What is Money Laundering? - All You Need To Know

What is Money Laundering?

Money laundering is a term used to describe a scheme in which criminals try to disguise the identity, original ownership, and destination of money that they have obtained through criminal conduct.

The laundering is done with the intention of making it seem that the proceeds have come from a legitimate source.

A simpler definition of money laundering would be a series of financial transactions that are intended to transform ill-gotten gains into legitimate money or other assets

Money laundering is accomplished in many ways, though most include three common steps, including

1. Obtaining the money or introducing it into the financial system in some way
2. Transferring or concealing the source of the money through complex or multiple transactions
3. Returning the money back into the financial world so that it appears legitimate.

Large scale criminal groups may use complex money laundering techniques in order to avoid detection. However, smaller scale criminals or first time offenders often use simpler methods in their attempt avoid detection. Such money laundering techniques may include:

• Transferring money from bank to bank or from account to account
• Breaking up large amounts into smaller bank deposits
• Purchasing money orders in smaller money amounts
• Breaking the cash into small amounts 

There are many forms of money laundering though some are more common and profitable than others. Some of the more popular money laundering techniques include:

• Bulk cash smuggling involves literally smuggling cash into another country for deposit into offshore banks or other type of financial institutions that honor client secrecy.
• Structuring, also referred to as “smurfing,” is a method in which cash is broken down into smaller amount, which are then used to purchase money orders or other instruments to avoid detection or suspicion.
• Trade-based laundering is similar to embezzlement in that invoices are altered to show a higher or lower amount in order to disguise the movement of money.
• Cash-intensive business occurs when a business that legitimately deals with large amounts of cash uses its accounts to deposit money obtained from both everyday business proceeds and money obtained through illegal means. Businesses able to claim all of these proceeds as legitimate income include those that provide services rather than goods, such as strip clubs, car washes, parking buildings or lots, and other businesses with low variable costs.
• Shell companies and trusts are used to disguise the true owner or agent of a large amount of money.
• Bank capture refers to the use of a bank owned by money launderers or criminals, who then move funds through the bank without fear of investigation.
• Real estate laundering occurs when someone purchases real estate with money obtained illegally, then sells the property. This makes it seem as if the profits are legitimate.
• Casino laundering involves an individual going into a casino with illegally obtained money. The individual purchases chips with the cash, plays for a while, then cashes out the chips, and claims the money as gambling winnings

The Financial Action Task Force (“FATF”) was formed in 1989 by a coalition of countries. This intergovernmental agency was designed to develop and promote international cooperation for combating money laundering. As of 2015, the FATF is comprised of 34 different countries, but the agency is always seeking to expand its membership to more regions. Headquartered in Paris, France, the FATF also works to combat the financing of terrorism.The FATF has developed recommendations to combat money laundering, and the agency has three functions in regards to this criminal activity:

1. Monitoring the progress of member countries in their anti-money laundering measures
2. Reviewing trends and techniques in money laundering, reporting these, as well as new countermeasures, to member countries
3. Promoting FATF anti-money laundering measures and standards globally

 Prevention of Money Laundering Act(PMLA), 2002 is an Act of the Parliament of India enacted by the NDA government to prevent Money Laundering and to provide for confiscation of property derived from money-laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005.

The Act and Rules notified there under impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information in prescribed form to Financial Intelligence Unit - India  (FIU-IND).

The PMLA seeks to combat money laundering in India and has three main objectives:

• To prevent and control money laundering
• To confiscate and seize the property obtained from the laundered money; and
• To deal with any other issue connected with money laundering in India.^[