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Money Laundering and its Prevention

Last updated on December 23, 2022 by ClearIAS Team

Money Laundering is a heinous crime that not only affects the social and economic fabric of the country but also tends to promote other serious offenses like terrorism and drug trafficking etc.

It is a growing problem that needs to be addressed and the Prevention of Money Laundering Act was enacted in response to India’s global commitment to combat the menace of money laundering.

Table of Contents

What is Money laundering?

Money laundering is the process of making large amounts of money generated by criminal activity – such as drug trafficking, terrorist funding, corruption, etc – appear to have come from a legitimate source.

The basic money laundering process has three steps:

• Placement: At this point, the launderer deposits the dirty money into a legitimate financial institution. This is frequently in the form of cash as bank deposits. This is the most dangerous stage of the laundering process because large amounts of cash are visible, and banks must report high-value transactions.
• Layering: This entails sending money through various financial transactions in order to alter its form and make it difficult to track. Layering can include several bank-to-bank transfers, wire transfers between different accounts in different names in different countries, making deposits and withdrawals to constantly vary the amount of money in the accounts, changing the currency of the money, and purchasing high-value items (boats, houses, cars, diamonds) to change the form of the money. This is the most complicated step in any laundering scheme, and it all revolves around making the original dirty money as difficult to trace as possible.
• Integration: At the integration stage, the money appears to come from a legal transaction and re-enters the mainstream economy. A final bank transfer into the account of a local business in which the launderer is “investing” in exchange for a cut of the profits, the sale of a yacht purchased during the layering stage, or the purchase of a $10 million screwdriver from a company owned by the launderer are all examples of this. The criminal can now use the money without being caught. If there is no documentation from the previous stages, catching a launderer during the integration stage is extremely difficult.

Some of the common methods of money laundering are:

• Smurfing: This method involves dividing large sums of money into smaller, less suspicious amounts. The money is then deposited into one or more bank accounts over time by multiple people (smurfs) or by a single person.
• Overseas banks: Money launderers frequently transfer funds through various “offshore accounts” in countries with bank secrecy laws. Hundreds of bank transfers to and from offshore banks can be involved in a complex scheme. The Bahamas, Bahrain, the Cayman Islands, Hong Kong, Panama, and Singapore are among the “major offshore centers,” according to the International Monetary Fund.
• Shell companies: These are fake companies that exist solely to launder money. They accept dirty money as “payment” for ostensible goods or services but provide none; they simply create the appearance of legitimate transactions through forged invoices and balance sheets.
• Investing in legitimate businesses: Launderers will sometimes wash dirty money in otherwise legitimate businesses. They may use large businesses, such as brokerage firms, where the dirty money blends in easily, or they may use small, cash-intensive businesses, such as bars, car washes, strip clubs, or check-cashing stores. These companies could be “front companies” that provide a good or service but their true purpose is to clean the launderer’s money. This method typically works in one of two ways: the launderer can combine his dirty money with the company’s clean revenues, in which case the company reports higher revenues from its legitimate business than it actually earns; or the launderer can simply hide his dirty money in the company’s legitimate bank accounts in the hopes that authorities will not compare the bank balance to the company’s financial statements.
• Hawala: A different or parallel remittance system is hawala. It exists and functions independently from or concurrently with “traditional” banking or financial channels. The majority of money-laundering schemes use a combination of these techniques. This crime is challenging to eradicate due to the variety of tools available to money launderers.

Measures for prevention of Money laundering

There are various statutory frameworks to prevent money laundering such as PMLA, SAFEMA, NDPSA, FEMA, COFEPOSA etc. Everything will be discussed below.

Statutory framework

Before the Prevention of Money Laundering Act of 2002 (PMLA) was passed in India, the main statutes that included measures to address the issue of money laundering were:

• The Income Tax Act, 1961
• The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA)
• The Smugglers and Foreign Exchange Manipulators Act, 1976 (SAFEMA)
• The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPSA)
• The Benami Transactions (Prohibition) Act, 1988
• The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988
• The Foreign Exchange Management Act, 2000, (FEMA)

Prevention of Money Laundering Act (PMLA) 2002

The Prevention of Money Laundering Bill was introduced in 1998 and passed in 2002 in response to the urgent need for the adoption of comprehensive legislation for the prevention of money laundering and related activities, confiscation of proceeds of crime, the establishment of agencies and mechanisms for coordinating measures for combating money laundering, etc. Taking effect on July 1st, 2005, the Act was put into law.

