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Money
laundering is the processing of criminal proceeds to disguise
its illegal origin. Terrorism, illegal arms sales, financial
crimes, smuggling and the activities of organised crime,
including trafficking and prostitution rings, generates
huge sums.
Embezzlement,
insider trading, bribery and computer fraud also produce
large profits and create the incentive to legitimize the
ill-gotten gains through money laundering.
When
a criminal activity generates substantial profits, the individual
or group involved in such activity route the funds to safe
heavens by disguising the sources, changing the form, or
moving the funds to a place where they are less likely to
attract attention.
Money
laundering is inextricably linked to the underlying criminal
activity that generates it. In essence, the laundering enables
criminal activity to continue.
How
is money laundered?
The process of money laundering can be classified into 3
stages, viz.;
Placement,
Layering and
Integration.
In
the initial or placement stage of money laundering, the
launderer introduces his illegal profits into the financial
system, by breaking up large amounts of cash into less conspicuous
smaller sums that are then deposited directly is to a bank
account, or by purchasing a series of monetary instruments
that are later collected and deposited into accounts at
another location.
After
the funds are entered into the financial system, the layering
takes place.
In
this stage, 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 the
sale of investment instruments, or the launderer might simply
ware the funds through a series of accounts at various banks
across the globe.
After
successful processing of criminal profits through the first
two phases of the money laundering process, the launderer
moves them to integration. In this stage, the funds re-enter
the legitimate economy. The launderer might chose to invest
the funds into real estate, luxury assets, or business ventures.
Since
money laundering is an international phenomenon, trans-national
co-operation is of critical importance in the fight against
this menace.
A
number of initiatives have been taken to deal with the problem
at international level.
In
this context, the UN or the bank for international settlements,
took some initiatives in 1980's to address the problem of
money laundering. However, with the creation of the FATF
in 1989, regional grouping, such as the European Union,
Council of Europe, organisation of American states also
established anti-money laundering standards for their member
countries.
The
major international agreements addressing money laundering
include the United Nations convention against illicit trafficking
in drugs and psychotropic substances (the Vienna conventions)
and the council of Europe Convention on laundering, search
and seizure and confiscation of the proceeds of crime.
The
role of financial institutions in preventing and decking
money laundering has also been the subject of pronouncements
by the Basle Committee on Banking Regulation Supervisory
practices, the European Union and the International Organisation
of Securities Commissions.
Prevention
of Money Laundering - Indian initiatives:
In view of an urgent need for the enactment of a compromise
legislation for preventing money laundering and connected
activities, confiscation of proceeds of crime, setting up
of agencies and mechanism for co-ordinating measures for
combating money laundering etc., the prevention of Money-laundering
Bill 1998 was introduced in the Parliament on the 4th August,
1998.
The
bill was referred to the standing committee on finance,
which presented its report on the 4th March 1999 to Lok
Sabha. After incorporating the recommendations of the standing
committee, the government introduced the prevention of money
laundering bill 1999 in the parliament of October 29, 1999.
Correspondent
for OKC
to be continued...
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