What is Money Laundering ?

What is money Laundering ?Discuss it Impact on Indian Economy ?How India is prevented from money laundering ?

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•  Money Laundering as a socio economic offence is a menace across the globe.
•  It is the conversion of illegally owned money through processes into legitimate money- also popularly known a “black money” into “white money”. 
• The developed nations have been dealing with the crime through conventions and legislations- penalising the crime. 
• The preamble of the Indian Legislation on prevention of the crime of money laundering also mentions about the Political Declaration and Global Programme of Action as adopted by the General Assembly of the United Nations and the Political Declaration in the year 1998 that called upon the member states to adopt money laundering legislation and programme. Prevention of Money Laundering Act, 2002 .

Impact of Money Laundering:

 Money Laundering cripples the economic development and the growth of the nation;  Integrity of the Financial Institutions is affected and raises concerns in the minds of the consumers and the investors;  In a developing nation, the menace aggravates as majority of the population is under poverty and the depravity caused by the offence creates an imbalance by diverting resources and  It leads to

 loss of revenue, 

 economic distortion and instability in the market, 

 loss of control of the government on the economic policy,

  fall in the price of the assets of the nation, 

 misallocation of resources, 

 unemployment and

  increased criminality.

The Prevention of Money Laundering Act, 2002

Some of the salient features of the legislation are as follows:

Attachment of Property: As per this act, attachment means prohibition of transfer, conversion, disposition or movement of property by an expressly issued order from the concerned and relevant authorities specified by the statute.

 Official not below the rank of Deputy Director can order attachment of proceeds of Crime for a period of 180 days;  Magistrate has to be informed;  Report has to be sent to the Adjudicating Authority;  Procedure of Adjudication Laid Down in Section 8 of the Act;  After the official forwards the report to the Adjudication Authority, this Authority should send a show cause notice to concerned person(s) within 30 days.  After considering the response and all related information, the Authority can give finality to the order of attachment and make a confiscation order, which will thereafter be confirmed or rejected by the Special Court. 

Proceeds from the crime: This is inclusive of property derived or obtained, either directly or indirectly by a person from an activity generally criminal in nature in relation to a scheduled offence

Intermediary: The agents or mediators who felicitate the process for instance share brokers, traders, sub brokers etcetera play a major role in enabling the conversion of the money. The reporting entity is required to keep a record of all material information relating to money laundering and forward the same to the Director. Such information should be preserved for 5 years. Functioning of the reporting entity is supervised by the Director who is empowered to impose penalty, order audit of accounts and/or issue warning in any instance of violation of obligations. Central Government upon consultation with the Reserve Bank of India is authorised to specify rules to manage information of the reporting entity.

Investigation: The Statute provides for investigation in the proceeds by the director or by an authority to determine whether the process of money laundering has actually been converted to gather evidence as socio economic offences are difficult to be proved and the fixation of the onus of committing the crime is an uphill task;

Act of Money Laundering: The legislation specifies as to how whosoever directly or indirectly attempts to involve or indulge in the activity of conversion or provide assistance of any manner in connection with the crime or the proceeds of the crime by concealing, procuring or acquiring property or claiming any part of it is also held responsible and accountable;

Punishment: The Act lays down the punishment for the crime to be a term of imprisonment not less than three years which can be extended to seven years and fine or both .

Summons, Searches and Seizures: As per the Act, the power of conducting survey, seizure and scrutiny of records kept at any place is conferred upon the adjudicating authorities. The authority can direct any official under its authority to conduct the same and collect relevant information, place identification marks and send a report of the same to the authorities for appropriate actions. 

Authority to adjudicate: Central Government can appoint by gazette notification one or more person not below the rank of Joint Secretary to the Government of India as adjudicating Authority to exercise the jurisdiction, power and authority to prevent commission of the offence and recognise the offenders for the courts of law to decide the offence. These authorities are empowered to enter on sufficient and reasonable believe of commission of an offence as per the act within the limits of area assigned to them and the powers delegated upon him.

Administrator: The Property laundered is taken care of i.e. managed after confiscation by an administrator who acts in accordance with the instructions of the Central Government.

