Anti-Money Laundering Laws

By Vatsal Dhar, Symbiosis Law School, Noida

Editor’s Note: The goal of a large number of criminal acts is to generate profits for the individual or the group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardising their source. In this paper, the author has discussed the various stages, trends, developments and the law relating to this subject.

 Money Laundering is a process whereby the origin of the funds generated by illegal means is concealed (drug trafficking, gun smuggling, corruption, etc.). It is the practice of engaging in financial transactions in order to conceal the identity, source and destination of money, and its main operation of the underground economy.

                                               ………………………….According to Swiss Bank

INTRODUCTION

Money Laundering is the process whereby the proceeds of crime are transformed into ostensibly legitimate money or other assets. However, in a number of legal and regulatory systems the term money laundering has become conflated with other forms of financial crime, and sometimes used more generally to include misuse of the financial system (involving the things such as securities, digital currencies, credit cards, and traditional currency) including terrorism financing, tax evasion and evading of international sanctions. Most of anti-money laundering laws openly conflate money laundering, with terrorism financing (which is concerned with destination of funds) when regulating the financial system. Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, illegal gambling and tax evasion is “dirty”. It needs to be cleaned to appear to have derived from non-criminal activities so that banks and other financial institutions will deal with it without suspicion. Money can be laundered by many methods, which vary in complexity and sophistication.[i]

Different countries may or may not treat tax evasion or payments in breach of international sanctions as money laundering. Some jurisdictions differentiate these for definition purposes, and others do not. Some jurisdictions define money laundering as obfuscating sources of money, either intentionally or by merely using financial systems or services that do not identify or track sources or destinations. Other jurisdictions define money laundering to include money from activity that would have been a crime in that jurisdiction, even if it were legal where the actual conduct occurred.[ii]

Many regulatory and governmental authorities issue estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996, the International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money. The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body set up to combat money laundering, stated, “Overall, it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard.[iii]

When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention. In response to mounting concern over money laundering, the Financial Action Task Force on money laundering (FATF) was established by the G-7 Summit in Paris in 1989 to develop a co-ordinated international response. One of the first tasks of the FATF was to develop Recommendations, 40 in all, which set out the measures national governments should take to implement effective anti-money laundering programmes.[iv]

CONCEPT OF MONEY LAUNDERING- THREE STAGE PROCESS

The money laundering cycle can be broken down into three distinct stages; however, it is important to member that money laundering is a single process. The stages of money laundering include the[v] :-

A). Placement Stage

B). Layering Stage

C). Integration Stage

 The Placement Stage:-

This is the movement of cash from its source. On occasion the source can be easily disguised or misrepresented. This is followed by placing it into circulation through financial institutions, casinos, shops, bureau de change and other businesses, both local and abroad. The process of placement can be carried out through many processes including:

  • Currency Smuggling– This is the physical illegal movement of currency and monetary instruments out of a country. The various methods of transport do not leave a discernible audit trail FATF 1996-1997 Report on Money Laundering Typologies.
  • Bank Complicity– This is when a financial institution, such as banks, is owned or controlled by unscrupulous individuals suspected of conniving with drug dealers and other organised crime groups. This makes the process easy for launderers. The complete liberalisation of the financial sector without adequate checks also provides leeway for laundering.
  • Currency Exchanges– In a number of transitional economies the liberalization of foreign exchange markets provides room for currency movements and as such laundering schemes can benefit from such policies[vi].
  • Securities Brokers– Brokers can facilitate the process of money laundering through structuring large deposits of cash in a way that disguises the original source of the funds.
  • Blending of Funds– The best place to hide cash is with a lot of other cash. Therefore, financial institutions may be vehicles for laundering. The alternative is to use the money from illicit activities to set up front companies. This enables the funds from illicit activities to be obscured in legal transactions.
  • Asset Purchase– The purchase of assets with cash is a classic money laundering method. The major purpose is to change the form of the proceeds from conspicuous bulk cash to some equally valuable but less conspicuous form[vii].

