MONEY LAUNDERING - QUICK FACTS
Essential for All Upcoming Bank Exams
Money laundering is the method used to camouflage the source of money or assets derived from criminal activity. Profit-motivated crimes span a variety of illegal activities from drug trafficking and smuggling to fraud, extortion and corruption. The scope of criminal income is significant - estimated at some 590 billion to 1.5 trillion (U.S.) worldwide each year. Money laundering is the generic term used to describe the process by which criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source. Money laundering facilitates corruption and can destabilize the economies of susceptible countries. It also compromises the integrity of legitimate financial systems and institutions, and gives organized crime the funds it needs to conduct further criminal activities. It is a global problem, and the techniques used are numerous and can be very sophisticated. Technological advances in e-commerce, the global diversification of financial markets and new financial product developments provide further opportunities to launder illegal profit and obscure the money trail leading back to the underlying crime.
How does Money Laundering Work?
There are countless ways to launder money. Generally, money laundering can be broken down into three stages –
- Placement - The first stage is the physical disposal of cash. The launderer introduces his illegal profits into the financial system. This placement is accomplished by depositing the cash in domestic banks or in other types of formal or informal financial institutions
- Integration - This is the stage where the funds are returned to the legitimate economy for later extraction. Examples include investing in a company, purchasing real estate, luxury goods, etc.
- Layering - The launderer engages in a series of proselytism or movements of the funds to distance them from their source. The funds might be channeled through the purchase and sale of investment instruments such as bonds, stocks, and traveler's cheques or the launderer might simply wire the funds through an order of accounts at various banks across the world, particularly to those jurisdictions that do not cooperate in anti-money laundering investigations.
Cases of Money Laundering:
- A classic example of money laundering is the case of M/s Chinubhai Patel & Co. Intelligence received by the Directorate of Revenue Intelligence (DRI) indicated that the South Indian Bank Ltd., Nariman Point Branch, Mumbai (erstwhile Bombay) was involved in a massive money laundering operation.
- The Bank Manager did not follow the instructions of the Reserve Bank of India (RBI), and the account was opened without obtaining the photograph of the account holder.
- This account was utilized for remittance of $12 million to Hong Kong in favour of M/s R.P. Imports and Exports, Hong Kong. The remittances were made on the basis of fraudulent documents.
- Investigations conducted so far by the Directorate of Revenue Intelligence have revealed that certain persons, including Rajesh Mehta and Prakash, had opened bank accounts solely for the purpose of depositing cash and then transferring the said funds in foreign exchange to countries like Hong Kong, Singapore and Dubai.
What Does GFI Recommend about Money Laundering?
Many of GFI’s policy recommendations, such as sort out anonymous shell companies and tackling trade misinvoicing, will have the effect of making it more difficult to launder money, which means they make it more difficult for criminals to actually use their money without being caught. In addition to those, GFI has several other policy recommendations to address money laundering:
- Make all felonies predicate offenses for money laundering;
- Better enforce existing criminal laws;
- Countries should comply with all FATF standards;