acquired in recordings that they would manage a mutual fund that would receive
payments disguised as legitimate investments, but that would be redirected using cards, checks or
bank transfers. Noting that "the fish dies by word of mouth", the conspirators assured the CS that
the false mutual fund would implement its rudimentary "know your customer" ("KYC") system to
ensure that the authorities did not make secret transactions with the background.
Operation Money Flight

Around this time, the CS officially started collaborating with Homeland Security Investigations -
Miami ("HIS-Miami") and, in its cooperation, continued to carry out transactions with the
conspirators and registered them to facilitate government-led conspiracy investigations, called
Operation Monetary Escape. The consensual records he collected over the next year and half-
revealed that the conspirators continued to develop mechanisms to launder their profits for
embezzlement.
The Alleged Laundering Schemes

Among these recycling methods, the conspirators discussed a fraudulent system of selling bonds
through which they would issue bonds alternatively through a bank "[over] on which we have much
influence" and a British broker-agent who would, for a period of time of several years. months,
37
decrease their value until they fail, while the assets invested remain with the complicit financial
institution.
In addition, the conspirators invested in Miami real estate through a Miami real estate developer. In
that case, the money was deposited with the developer who transferred the property to an LLC
owned and operated by the wife of a conspirator. After the transfer, the conspirator was added as
director of the LLC, while his wife was fired, which gave him control of the real estate.
In another scheme, the conspirators, through the CS, bought the United Kingdom. £ 5 million GILT
delivered to a European asset manager ("European Financial Institution 2"). While in the hands of
the European Financial Institution 2, the GILT was exchanged for a separate, worthless bond, while
the funds were transferred to separate accounts held by the conspirator.
In another scheme, the conspirators washed their profits through a false mutual fund structure. The
false mutual fund was created as an entity in the Cayman Islands controlled by the conspirators with
its custodian bank in New Jersey. Under the leadership of the conspirators, CS instructed a
Bahamian bank with embezzlement funds to subscribe to the fund for an amount of $ 5 million.
Those funds were transferred to the New Jersey bank and accessible to the conspirators.
The conspirators then added members and doubled their efforts. First, they "modified" the updated
joint venture contracts and the loan agreement of the oil company, doubling the amount in question
from $ 600 million to $ 1.2 billion. However, although the conspirators managed to steal an
additional $ 600 million, they were unable to establish sufficient washing methods to meet their
expanded needs. Although they initially decided to implement the mutual fund plan, the new
conspirators expressed concern about transactions through the US banking system. The conspirators
discussed how to launder their profits for several months without apparently reaching a solution
before the US authorities outlined the plan.16
16
https://www.natlawreview.com/article/8-charged-highly-sophisticated-12-billion-international-money-laundering-
conspiracy
38
Conclusion
Money laundering is, thus, a very serious offence and it should not be taken lightly as any other
local crime.
India has taken several anti-money laundering measures to stem this problem, but these measures
somewhere or another have some gaps or gaps and therefore do not fully meet their purpose. Some
of such problems are pointed out below:
 Growth of Technology: With the advent of technology at such a high speed, it has been
possible for money launderers to act to hide the origin of the benefits of crime through
computer techniques. Application agencies cannot match the speed of growing technologies.
 Lack of awareness about the problem: The problem of money laundering is growing at a
very high rate. Their ignorance among the common public is an impediment to the
implementation of adequate measures against money laundering. Poor and illiterate people,
instead of spending long bureaucratic transactions in banks, prefer the Hawala system where
there are less complexity and formality, little or no documentation, lower rates and also
provide security and anonymity. This is mainly due to the fact that these people do not know
the seriousness of this crime and are not aware of their negative side effects.
 Non-fulfilment of the purpose of KYC Norms: RBI issued the KYC standards policy with
the aim of preventing criminals from using banks for money laundering or terrorist
financing. However, it does not cease or abstain from the problem of Hawala transactions,
since the RBI cannot regulate them. Moreover, these rules are just a joke, since the
implementing agencies are indifferent. Furthermore, the increasing competition in the
market is forcing banks to lower their guards and, therefore, is making it easier for money
launderers to make illegal use of them to promote their crime.
 The widespread act of smuggling: There are numerous black market channels in India for
the purpose of selling goods that offer many imported consumer goods, such as food,
electronics, etc., which are usually sold. Colour traders exchange cash transactions and
avoid customs duties, so they offer better prices than regular traders. After the liberalization
of the government, even if this problem has been reduced, it has not been completely
eliminated and still represents a threat to the economy of a nation.
39
 Lack of comprehensive enforcement agencies: The crime of money laundering is no