The Layering Stage

The purpose of this stage is to make it more difficult to detect and uncover a laundering activity. It is meant to make the trailing of illegal proceeds difficult for the law enforcement agencies. The known methods are[viii]:

a). Cash converted into Monetary Instruments – Once the placement is successful within the financial system by way of a bank or financial institution, the proceeds can then be converted into monetary instruments. This involves the use of banker’s drafts and money orders.

b). Material assets bought with cash then sold – Assets that are bought through illicit funds can be resold locally or abroad and in such a case the assets become more difficult to trace and thus seize.

After placement comes the layering stage. The layering stage is the most complex and often entails the international movement of the funds. The primary purpose of this stage is to separate the illicit money from its source. This is done by the sophistical layering of financial transactions that obscure the audit trail and server the link with the original crime[ix].

The Integration Stage

This is the movement of previously laundered money into the economy mainly through the banking system and thus such monies appear to be normal business earnings. This is dissimilar to layering, for in the integration process detection and identification of laundered funds is provided through informants. The known methods used are:

a). Property Dealing – The sale of property to integrate laundered money back into the economy is a common practice amongst criminals. For instance, many criminal groups use shell companies to buy property; hence proceeds from the sale would be considered legitimate.

b). Front Companies and False Loans – Front companies that are incorporated in countries with corporate secrecy laws, in which criminals lend themselves their own laundered proceeds in an apparently legitimate transaction.

c). Foreign Bank Complicity – Money laundering using known foreign banks represents a higher order of sophistication and presents a very difficult target for law enforcement. The willing assistance of the foreign banks is frequently protected against law enforcement scrutiny. This is not only through criminals, but also by banking laws and regulations of other sovereign countries[x].

d). False Import/Export Invoices – The use of false invoices by import/export companies has proven to be a very effective way of integrating illicit proceeds back into the economy. This involves the overvaluation of entry documents to justify the funds later deposited in domestic banks and/or the value of funds received from exports.

ORIGIN & BACKGROUND OF MONEY LAUNDERING

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 requisite degree of knowledge or suspicion will depend upon the specific offence but will usually be present where the person providing the arrangement, service or product knows, suspects or has reasonable grounds to suspect that the property involved in the arrangement represents the proceeds of crime[xi]. In some cases the offence may also be committed where a person knows or suspects that the person with whom he or she is dealing is engaged in or has benefited from criminal conduct.

Different jurisdictions define crime predicating the offence of money laundering in different ways. Generally the differences between the definitions may be summarized as follows:

  • Differences in the degree of severity of crime regarded as sufficient to predicate an offence of money laundering. For example in some jurisdictions it is defined as being any crime that would be punishable by one or more year imprisonment. In other jurisdictions the necessary punishment may be three or five years imprisonment; or
  • Differences in the requirement for the crime to be recognized both in the country where it took place and by the laws of the jurisdiction where the laundering activity takes place or simply a requirement for the conduct to be regarded as a crime in the country where the laundering activity takes place irrespective of how that conduct is treated in the country where it took place[xii].

In practice almost all serious crimes, including, drug trafficking, terrorism, fraud, robbery, prostitution, illegal gambling, arms trafficking, bribery and corruption are capable of predicating money laundering offences in most jurisdictions.

Tax evasion and other fiscal offences are treated as predicate money laundering crimes in most of the world’s most effectively regulated jurisdictions[xiii].

The United Nations Office on Drugs and Crime (UNODC) conducted a study to determine the magnitude of illicit funds generated by drug trafficking and organized crimes and to investigate to what extent these funds are laundered.  The report estimates that in 2009, criminal proceeds amounted to 3.6% of global GDP, with 2.7%  (or USD 1.6 trillion) being laundered[xiv].

This falls within the widely quoted estimate by the International Monetary Fund, who stated in 1998 that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross domestic product.  Using 1998 statistics, these percentages would indicate that money laundering ranged between USD 590 billion and USD 1.5 trillion. At the time, the lower figure was roughly equivalent to the value of the total output of an economy the size of Spain.

