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What is Money Laundering



If you go to Wikipedia it will say that ,”Money laundering is the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the money to the launderer in an obscure and indirect way”. Though, it is right but not much clear.


Money Laundering Meaning:

what is money laundering in simple terms ?
Money laundering is an illegal process in which the
dirty money (don’t take the word dirty to it’s real meaning, dirty money here refers to the money earned by illegal means or by not paying the taxes)
generated from unfair means or criminal activities is made to appear as legitimate and legal money. It is a financial transaction scheme that aims to conceal the identity, source, and destination of illicitly-obtained money. In the simplest terms, money laundering involves the transfer of illegally obtained money into a legal institution, i.e. a bank. In most simple terms, it is conversion of black money to white money.
Do you know, how much money is laundered per year?
The United Nations Office on Drugs and Crime (UNODC) estimates that the "amount of money laundered globally in one year is 2–5% of global GDP, or $800bn – $2tn in current US dollars.
You might be wondering, how is money laundering possible? How Money laundering works ? So, in answer to that, I want to tell you that money laundering is carried out in three steps. or if you prefer to learn by video , you can also plat that(but the video is in hindi as our major audience is from INDIA)

What are 3 steps in money laundering?

The process of laundering money typically involves three steps: placement, layering, and integration.
Placement – the initial entry of illicit money into the financial system . The launderer introduces his illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited into accounts at another location.
Layering - After the funds have entered the financial system, layering takes place . the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channeled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations. In some instances, the launderer might disguise the transfers as payments for goods or services, thus giving them a legitimate appearance.
Layering in money laundering
final step, Integration – It is the final stage at which the ‘laundered’ property is re-introduced into the legitimate economy, launderers might choose to invest laundered funds in still other locations if they were generated in unstable economies or locations offering limited investment opportunities.

Money Laundering Techniques


Money laundering can also be accomplished through the use of currency exchanges, wire transfers, and cash smugglers, who sneak large amounts of cash across borders and deposit them in foreign accounts, where money-laundering enforcement is less strict.
Other money-laundering methods involve investing in commodities such as gems and gold that can easily be moved to other jurisdictions, discreetly investing in and selling valuable assets such as real estate, gambling, counterfeiting; and using shell companies (inactive companies or corporations that essentially exist on paper only).
Smurfing : In another common form of money laundering, called smurfing (also known as "structuring"), the criminal breaks up large chunks of cash into multiple small deposits, often spreading them over many different accounts, to avoid detection.
cash smuggling : This involves physically smuggling cash to another country and depositing it in some swiss bank or that type of secure bank .
cash-based business owned by a criminal organization, for example, if the organization owns a restaurant, it might inflate the daily cash receipts to funnel illegal cash through the restaurant and into the restaurant's bank account. After that, the funds can be withdrawn as needed. These types of businesses are often referred to as "fronts.". In such cases the business will usually claim all cash received as legitimate earnings. Service businesses like restaurants, strip clubs, tanning salons, car washes, arcades, bars, and casinos are generally more suitable for such acts.For example in Casinos ,a person can buy chips with illicit cash. He plays for shorter time and than cashes the chips back and expect the payments to be made in cheque etc. so that he may carry it as a proof to show the money as a win through gambling.
Shell companies : Shell companies are kind of fake companies which do not have any real business or employees but they show huge amount of profits and than claim it to be legal money. Building of Shell companies is quite easy in some countries like Panama or Virgin islands due to rules made by the government there.
Mossack Fonseca panama papers shell companies
Round-tripping: also known as round-trip transactions or "Lazy Susans", black money leaves the country through various channels such as inflated invoices, payments to shell companies overseas, the hawala route and than returns to india in various forms which seems to be legal.There are many ways for this black money to enter India.It could be invested in offshore funds that in turn invest in Indian assets, Global Depository Receipts (GDR) and Participatory Notes (P-Notes) are some of these methods.
Fake salaries: A company may have unregistered employees without written contracts and pay them cash salaries. Dirty money might be used to pay them.
Trade-based laundering: This method is based on under- or over-valuing spendinng of money on something whose value can be shown be of any scale. For example, the art like paintings has been accused of being an ideal vehicle for money laundering due to several unique aspects of art such as the subjective value of art works as well as the secrecy of auction houses about the identity of the buyer and seller.

