Money Laundering Prevention: Combating Financial Crime and Networking with International Organizations

14th October, 2024 - 7:26 am Categories: News & Updates 0 Comments

Introduction

Money laundering is the term applied to the act of transferring cash obtained through illegal activities, such as gambling, drug trafficking, corruption, or embezzlement, into a legitimate source and making it look legal for that cash. It is illegal under different terminologies in many countries. According to the US legislation, money laundering refers to the conducting of a financial transaction that can misrepresent the identity, source, or location of money derived from an unlawful activity. Under UK law, the concept of common law is broader. The meanings, of the offence extend to doing anything in relation to property of any description that is either wholly or partly the proceeds of a crime in such a way as to obscure the fact that the property is the proceeds of the crime or obscure the ownership of such property.

Previously, only the financial acts associated with organized crimes were termed as “money laundering.” As per INTERPOL’s 1995 general secretary assembly, concealing or trying to conceal unlawfully acquired funds and portraying them as legitimate sources of fund is an offense. The transfers of funds from one place to another are termed as hawala transactions, which are not regulated by RBI. In India the Prevention of Money Laundering Act of 2002 seeks to prevent and combat money laundering by confiscating money gained through such actions and penalizing those implicated. Money laundering is defined under the act as any method related to the proceeds of crime, including concealment, possession, and acquisition, and those that seek to perpetrate such crimes are punished.[1]

Critical Analysis

Money laundering arises as a complicated process that is carefully braided through three separate phases: placement, layering, and integration.

1. Placement – This is the placement stage, which ushers in the money laundering process and is known as the stages of money laundering. It is that stage at which dirty money is introduced into the financial system. This is the most vulnerable stage out of all the stages since the criminals have to look for ways through which they can withdraw or deposit large amounts of cash without being noticed.
2. Layering – The second stage, entails concealing the source of illicit funds through a series of elaborate transactions, which frequently include money transfers and complex financial machinations. Such complicated actions provide a tangled trail that makes it difficult for authorities to determine the money’s tainted sources.
3. Integration- The integration phase is the last ground in the money laundering process where the money is reinjected back into the fiscal structure as legal tender primarily in estates, luxurious commodities and business. In this case, for instance, money will seem to have been obtained legally; therefore, chances of separating Illegal money from the legal money will be difficult to achieve.[2]

Different international conventions and standards have developed in the arena to combat this chronic problem of money laundering. The United Nations Vienna Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances enacted in the year 1988 and amended and brought into effect from 1990 tries to prevent the laundering of money derived from drugs. On the contrary, the 1990 Convention of the Council of Europe on Laundering, Search, Seizure, and Confiscation of Proceeds from Crime encourages principles and rules of international cooperation in the fight against laundering of money.[3]

The establishment of the Financial Action Task Force (FATF) in 1989 laid much more solid groundwork for international cooperation in the fight against money laundering. The role of the FATF is to establish generic policy guidelines of measures in countering money laundering and financing of terrorism domestically and globally. To this end, India became a member of the FATF in June 2010 and reiterated its commitment to the global anti-money-laundering campaign.[4]

In the Indian perspective more, the application of the Prevention of Money Laundering Act (PMLA) 2002 is an effective weapon in combating money laundering. This law was enacted in 2002, and ever since it has been amended three times. The main aims of the PMLA 2002 are to curb money laundering and its associated practices, to seize proceeds that has resulted from the business of laundering money and to support actions for law in relation to money laundering.[5]

The key to the implementation of the PMLA 2002 is the Adjudicating Authority (AA), a body created by the Central Government according to Section 6(1) of the PMLA Act. [6]The historic case of  Pareena Swarup vs. Union of India  clarifies the AA’s role and composition. This case arose because of a writ petition challenging the validity of several provisions of the PMLA 2002, particularly Section 6. The Supreme Court’s decision clarified that the AA is made up of specialists from various professional backgrounds who are tasked with adjudicating provisional attachments of money laundering-related assets.[7]