However, the above estimates should be treated with caution.  They are intended to give an estimate of the magnitude of money laundering. Due to the illegal nature of the transactions, precise statistics are not available and it is therefore impossible to produce a definitive estimate of the amount of money that is globally laundered every year.  The FATF (Financial Action Task Force) therefore does not publish any figures in this regard[xv].

EVOLUTIONARY TRENDS OF MONEY LAUNDERING

As money laundering is a consequence of almost all profit generating crime, it can occur practically anywhere in the world. Generally, money launderers tend to seek out countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programmes. Because the objective of money laundering is to get the illegal funds back to the individual who generated them, launderers usually prefer to move funds through stable financial systems.Money laundering activity may also be concentrated geographically according to the stage the laundered funds have reached. At the placement stage, for example, the funds are usually processed relatively close to the under-lying activity; often, but not in every case, in the country where the funds originate[xvi].

Money laundering takes several different forms, although most methods can be categorized into one of a few types. These include “bank methods, smurfing (also known as structuring), currency exchanges, and double-invoicing”.

a). Structuring: Often known as smurfing, this is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.

b). Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement[xvii].

c). Cash-intensive businesses: In this method, a business typically involved in receiving cash uses its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Service businesses are best suited to this method, as such businesses have no variable costs, and it is hard to detect discrepancies between revenues and costs. Examples are parking buildings, strip clubs, tanning beds, car washes and casinos.

d). Trade-based laundering: This involves under- or overvaluing invoices to disguise the movement of money.

e). Shell companies and trusts: Trusts and shell companies disguise the true owner of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner. Sometimes referred to by the slang term rathole though that term usually refers to a person acting as the fictitious owner rather a business entity[xviii].

f). Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as aforeign direct investment, exempt from taxation. A variant on this is to transfer money to a law firm orsimilar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.

g). Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny[xix].

h). Casinos: In this method, an individual walks into a casino with cash and buys chips, plays for a while, and then cashes in the chips, taking payment in a check, or just getting a receipt, claiming it as gambling winnings.

i). Other gambling: Money is spent on gambling, preferably on higher odds. The wins are shown if the source for money is asked for, while the losses are hidden.

j). Real estate: Someone purchases real estate with illegal proceeds and then sells the property. To outsiders, the proceeds from the sale look like legitimate income. Alternatively, the price of the property is manipulated: the seller agrees to a contract that under-represents the value of the property, and receives criminal proceeds to make up the difference.

k). Black salaries: A company may have unregistered employees without a written contract and pay them cash salaries. Dirty money might be used to pay them.

l). Tax amnesties:Those that legalize unreported assets in tax havens and cash[xx].

 m). Fictitious loans

A goal of money laundering is to be able to use the dirty money for private consumption. If unable to use it openly, the traditional way to keep the dirty money near is hiding it as cash at home or other places. A more modern method is a credit card connected to a tax haven bank.

ANTI-MONEY LAUNDERING LAWS IN INDIA-PMLA

The Prevention of Money Laundering Act (PMLA), 2002 was enacted in January, 2003. The Act along with the Rules framed thereunder have come into force with effect from 1st July, 2005. Sec. 3 of PMLA defines offence of money laundering as 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. It prescribes obligation of banking companies, financial institutions and intermediaries for verification and maintenance of records of the identity of all its clients and also of all transactions and for furnishing information of such transactions in prescribed form to the Financial Intelligence Unit-India (FIU-IND). It empowers the Director of FIU-IND to impose fine on banking company, financial institution or intermediary if they or any of its officers fails to comply with the provisions of the Act as indicated above and as stated in the facts and the statements as specified herein[xxi].

PMLA empowers certain officers of the Directorate of Enforcement to carry out investigations in cases involving offence of money laundering and also to attach the property involved in money laundering. PMLA envisages setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties. It also envisages setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority and the authorities like Director FIU-IND.

