the process by which criminals disguise the illegal origin of wealth to avoid coming under the scanner of law enforcement authorities and to wipe the trail of incriminating evidence.
How does money laundering affect a nation’s economy?
Money laundering impacts a nation’s economy as “dirty money” moves rapidly across borders to obscure the audit trail and affects the interest and exchange rates.
Money launderers generally invest funds in less productive activities, as their goal is to avoid detection, and not the return on investment.
Money laundering has other aspects as it weakens the social fabric and lowers ethical standards.
What are the typical stages in money laundering process?
Typically, there are three states in money laundering — placement, layering and integration.
How does placement happen?
The first stage in money laundering is separating the money sought to be laundered from the source and placing it in the financial system. This could include, for example, making small deposits of cash in a bank account or in a mutual fund.
How does the money move?
This stage involves creating layers of transactions to disguise origin of funds and obscure the audit trail. This may, for instance, include rapidly moving funds across different accounts.
How are these integrated into the legitimate financial system?
The final stage involves reintroducing the funds into the legitimate financial system and projecting them as clean funds, to enable their further use.
The purpose of integration of funds is to allow criminals to use the funds without raising suspicion. This could, for example, include setting up front companies and using false invoicing and fictitious transactions.
How do terrorist organisations move around funds for their activities?
Terrorists and terrorist organisations need funds to carry out their activities. They also make extra efforts to disguise the origin of their money, conceal the destination and the purpose for which the money was collected.
These organisations employ techniques similar to money launderers to hide and disguise money.
How does the government keep track of money laundering deals?
There has been a rise in suspicious transactions, including some high value cross-country monetary deals over the last few years , reports analysed by the Financial Intelligence Unit (FIU) have showed.
The FIU, created by the finance ministry in 2004 to monitor money laundering, has prepared a list of thousands of cases of doubtful foreign remittances.
Every banking company, financial institution and intermediary shall furnish to FIU-IND information of all suspicious transactions whether or not made in cash.
Intelligence agencies, tax authorities, enforcement agencies and regulators are now anlaysing the end use of these transactions, many of which might have been invested in stock markets, real estate deals, insurance premia and or used for terrorist financing.
What is the MTSS?
The government is also cracking down on a system under which small money transmission agents are possibly funneling crores of rupees that are suspected to be diverted for funding of terrorist activities and pushing for a regime that would make it mandatory for the recipients of such money to be clearly identified.
A plan to insist on the recipient’s photographs to be recorded for tracking has been found to be cumbersome. Instead, authorities are zeroing in on the Aadhar unique ID number to register details of individuals who receive foreign money of even less than Rs.50,000 through the Money Transfer Service Scheme (MTSS).
MTSS is a quick and easy way of transferring personal remittances to beneficiaries in India from abroad. Only personal remittances such as those for family maintenance and for foreign tourists visiting India are permissible under the scheme.
Sources said that there has been a sharp rise in suspicious transactions linked to terrorist activities that have been routed through the MTSS in recent years.
Are there any specific instances of suspicious transactions detected through banks’ and Financial Institutions’ (FI’s) annual information reports?
In one instance, the authorities had detected that more than Rs.700 crore was transferred among 30 bank accounts in an inter-account transfer in a single day.
In another case, an individual deposited a cheque of more than Rs.14 crore in his dormant bank account claiming it was the proceeds of a property sale.
Part of this amount was withdrawn in cash and a request placed before the bank for a demand draft of a huge amount to purchase gold for business.
In another example, funds amounting to Rs.13 crore were systematically transferred from a current account held in the name of a proprietary firm to a savings account held in the name of the proprietor.
Subsequently, funds have been withdrawn from the savings account in cash at regular intervals.
In a separate instance, a husband and wife paid insurance premium of over Rs.2.5 crore for 15 life insurance policies, out of which Rs.80 lakhs was paid in cash in multiple installments of less than Rs.50,000.
In one case, an individual invested over Rs.4 crore in a mutual fund through 25 folios. Some transactions were undertaken in the same scheme on the same day but it was under different folios.