MONEY LAUNDERING

• The word “ laundering” literally

means “ cleaning”

• Money laundering is the

process of illegally making a
large amount of money and
hiding it to make it look it was
generated from legitimate
sources.

• The money normally comes

from activities like drug and
sex trafficking, terrorist
activities, and other illicit
means
ILLUSTRATION
How Money Laundering Works Stages:
Placement

The physical disposal of bulk cash

proceeds derived from illegal
activity. This is the first step of the
money-laundering process and the
ultimate aim of this phase is to
remove the cash from the location
of acquisition so as to avoid
detection from the authorities
How Money Laundering Works Stages:
Layering

Movement of funds from institution t

hide their origin. It consists of
putting funds, which have entered
the financial system, through
series of financial operations to
mislead potential investigators an
to give the funds the appearance
of having legal origins. Again,
obscuring the source is the key.
Launderers may purchase
expensive items such as jeweler
or cars in order to change the
How Money Laundering Works Stages:

Integration

The reinsertion of the laundered

proceeds back into the economy
in such away that they re-enter
the financial system as normal
business funds. The funds
maybe reintroduced in the
economy through, for instance,
the purchase of luxury items or
through investment in assets
such as shares in a company or
real estate.
Money Laundering Techniques

Bulk Cash Smuggling

Involves literally smuggling

cash into another country for
deposit into offshore banks or
other type of financial
institutions that honour client
secrecy.
Money Laundering Techniques
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
Money Laundering Techniques
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.
Money Laundering Techniques

Trade-based Laundering

Is in which invoices are altered to show

a higher or lower amount in order to
mask the movement of money
Money Laundering Techniques

Shell Companies
and Trusts

Are used to disguise the true owner or

agent of a large amount of money.
Money Laundering Techniques

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
Money Laundering Techniques
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
winning
Causes of Money Laundering
Absence of Legislation
against Money Laundering

Absence of legislation against

money laundering give a free hand
to criminals. Sometimes
governments itself is involved they
do this to win political rivals, to
please their allies and to strengthen
their rule. Also CBR (Central Board
of Revenue) has never bothered to
unearth laundered money, rather
always joined hands with the
money launderers.
Causes of Money Laundering
Evasion of Tax

Tax evaders launder

money so that they can lie
about where money and
assets came from in order
to evade tax. And
sometimes they simply
operate outside that part of
the economy where
records are kept.
Causes of Money Laundering
Increase profits

Increase profits When

people have incentive for
more profit in any
particular area, such as in
production and trading of
drugs, arms, and across
the borders trade, they
start taking risk to earn
higher profits.
Causes of Money Laundering
Limited Risks

The availability of multiple

opportunities for personal
enrichment without the risk
of being exposed is
another cause of money
laundering. Such
economic environments
are much more conducive
to make black money
TO APPEAR BLACK MONEY LEGITIMATE
In money laundering, black
money usually becomes
legitimate after a series of
process. And less risk is
involved of being caught. This
doesn’t happen in other
economic crimes. So in order
to appear their money more
legitimate they go for money
laundering.
Causes of Money Laundering
Limited Risks

The availability of multiple

opportunities for personal
enrichment without the risk
of being exposed is
another cause of money
laundering. Such
economic environments
are much more conducive
to make black money
Effects of Money Laundering
Economy

Economic Distortion and

Instability: Money launders
"invest" their funds in activities
that are not necessarily
economically beneficial to the
country. They redirect funds
from sound investments to
low-quality investments that
hide their proceeds, economic
growth can suffer
Effects of Money Laundering
Society

Increase In Criminal Activities.

Money Laundering allows drug
traffickers, smugglers, and other
criminals to expand their
operations. This drives up the cost
of government due to the need for
increased law enforcement and
health care expenditures (for
example, for treatment of drug
addicts) to combat the serious
consequences that result.
Effects of Money Laundering
Concentration of
Power to Criminals
Among its other negative
socioeconomic effects, money
laundering transfers economic power
from the market, government, and
citizens to criminals. As the economic
power is in the hands of criminals so
they have a corrupting effect on all
elements of society. In extreme cases,
it can lead to the virtual
take-over of legitimate government.
Effects of Money Laundering
Business