PMLA envisages designation of one or more courts of sessions as Special Court or Special Courts to try the offences punishable under PMLA and offences with which the accused may, under the Code of Criminal Procedure 1973, be charged at the same trial. PMLA allows Central Government to enter into an agreement with Government of any country outside India for enforcing the provisions of the PMLA, exchange of information for the prevention of any offence under PMLA or under the corresponding law in force in that country or investigation of cases relating to any offence under PMLA[xxii].

RECENT DEVELOPMENTS AND CHANGES IN PMLA

The PMLA (Amendment) Act, 2012 has enlarged the definition of money laundering by including activities such as concealment, acquisition, possession and use of proceeds of crime as criminal activities. “Criminal intent is the main ingredient of any offence” under money laundering.

The chances of harassment would still have been negligible had the government not proposed to change yet another provision of the same Act. Till last month, money-laundering crimes with the exception of serious ones like terrorism were taken up only when the money involved was Rs. 30 lakh or above. And that’s why there have been only 165-odd cases of money laundering so far.

But the amended version of the Act has removed the threshold. That means all money-laundering offences, big or small, will now be taken up for investigation. If someone makes a small profit by violating Sebi Act or Environment Protection Act or even Air (Prevention and Control of Pollution) Act, the offender will be booked for money laundering. Till last month, laundering money by violating 24 such acts was considered a crime under PMLA only when the proceeds of crime used to be Rs 30 lakh and more.

The PMLA was enacted in 2002, but was amended thrice, first in 2005, then in 2009 and then 2012. The 2012 version of the amendment received president’s assent on January 3, 2013, and the law became operational from February 15, when the finance ministry notified it.

The government’s argument is that it had to amend the existing law once more as India became a member of the Financial Action Task Force (FATF) in October 2010. Headquartered in Paris, the FATF is an inter-governmental body that promotes policies to combat money laundering and terrorist financing. And it was the FATF that pointed out a few deficiencies in India’s anti-money-laundering legislation.

ANTI-MONEY LAUNDERING LAWS ACROSS THE GLOBE

  • FATFThe Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing. Its 40 Recommendations are backed by mutual evaluations of its member countries. Countries which are not members of FATF may be members of a FATF-style regional body. For convenience, the ICAEW has extracted those Recommendations that apply to professional accountancy firms into a single document. In consultation with members of the accounting profession, FATF has also issued Risk Based Approach Guidance for Accountants and a report on Virtual Currencies and AML Risks.

European requirements:-

The European Federation of Accountants (FEE) has a Money Laundering Task Force, which coordinates AML policy for the profession across Europe, including lobbying the European Commission and FATF. FEE has issued a survey on the implementation of the Third Money Laundering Directive in September 2009, and a Fact Sheet on money laundering and the fight against organized crime in October 2003. The European Union’s current requirements are as laid out in the Third Money Laundering Directive. The Fourth EU Money Laundering Directive is currently moving through the EU legislative process. The first reading in the (previous) European Parliament took place on 11 March 2014, when the Parliament adopted its position on the directive.  Trilogue negotiations are due to have commenced with a final Directive expected Q1 2015.

US requirements:-

The United States of America has strict federal AML systems and procedures requirements on banks and certain other financial institutions, which tend to have extra-territorial effect, through requirements for US banks to control their relationships with correspondent and shell banks. As at September 2014 the AML procedures requirements of the US Patriot Act do not apply to non-financial institutions including accounting firms and law firms. Nor are these institutions required to file SAR’s.