The objective of the Act

• To prevent money laundering.
• To provide for confiscation of property derived from, or involved in, money laundering.
• For matters connected therewith or incidental thereto.
• It forms the core of the legal framework put in place by India to combat money laundering.

Its salient features include:

• Defines Money laundering.
• Expanded the reach of the Act by adding many more crimes under various legislations: It lists specific offenses that would fall under this Act’s purview under the IPC, the Narcotic Drugs and Psychotropic Substances Act , the Arms Act, the Wild Life (Protection) Act, the Immoral Traffic (Prevention) Act, and the Prevention of Corruption Act.
• In instances of cross-border money laundering, it enables the Central Government to implement the UN Convention against Corruption’s provisions by returning the confiscated property to the requesting nation.
• It aims to include certain financial institutions in the Act’s reporting requirements, including Full Fledged Money Changers, Money Transfer Services, and Master Card.

Enforcement apparatus

• Adjudicating Authority: The Act gives the Central Government the authority to establish an adjudicating authority with a chairman and two other members and to specify the authority’s mandate and other terms of service. The Authority has been given independent authority to control its adjudicating process.
• Administrator: The property laundered will be taken care of i.e. managed after confiscation by an Administrator who will act in accordance with the instructions of the Central Government.
• Appellate Tribunal: An Appellate Tribunal established by the Central Government will hear all appeals from decisions made by the Adjudicating Authority. It will have two members, and the chairman will be in charge.
• Special Courts: An Appellate Tribunal established by the Central Government will hear all appeals from decisions made by the Adjudicating Authority. It will have two members, and the chairman will be in charge.
• Banking companies, financial institutions, and intermediaries are required by the PMLA and the rules thereunder to confirm the identity of their clients, keep records, and provide information to FIU-IND.

Institutional framework

• Enforcement Directorate: Investigation and prosecution of cases under the PMLA have been entrusted to Enforcement Directorate.
• Financial Intelligence Unit – India (FIU-IND): established in 2004 to serve as the primary national organization in charge of gathering, analyzing, and disseminating data about improbable financial transactions. As part of its mission to further the international fight against money laundering and related crimes, FIU-IND is also in charge of coordinating and bolstering the efforts of national and international intelligence, investigation, and enforcement agencies.

International Cooperation

• The Financial Action Task Force (FATF): The G7 summit in Paris in 1989 led to the creation of the FATF, an intergovernmental organization. The Financial Action Task Force (FATF) is a “policy-making body” that works to create the political will needed to bring about national legislative and regulatory reforms in order to combat money laundering, terrorist financing, and other related threats to the integrity of the global financial system.
• The Asia/Pacific Group on Money Laundering (APG) was a self-contained regional anti-money laundering organization. The APG’s mission is to facilitate the adoption, implementation, and enforcement of internationally accepted anti-money laundering and anti-terrorist financing standards outlined in the Financial Action Task Force’s recommendations (FATF).
• The Vienna Convention/ United Nations Convention against Illicit Trafficking in Drugs and Psychotropic Substances: In December 1988, it was the first major initiative in the prevention of money laundering. By requiring member states to criminalize the laundering of money from drug trafficking, this convention laid the groundwork for efforts to combat money laundering.
• The Council of Europe Convention: In 1990, this convention established a common policy on money laundering. It establishes a common definition of money laundering as well as common measures to combat it.
• Basel Committee Minimum standards: The Basel Committee on Banking Regulations and Supervisory Practices is made up of representatives from the central banks and supervisory authorities of eleven major industrialized nations as well as Luxembourg. In 1998, the committee issued a statement of principles aimed at combating money laundering.

Effects of Money Laundering

• Socio-cultural effects: Money laundering success encourages criminals to continue their illegal schemes—more fraud, more drugs on the streets, more drug-related crime, and so on.
• Terrorism: Money laundering is a major source of terrorism financing. Terrorists have demonstrated adaptability and opportunism in meeting their funding needs.
• Organized crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments.
• Economic effects
• It’s estimated that money launderers scrub as much as $2 trillion (or 5 per cent of the world’s GDP) every year.
• Massive influxes of dirty cash into particular areas of the economy that are desirable to money launderers create false demand.
• Legitimate small businesses cannot compete with money-laundering front companies that can afford to sell a product at a lower price because their primary goal is to clean money rather than make a profit.

