Anti-money (AML) is a term mainly used in the financial and legal industries to describe the
legal controls that require financial institutions and other regulated entities to prevent or report
money laundering activities.
mostfinancial institutionsglobally,andmanynon-financial institutions,are requiredtoidentifyand
reporttransactionsof a suspiciousnature tothe financial intelligence unitinthe respective country.For
example,abankmustperform due diligence byverifyingacustomer'sidentityandmonitortransactions
for suspiciousactivity.Todothis,manyfinancial institutionsutilizethe servicesof special software,and
use the servicesof companiessuchasC6 to gatherinformationabouthighriskindividualsand
organizations.UnitedStates federal lawrelatedtomoneylaunderingisimplementedunderthe Bank
SecrecyAct of 1970 as amendedbyanti-moneylaunderingactsupto the present.
Written Anti MoneyLaunderingProcedures
Each registered intermediary should adopt written procedures toi
mplement the anti money laundering provisions as envisaged under the
Anti Money Laundering Act, 2002.Such procedures should include inter
alia, the following three specific parameterswhich are related to the overall
Due Diligence Process’:
a. Policy for acceptance of clients
b. Procedure foridentifying the clients
c. Transaction monitoring and reporting especiallysuspicious transaction
The customerdue diligence (“CDD”)measures comprisethe following:
a)Obtaining sufficientinformation in order to identify persons who
beneficially own or control securities account. Wheneverit is apparent that
the securities acquired or maintained through an account are beneficially
owned by a party other than the client, that party should be identified using
client identification and verification procedures.The beneficialowner is the
natural person or persons who ultimately own, control or influence a client
and/or persons on whose behalf a transaction is being conducted.It also
incorporates those persons who exercise ultimate effective controlover a
legal personor arrangement.
b) Verify the customers identify using reliable, independentsource
documents,data or information.
c) Identifybeneficialownership and control, i.e. determine which
individual(s) ultimately own(s) or control(s) the customerand/or the
personon whose behalf a transaction is being conducted.
d) Verify the identity of the beneficialowner of the customer and/or the
personon whose behalf a transaction is being conducted,corroborating the
information pr ovided in relation to (c).
Money laundering is one of the ongoing problems facing the international economy, and from
the evidence studied while researching this work, it can be seen that while the fundamentals of
this crime remains largely the same, technology has offered, and will continue to offer a more
sophisticated and circuitous means to convert ill-gotten proceeds into legal tender and assets. The
largely unchecked growth of the Internet presents what has been described as the "Armageddon
scenario of banking on the `Net - criminals could have money transferred without any audit
trail". There is a total absence of regulation of the Internet and it has been recognised that
authorities need to ensure that legislation keeps abreast of technology in order to understand and
pick up on any new techniques that professional money launderers may come up with.
There is also a growing realisation about the extent that money laundering and its relationship
with organised crime are interlinked. The huge profits that accrue to these criminals from such
areas as drug trafficking, international fraud, advance fee fraud, long firm fraud, arms dealing,
trafficking in human organs and tissue, etc., will be used not only to facilitate ongoing
operations, but to consolidate the wealth, prestige and respectability of those in control of the
criminal business. Drug trafficking remains the largest single generator of illegal proceeds:
Robinson (1994) stated that more money is spent world-wide on illicit drugs than on food.
However, non-drug related crime is increasingly significant.
The characteristics of organised crime are evident in money laundering:
it is a group activity, in that it is carried out often by more than one person;
it is a criminal activity which is long term and continuing;
it is a criminal activity which is carried out irrespective of national boundaries;
it is large scale; and
it generates proceeds which are often made available for licit use.
These characteristics define a very particular kind of serious criminal activity which, at its most
developed, is highly sophisticated and complex. The degree of organisation that is displayed in
money laundering is therefore of particular concern because of its scale, its capacity to exploit
and influence the legitimate business world and its capacity for internationalisation. These
concerns have led to concerted international action for a solution to combat this growing menace
called Money Laundering. This is particularly evident, not only in the formation of the FATF but
also in international agreements and legislation. In fact, a watershed in the fight against money
laundering was the publication of the FATF 40 Recommendations in 1990 - recently updated in
Money Laundering is a serious, highly sophisticated and global criminal activity. The degree
of organization displayed in Money Laundering is a major cause for concern of banks and
bank supervisors. Banks and other financial institutions can protect themselves against
Money Laundering by implementing an effective KYC Policy, knowing their customers,
checking the source of funds, monitoring the conduct of accounts, and by learning to
recognize suspicious/ irregular transactions.
Acknowledgements, Sources and References:
1. My article on "Money Laundering" published in the IBA Bulletin
2. The Web pages of the Financial Action Task Force
3. The Web pages of the BIS
4. The Web Pages of the Government of India
The old laws of the country did not really recognize the menace. There was very little check on
conversion of black money into white, the only check was chapter XXC of Income Tax Act, 1961 which
monitored acquisition of immovable property in major cities over the prescribed value and even this
provision was made inoperative since 1st July 2002.
FERA imposed restrictions on transfer money outside India and therefore it helped as a check to
transfer of tainted money. But to overcome this launderers used the non banking channels like
hawala. Also for a very long time India has been importing dirty money by over invoicing goods but
this has not helped in exporting dirty money as the taxes levied on imported goods negate the
viability of such dealings. Also there was no provision in Customs Act, 1962 up till 2003, to deal with
over invoicing of goods.
Since FEMA came into force on 3rd June 2000, all current account transactions are free from
restrictions except for those mentioned in three schedules to FEM (Current Account Transactions)
Rules, 2000. On the capital account side, there is a restriction of reporting of transactions mentioned
in schedules I and II and therefore it is very easy for launderer to launder money without even
touching the two schedules. Further Schedule III of the Act provides for cap on certain transactions
relating to expenses for education, medical treatment, donation etc. within which if money is to be
transferred abroad, no prior permission of RBI is required.
Other laws that had some role to play in prevention of money laundering are-
The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
The Benami Transactions (Prohibition) Act, 1988
The Indian Penal Code and Code of Criminal Procedure, 1973
The Narcotic Drugs and Psychotropic Substances Act, 1985
The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988
Read more: http://www.articlesbase.com/criminal-articles/prevention-of-money-laundering-indian-
Under Creative Commons License: Attribution