Money Laundering: Evolution, Means Of Commission and the Fight Against it

What is Money Laundering?

Money laundering is a process that attempts to convert the profits arising out of crime and corruption, into a legitimate source of income. In a nutshell, it may be said that the concept of money laundering is basically that of people trying to showcase the money that is not theirs, as their own. The term “money laundering” is often said to have originated at the time of the famous American gangsters that arose originally out of Prohibition – the banning of alcoholic drinks.[1] The Indian Legislature, through ‘The Prevention of Money Laundering Act, 2002’, defines money laundering as an act of directly or indirectly attempting to indulge or knowingly assisting or knowingly being a party or being actually involved in an activity or process connected with proceeds of a crime and projecting it as untainted property.[2]

Evolution

Though the origin of the term “money laundering” came in the 20th Century, it is in fact, an age-old phenomenon. The first instance of this “crime” was first noticed around 2000 BCE, in China. Sea grave in his excellent book “Lords of the Rim” conducts a roundup of the history of the Overseas Chinese as witnessed around 2000BCE. He explains how the abuse of merchants and others by rulers led them to find ways to hide their wealth, including ways of moving it around without it being identified and confiscated.[3] Gradually, and several years later, governments and other forms of ruling authorities came up with a more legalized way of obtaining the money, in the form of taxation, which eventually followed tax evasions and money hiding.

Eventually, governments began realizing that the prevention of money laundering would also help in the prevention of crime and terrorist activities. With this revelation, came several international agendas, to prevent the same. Finally, Global 7 formed a committee called ‘The Financial Action Task Force’ a.k.a. FATF targeting money laundering, terrorist financing, and other threats to the global financial system in 1989, which pressurized Governments throughout the globe to increase surveillance and monitoring of financial transactions and share this information between countries. This sharing would also act as third person surveillance and monitoring which would again make sure no offence is committed, because own country member may indulge in corruption.[4] As of 2002, Governments around the world have begun upgrading their respective money laundering laws along with mechanisms of surveillance and monitoring of financial transactions.[5]

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In the current scenario, it may be seen that it is now a serious offence and is becoming a serious burden on the part of governments, across the globe. With the spread of education, people are becoming aware of the laws and more importantly, the loopholes of the laws, thereby finding more creative ways to engage in it.

Means of Commission

It may be committed by several means, around the world. However, there are two main elements of this illicit act, which are as follows:-

a) ‘Arrangements’ by a person who’s engaged in the provision of financial services. These services may include banking, fiduciary and investment management etc, thereby acting as an access for the same individual.

b) Such a person having knowledge or suspicion of sources being illegal. This step plays an important role, as it is the aptest way of determining the intent of the person at the time of committing the act.

Some of the methods by which an individual may engage in such activities are:

Smurfing: By virtue of this method, one may break up a large sum of money into smaller deposits, thereby escaping the eyes of the money laundering authorities.

Cash smuggling: It refers to instances where people transfer a sum of money (usually overseas), in order to escape scrutiny and/or be eligible for tax exemptions.

Fraudulent company: Some smart minded people choose to form companies or corporations (usually called “shell companies” or “shell corporations”) in order to show businesses and therefore allowing them to invest in such companies/corporations. Documents found in relation to such companies are also called as ‘Panama Papers’.

Real Estate Scam: This is perhaps one of the most common forms of money laundering, whereby the seller requests the buyer of the real estate to undervalue the property, in the paper, and in return, the buyer would pay the extra amount in cash. This leads to profits in an illegal manner.

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Casino Winnings: Through purchasing casino chips with illicit money, the person is able to submit an official record that they have earned the money by winning in several games. Basically, when an individual earns in the casino, the casino is bound to provide an acknowledgment of the money earned, thereby legalizing the source of the money.

Though there are several other forms of money laundering, these are some of the most frequent ways of achieving the same goal.

The Fight against Money Laundering

Major Countries of the World have already met hands and made international organizations to deal with the same, keeping aside several Conventions of the U.N. Such treaties mandate the signatories to enact individual laws to prevent money laundering. India, being a signatory to such conventions, in 2002, passed an act called the ’Prevention of Money Laundering Act, 2002’. The main objectives of this act are to prevent it as well as to provide for confiscation of property either derived from or involved in money-laundering.

Several agencies like The Income Tax Authorities, Economic Intelligence Council, Central Economic Intelligence Bureau, Directorate of Revenue Intelligence, the Reserve Bank of India, Securities and Exchange Board of India, and others are also working in harmony with each other to fight the evil of money laundering.[6]

Also read Black Money: A blot on Indian Economy

[1]Nigel Morris-Cotterill, What is money laundering?, Available at <http://www.countermoneylaundering.com/public/content/what-money-laundering>

[2]Naman Sharma, Money Laundering: Evolution, Means of Committing and Fight Against It Around TheGlobe, Available at <http://www.legalservicesindia.com/article/article/money-laundering-evolution-means-of-committing-and-fight-against-2426-1.html>

[3]Supra Note 1

[4]Supra note 2

[5]Supra note 2

[6]Supra note 2

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