MONEY

LAUNDERING

By…
Radha Rani
 Money Laundering - Intro

 Every year, huge amounts of funds are generated

from illegal activities. These funds are mostly in
the form of cash.

 The criminals who generate these funds need to

bring them into the legitimate financial system.
 Money Laundering – Modus
Operandi
 It is a process of making dirty money clean.
 Money is moved around the financial system again
and again in such manner that its origin gets hidden.
 Money generated from illegitimate source is
converted into that derived from legitimate source
 Avoid
Prosecution

Hide Evade Taxes

Wealth

Become Increase
Legitimate Profits

ver $1.5 trillion of illegal funds are laundered each ye

Consequences of Money Laundering
Finances Terrorism:
Money laundering provides terrorists with funds to carry out
their activities.

Undermines rule of law and governance:

Rule of Law is a precondition for economic development -
Clear and certain rules applicable for all

Affects macro economy :

Money launderers put money into unproductive assets to
avoid detection
 Cont…
Affects the integrity of the financial system : Financial
system advancing criminal purposes undermines the
function and integrity of the financial system.

Reduces Revenue and Control :

Money laundering diminishes government tax revenue and
weakens government control over the economy.
 Money Laundering
- The Legal Framework

“Whosoever directly or indirectly attempts to

indulge or knowingly assists or knowingly is a
party or is actually involved in any process or
activity connected with the proceeds of crime and
projecting it as untainted property shall be guilty
of offence of money-laundering” - Sec 3
 Laws – Indian Context
 Prevention of Money Laundering Act (PMLA) incorporated
on 1st July 2005
– Offence of money laundering (section 3 of PMLA)
– Proceeds of crime (section 2(1)(u) of PMLA)
– Scheduled offences
 Financial Intelligence Unit – India (FIU-IND) established in
Nov 2004.
 Money Laundering Process
 PLACEMENT: Entry of funds in banking system. For
e.g. Deposits, Money transfers, bank cheques or money
orders, foreign currency conversions etc.
 LAYERING: Distancing of funds from point of entry.
Many transactions and conversions take place to blur the
trail back to the original crime.
For e.g. investments, using several smaller cheques to
purchase a bank wire etc.
 INTEGRATION: Usage of funds. The criminal re-
introduces the funds into the legitimate economy with an
apparently legitimate origin. For e.g. investing in a
company, purchasing real estate, luxury goods, etc.
General Steps in any money
laundering process.
 Suspicious Transactions
 Number of cash deposits into same account
 Substantial increase in turnover in a dormant A/c
 Receipt or payment of large cash sums with no obvious
purpose or relationship to Account holder / his business
 Reluctance to provide normal information when opening
an Account or providing minimal or fictitious information
 Deposit of third party cheques
 Sudden increase in cash deposit in a/c from abroad
 Why is it a Problem for Countries?

 Money laundering may look like a polite form of

white collar crime, but it is the companion of
brutality, deceit and corruption.
 Money laundering deprives governments of some
tax revenues, thereby raising the relative burden
of honest citizens.
 Cont….
 Because of rapid movements of large amounts of
money, normally stable financial institutions become
destabilized, threatening savings accounts and
retirement funds of innocent citizens.
 Estimates of the size of the money laundering problem
totals more than $500 billion annually world - wide
 Summary: Prevention of
Money Laundering
Observing Rules for
Bankers

Money
Compliance with Customer
Laundering
Laws due Diligence
Prevention

Identifying
Irregular / Suspicious
Transactions
Thank you !