  • FINCEN-Money laundering can facilitate crimes such as drug trafficking and terrorism, and can adversely impact the global economy.In its mission to “safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity,” the Financial Crimes Enforcement Network acts as the designated administrator of the Bank Secrecy Act (BSA). The BSA was established in 1970 and has become one of the most important tools in the fight against money laundering. Since then, numerous other laws have enhanced and amended the BSA to provide law enforcement and regulatory agencies with the most effective tools to combat money laundering. An index of anti-money laundering laws since 1970 with their respective requirements and goals are listed below in chronological order:-
  • Bank Secrecy Act (1970)
  • Established requirements for recordkeeping and reporting by private individuals, banks and other financial institutions.
  • Designed to help identify the source, volume, and movement of currency and other monetary instruments transported or transmitted into or out of the United States or deposited in financial institutions.
  • Required banks to (1) report cash transactions over $10,000 using the Currency Transaction Report; (2) properly identify persons conducting transactions; and (3) maintain a paper trail by keeping appropriate records of financial transactions.
  • Money Laundering Control Act (1986)
  • Established money laundering as a federal crime
  • Prohibited structuring transactions to evade CTR filings
  • Introduced civil and criminal forfeiture for BSA violations
  • Directed banks to establish and maintain procedures to ensure and monitor compliance with the reporting and recordkeeping requirements of the BSA
  • Money Laundering Suppression Act (1994)
  • Required banking agencies to review and enhance training, and develop anti-money laundering examination procedures
  • Required banking agencies to review and enhance procedures for referring cases to appropriate law enforcement agencies
  • Streamlined CTR exemption process
  • Required each Money Services Business (MSB) to be registered by an owner or controlling person of the MSB
  • Required every MSB to maintain a list of businesses authorized to act as agents in connection with the financial services offered by the MSB
  • Made operating an unregistered MSB a federal crime
  • Recommended that states adopt uniform laws applicable to MSBs
  • Money Laundering and Financial Crimes Strategy Act (1998)
  • Required banking agencies to develop anti-money laundering training for examiners
  • Required the Department of the Treasury and other agencies to develop a National Money Laundering Strategy
  • Created the High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces to concentrate law enforcement efforts at the federal, state and local levels in zones where money laundering is prevalent. HIFCAs may be defined geographically or they can also be created to address money laundering in an industry sector, a financial institution, or group of financial institutions.
  • Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) [Title III of the USA PATRIOT Act is referred to as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001]
  • Criminalized the financing of terrorism and augmented the existing BSA framework by strengthening customer identification procedures
  • Prohibited financial institutions from engaging in business with foreign shell banks
  • Required financial institutions to have due diligence procedures (and enhanced due diligence procedures for foreign correspondent and private banking accounts)
  • Improved information sharing between financial institutions and the U.S. government by requiring government-institution information sharing and voluntary information sharing among financial institutions
  • Expanded the anti-money laundering program requirements to all financial institutions
  • Increased civil and criminal penalties for money laundering
  • Provided the Secretary of the Treasury with the authority to impose “special measures” on jurisdictions, institutions, or transactions that are of “primary money laundering concern”
  • Facilitated records access and required banks to respond to regulatory requests for information within 120 hours
  • Required federal banking agencies to consider a bank’s AML record when reviewing bank mergers, acquisitions, and other applications for business combinations
  • Intelligence Reform & Terrorism Prevention Act of 2004
  • Amended the BSA to require the Secretary of the Treasury to prescribe regulations requiring certain financial institutions to report cross-border electronic transmittals of funds, if the Secretary determines that such reporting is “reasonably necessary” to aid in the fight against money laundering and terrorist financing.

HOW TO PREVENT MONEY LAUNDERING

Money laundering is a threat to the good functioning of a financial system; however, it can also be the Achilles heel of criminal activity.In law enforcement investigations into organized criminal activity, it is often the connections made through financial transaction records that allow hidden assets to be located and that establish the identity of the criminals and the criminal organization responsible.When criminal funds are derived from robbery, extortion, embezzlement or fraud, a money laundering investigation is frequently the only way to locate the stolen funds and restore them to the victims[xxiii].Most importantly, however, targeting the money laundering aspect of criminal activity and depriving the criminal of his ill-gotten gains means hitting him where he is vulnerable. Without a usable profit, the criminal activity will not continue.

A great deal can be done to fight money laundering, and, indeed, many governments have already established comprehensive anti-money laundering regimes. These regimes aim to increase awareness of the phenomenon – both within the government and the private business sector – and then to provide the necessary legal or regulatory tools to the authorities charged with combating the problem.Some of these tools include making the act of money laundering a crime; giving investigative agencies the authority to trace, seize and ultimately confiscate criminally derived assets; and building the necessary framework for permitting the agencies involved to exchange information among themselves and with counterparts in other countries[xxiv].