Electronic Money Laundering

The Internet has given a new way to the old crime. Online money transactions has provided the criminals one more way, moreover, proxy servers and VPN's which can hide identity has made that way more easier one.
Money laundering is also possible through online auctions and sales, gambling websites, and virtual gaming sites, where wrong money is converted into gaming currency, which is later get converted into real money as clean cash.
The newest form of money laundering involves cryptocurrencies, such as Bitcoin. While not totally anonymous, they are increasingly being used in blackmail schemes, the drug trade, and other criminal activities due to their relative anonymity compared with more conventional forms of currency.
Anti-money-laundering laws (AML) have been slow to catch up to these types of cybercrimes, since most of the laws are still based on detecting dirty money as it passes through traditional banking institutions.
Digital problems require digital solutions. Since solutions that rely on manual monitoring simply can’t keep up – they need to be highly-automated and scalable, to enable the discovery of repeatable patterns and real-time reports. New technology capabilities are indispensable for detection and prevention of Transaction Laundering. Law enforcement agencies, the e-commerce players, MSPs, fintech providers and individual users all share the responsibility in making efforts to eradicate this advanced merchant- based fraud.

How can you tell if someone is Laundering Money

Reluctance to Provide Information
If a company is hesitating to open about anything in public, it naturally becomes suspectible.For example, a law firm in Panama named Mossack Fonseca was engaged in helping others to build shell companies in Panama. When Panama papers were leaked, It's chairman neither faced media and always tried to keep them away. Further investigations found them guilty and then ailed them.

Mossack Fonseca panama papers

Irregular Money Transfers and Transactions
• Money changing hands in unusual ways should always raise concerns. Accountants in charge of onboarding new clients should be aware of funds transferred to and from "locations of concern", seeing it as a warning sign straight away.
• The movement of money/assets when there doesn't seem to be a business relationship between the parties, or transactions between groups that differ in their commercial arrangements should be looked into further.
• Unusually high turnover from cash-based businesses that are above average compared to similar-sized organisations in the same sector may also require further explanation because of their irregular figures.
• Criminal schemes are often pretty sophisticated. So if you notice a complex structure with no explanation behind it, look into it further.
• Their complexity could be deliberately set up to confuse and obscure others, so they can get away with the layering and integration stages of money laundering.
This situation can use the fraud of Euron ltd. As an example which can be called as biggest scam till date.

What are some examples of Money Laundering in India ?

PMC(punjab and maharashtra) Bank Scam
According to an FIR filed in the case, HDIL promoters allegedly colluded with the bank management to draw loans from the bank's Bhandup branch.Reports estimate the bank’s overall exposure to the HDIL group at around Rs 6,500 crore.The bank also allegedly created fictitious accounts of companies which borrowed small sums of money, and created fake reports to hide from regulatory supervision.
Layering in money laundering Layering in money laundering
Common Wealth Games Scam 2010: 70,000 Crore Scam
New Delhi, Suresh Kalmadi, Sheila Dixit- the then Chief Minister of the State.It is estimated that out of 70000 crores spent on the Games, only half of the said amount was spent on Indian sportspersons. discrepancies in tenders – like payment to non-existent parties, willful delays in execution of contracts, over-inflated price and bungling in purchase of equipment through tendering – and misappropriation of funds.
2G scam 2008: 176,000 Crore Scam
National Nira Radia, A. Raja, M. K. Kanimozhi, many telecommunications companies communication bandwidths auctioned for lower than market value.A. Raja and M. K. Kanimozhi have been in Tihar Jail for 15 months and 5 months respectively.

Money Laundering Act

Prevention of Money Laundering Act was passed in 2002 with an objective to prevent and control Money Laundering ; to confiscate(Confiscation is a legal form of seizure by a government or other public authority. The word is also used, popularly, of spoliation under legal forms, or of any seizure of property as punishment or in enforcement of the law ) and sieze the property obtained from the laundered money. On 24 Movember 2017, Supreme court has set aside a clause in prevention of money laundering Act, which made it virtually impossible for a person convicted to more than three years in jail to get bail if public prosecutor oppoed it.

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