Challenges in the prevention of Money laundering

• Increased use of digital currency: The rise of cryptocurrency allows money launderers to conceal their illicit funds. Estimates suggest that criminals have used the hyper-connected cryptocurrency ecosystem to launder more than $2.5 billion in dirty Bitcoin since 2009.
• Preference for cash over digital payments for transactions: The use of cash will ease the process of “layering”.
• Lack of awareness about the seriousness of crimes of money laundering: Instead of going through lengthy paperwork transactions in banks, the poor and illiterate prefer the Hawala system, which has fewer formalities, little or no documentation, lower rates, and anonymity.
• Lenience from banks : Increasing competition in the financial market is forcing banks to lower their guards, allowing money launderers to use it illicitly in furtherance of their crime.
• Collusion by employees of financial institutions : Financial institutions are supposed to check the source of funds, monitor account activity, and track irregular transactions, but the involvement of financial institution employees makes laundering easier.
• Lack of comprehensive enforcement agencies: Money laundering is no longer limited to a single area of operation, but has broadened to include many different areas of operation. In India, there are separate wings of law enforcement dealing with money laundering, terrorist crimes, economic offenses, and so on, and they lack coordination.
• The widespread act of smuggling: There are a number of black market channels in India for the purpose of selling goods, with many imported consumers buying goods such as food, electronics, and so on. Black merchants conduct cash transactions and avoid customs duties, allowing them to offer lower prices than regular merchants.
• Tax Heaven Countries: Strict financial secrecy laws by tax heaven countries incentivize the creation of anonymous accounts in these countries by launderers.

Way forward

• Measures are needed to address the risk of cryptocurrency in money laundering.
• Tax heavens need to build a balance between financial confidentiality and this confidentiality turning to a money-laundering haven.
• Sensitize the masses about the ill effects of laundering.
• Prior to the launch of new products, business practices, or the use of new or developing technologies, financial institutions should conduct a risk assessment.
• Implement FATF Recommendations which sets out a comprehensive and consistent framework. Some of them are:
• Identify the risks; develop policies and domestic coordination to mitigate money laundering and terrorist financing risks.
• Money laundering should be criminalized in accordance with the Vienna Convention and the Palermo Convention, which ensure that financial institution secrecy laws do not impede the implementation of the FATF Recommendations.
• Apply the crime of money laundering to all serious offenses, with a view to including the widest range of predicate offenses.
• Implement targeted financial sanctions regimes to comply with UN Security Council resolutions on the prevention, suppression, and financing of terrorism.
• Examine the sufficiency of laws and regulations governing non-profit organizations, which the country has identified as vulnerable to terrorist financing abuse.
• Apply preventive measures for the financial sector and other designated sectors.
• Financial institutions should be required to keep all necessary records on domestic and international transactions for at least five years in order to respond quickly to information requests from competent authorities.
• Establish authorities’ powers and responsibilities (e.g., investigative, law enforcement, and supervisory authorities), as well as other institutional measures.
• Countries should have anti-money laundering policies and should designate an authority that is responsible for such policies.
• Provide mutual legal assistance in the case of money laundering and effectively carry out extradition requests in the case of money laundering and terrorist financing.

The threat posed by this scheme necessitates advanced laws to prevent it from occurring, such as the use of AI and large intelligence databases at the government level.

This is not a threat that is limited to national borders but affects the entire world, so both national and international stakeholders must work together to tackle it.

Article Written by: Remya

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Money Laundering in India: Legal Provisions, Issues and Challenges

11 Pages Posted: 21 Mar 2013

Varun Natarajan

National Law University Jodhpur (NLUJ)

National Law University, Jodhpur

NALSAR University of Law, Hyderabad

Monica Virdi

Date Written: March 19, 2013

This paper discusses the Money Laundering provisions in India. The legal framework is examined and the issues pertaining to the same are discussed. suggestions to strengthen the law are also provided for by the authors in this paper.

Suggested Citation: Suggested Citation

Varun Natarajan (Contact Author)

National law university jodhpur (nluj) ( email ).

NH-65, Nagaur Road, Mandore Jodhpur, 342001 India

National Law University, Jodhpur ( email )

NH-65, Nagaur Road, Mandore Jodhpur, 342001 India 9950484833 (Phone)

NALSAR University of Law, Hyderabad ( email )

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Prevention of Money Laundering Act

• 29 Jul 2022
• 10 min read
• GS Paper - 2
• Government Policies & Interventions
• Statutory Bodies
• GS Paper - 3
• Money Laundering

This editorial is based on “Narrow view: On the Supreme Court’s PMLA verdict” which was published in The Hindu on 29/07/2022. It discusses about the apprehensions on the amendments made recently to the Prevention of Money Laundering Act (PMLA), 2002.

