Money Laundering

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

Evade Taxes

Hide Wealth

Become Legitimate

Increase 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 reintroduces 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

Compliance with Laws

Money Laundering Prevention Identifying Irregular / Suspicious Transactions

Customer due Diligence

Thank you !