Money laundering is the process of concealing the source of money obtained by illicit means. two to five percent of the worldwide global economy involved laundered money. The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body. The Money Laundering Regulations 2007 came into force in December 2007.
Placement;- cash is introduced into the financial system by some means Layering :- carrying out complex financial transactions in order to camouflage the illegal source. Integration:- entails acquiring wealth generated from the transactions of the illicit funds
Placement Layering Integration Stage Stage Stage Cash paid into bank Wire transfers abroad False loan repayments or (sometimes with staff (often using shell forged invoices used as complicity or mixed with companies or funds cover for laundered money. proceeds of legitimate disguised as proceeds of business). legitimate business). Cash exported Cash deposited in overseas Complex web of transfers banking system. (both domestic and international) makes tracing original source of funds virtually impossibleCash used to buy high value Resale of goods/assets. Income from property orgoods, property or business legitimate business assets assets. appears "clean".
Structuring:- Often known as "smurfing", is a method ofplacement by which cash is broken into smaller deposits ofmoney, used to defeat suspicion of money laundering and to avoidanti-money laundering reporting requirements.Real estate ;- Real estate may be purchased with illegalproceeds, then sold. The proceeds from the sale appear tooutsiders to be legitimate income. Alternatively, the price ofthe property is manipulated; the seller will agree to acontract that under-represents the value of the property, andwill receive criminal proceeds to make up the difference.
Bank capture:- Money launderers or criminals buy acontrolling interest in a bank, preferably in a jurisdiction with weakmoney laundering controls, and then move money through thebank without scrutiny.Casinos:- An individual will walk in to a casino with cash andbuy chips, play for a while and then cash in his or her chips, forwhich he or she will be issued a check. The money launderer willthen be able to deposit the check into his or her bank account, andclaim it as gambling winnings.Black salaries:-Companies might have unregistered employeeswithout a written contract who are given cash salaries. Black cashmight be used to pay them.
The Legal Position:- These arise from the Money LaunderingRegulations 1993. The Regulations impose a number of statutoryobligations on all financial institutions.To set up procedures for verifying the identity of clientsto set up record-keeping procedures for evidence of identity andtransactionsto set up internal reporting procedures for suspicions, including theappointment of a Money Laundering Reporting Officerto train relevant employees in their legal obligationsto train those employees in the procedures for recognizing andreporting suspicions of money laundering.If employers fail to do this, they are committing an offence, which ispunishable by a maximum of 2 years’ imprisonment, a fine, or both.
The Financial Position:- Because of the need to set up and maintainvarious procedures in order to comply with their legal obligationsbusinesses face compliance costs. The Regulations affect the financialand professional services sector. Within this sector they apply to:all banks, building societies and other credit institutions;all individuals and firms authorised to conduct investment businessunder the Financial Services Act 1986;all insurance companies covered by the EC Life Directives, includingthe life business of Lloyd’s of London;all other undertakings carrying out any of the range of financialactivities in the annex to the Second Banking Supervision Directive.This includes notably bureaux de change and money transmissionservices.
Compliances Costs:- The Regulations require that financialinstitutions put in place systems to deter money laundering, and toassist the relevant authorities to detect money launderingactivities. In order to do this, it has meant that financialinstitutions have had to incur additional costs and these costs aremost likely to increase in the areas of administration, training andprovision of storage space for records.
A set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions. In most cases money launderers hide their actions through a series of steps that make it look like money coming from illegal or unethical sources was earned legitimately.
Bank Secrecy Act (1970) Money Laundering Control Act (1986) Anti-Drug Abuse Act of 1988 Annunzio-Wylie Anti-Money Laundering Act (1992) Money Laundering Suppression Act (1994) Money Laundering and Financial Crimes Strategy Act (1998) Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) Intelligence Reform & Terrorism Prevention Act of 2004
The Prevention of Money Laundering Act, 2002 enacted to prevent the money laundering. Enacted on 17thJan, 2003 Brought into force from 1st July, 2005 Administered by: Financial Intelligence Unit for verification of identity of client, maintenance of records and reporting Enforcement Directorate for investigation of and prosecution for money laundering offences.
Various Rules comes into effect from July 2005 Rules detailing Power of Director FIU & ED Rules detailing the method of attachment of property, period of retention etc Rules detailing the receipt& management of confiscated assets Rules relating to legal obligation of reporing entities.
Rules detailing the legal obligation of reporing entities: Prevention of money laundering Rules, 2005
PMLA and the rules impose obligations on Banking companies Financial institution Intermediaries of the securities market to maintain records Furnish information Verify identity of client
to strengthen international co-operation on information exchange and law enforcement; proper mechanisms for handling suspicious reports; to encourage financial supervisors to apply bank licensing procedures strictly, exchange information, and train practitioners; to increase public awareness of the threat from money laundering; implementation on a world-wide basis of a consistent set of policies. (e.g. FATF 40 Recommendations); to share forfeited proceeds with law enforcement agencies. Introduce measures that make the movement of money more visible.