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Money Laundering in India

                                    Money Laundering in India.

Money laundering is the process by which criminals conceal or disguise their proceeds and make them appear to have come from legitimate sources. Money laundering allows criminals to hide and accumulate wealth, avoid prosecution, evade taxes, increase profits through reinvestment, and fund further criminal activity.

    While many definitions for money laundering exist, it can be defined very simply as turning “dirty” money into “clean” money. And it’s a significant crime—money laundering can undermine the integrity and stability of financial institutions and systems, discourage foreign investment, and distort international capital flows. 

     Government focuses its efforts on money laundering facilitation, targeting professional money launderers, key facilitators, gatekeepers, and complicit financial institutions, among others.

Money laundering is usually associated with crimes that provide a financial gain, and criminals who engage in money laundering derive their proceeds in many ways. Some of their crimes include:

  • Complex financial crimes

  • Health care fraud

  • Human trafficking

  • International and domestic public corruption

  • Narcotics trafficking

  • Terrorism

 

Provision offence and punishment of money laundering.

When any person attempts to indulge and is knowingly assisting or is a party which is connected with the proceeds of crime i.e. includes possession, concealment, use or acquisition as untainted property is guilty of offence of money laundering. Further, any person who committed such offence shall be punishable for a term not less than three years but may extent to seven years of rigorous imprisonment as well as fine. If the proceeds of crime relates to any offence which is there in Part-A of Schedule, provisions of such Section must have effect with extent to ten years which had been substituted from seven years.

Steps involved in Process of Money Laundering:

1. Placement: The first step in this process is the investment of black money in the market. The launderer deposits the illegal money through different agents and banks in the form of cash by having a formal or informal agreement.

2. Layering: In this process, the launderer hides his real income by making foul play. The launderer deposits funds to investment instruments such as bonds, stocks, and traveler's checks or in their bank accounts abroad. This account is often opened in banks of those countries which do not reveals the details of their account holders. So in this process the ownership and source of money is disguised.

3. Integration: The final stage at which the ‘laundered’ property is re-introduced into the legitimate economy OR Returning the money back into the financial world as legal money.

Examples of Money Laundering:

There can be several ways to do money laundering, but the most popular is the establishment of the fake companies which is also known as the "shell companies". ‘Shell Company’ acts like a real company but in reality this company does not exist in the real world and no production take place in such companies. Actually these shell companies exist only on paper, not in the real world. 

       But the launderer shows large transactions in these Shell Company’s balance sheets. He takes loan in the name of these companies, gets tax exemption from the government, does not fill income tax returns and through all these fake activities, he accumulates a lot of black money. If investigating agencies or regulatory bodies want to check financial records, false documents are shown to confuse them.

In addition to creating laws that criminalize the laundering of the proceeds of crime, India must also enact strict compliance programs for the financial industry that make it more difficult to launder money. Financial institutions must be compelled to report suspicious transactions, as such reporting requirements increase the probability that law enforcement officers will detect money laundering operations. Furthermore, financial institutions should train employees to spot potentially suspicious activity. The placement stage of the money laundering process is the most vulnerable to detection. As such, if bank employees are able to identify the characteristics of money laundering transactions, they will detect more transactions. Such training could enable law enforcement authorities to apprehend and convict an even larger percentage of money launderers.
        financial institutions within India should institute identification requirements similar to the know-your-customers rules. Financial institutions should be required to obtain substantial information about their clients in order to ensure that they are engaged in legitimate business activity. Such a system would allow banks to discover suspicious transactions with greater ease.

 

 
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