Money Laundering By Sangeev Roy
Dimensions to Be Covered Context What is Money Laundering Reasons for Prevalence Negative Impact of Money Laundering Steps that has been taken to Prevent Money Laundering of Money Laundering s Recommendations to Prevent Money Laundering
Context Prevention of Money Laundering Act Government has recently amended the Prevention of Money laundering Act, 2002 through Finance Act, 2018. Fugitive Economic Offender's Act, 2018 Vijay Mallya is the First Person to be Declared a Fugitive Offender Bill on Chit Funds The bill aims to streamline and strengthen the chit fund sector. Based on the recommendations of the Parliamentary Standing Committee on Finance and the Advisory Groups on Chit Funds set by the central government. The Benami Transactions (Prohibition) Amendment Act, 2016 Amends Benami Properties Act, 1988
What is Money Laundering As per OECD, "Money laundering is the process of concealing illicit gains that were generated from criminal activity"
Techniques of Money Laundering Structuring Deposits: This is a method of placement whereby cash is broken into smaller deposits of money which is then exchanged by many individuals (known as "smurfs") .This is also known as smurfing because many individuals (the "smurfs") are involved. e Shell companies Without active business operations; take in dirty money as "payment" for supposed goods or services; Create the appearance of legitimate transactions; through fake invoices and balance sheets Bulk cash smuggling: .Physically smuggling cash, depositing it in a financial institution like Swiss Bank
Stages of Money Laundering Placement Stage: Introduced in the financial system; eriskiest stage; Breaks into smaller Sums; deposited directly into a bank account, or is used to purchase monetary instruments such as cheques, money orders etc. Layering stage: -complex financial transactions are carried out; in order to conceal the illegal source. Layering may be done by below mentioned wa Several bank-to-bank transfers which may be in small amounts Wire transfers between different accounts in different names in different countries Changing the money's currency. Integration stage: Reintroduction as legitimate money; Legal Investments; No Fear of being caught
Reasons for Prevalence of Money Laundering .Illegal Trades: Illegal arms sales, smuggling, and other organized crime, including drug trafficking and prostitution rings, can generate huge amounts of money. Many Tax Haven countries exist: owhich allows the creation of anonymous accounts with strict financial secrecy laws prohibiting the disclosure of financial information to foreign tax authorities. . Failure of Banks: to effectively implement KYC norms as stipulated by the RBI . A number of black market channels: sell imported smuggled goods and they deal in cash transactions and avoid custom duties thus generating black money.
Reasons for Prevalence of Money Laundering Contd.. Fast pace of change in technology: including cyber technologies creates problems of tracking money launderers. The enforcement agencies have failed to match such a high rate of growth Lack of awareness: about the seriousness of Money Laundering in common people due to which they continue to use Hawala system offering fewer complexities and formalities . A number of black market channels: sell imported smuggled goods and they deal in cash transactions and avoid custom duties thus generating black money Multiplicity of agencies dealing with money laundering, cyber crimes, terrorist crimes, economic offences etc. Such agencies lack convergence among themselves which is required to tackle multi-facet and global nature of money laundering Corruption, embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits Conversion of Dirty to Clean Money: By successfully laundering the proceeds, the proceeds can be made to appear clean' and the illicit gains may be enjoyed without fear of being confiscated or being penalised
Negative impact of Money Laundering .Social Impact: Increases income inequality Loss of morality and ethical standards .Economic Impact: High Cost of Doing Business; Financial Institution's Image at stake These include volatility in exchange rates and interest rates due to unanticipated transfers of funds .Discourages foreign investors Political Impact Affects Welfare State: Affects the Government's capability to spend on development schemes thereby affecting a large section of populations who could have benefitted from such spending
What are the Steps that has been Taken Indian Mechanism to Prevent Money Laundering: Statutory framework: It includes enactment of the Prevention of Money Laundering Act (PMLA) 2002 among others Institutional framework: . Enforcement Directorate for investigation and prosecution of cases under the PML. Financial Intelligence Unit India (FIU- IND) for receiving, processing, analysing and disseminating information relating to suspect financial transactions as well as for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies against money laundering International cooperation .The Financial Action Task Force (FATF): is an inter-governmental body which sets standards and develops and promotes policies to combat money laundering and terrorist financing. Asia/Pacific Group on Money Laundering (APG) membership: to facilitate the adoption, implementation and enforcement of internationally accepted anti-money laundering and anti- terrorist financing standards set out by FATF.
.Basel Committee's Statement of Principles: It aims at encouraging the banking sector to adopt common position; to ensure that banks are not used to hide or launder funds. .The Financial Action Task Force (FATF: An inter-governmental body; established at the G7 summit; Paris in 1989 Objective: to set standards and promote effective implementation of measures to combat money laundering and terrorist financing. Its recommendations are recognized as the international standards; for combating money laundering and the financing of terrorism. United Nations Global Programme Against Money Laundering (GPML) In 1997; to increase effectiveness of international action again money laundering; through comprehensive technical cooperation services offered to Governments eThree further Conventions have been adopted for Money Laundering related crimes: International Convention for the Suppression of the Financing of Terrorism 1999) UN Convention against Transnational Organized Crime (2000) UN Convention against Corruption (2003)
Recommendations Conti.. .Deal Legally: Money laundering must be combated mainly by penal ways and within the frameworks of international cooperation among judicial and law enforcement authorities As a consumer: Dormant accounts should be closed as soon as possible because they can be easily used for conducting money laundering activities Risk assessment: o Financial institutions should undertake a risk assessment prior to the launch of the new products, business practices or the use of new or developing technologies
"Money laundering is a very sophisticated crime and we must be equally sophisticated."
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