For Prelims: Money Laundering, Prevention of Money Laundering Act, Enforcement Directorate, United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988, Enforcement Case Information Report

For Mains: Amendments in Prevention of Money Laundering Act and associated concerns, Supreme Court’s stand on the amendments in PMLA

Money Laundering is a heinous crime which not only affects the social and economic fabric of the country but also tends to promote other serious offences like terrorism and drug trafficking which India has been witnessing a lot lately. It's a growing problem that needs to be addressed.

The Prevention Of Money Laundering Act (PMLA) formulated in the year 2002 has undergone various critical changes from time to time in order to give itself more strength to deal with the offence of money laundering.

Several petitions have been filed across the country that question the almost blanket powers assigned to the Enforcement Directorate under PMLA for searching, seizing, investigating, and attaching assets considered to be proceeds of crimes.

What is the Prevention of Money Laundering Act (PMLA), 2002?

• It is a criminal offence in India and charges in this instance refer to statutory provisions of the Prevention of Money Laundering Act, 2002.
• United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988
• Basle Statement of Principles, 1989
• Forty Recommendations of the Financial Action Task Force on Money Laundering, 1990
• Political Declaration and Global Program of Action adopted by the United Nations General Assembly in 1990
• The PMLA is applicable to all persons which include individuals, companies, firms, partnership firms, associations of persons or incorporations and any agency, office or branch owned or controlled by any of the above-mentioned persons.

What are the Recent Amendments in PMLA?

• Clarification about the Position of Proceeds of Crime: Proceeds of the Crime not only includes the property derived from scheduled offence but would also include any other property derived or obtained indulging into any criminal activity relate-able or similar to the scheduled offence.
• The amendment seeks to treat money laundering as a stand-alone crime.
• Concealment
• Acquisition
• Use or projecting as untainted property
• Claiming as untainted property
• Continuing Nature of Offence: This amendment further mentioned that the person will be considered to be involved in the offence of money laundering till the time that person is getting the fruits of activities related to money laundering as this offence is of a continuing nature.

What are the Concerns Raised About the Amendments in PMLA?

• Possible Misuse of Powers: There is a strong possibility that PMLA can be invoked against a political rival or a dissenter, because the “process is itself the punishment”.
• Throughout the procedure, the accused does not even know facts of the allegation against him , as the only document which contains the allegation is the ECIR, which is not supplied to the accused persons.
• In General Criminal Law, every accused is innocent until proven guilty.
• However, in PMLA, this burden has been shifted to the accused persons; they will have to prove their innocence.
• Compelling the accused to be a witness against themselves is violative of the right against self-incrimination.
• According to the data quoted by the government in Parliament of India, there were zero convictions between 2005 and 2013-14 . By 2014-15 to 2021-22, out of 888 cases under ED, only 23 cases were under conviction.

What is the Enforcement Directorate?

• Directorate of Enforcement is a specialized financial investigation agency under the Department of Revenue, Ministry of Finance.
• In 1956, an ‘Enforcement Unit’ was formed, in the Department of Economic Affairs, for handling Exchange Control Laws violations under,
• In 1957, this Unit was renamed as ‘Enforcement Directorate’.
• Foreign Exchange Management Act,1999 (FEMA)
• Prevention of Money Laundering Act, 2002 (PMLA)

What is the Current Stand of the Supreme Court Regarding the Amendments in PMLA?

• Recently, a three-judges-bench of the Supreme Court has upheld the constitutional validity of the provisions of the PMLA, calling it a “unique and special legislation” underlining the powers of the ED to hold inquiries, arrest people and attach property.
• Including the mechanism regarding prevention, investigation or trial in connection with the scheduled offence.
• ECIR is an internal document of the ED. Supply of ECIR to the accused is not mandatory and only disclosure of reasons during arrest is enough but can merely be informed about the grounds for arrest.

What Should be the Way Forward?

• But there must be a consensus between the adjudicating authority and the officers of ED to abide by the constitutionality of provision under PMLA, making the investigation more lucid.
• The Process Itself Should not Become Punishment: The ED's expanded powers should be welcomed with a greater commitment to expeditiously resolve the cases , so both the judiciary and enforcement agencies can move forward with speedy trials and convictions.
• And if there will be any lacunas in the operative part, change is the law of nature , these gaps can be filled either through suitable legislation, executive action or revised order of the apex court.