Appellate Tribunal: Appeals from an order of the Adjudicating authority lies with the Appellate Tribunal as constituted by the Central Government under Chapter VI (Section 25- 42) of the Act. The tribunal consists of 2 members and is headed by a Chairman. Appointment and termination of the members lies with the Central Government.

Special Courts: Central Government is empowered to, upon consultation with the High Court of the particular state, to designate the Court of Sessions as Special courts. These Special Courts can try all scheduled offence and offences under Section 3 and 4 can also be tried only after the authority requests for the same

PROCESSES OF MONEY LAUNDERING5 : 

There are three processes involved in the offence of Money Laundering. Depending on their stage of committal these processes can be classified into: 

1. Placement;

 2. Layering ; and 

3. Integration.

International Conventions on Money Laundering: 

Money Laundering is a menace being globally addressed by the developed as well developing countries. Some developed countries have taken strong initiatives to curb and prevent the prevalence of phenomenon. Transnational cooperation and interplay of the regulatory authorities is one of the requirements for the proper implementation and realisation of the initiatives.

The United Nations Convention against Illicit Trafficking in Drugs and Psychotropic Substances also known as Vienna Convention was a pioneering initiative in the subject. This convention was held in year 1988.It laid down the ground work for the schematic efforts which each member country was expected to adhere to deal with the offence of money laundering by criminalising the offence of laundering money from drug trafficking and also emphasised as to how the domestic bank secrecy provisions of a particular member nation should not hinder the international criminal investigations of the crime of money laundering. It promoted international cooperation in investigations and made extradition between member states applicable to the offence. 

In 1990, Council of Europe Convention on Laundering, Search, Seizure and Confiscation of Proceeds of Crime took place. This convention established the common policy on money laundering and set out the common measures and common definition of money to uniformly deal with the offence of money laundering. 

The Basle Committee on Banking Regulation Supervisory Practices was also established in the year 1988 and it issued a statement of principles. These principles aimed at encouraging banking sector institutions to adopt common position without being hideous of the deposits of funds or assist in any manner to the exercise of laundering of funds creating financial havens.

Position in India: 

India, as a developing nation exposed to the needs and requirements of liberalisation, privatisation and globalisation, has included in various legislations the provisions to curb or eliminate scope of money laundering and entrusted specific institutionalised agencies to deal with the socio economic offence. This section deals with enumeration of legislations other than Prevention of Money Laundering Act, 2002 and the regulators or enforcement agencies. 

. Legislations: 

Major statutes before the enactment of the Prevention of Money Laundering Act, 2002, to curb and prevent the crime of money laundering and related activities were:  The Income Tax Act, 1961  The Conversion of Foreign Exchange and Prevention of Smuggling Activities Act, 1974  The Smugglers and Foreign Exchange Manipulators Act, 1976  The Narcotic Drugs and Psychotropic Substances Act, 1985  The Benami Transactions (Prohibition) Act, 1988, The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988  The Foreign Exchange Management Act, 2000.

Regulators or Enforcement Agencies: 

 Financial Intelligence Unit: Financial Intelligence Unit is the nodal agency for managing the anti money laundering system in India and helps in coordination and strengthening of efforts of national and international intelligence, investigation and enforcement agencies against money laundering and related crimes. The agency acts as an interface in between the financial sector and the law enforcement agencies As per the rules of the Prevention of Money laundering Act, banks are to report of suspicious transactions and all transactions involving receipts by the non-profit organizations of value more than ten lakh rupess or its equivalent in foreign currency.

Role of Reserve Bank of India in Prevention of Money Laundering: As the lender of last resort and the banker’s of bank, the offence of conversion of money in the developing nation was causing steady depletion of resources. The Reserve Bank of India introduced and laid down standards and procedures to increase transparency and decrease the conversion on sly. Master circulars were issued introducing the Know Your Customer (KYC), Anti Money Laundering (AML) and Combating of Financing of Terrorism (CFT) as obligatory and mandatory provisions in compliance to the provisions of the Prevention of Money Laundering Act, 2002.