The money laundering trail

A sting operation has alleged the involvement of 23 banks and financial institutions (FIs) in money laundering.

The expose comes at a time when the Government has claimed that the latest amendments in the Prevention of Money Laundering Act (PMLA), 2002 will check and control such activities more effectively.

The amendments came into effect from February 15, 2013. Here are some frequently asked questions on money laundering:

What is money laundering?

It is a process to convert the proceeds of crimes, such as illegal arms sale, smuggling, drug trafficking, prostitution rings, embezzlement, insider trading, bribery, computer fraud schemes, etc, into legitimate money.

How does money laundering actually take place?

The process generally involves three stages (not in any particular order). The first stage is placement, where the money launderer (the person who holds money generated from criminal activities) introduces illegal funds into the financial system.

This can be done by dividing large sums into smaller ones and deposit these into various banks at different locations.

The second stage is layering, where the launderer typically engages in a series of continuous conversions or movement of funds within the financial or banking system by way of numerous accounts to hide their true origin and to distance them from their criminal source.

The third stage involves integration. This is the stage where the money reaches the legitimate economy, after getting inseparably mixed with legitimate money.

Following this, the money launderer might choose to invest these funds into various sectors without fear of law enforcement agencies.

Who is authorised to investigate a case of money laundering?

Officers of the Directorate of Enforcement have the powers to investigate such cases. These officers have also been authorised to initiate proceedings for attachment of property and launch prosecution in the designated special court for the offence.

What is the role of the Financial Intelligence Unit (FIU)?

The Financial Intelligence Unit-India is a body under the Finance Ministry, which is responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign financial units.

Is there any threshold limit to initiate an investigation?

After the amendments notified on February 15, there is no threshold limit.

What is the offence involved in money laundering?

Directly, indirectly or knowingly helping in concealment, possession, acquisition, projecting, claiming proceeds of the crime and converting these into legitimate money.

What are the possible actions in such cases?

Attachment of property of any kind used in the commission of an offence under Prevention of Money Laundering Act; Imprisonment for 3-7 years, fine or both; An individual already convicted or going under trial in other crimes can also be prosecuted and convicted under the Act.

How can banks and FIs help in curbing money laundering?

Banks and FIs are among the various reporting entities. Each of these entities has to maintain a record of transactions of certain nature and value, as prescribed by the enforcement agencies, and share these with them in a time-bound manner.

A reporting entity is also required to verify the identity of the client and identify the ultimate beneficiary of the client.

What happens when a bank or FI does not report to enforcement agencies or maintain records?

Monetary penalties can be imposed on the defaulting reporting entity or its designated director on the board or any of its employees. The penalty will not be less than Rs 10,000 but may extend up to Rs 1 lakh for each failure.

> shishir.sinha@thehindu.co.in

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