It is critically important that governments include all relevant voices in developing a national anti-money laundering programme. They should, for example, bring law enforcement and financial regulatory authorities together with the private sector to enable financial institutions to play a role in dealing with the problem. This means, among other things, involving the relevant authorities in establishing financial transaction reporting systems, customer identification, record keeping standards and a means for verifying compliance.

Money launderers have shown themselves through time to be extremely imaginative in creating new schemes to circumvent a particular government’s countermeasures. A national system must be flexible enough to be able to detect and respond to new money laundering schemes.Anti-money laundering measures often force launderers to move to parts of the economy with weak or ineffective measures to deal with the problem. Again, a national system must be flexible enough to be able to extend countermeasures to new areas of its own economy. Finally, national governments need to work with other jurisdictions to ensure that launderers are not able to continue to operate merely by moving to another location in which money laundering is tolerated[xxv].

Large-scale money laundering schemes invariably contain cross-border elements. Since money laundering is an international problem, international co-operation is a critical necessity in the fight against it. A number of initiatives have been established for dealing with the problem at the international level. International organizations, such as the United Nations or the Bank for International Settlements, took some initial steps at the end of the 1980s to address the problem. Following the creation of the FATF in 1989, regional groupings – the European Union, Council of Europe, and Organization of American States, to name just a few – established anti-money laundering standards for their member countries. The Caribbean, Asia, Europe and southern Africa have created regional anti-money laundering task force-like organizations, and similar groupings are planned for western Africa and Latin America in the coming years[xxvi].

CASE STUDIES

  • RUSSIAN MONEY LAUNDERING SCANDA[xxvii]L

This scandal became public during the summer of 1999, with media reports of $7 billion in suspect funds moving from two Russian banks through a U.S. bank to thousands of bank accounts throughout the world. Two Russian banks deposited more than $7 billion in correspondent bank accounts at a New York bank. After successfully gaining entry for these funds into the U.S. banking system, the Russian banks transferred amounts from their New York bank correspondent accounts to commercial accounts at the bank that had been opened for three shell corporations. In February 2000, guilty pleas were submitted by a bank employee and spouse and the three corporations for conspiracy to commit money laundering, operating an unlawful banking and money transmitting business in the United States.

The U.S. Customs Service, in conjunction with the Drug Enforcement Administration (DEA) and Colombian Departamento Administrativo de Seguridad, arrested 37 people in January 2002 as a result of a two-and-one-half-year undercover investigation of Colombian peso brokers and their money laundering organizations. These people are believed to have laundered money for several Colombian narcotics cartels. Laundered monies were subsequently withdrawn from banks in Colombia in Colombian pesos. Investigators seized more than $8 million in cash, 400 kilos of cocaine, 100 kilos of marijuana, 6.5 kilos of heroin, nine firearms, and six vehicles.

  • WIRE REMITTANCE COMPANY[xxix]

Both a wire remittance company and a depository institution filed SARs outlining the movement of about $7 million in money orders through the U.S. account of a foreign business. The wire remittance company reported various persons purchasing money orders at the maximum face value of $500 to $1,000 and in sequential order. They received amounts ranging from $5,000 to $11,000. The foreign business identified by the wire remittance company also was identified as a secondary beneficiary. The money orders cleared through a foreign bank’s cash letter account at the U.S. depository institution.

CONCLUSION

Every year, huge amounts of funds are generated from illegal activities such as drug trafficking, tax evasion, people smuggling, theft, arms trafficking and corrupt practices. These funds are mostly in the form of cash. The criminals who generate these funds need to bring them into the legitimate financial system without raising suspicion. The conversion of cash into other forms makes it more useable. It also puts a distance between the criminal activities and the funds. The criminals who generate these funds need to bring them into the legitimate financial system without raising suspicion. The conversion of cash into other forms makes it more useable. It also puts a distance between the criminal activities and the funds. ‘Money laundering’ is the name given to the process by which illegally obtained funds are given the appearance of having been legitimately obtained.

