1. BY SAURAV GUPTA Page 1
KNOW MONEY LAUNDERING FOR NO MONEY
LAUNDERING.
Proletariat might think that money
laundering signifies cleaning or
washing or drying the currency
note. We often come across the
term BLACK MONEY thanks to
media and opponent political
parties but how exactly these
BLACK MONIES area goon in our
Indian economy? The term BLACK
MONEY is not easy to define. In a
vernacular and lucid language, it
may be defined as wealth accumulated through illegitimate channels. The quilt of
illegitimate channels has no line on the horizon. Some of the pre-eminent earning
fromillegitimate channel includes Drug Trafficking, Stock market fraud, Insider
trading, TerrorismFinancing, Smuggling, Gambling, Human Trafficking, Wagering
etc etc etc…..phewww!!If an individual earns money through a legitimate channel
but stash his income fromtaxation compliance, then such income also falls under
the ambit of illegitimate earning. Wealth generated through legal and
commercially acclaimed sources which are properly disclosed by the generator of
such wealth and on which due taxes arepaid, is termed
as WHITEMONEY.
Money laundering is a process by which mammoth
amount of money generated from legally barred
activity, is given a texture of being generated through
legitimate channels. In lucid term, it is simply a process
of converting black money into white money .The
nomenclature is said to haveemanated from
Laundromats owned by Mafias in United States. Huge
amount of money earned fromextortion, coercion, gambling, drug trafficking etc

2. BY SAURAV GUPTA Page 2
were given a texture of wealth earned
through legitimate source(such as
Laundromats) by the mafias there. Indian
economy received a fierce set back through
‘HAWALA TRANSACTION’. Theterm
‘HAWALA’ is an Arabic word which means
the transfer of money or pecuniary
information between two people using a third person. HAWALA mechanism
allowed the conversion of black money into white money with ease.
Money Laundering is also a matter fraudulentART which requires proper
excavation of economical channels and investment strategies. Money Laundering
is summed up in 3 basic steps, viz, PLACEMENT, LAYERING and INTERATION.
Let’s havean in-depth analysis of different stages leading to money laundering.
PLACEMENT
Placement is 1st
stage of money laundering. In this stage, money launderer
decomposes big denomination of wealth into smaller denominations. The easiest
way of decomposing big denomination of wealth is simply by depositing
fragmented partof money into numerous banks, capitalmarket, money market,
financial institutions etc. Herein, Launderer introduces his illegal profits into the
financial systemin an incredibly whimsicalmanner.
LAYERING
Layering is a stage wherethe Launderers undergo series of transactions to
convertor seclude the fund fromits source. Through uninterrupted process of
unfaltering investment or divestment of money introduced in the earlier stage,
Launderer successfully isolates the money fromits source. They tend to transfer
the money in such prerogative nation that do not co-operate in anti money
laundering investigations.
INTEGRATION

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This is the last stage of money laundering and probably the mostfondling stage
for money launderers. This is the stage where the endowments of earlier stage
are returned to legitimate economy for later haul outs by ways of investing in a
company, purchasing realestates, amenity goods, sumptuous lifestyleetc.
Launderer makes the money appear to have been legally generated and
accomplishes integration of the ‘CLEANED’ money into the economy.
Placement
Layering
Integration
•Introducingblack
moneyin the financial
system.
•Separatingthe black
moneyfrom its origin by
constant investment
and divestment.
•Returningofmoney into
legitimate economyfor
investment or
consumption.

