what is money laundering ?, money laundering for upsc, prevention of money laundering act upsc, types of money laundering, money laundering in india

What is Money Laundering ?

Let’s read about what is money laundering for upsc, prevention of money laundering act upsc, types of money laundering, money laundering in India.

What is Money Laundering ? -:

~ According to Interpol General Secretariat Assembly in 1995, money laundering is any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.

~ It is concealing or disguising the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.

~ The International Monetary Fund (IMF) defined laundering money as being the “transferring (of) illegally obtained money or investments through an outside party to conceal the true source”.

~ According to the United Nations Office on Drugs and Crime, global money laundering transactions account for roughly $800 billion to $2 trillion annually, or some 2% to 5% of global GDP.

~ In 1989, the Group of Seven (G-7) formed an international committee called the Financial Action Task Force (FATF) in an attempt to fight this crime on an international scale. In the early 2000s, its purview was expanded to combating the financing of terrorism.

~ The term MONEY LAUNDERING originated from the Mafia groups in the United States of America.

~ The person who manipulates this money is called “launderer”.

~ The most common types of criminals who need to launder money are drug traffickers, embezzlers, corrupt politicians and public officials, mobsters, terrorists and con artists.

~ The process of laundering money involves three steps :- Placement, Layering and Integration.

  • Placement -: The launderer deposits the illegal money ( dirty money ) through different agents and banks into the legitimate financial system.
  • Layering -: Layering conceals the source of the money through a series of transactions and bookkeeping tricks. The launderer tries to hide or disguise the origin of the funds by creating complicated layers of financial transactions designed to cover the audit trail and conceal it. The launderer deposits funds to investment instruments such as bonds, stocks, and traveler’s checks or in their bank accounts abroad. This account is often opened in banks of those countries which do not reveals the details of their account holders.
  • Integration -: Illegal money are taken back into the financial system as payments for services rendered. Making the launderer feel fulfilled by making the funds appear to be legally earned. Illegal funds is returned to the economy and disguised as genuine income. This money is brought back through investing in a company, purchasing real estate, purchasing expensive goods etc.

~ Laundering MONEY can take several forms, some of them are -: Smurfing also called as Structuring, Bulk Cash Smuggling, Cash intensive Businesses, Casinos Trade based Laundering, Shell companies and trusts, Round tripping, Gambling, Black salaries, Tax amnesties, Transaction laundering.

~ In India, “money laundering” is popularly known as Hawala transactions.

~ The word “Hawala” means trust. Hawala is a system of transferring money and property in a parallel arrangement avoiding the traditional banking system. It is banned in India.

~ Prevention of Money Laundering Act, 2002 ( PMLA ) in India was enacted in 2002 and it came into force in 2005. The chief objective of this legislation is to fight money laundering in India.

~ The PMLA has been amended three times, that is, in 2009, 2009 and 2012.

~ The main objectives of the PMLA act are preventing and combating the channelising of money into illegal activities and economic crimes, providing for the confiscation of illegal property, providing for any other matters connected with or incidental to the act of money laundering.

~ Under the PMLA Act, the Enforcement Directorate is the body that has the right to conduct a Money Laundering investigation. Apart from this, there are other specialized provisions such as RBI/SEBI/IRDA anti-money laundering regulations and stipulated punishments for money laundering.

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