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A study on money laundering in India

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 "clean" money to the launderer in an obscure and indirect way. Money Laundering is a criminal act of misrepresenting illegally obtained money, such as from drug trafficking or terrorism, being obtained from legitimate resources. It is one of the illicit activities through which criminals disguise their original ownership of undeclared money by making proceeds appear to have been derived from lawful sources. The main objective of my research is To know the impacts of money laundering in India, To know the prevention and controlling methods of money laundering ,To analyse the money laundering. The researcher has done empirical study on money laundering in India. The primary information for the research is collected through online surveys from randomly selected respondents which included general public of different age groups with a well framed and structured survey questionnaire. The collected responses are portrayed in crosstab table and chi square tests table. The calculation done by the researcher based on the responses received is the pearson chi square technique was used. Money laundering economic development. International financial community should strongly support anti laundering efforts and cooperate to share information and regulatory and enforcement action. Developing countries should impose anti laundering Laws to improve the credibility of not only its financial sector, but its governance as well.

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Please note you do not have access to teaching notes, a review of money laundering literature: the state of research in key areas.

Pacific Accounting Review

ISSN : 0114-0582

Article publication date: 18 March 2020

Issue publication date: 2 April 2020

The purpose of this study is to review the literature on money laundering and its related areas. The main objective is to identify any gaps in the literature and direct attention towards addressing them.

Design/methodology/approach

A systematic review of the money laundering literature was conducted with an emphasis on the Pro-Quest, Scopus and Science-Direct databases. Broad research themes were identified after investigating the literature. The theme about the detection of money laundering was then further investigated. The major approaches of such detection are identified, as well as research gaps that could be addressed in future studies.

The literature on money laundering can be classified into the following six broad areas: anti-money laundering framework and its effectiveness, the effect of money laundering on other fields and the economy, the role of actors and their relative importance, the magnitude of money laundering, new opportunities available for money laundering and detection of money laundering. Most studies about the detection of money laundering have focused on the use of innovative technologies, banking transactions or real estate- and trade-based money laundering. However, the literature on the detection of shell companies being explicitly used to launder funds is relatively scarce.

Originality/value

This paper provides insights into an area related to money laundering where research is relatively scant. Shell companies incorporated in the UK alone were identified to be associated with laundering £80bn of stolen money between 2010 and 2014. The use of these entities to launder billions of dollars as witnessed through the laundromat schemes and several data leaks clearly indicate the need to focus on illicit financial flows through such entities.

• Money laundering
• Shell companies
• Illicit activities

Tiwari, M. , Gepp, A. and Kumar, K. (2020), "A review of money laundering literature: the state of research in key areas", Pacific Accounting Review , Vol. 32 No. 2, pp. 271-303. https://doi.org/10.1108/PAR-06-2019-0065

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Essay on Money Laundering | Crime | India

Here is an essay on ‘Money Laundering’ for class 11 and 12. Find paragraphs, long and short essays on ‘Money Laundering’ especially written for school and college students.

Essay on Money Laundering

Essay Contents:

• Essay on the Prevention of Money Laundering Act (PMLA)

Essay # 1. Introduction to Money Laundering:

The process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, is from a legitimate source is called money laundering. The process of making ‘dirty money’ look like ‘clean money’ is referred to as money laundering.

Money laundering is a crucial step in the success of drug trafficking and terrorist activities. The connection between money laundering and terrorism may be a bit more complex, but it plays a crucial role in the sustainability of terrorist organisations. Most people who financially support terrorist organi­sations do not simply write a personal cheque and hand it over to a member of the terrorist group. They send the money in roundabout ways that allow them to fund terrorism while maintaining anonymity.

On the other end, terrorists do not use credit cards and cheques to purchase the weapons, plane tickets and civilian assistance; they need to carry out, 3 plot. They launder the money so that authorities cannot trace it back to them and foil their planned attack. Interrupting the laundering process can cut off funding and resources to ter­rorist groups.

Essay # 2. Money Laundering Process:

The basic money laundering process has three steps:

i. Placement:

At this stage, the launderer inserts the dirty money into a legitimate financial institution. This is often in the form of cash bank deposits. This is the riskiest stage of the laundering process because large amounts of cash are pretty conspicuous, and banks are required to report high-value transactions.

ii. Layering:

Layering involves sending the money through various financial transactions to change its form and make it difficult to follow. Layering may consist of several bank-to-bank transfers, wire transfers between different accounts in different names in different countries, making deposits and withdrawals to continually vary the amount of money in the accounts, changing the money’s currency, and purchasing high-value items (boats, houses, cars and diamonds) to change the form of the money. This is the most complex step in any laundering scheme, and it’s all about making the original dirty money as hard to trace as possible.

iii. Integration:

At the integration stage, the money re-enters the mainstream economy in a legitimate-looking form—it appears to come from a legal transaction. This may involve a final bank transfer into the account of a local business in which the launderer is ‘investing’ in exchange for a cut of the profits. At this point, the criminal can use the money without getting caught. It’s very difficult to catch a launderer during the integration stage if there is no documentation during the previous stages.