Conclusion 

Money laundering poses a serious threat to the financial system of all countries; it is a serious attack on state sovereignty and integrity. The struggle against money laundering has had to take urgent urgency at national and international levels because of the dimension it has currently attained in financing terrorist activities. It is very difficult to quantify the effect of money laundering on the economic growth from the negative perspective as the scale of money laundering is equally very difficult to determine. It should be highlighted that, despite many efforts and existing legislation, India is one of six nations being regularly watched by Interpol and international financial watchdogs after the discovery of substantial money-laundering due to weak internal compliance measures. Rapid technology has led to an upsurge in money laundering worldwide since monies may be transferred quickly and simply via hawala transactions. International crimes like drug trafficking, terrorism funding, gambling, and arm dwelling use the practice of money laundering to conceal the revenues of unlawful activities.

Recommendation

Legislation to prevent money laundering has been enacted in India. The PMLA of 2002 was revised in 2009, 2012, and most recently in 2019. These are in place to prevent and investigate money laundering, yet the legislation is still ineffective. One of the main problems that appeared within the framework of the AML system is the growth of the number of cases of money laundering. The following reforms could help the government to pursue money laundering and improve the Act’s results in suitable cases: The government should raise the bar on anti-corruption measures.

The enforcement directorate is failing to convict because of a manpower shortfall, and investigations are being delayed. As a result, authorities must choose personnel who can aid in the inquiry process. As a result, the investigative authorities must cooperate properly. Appointment of skilled individuals is required.[8]

Furthermore, severe laws for imposing fines, penalties, and lengthy imprisonment for “money laundering” must be established, resulting in the effectiveness of “anti-money laundering.”

1. Because money laundering is a worldwide issue, increasing international collaboration among governments is required to address it.
2. The latest 2019 PMLA amendment made several modifications to eliminate uncertainty in current law, however there are still some issues that need to be examined further.
3. Due to the limited number of financial sectors in India and the low number of convictions reported by the STR, as well as the absence of harsh fines imposed by banks, the government must enforce due diligence measures that are highly useful in locating the crime.
4. Transparency helps in the identification of money launderers, but certain nations are unwilling to disclose information, such as Swizz, which refuses to divulge customer information in money-related transactions.

Author: Apurva Ranjan, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

References

• Guide to Prevention of money Laundering Act, https://www.taxmann.com/post/blog/guide-to-prevention-of-money-laundering-act-pmla/
• International convention “the main international agreement addressing money laundering are united nations Vienna convention against illicit traffic in narcotic and psychotropic convention” available at https://people.exter.ac.ukroninternational conventions.
• Saurabh Malhotra, Prevention Of Money Laundering And Terrorism: An Indian Perspective, https://articles.manupatra.com/article-details/Prevention-Of-Money-Laundering-And-Terrorism-An-Indian-Perspective
• Martin Gill and Geoff Taylor, PREVENTING MONEY LAUNDERING OR OBSTRUCTING BUSINESS? Financial Companies’ Perspectives on ‘Know Your Customer’ Procedures, https://www.jstor.org/stable/23639265
• Tirupathi Keerthi, Combating Of Money Laundering In National And International Perspective,http://gnanaganga.inflibnet.ac.in/bitstream/123456789/311/1/keerthi%20Tirupathi.pdf

[1] The Prevention of Money Laundering Act (PMLA) 2002

[2] Guide to Prevention of money Laundering Act, https://www.taxmann.com/post/blog/guide-to-prevention-of-money-laundering-act-pmla/

[3] International convention “the main international agreement addressing money laundering are united nations Vienna convention against illicit traffic in narcotic and psychotropic convention” available at https://people.exter.ac.ukroninternational conventions

[4] https://fiuindia.gov.in about financial intelligence unit-india

[5] The Prevention of Money Laundering Act (PMLA) 2002

[6] Section 6(1), The Prevention of Money Laundering Act (PMLA) 2002

[7] Pareena Swarup vs. Union of India, (2008)14 SCC 107

[8] The Prevention of Money Laundering Act (PMLA) 2002