The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardising their source.

Illegal arms sales, smuggling, and the activities of organised crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimise” the ill-gotten gains through money laundering.

When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.

Edited by Kanchi Kaushik

[i]What is Money Laundering?, Duhaime, Christine available at http://www.antimoneylaunderinglaw.com/, last seen on 20/8/2015

[ii]The Anti-Money Laundering & Counter Terrorism Financing Act 2006 (Australia), the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (New Zealand), and the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap 615) available at https://www.comlaw.gov.au/Details/C2006A00169/, last seen on 21/8/2015

[iii]About the FATF, Money Laundering FAQ, available at http://www.fatf-gafi.org/pages/faq/moneylaundering/, last seen on 22/8/2015

[iv]Ibid

[v] About Business Crime Solutions Inc., Money laundering: A Three Stage Process available at https://www.moneylaundering.ca/public/law/3_stages_ML.php/, last seen on 23/8/2015

[vi]Examples of money laundering and suspicious transactions, available at http://website-box.net/site/www.iaisweb.org/, last seen on 24/8/2015

[vii]Money Laundering in the EU, Methods and Stages of Money Laundering

available at http://people.exeter.ac.uk/watupman/undergrad/ron/methods%20and%20stages.htm/, last seen on 25/8/2015

[viii]Supra(v)

[ix]What is Money Laundering, International Compliance Association available at http://www.int-comp.org/what-is-money-laundering/, last seen on 26/8/2015

[x]Supra(vii)

[xi]Supra(ix)

[xii]Public Fear of Terrorism in EU available at www.dtic.mil/cgi-bin/GetTRDoc?AD=ADA573813.pdf/, last seen on 27/8/2015.

[xiii]FAQ on Money Laundering, Financial Intelligence Unit- India, available at http://fiuindia.gov.in/faq-moneylaundering.htm/, last seen on 28/8/2015

[xiv]Supra(iii)

[xv]ACAMS, Financial Action Task Force available at http://www.moneylaundering.com/Pages/Home.aspx/, last seen on 29/8/2015

[xvi]Supra(iii)

[xvii]U.S.Money Laundering Threat Assessment, Bulk Cash Smuggling available at http://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/mlta.pdf/, last seen at 30/8/2015

[xviii]Overview(Prevention of Money Laundering), Department Of Revenue, Ministry Of Finance available at http://dor.gov.in/overview_pml/, last seen on 31/8/2015

[xix]Drug Trafficking Act, 1994 available at http://www.legislation.gov.uk/ukpga/1994/37/contents/, last seen on 1/9/2015

[xx]Tax amnesties turn HMRC into ‘biggest money-laundering operation in history, Ian Cowie available at http://blogs.telegraph.co.uk/finance/, last seen at 2/9/2015

[xxi]Supra (xviii)

[xxii]Prevention of Money-Laundering Act, 2002, Press Information Bureau, Govt. of India  available at http://pib.nic.in/newsite/erelease.aspx?relid=9941/, last seen at 3/9/2015

[xxiii]Combating the Peril of Money Laundering available at http://indiaforensic.com/whatisml.htm/, last seen on 4/9/2015

[xxiv]Here’s all you need to know about prevention of money-laundering act available at http://www.dnaindia.com/money/report-here-s-all-you-need-to-know-about-prevention-of-money-laundering-act-1982230/, last seen at 5/9/2015.

[xxv]Supra (v)

[xxvi]Examples of Money Laundering available at http://www.iaisweb.org/, last seen at 6/9/2015

[xxvii] UNDP, Corruption and Good Governance, Discussion Paper 3, p. 35 (2004) availableat https://undp.org/, last seen at 7/9/2015

[xxviii]Ibid.

[xxix] Prakash Loungani and Paolo Mauro, Capital Flight from Russia (2000). The World Economy, 2001, vol. 24, issue 5, pages 689-706

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