Essay # 3. Effects of Money Laundering:

Criminals launder anywhere between $500 billion and $1 trillion worldwide every year. The global effect is staggering in social, economic and security terms.

i. Social Effects:

On the socio-cultural end of the spectrum, successfully laundering money means that criminal activity actually does pay off. This success encourages criminals to continue their illicit schemes because they get to spend the profit with no repercussions.

This means more fraud, more corporate embezzling (which means more workers losing their pensions when the corporation collapses), more drugs on the streets, more drug-related crime, law-enforcement resources stretched beyond their means and a general loss of morale on the part of legitimate business people who do not break the law and do not make nearly the profits that the criminals do.

ii. Economic Effects:

The economic effects are on a broader scale. Developing countries often bear the brunt of modern money laundering because the governments are still in the process of establishing regulations for their newly privatized financial sectors. This makes them prime target. Other major issues facing the world’s economies include errors in economic policy resulting from artificially inflated financial sectors.

Massive influx of dirty cash into particular areas of the economy that are desirable to money launderers create false demand, and officials act on this new demand by adjusting economic policy. When the laundering processes reaches a certain point or if law-enforcement officials start to show interest, all that money suddenly disappears without any predictable economic cause and that financial sector falls apart.

Some problems on a more local scale relate to taxation and small-business competition. Laundered money is usually untaxed, meaning the rest of us ultimately have to make up the loss in tax revenue. Also, legitimate small businesses cannot compete with money laundering front businesses that can afford to sell a product far cheaper because their primary purpose is to get clean money, not earn profit. They have so much cash coming in that they might even sell a product or service below cost.

Essay # 4. Trade-Based Money Laundering (TBML):

Financial Action Task Force (FATF) defines Trade Based Money Laundering (TBML) as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins. In simpler terms, TBML is the process of transferring/moving money through trade transactions. In practice, this can be achieved through the misrepresentation of the price, quantity or quality of imports or export.

The basic techniques of trade-based money laundering include:

i. Over-invoicing and ‘Under-invoicing’ of goods and services – Money laundering through the over-invoicing and under-invoicing of goods and services, which is one of the oldest methods of fraudulently transferring value across borders, remains a common practice today. The key element of this technique is the misrepresentation of the price of the good or service in order to transfer additional value between the importer and the exporter.

Over-invoicing of exports is one of the most common trade-based money laundering techniques used to move money. This reflects the fact that the primary focus of most customs agencies is to stop the import of contraband and ensure that appropriate import duties are collected.

ii. Multiple-invoicing of goods and services – Another technique used to launder funds involves issuing more than one invoice for the same trade transaction. By invoicing the same good or service more than once, a money launderer or terrorist financier is able to justify multiple payments for the same shipment of goods or delivery of services. Unlike over-invoicing and under-invoicing, it should be noted that there is no need for the exporter or importer to misrepresent the price of the good or service on the commercial invoice.

iii. Over-shipment and under-shipment of goods and services – In addition to manipulating export and import prices, a money launderer can overstate or understate the quantity of goods being shipped or services being pro­vided. In the extreme case, an exporter may not ship any goods at all, but simply collude with an importer to ensure that all shipping and cus­toms documents associated with this so called ‘phantom shipment’ are routinely processed. Banks and other financial institutions may unknow­ingly be involved in the provision of trade financing for these phantom shipments.

iv. Falsely described goods and services – In addition to manipulating export and import prices, a money launderer can misrepresent the quality or type of a good or service. For example, an exporter may ship a relatively inexpensive good and falsely invoice it as a more expensive item or an entirely different item. This creates a discrepancy between what appears on the shipping and customs documents and what is actually shipped.

The use of false descriptions can also be used in the trade in services, such as financial advice, consulting services and market research. Generally, cases of over-invoicing or under-invoicing primarily designed to gain a tax advantage are considered customs fraud as also other manifestations as above.

Essay # 5. Prevention of Money Laundering Act (PMLA):

PMLA is a criminal law which came into force on July 1, 2005. Under the Act, money laundering linked to the predicate scheduled offences is liable for punishment. There are 156 offences in 28 different statutes which are scheduled offences under PMLA. Once the agency concerned with a predicate scheduled offence registers a case, Enforcement Directorate takes up investigations under PMLA to ascertain the proceeds of crime generated from the predicate offence booked by the Law Enforcement Agency.