If funds from criminal activity can be easily

processed through a particular business –
either because its employees or director
shave been bribed or because the institution
turns a blind eye to the criminal nature of
such funds – the institution could be drawn
into active complicity with criminals and
become part of the criminal network itself.
Evidence of such complicity will have a
damaging effect on the attitudes all
stakeholders of company i.e. shareholders,
suppliers, customers, employees etc.
Anti-Money Laundering Laws
• Anti-money laundering laws reflect an effort made
the government to stop money laundering methods
that involve financial institutions. Under the
guidelines set forth by anti-money laundering, or
“AML” financial institutions are required to verify
large sums of money passing through the
institution, and they are required to report
suspicious transactions. It is estimated that money
laundering is so prominent globally, that it is
impossible for the Financial Action Task Force to
produce estimates or figures as to its scope.
Prevention of money Laundering
act, 2002 (PMLA)
It is an act to prevent Money Laundering and
to provide for confiscation of property
derived from, or involved in, money
laundering and to punish those who commit
the offence of money laundering.
WHO CAN INVESTIGATE A CASE OF
MONEY LAUNDERING?
As per Sections 48 & 49 of the PMLA, the
officers of the Directorate of Enforcement
have been given powers to investigate
cases of Money Laundering. The officers
have also been authorized to initiate
proceedings for attachment of property and
to launch prosecution in the designated
Special Court for the offence of money
laundering.
Financial Action Task Force (FATF)

It was formed in 1989 by a coalition of

countries. This intergovernmental agency
was designed to develop and promote
international cooperation for combating
money laundering.
 FATF
The FATF has developed recommendations to
combat money laundering, and the agency has
three functions in regards to this criminal activity:
• Monitoring the progress of member countries in
their anti-money laundering measures.
• Reviewing trends and techniques in money
laundering, reporting these, as well as new
counter measures, to member countries.
• Promoting FATF anti-money laundering
measures and standards globally.
 Bank Secrecy Act

The Bank Secrecy Act (the “BSA”) also known as

Currency and Foreign Transactions Reporting Act
was enacted by US Congress in 1970, as an effort
to combat the use of financial institutions in money
laundering crimes.
 Bank Secrecy Act

The Act contains laws that require financial

institutions to report certain transactions to the
United States Department of Treasury, including
transactions in excess of $10,000(cash
transactions on daily aggregate basis)
 Bank Secrecy Act

The institutions must also file a Suspicious Activity

Report, or “SAR,” if they consider any financial
transaction suspicious or believe the funds comes from
unlawful activities. The Act is also responsible for the
creation of the Financial Crimes Enforcement Network,
which makes reports of money-laundering or suspicious
activity available to criminal investigators around the
world.
 FINANCIAL CRIMES ENFORCEMENT
NETWORK(FINCENT)
FinCEN was created in 1990 to support
federal, state, local, and international law
enforcement by analyzing the information
required under the Bank Secrecy Act (BSA),
one of the nation's most important tools in
the fight against money laundering.
Other Anti- Money Laundering Act
• The Money Laundering Control Act of 1986, which prohibits engaging in
any transactions involving proceeds generated from illegal activities.
• The 1988 Anti-Drug Abuse Act, which expanded the definition of
“financial institution” to include car dealers and real estate personnel,
requiring them to file reports on transactions involving large amounts of
currency.
• The Money Laundering Suppression Act of 1994 requires banks to
develop and institute training in anti money laundering examination
procedures.
• The 1992 Annunzio-Wylie Anti-Money Laundering Act, which requires
more strict sanctions for violations of the BSA, and requiring additional
verifications, recordkeeping, and reporting for wire transfers.
• The Money Laundering and Financial Crimes Strategy Act of 1998
requires banking agencies to develop training for examiners.
Unfortunately, as these money laundering regulations are put into place,
criminals work to find new methods to prevent their activity from
becoming detected or considered suspicious.
Penalties for Money Laundering
Laundering The penalties for money laundering
vary greatly depending on the circumstance
and the amount of funds involved. The
penalties may also vary if the acts occurred in
more than one jurisdiction. In addition to
imprisonment, punishment for money
laundering may include large fines, restitution,
and community service. Typically, more the
money involved, the harsher the punishment
What is the most famous case of
money laundering?
Wachovia Bank

Once one of the largest U.S. bank,

Wachovia is unfortunately responsible for
the biggest money-laundering event. In
2010, it was found that the bank allowed
drug cartels in Mexico between 2004 and
2007 to allow money laundering of close to
USD390 billion through its branches