longer limited to one area of operations, but has broadened its scope of application and
includes many different operational areas. In India, there are separate groups of law
enforcement agencies dealing with money laundering, cybercrime, terrorist crimes,
economic crimes, etc. These organizations lack convergence between them. The problem of
money laundering, as we have seen, is a world without borders, but these agencies are still
trapped in state laws and procedures.
Combating the crime of money laundering is a dynamic process, as the criminals involved in it
continually seek new ways to do it and get their wrongful motives. Furthermore, as several
countries are signing numerous agreements and conventions to strengthen their measures to combat
money laundering, money launderers are attacking and exploiting those jurisdictions that are weak
and do not have sufficient laws to deal with such a crime. A defined policy to combat money
laundering is urgently needed. The criminals who manage these activities do not have a particular
scheme, ie they have different operational schemes.
India has taken extensive measures to contain the problem of money laundering. It can rightly be
said that the workforce has tripled, since there is the Department of Compliance which handles all
money laundering cases and the related investigations in the country; there is also a financial
information unit that tracks and analyzes the risk of money laundering through the agencies that
inform you and there is a regular update of the legislative framework through the proposed changes.
However, it is still necessary to increase the application and adopt more stringent measures against
the people who violate them. In addition, financial institutions must implement additional levels of
control in areas such as transaction monitoring, annual review, periodic update of accounts, etc.
Furthermore, the cost factor also plays a very important role in having an effective regime against
money laundering as high costs and low budgets can lead to lower concentration and, therefore, to
greater risks.
40
Suggestions
As you can see, money laundering involves activities of an international nature and even at a higher
level, therefore, to have a great impact, it is necessary that all countries apply the same laws in a
rigorous manner and to the extent possible that the recyclers of money have nowhere to go to
launder their proceeds of crime through the weakness of jurisdiction or the like. Given that states do
not have the obligation to decide which crimes should be considered determinants of money
laundering, there is no consensus on international harmonization efforts to combat money
laundering. Therefore, there is a need to enlist common crimes to solve the problem internationally,
particularly given the transnational nature of the money laundering crime.
Furthermore, the provision of financial confidentiality in other countries is a problem. States are not
willing to engage in this privacy. It is necessary to draw a line between these rules of financial
confidentiality and the fact that these financial institutions become havens of money laundering.
Apart from that, many people think that money laundering seems to be a crime without victims. I
am not aware of the damaging effects of such a crime. Therefore, it is necessary to educate these
people and raise awareness among them and, therefore, instill a sense of vigilance towards cases of
money laundering. This would also help improve law enforcement, as it would be subject to public
scrutiny.
Furthermore, in order to have effective measures against money laundering, adequate coordination
between the Center and the State is necessary. For this, the struggle between the two must be
eliminated. The laws must not only be the responsibility of the Center but must also be implemented
at the state level. The more decentralized the law is, the better it will be. Therefore, to have an
effective regime against money laundering, one must think at a regional, national and global level.
41
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5. Published on 22/07/2019 –
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https://www.civilserviceindia.com/subject/General-Studies/notes/money-laundering-and-its-
prevention.html
11. Published on 22/07/2019 –
https://shodhganga.inflibnet.ac.in/bitstream/10603/89275/14/14chapter%205.pdf
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14. The IMF reports (2003)
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16. Raymond W. Baker – Capitalism's Achilles Heel - Dirty Money and How to Renew Free
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42
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https://www.unodc.org/unodc/en/money-laundering/globalization.html
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43

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Rizvi Institute of Management Studies and Research

“Detail Study of Money Laundering”

In partial fulfillment of the requirements of

Master of Management Studies

conducted by the University

Rizvi Institute of Management Studies & Research

under the guidance of

Dr. Shariq Nisar

Batch: 2018 – 2020

“Detailed Study on Money Laundering”

Dr. Shariq Nisar Prof. Umar Farooq Dr. Kalim Khan

Stages Involved in Money Laundering ................................................................................... 6

Various Techniques of Money Laundering .......................................................................... 10

Impact of Money Laundering ............................................................................................... 14

Money Laundering and Financial Crimes............................................................................. 24

Government Initiatives to Prevent Money Laundering ........................................................ 28

Money Laundering Case Studies .......................................................................................... 34

Case 1 - Wachovia - estimated £292.5 billion? .................................................................... 34

Case 2 – 8 Charged With Highly Sophisticated $1.2 Billion International Money

How is the offence of money laundering committed?

The act of laundering is committed in circumstances where a person is engaged in an arrangement

Why is money laundering illegal?

Stages Involved in Money

Stages Involved in Money Laundering

The Placement Stage

 Loan Repayment - Repayment of loans or credit cards with illegal proceeds

The Layering Stage

The Integration Stage

Stages of Money Laundering 6

Various Techniques of Money Laundering

DEPOSIT STRUCTURING /SMURFING

Cash deposits followed by telegraphic transfers

Bank Drafts and Similar Instruments

Credit and Debit Cards

Impact of Money Laundering

Security threats to privatization efforts: According to Chossudovsky (a Canadian economist,

Other impacts of money laundering are as follows:

Short term Effects of Money Laundering

Money Laundering and Financial Crimes

Who commits Financial Crime?

 Organised criminals, including terrorist groups, are increasingly perpetrating large-scale

 Business leaders or senior executives manipulate or misreport financial data in order to

Government Initiatives to Prevent Money Laundering

 Criminal Law Amendment Ordinance (XXXVIII of 1944).

 Policy for acceptance of clients

Money Laundering Case Studies

Case 1 - Wachovia - estimated £292.5 billion?

Case 2 – 8 Charged With Highly Sophisticated $1.2 Billion International Money

In order to offer to capitalize on the manipulability of exchange houses in Venezuela, the

The Money Laundering Scheme Revealed

Operation Money Flight

The Alleged Laundering Schemes

 Lack of comprehensive enforcement agencies: The crime of money laundering is no

17. Published on 30/07/2019 –

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