In case a prima-facie case of generation of proceeds of crime and laundering is made out, PMLA provides for seizure and attachment of laundered properties. The action of seizure and attachment is required to be adjudged by the Adjudicating Authority under PMLA.

The persons, both natural and legal entities, who are accused of the offence of money laundering linked to the scheduled offence, can be prosecuted in Special Courts. PMLA provides for rigorous imprisonment of minimum three years which can extend up to seven years and a fine of up to Rs. 5 lakh on conviction by the Court of persons who have been accused of the offence of money laundering.

The conviction can extend up to 10 years if the offence of money laundering is linked to narcotic trafficking. The property attached under PMLA can be confiscated by the Adjudicating Authority after the conviction by the Court of the accused in the trial for scheduled offence.

In terms of PMLA, the tainted proceeds, if found parked overseas, can also be restituted through mutual legal assistance after the collection of such evidence through the process of Letter of Requests with the foreign administration. PMLA also sets out the procedure for reciprocal arrangements with contracting states for seizure, attachment and confiscation of assets found lying overseas.

India has signed Mutual Legal Assistance Treaty (MLAT) with 26 countries and by virtue of the provisions of PMLA, Government of India is fully armed with legal measures to get the tainted assets repatriated back to the country on conviction of persons accused of money laundering. Till the conviction, the assets traced overseas can be requested to be seized or frozen by foreign jurisdictions.

Section 12 of PMLA requires financial sector entities (banking compa­nies, financial institutions and intermediaries) to verify the identity of their clients, maintain records and report suspicious/cash transactions (STR/CTR) to FIU-IND. Director, FIU-IND is empowered to conduct inquiry and impose sanctions against financial sector entities for non-compliance with Section 12.

Financial Intelligence Unit India (FIU-IND) conducts analysis of information received under PMLA and, in appropriate cases, disseminates information to relevant intelligence/enforcement agencies, which include Central Board of Di­rect Taxes, Central Board of Excise and Customs, Enforcement Directorate, Narcotics Control Bureau, Central Bureau of Investigation, intelligence agen­cies and regulators of financial sector.

It may be seen that under both the acts, i.e. FEMA and PMLA, investigation is initiated against specific persons, both natural and legal, and such action is initiated on the basis of specific information.

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• Finance ministry imposes Rs 18.82 crore penalty on the world's largest cryptocurrency exchange Binance

Finance ministry imposes Rs 18.82 crore penalty on the world's largest cryptocurrency exchange Binance

Why FIU imposed penalty on Binance?

Binance fined by canadian government.

Track your Portfolio

Binance fined $2.25 million by india’s fiu for anti-money laundering regulations, author: mustafa mulla mustafa mulla.

Mustafa has been writing about Blockchain and crypto since many years. He has previous trading experience and has been working in the Fintech industry since 2017.

The world’s leading blockchain and cryptocurrency platform Binance has been fined Rs 18.82 crore ($2.25 million) by India’s Financial Intelligence Unit (FIU) for failing to comply with anti-money laundering regulations. This fine is necessary for Binance to restart its operations in India.

The penalty follows Binance’s registration with the FIU in May, which was required after the exchange received a show-cause notice in December 2023. 

This notice was issued to Binance and eight other offshore exchanges, including KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex, for violating local regulations.

The Fine and Regulatory Violations 

The Director of FIU-India found that Binance was operating in India without meeting proper regulations under the Prevention of Money Laundering Act (PMLA). After an in-depth review of Binance’s submissions, it was found that Binance had failed to comply with local anti-money laundering regulations. 

Therefore, the exchange has been fined Rs 18.82 crore ($2.25 million) to restart its operations in the country.

To prevent further violations, Binance has been issued specific directions to ensure diligent compliance with the obligations outlined in Chapter IV of the PMLA of 2002, and the PMLA Maintenance of Record Rules of 2005. These rules are crucial for preventing money laundering activities and combating the financing of terrorism.

India’s Regulatory Efforts

This fine is part of a larger initiative to align international exchanges with local regulations. Earlier Indian government also ordered the blocking of these exchanges’ URLs in India in January, and their apps were delisted from Google and Apple app stores.

Recently, Binance and KuCoin were recognized as the first offshore crypto entities registered with FIU, marking a significant step in ensuring strict AML compliance required by Indian authorities.

Binance’s Global Regulatory Issues

Binance is also facing regulatory challenges globally, as the former CEO of Binance Changpeng Zhao, was sentenced to four months in prison for violating US anti-money laundering laws earlier this year. 

Additionally, Binance is appealing against a $4.4 million fine in Canada for failing to register as a foreign money services business and not reporting large virtual currency transactions. This appeal follows a $4.3 billion settlement in the United States over similar violations, leading to Binance’s exit from the Canadian market last year.

