Author Name:   Soumik Saha

Crime is a necessary evil, it should be nipped in the bud. Any act which is condemned and punishable by the law of the state is a crime. It is difficult to universally define what a crime is, because the notion of the word varies from place to place, acts which may attract imprisonment and penalty in one country may not have the same consequence in other part of the globe.

Money Laundering: An Insight

Crime is a necessary evil, it should be nipped in the bud. Any act which is condemned and punishable by the law of the state is a crime. It is difficult to universally define what a crime is, because the notion of the word varies from place to place, acts which may attract imprisonment and penalty in one country may not have the same consequence in other part of the globe. Yet there are certain types of acts which in the modern day can be termed as criminal activities, the definitions of which have been accepted by the international community and it does have a global presence irrespective of the place of occurrence, its nature and scope. The terminology used to refer to such types of criminal activities is ‘White Collar Crimes’. The traditional concept of crime has undergone a massive change in terms of its nature, characteristics, types .In the ancient era acts which would hurt a human being physically such as murder, physical assault etc would be termed as a criminal act but with the technological advancement the parameters of judging a criminal activities have widened in its scope, this is not only confined within the boundaries of traditional crimes such as murder, theft, robbery, physical assault etc. There lie many differences between traditional and white collar crimes, the main reason behind a white collar crime is only corruption, this is the root cause of all the necessary wickedness whereas vengeance, lust, enmity could be the reason for the commission of a traditional crime. A traditional crime can be perpetrated by any stratum of the society, the categorization is very hard to make in case of a traditional crime whereas the white collar crime is solely limited to the upper and middle class people.

In the light of this argument let us discuss how does money laundering which is an important ingredient of white collar crime take place in society as a whole. Say for example, a person illegally gains some amount of money through various sources such as smuggling of drugs, immoral trafficking et all, what does he do with that bulk of money? Does he simply stash that money in his house or does he go to banking institutions and declare the proceeds of crime he has obtained. If he eventually follows the second option, he is bound to get caught by the investigating authorities because the banking institution in every country follows a certain threshold limit of depositing money in the concerned financial institutions and if that threshold limit exceeds the given amount the suspicion grows amongst these officers who are recruited for doing this job of keeping a close watch over these people. So, the second option can be struck out and is pretty clear that the person would not dare going to the bank and declaring his assets or money he is obtained through such means. So keeping the first option as a viable medium of laundering of money, again the fear of income tax officials raiding the house of that person and finding out the true source would be a cakewalk for these experienced professionals. So what are the options available for this person who has huge amount of illegal proceeds? Let us further look into what exactly is money laundering.

Laundering of money in its simplest term means hiding the origin of money obtained through illegal means such as gambling, corruption, drug trafficking etc. To quote Jeffrey Robinson from ‘The laundrymen’ “ after foreign exchange and the oil industry, the laundering of money is the world’s third largest business”. The origin of such a menace can be traced back to the 13th century when waterways were used to transfer money through international trade routes. With passage of time and advent of technology money laundering has started to evolve as a prospective industry in the society. Crimes go unnoticed if the process of money laundering can be successfully accomplished. Alphonse”Al” capone the noted mob gangster earned an estimated $100,000,000 of illegally gained proceeds annually which he laundered through a series of business transaction. The Prevention of Money Laundering act (PMLA) 2002, defines the offence of money laundering as “ engaging directly or indirectly in a transaction that involves property, that is proceeds of crime(or) derived from proceeds of crime( or) knowingly receiving, possessing, concealing, disguising, transpiring, converting, disposing off within the territories of India, removing from or bringing into the territory of India the property that is proceeds of crime”.

How does this process of money laundering work?

Before talking about the process to successfully launder money in details, let us understand the concept of dirty or tainted money. The money obtained in an illegal manner or through dishonest means may be termed as dirty or tainted money. It does not have a legitimate source of origin, for eg, money obtained through drug trafficking or smuggling may fall under the category of dirty or tainted money.

The process of laundering dirty money can be done in the following ways, they are as follows:-
a) Placement- This is the first stage of introducing criminal proceeds into the economy. The dirty money is deposited into a legitimate financial instituton. This involves a lot of risks because the attention of the authorities can be attracted since a large amount of dirty money is transacted. The launderer breaks up a large amount of transaction into smaller ones which are generally below the reporting threshold. Say for eg, a criminal organization has obtained a huge sum of Rs 30 lakhs after having successfully committed a crime for which it was appointed. Now this entire amount needs to be laundered in order to escape the origin of such a huge sum of money. The criminal organization knows for a fact that if the entire amount is deposited on a single day at the same branch without having broken up the transactions into smaller ones, it would attract surveillance from the banking authorities, which in the process could expose the origin of that sum of money. Hence the organization breaks up the amount into smaller ones and deposits the money keeping in view the reporting threshold amount prescribed by the banking regulatory authority.

b) Layering:- The next step is the process of layering in which the money deposited is involved in a series of transactions to change the structure of its origin and put it away from its true source. This may involve deposits in other accounts, wire transfers or purchasing swanky cars, houses or jewellery etc. The strategy is to make the transaction look so complex in nature that it gets difficult for the authority to track down the origin. Now continuing from the above example, if the criminal organization having broken up the amount into smaller, unnoticeable denominations deposits the amount in different branches, makes offshore deposits, engages itself into wire transfers thereby making the entire transaction look extremely difficult to understand its true nature and scope then the process of laundering of money has been accomplished.

c) Integration:- This is the final stage of money laundering. The money re-enters the economy thereby hiding the true origin of the dirty money and it appears to come from a legal transaction. The legitimacy cannot be questioned as the money becomes clean and pure. Investing a certain amount of money in a legitimate business completely removes the tag of dirty money thereby camouflaging its actual identity.

Now, an important question which arises at this point is how should money laundering be combated, because if this goes on forever then nabbing a criminal is going to be tough for the concerned authority .The regulatory authority along with the financial institutions in a country are trying their level best to fight such a crime with the incorporation of rules and mechanism. Monitoring of suspicious transaction activities, the up gradation of know your customer data base, other reporting activities such as cash transaction reporting, counterfeit currency reporting, customer due diligence, customer identification procedure etc are being continuously carried out by the respective financial institutions to enhance the reporting obligations prescribed by the country. But in spite of such an advancement another collateral question which comes is that, could combating money laundering be such an easy task? The answer is a plain NO, because if we compare money laundering to an ocean and catching whales to the criminals involved in money laundering, then the scenario is slightly depressing because finding a whale in an ocean in itself a very difficult task, leave behind catching them. So practically speaking, money laundering can never be stopped and terminated from the society, it can be reduced to a certain extent because this system is a chain of complicated processes which might have started working since a long time but yes as they say, every cloud has a silver lining. There are rays of hope too, each country’s govt is working hard to fight money laundering in collaboration with the banking institutions. The international community is more aware these days of the effect of money laundering and is trying hard to fight it as never before, which is a positive approach.

The author can be reached at: soumiksaha@legalserviceindia.com

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