Money Laundering, PMLA

Money laundering is the process by which a large amount of money earned from illegal and illegitimate sources is hidden and made to appear as if it was generated from legitimate routes. This money can come from various sources such as drugs, human trafficking, terrorist attacks, etc. Since money earned from such sources is dirty, it is made to look like it was achieved through legal ways. Various penalties are levied on those caught in money laundering cases. 

PMLA or the prevention of money laundering act

In 2022, the PMLA or the prevention of money laundering act passed. The Parliament of India enacted this act through the NDA. This act focused on preventing money laundering and provided the government with the right to confiscate property purchased through money laundering. The rules under the PMLA were imposed on 1 July 2005. These rules set obligations on companies, banks and other financial institutions to verify their clients and present the information thus collected to the Financial intelligence unit.

Stages of money laundering

Money laundering takes place through three different stages. These include

• Placement

The first stage begins when the individual involved in unjust practices puts forth his money into some financial system. Holding a large amount of cash at the exact moment is dangerous, and hence, these people try to get rid of this money. This is when the criminal is at the highest risk of getting caught. Financial officers constantly monitor large cash-based transactions. 

The criminal in such a case tries to adopt ways to bypass the regulations in which there is a risk of the bank reporting a bulky transaction. The funds are transferred in a relatively small amount. 

• Layering

The second stage of money laundering is layering. The criminal attempts to separate his money from the source. This is a complicated process. The money is moved quickly so that the audits do not detect it. This stage involves transferring money between different countries. The money, in this case, may be shifted to investments and then can be redirected to a safer form.

• Integration

The final stage involved in the money laundering process is to restore the money converted into various forms. Once placing and layering of the funds are completed, the finds are integrated. Now, the criminal gets back the money from illegal sources but in a manner that goes unnoticed. These methods may include receiving cash from a restaurant, a car wash or a laundry, a departmental store, or a business that funds purchases. The criminal will follow all regulations to avoid getting caught. He may also pay all forms of taxes from time to time.

Methods to avoid detection

People involved in money laundering take up different ways to avoid getting caught and converting the money they have earned from illegal sources into legal. The most important ways that these money launderers adopt are:

• Smurfs

Smurfs is the term used to define the method that criminals take up to avoid detection by the government. They deposit large amounts of money in different banks, dividing it into smaller transactions to avoid detection.

• Mules

People who don’t have a criminal record and are financially vulnerable are generally the targets of this method. These are the individuals that people involved in money laundering hire. These are just like drug dealers; the only difference is that rather than smuggling drugs, these individuals smuggle money. Mules are mainly the people who have no idea about the source of funds. They are promised hefty pay for helping in a money transaction.

• Shells

These are the companies that do not have their employees or business activities. These shells are generally companies that raise money for an organisation or provide funding for a startup. Money launderers may start companies that may help them transfer money from one account to another without getting noticed. 

1. Investing

The launderers may invest their money in properties, funds, or other commodities such as gold and gems. These items can be easily moved to a different jurisdiction.

1. Putting the money into real estate.
2. Counterfeiting
3. Gambling
4. Through online gambling, online gaming, auctions, and sales. 
5. Using proxy servers
6. Anonymising software: these help transfer money online without detecting an IP address.
7. Scam money transfers.

Conclusion

When asked what is money laundering, basic money laundering meaning is when a person converts a certain amount of money that he earned illegally into legitimate money. Money laundering is done to avoid getting caught. These unjust practices may include human trafficking, drug dealing, sex rackets, terrorist activities, etc. The person involved in any of these activities will convert the fund received through these activities into fair money so that he doesn’t get caught. There are rules and strict punishments for those who are caught in money laundering cases.