Also Read: Nigerian Court Dismisses Human Rights Lawsuit by Binance Executive Nadeem Anjarwalla

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India’s anti-money laundering unit fines Binance $2.2 million

In a statement on thursday, the unit said it “found that the charges against binance were substantiated” after a probe that included written and oral submissions from crypto exchange..

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Supreme Court adjourns hearing of AAP MLA's bail plea in money laundering case

A bench of justices vikram nath and svn bhatti recorded that a request for adjournment was made on behalf of the amargarh mla, and posted the matter for hearing on july 1..

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• Supreme Court posts matter for hearing on July 1
• Request for adjournment was made on behalf of the petitioner
• Aramgarh MLA was arrested in money laundering case

The Supreme Court on Tuesday adjourned the hearing of Aam Aadmi Party MLA Jaswant Singh Gajjan Majra's bail plea, who was arrested by the Enforcement Directorate (ED) in a money laundering case.

The Amargarh MLA was arrested in a money laundering case linked to an alleged bank fraud case in November.

A bench of Justices Vikram Nath and SVN Bhatti recorded that a request for adjournment was made on behalf of the petitioner, and posted the matter for hearing on July 1.

However, when Advocate Kanu Agarwal, appearing for the ED, requested a date after the vacations, citing the absence of the Solicitor General, the court remarked that the case involved a person’s personal liberty.

"Personal liberty is involved. He’s in jail. The Additional Solicitor General can argue, he is a competent counsel... Why is SG required in every matter?" Justice Vikram Nath said.

Agarwal, however, pointed out that the request for adjournment on Tuesday, was made on behalf of the petitioner.

The case was adjourned during the previous hearing on June 10, since the pleadings in the matter were not complete and a rejoinder by the petitioner was yet to be filed.

The Supreme Court had earlier also refused to grant interim relief to Singh in the form of interim bail to campaign for the Lok Sabha elections. Published By: Ashutosh Acharya Published On: Jun 18, 2024 ALSO READ | ED can't object if Arvind Kejriwal seeks relief in Tihar Jail: Delhi court

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Fresh Arrests in Rajasthan's Jal Jeevan Mission Money Laundering Case

The enforcement directorate (ed) has arrested mahesh mittal in its investigation into money laundering linked to alleged irregularities in rajasthan's jal jeevan mission. the ed's probe has previously led to arrests and searches of various officials and premises, resulting in assets worth rs 11.03 crore being attached..

The Enforcement Directorate (ED) has made a significant breakthrough by arresting Mahesh Mittal, the proprietor of Shree Ganpati Tubewell Company, in connection with a money laundering case tied to the Jal Jeevan Mission in Rajasthan.

The ED detained Mittal on Wednesday, and he was subsequently remanded to ED custody until June 24 by court order. This comes after earlier arrests, including that of Padamchand Jain, proprietor of Shree Shyam Tubewell Company.

The Jal Jeevan Mission, launched by the Union government, is aimed at providing safe drinking water through household tap connections and is implemented in Rajasthan by the state's Public Health Engineering (PHE) department. An investigation revealed that multiple suspects, including public servants, were involved in bribery, tender irregularities, and fraudulent activities.

Piyush Jain was the first individual to be apprehended in this case in February. The ED's findings indicate that the suspects not only engaged in bribery but also purchased stolen goods for their contracts and submitted fake work completion letters to secure contracts from the PHED.

The money laundering case originates from an FIR filed by the Anti-Corruption Bureau (ACB), implicating Padamchand Jain, Mahesh Mittal, Piyush Jain, and others.

In its ongoing probe, the ED has searched various premises in Jaipur and Dausa, including those of senior PHE department officials, former Rajasthan minister Mahesh Joshi, and IAS officer Subodh Agarwal. Assets worth Rs 11.03 crore have been seized to date.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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Home » Security Issues » Money Laundering

Money Laundering

Money laundering is the process of creating the appearance that large amounts of money obtained from criminal activity, such as drug trafficking or terrorist activity, originated from a legitimate source . The money from the illicit activity is considered dirty, and the process “launders” the money to make it look clean.

In simple words, it can be defined as the act of making money that comes from one source to look like it comes from another source.

The term “money laundering” originated from the Mafia group in the United States of America. Mafia groups have made huge amounts of extortion, gambling, etc. and this money is shown as legal money. In India, “money laundering” is popularly known as  Hawala transactions .

• Measures taken National level to tackle Money Laundering
• Measures taken International level to tackle Money Laundering

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