The term Money laundering was coined by the Mafia Groups from the USA. These groups used to collect a big chunk of money from illegal activities like extortion, drug smuggling, gambling etc. while presenting all that dirty money as legal. Also, in India, money laundering is also called Hawala Transactions. And recently, Yami Gautam a reputed and popular Bollywood Actress, who recently married the URI director, has been booked under the charge of Hawala Transaction aka Money laundering case.
However, if you are not familiar with what money laundering is, what it’s all about and how it works, here’s everything you need to know.
What is Money Laundering?
A process used by criminals to protect the source of their illegitimate income is referred to as money laundering. In this, criminals pass the money either by using indirect or complex transactions or through several businesses. Money laundering allows camouflaging the money, driven from illegitimate sources and showing it as legitimate business profits. At the end of this process, the money comes out as clean as a crystal.
Transferring currency via a bunch of countries to hide its origins and creating obscure entities are common practices employed by criminals. Well, the fact is that without following the process of money laundering, the parties are unable to utilize the dirty money. If they do use it, it may cost legal proceedings against them and seizing of the assets as well.
Basically, there are three steps involved in the process of money laundering according to the RBI.
- Placement Activity: Profits on bulk cash derived from the dirty or illegal acts are physically disposed of and this is referred to as placement.
- Layering activity: This refers to the disposal of illicit profit from their origin by following multiple and complex layers of financial transformations. This approach covers the check trail and offers anonymity.
- Integration Activity: The process of re-injecting the laundered cash into the economy assuring that the money is re-entering the financial system as usual funds of the business, is known as Integration.
In conclusion, the money is picked from the origin and transferred to a financial system using DD or small deposits. Followed by transferring the funds into several accounts across a number of bank accounts based out of different sites.
People usually use this money to invest in real estate assets or buy gold so that they can gain profits from them. In the past, the black money was used to build on-paper firms followed by the movement of cash via these companies by using fake invoices and bills.
Let’s help you with a money laundering example: The most common and simple approach to do money laundering is by funneling. These activities can be performed with a restaurant or another type of business where lots of money transactions happen.
How banks are involved in illegal Money Laundering activity
For Money laundering, the banks like major financial institutions are commonly used. All that’s required is slight carelessness from the bank’s side when it comes to reporting such transactions. This negligence gives leeway to criminals, allowing them to make a deposit of a big chunk of cash without reporting it to central bank authorities or Government agencies.
A while ago, a few big and reputed banks named Danske and HSBC were caught in money laundering cases and were found guilty too. These banks didn’t highlight the right report of large deposits of cash made by a few entities.
In 2012, laundering of approximately $1 billion was supported by HSBC and on the other side from 2007 to 2015, a few branches of Danske Bank were charged with taking a whopping $200billion from a Russian mob.
Is Cryptocurrency becoming the path of Money Laundering ?
Cryptocurrency follows the same three-stage money laundering process as well. Since the same stages are followed, new opportunities for money washing or laundering are opening up. Moreover, due to the lack of standard global regulation around cryptocurrencies and anonymity, such investments ensure the process returns more legitimate outcomes.
In addition to this, the exchange of cryptocurrency including ICOs have been used to transfer money from one entity to another in different currencies. The good news is that the authorities are making efforts to address the problem followed by operative solutions.
Efforts on the big scale are being made by exchanges for the identification of their clients. Meanwhile, researchers are working to unmask past transactions which were predicted to be untraceable.
If this continues, eventually various government agencies including law enforcement with the help of enhanced and modified methods should be able to identify and combat money laundering performed through cryptocurrency.
An efficient and strong anti-money laundering policy
Establishing an official policy framework can prove to be a healthy culture for a company with respect to Zero-tolerance towards money laundering. The policy should explain the serious nature of the criminal activity, and the pattern of suspicious transactions while including the methods of how and when to intimate such apprehensive transactions. With constant monitoring of the money laundering risk, the financial institutions will have to manage their operations in a better way and redesign them if needed.
Simply put, this has become a serious concern in the world today, especially seeing its impact on the economy. Money laundering mostly involves activities that are international in nature and performed at the top level. Henceforth, to create a huge impact on a broader scale it is essential for each country to ensure strictness and laws so that money launderers find no way or place to launder their proceeds of crime.
Apart from that, there are many people out there who do not consider money laundering a serious crime. So, educating people and creating awareness among them should also be a priority. This would aid in improved law enforcement as it would be subject to public inspection.