4. BY SAURAV GUPTA Page 4
PREVENTIVE MEASURES
India has been classified as high risk zone in terms of money laundering. Out of
140 countries approx, India ranked 70th
in 2013 and 93rd
in 2012, by the ANTI
MONEY LAUNDERING (AML) BASEL INDEX.
THE BASEL AML INDEX, 2013

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The stats indicate that India is exposed to money laundering activities. In the mid
‘90s few acts were enacted by governmentto curb this malpractice. Someof the
notable acts to be introduced were:
 The Income Tax Act,1961
 The Indian Penal Code and Code Of Criminal Procedure,1973
 The ConservationOf ForeignExchange and PreventionOf Smuggling
Activities Act,1974
 The Narcotic Drugs andPsychotropic Substances Act,1985
 The Benami Transaction(Prohibition) act,1988
These acts could not make an impact towards the agenda of sweeping away
money laundering activities. On 4th
August1998, Prevention Of Money
Laundering Act (PMLA) was introduced in Lok Sabha, which was ultimately
enacted and enforced on 17th
January, 2003.
REMEDIES UNDER PREVENTION OF MONEY
LAUNDERING ACT (PMLA)
 According to SECTION4 of Prevention of Money Laundering Act, 2002 ,
whoever commits the offence of money-laundering shallbe punishable
with rigorous imprisonmentfor a term which shall not be less than three
years but which may extend to seven years and shall also be liable to fine
which may extend to five lakh rupees.
 On being convicted under PMLA, fine imposed upon must be paid within six
months fromthe date of imposition of fine.
 SECTION56 of PMLA allows Central Governmentto enter into an
agreement with the Governmentof any country outside India for enforcing
the provision of this law or exchanging of information for the prevention of
any offence under PMLA and corresponding laws.
 PMLA, 2002 allows the authority to seize or freeze the property of money
launderer, if found guilty. Property also includes property of any kind used

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in the commission of offence under PMLA, 2002 or any of the scheduled
offence.
The introduction of PMLA was not the only solution to this economical
pandemonium activity. Governmentalso introduced someadjacent measures
along with PMLA to restrictadulteration in Indian Economy.
FINANCIAL ACTION TASK FORCE (FATF)
Financial Action Task Force (FATF) is an inter-governmentalbody that sets
standards and develops and promotes policies to combat money laundering and
terroristfinancing. Itwas formed by the 67 at Paris in the year 1989. Asia Pacific
Group (APG) is the regional body of FATF and India is also an active participant in
APG deliberations. FATF investigates the process of determining compliance to
Anti Money Laundering (AML) and Countering Financing of Terrorism(CFT).
FINANCIAL INTELLIGENCE UNIT (FIU)
Financial Intelligence Unit works on the legal framework prescribed by thePMLA.
Financial Intelligence Unit (FIU) performs its operation of receipt, analysis and
annunciation of information in conformity with the international standards setup
by the FATF and Egmont Group of Financial Intelligence Unit. As laid down in
PMLA, FIUreceives reports on suspicious transaction, counterfeitcurrency
transactions and fund raising activities of non-profitorganization. Thesereports
are prepared and presented reporting entities such as financial intermediaries,
commercial banks, registrar of shares, capitalmarket intermediaries etc.

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KNOW YOUR CUSTOMER (KYC)
In the year 2002, ReserveBank of India (RBI)
instructed all the commercial banks and
financial institutions to put in place a policy
framework to know their customer before
opening any account. Under the norms of
KYC, every account holders must
mandatorily submit proof of identity and
proof of address with the bank. The
objective of KYC guidelines is to prevent
banks frombeing used, intentionally or
unintentionally, by criminal elements for money laundering or terrorist financing
activities. The KYC procedures also enable banks to know/understand their
customers and their financial dealings better which in turn help them manage
their risks prudently. KYCwas introduced with a vision of sweeping away identity
theft, money laundering, terroristfinancing, identity fraudulenceetc. Banks must
maintain also the record of accountholders for TEN YEARS fromthe date of
termination of their bank accounts.
Sourcedata used:
http://fiuindia.gov.in/pmla2002.htm
http://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=8179
http://index.baselgovernance.org/
https://www.google.co.in/imghp?hl=en&tab=wi&ei=jeifU9fJMcyyuAS0jIKgB
A&ved=0CAQQqi4oAg

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