Money Laundering Evolution, Means of Committing and Fight Against

Source :
Author : naman754
Published on : August 31, 2017

naman754's Profile and details
Naman Sharma Student @ Amity University, Noida Email :

Money Laundering: Evolution, Means of Committing and Fight Against It Around The Globe

There is often talk about how a human is a mere puppet of his greed. All his life, he acts to achieve his goals which are marked by fulfilment of his greed. It shall not be incorrect to state that the greed of the modern era is to be financially secure. Being wealthy is the dream of every human, but when this dream turns into greed, puppetry begins and man indulges himself into illicit activities. One such activity which is followed by obtaining of undeclared and unlawfully earnt money is the offence of money laundering. This paper looks to explore and establish the offence of money laundering, how it evolved as a general practice, how it is committed in modern day with real-time examples, consequences of committing it at individual and national level, growth of anti-money laundering laws internationally, what were and are various anti-money laundering laws in India, how India is making efforts nationally and internationally to fight against the said evil. Therefore, this paper attempts to make awareness to the youth as well as to the greedy, how this illicit activity is pushing India towards a darkened tomorrow and what is needed to be done.

What is Money Laundering?

Money Laundering is a criminal act of misrepresenting illegally obtained money, such as from drug trafficking or terrorism, being obtained from legitimate resources. It is one of the illicit activities through which criminals disguise their original ownership of undeclared money by making proceeds appear to have been derived from lawful sources. It is also one of the methods to avoid tracking or identification of assetsor tax assessment so no trouble comes from law enforcing agencies, though these attempts toavoid are also criminal acts.

United States has a very elaborative structure against the offence of money laundering. In brief, according to the law of US, any person who, knows that the property represents the proceeds of some form of unlawful activity, conducts such a financial transaction which involves the proceeds of specified unlawful activity with the intent to promote the carrying on of specified unlawful activityknowing that the transaction is designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity or even avoids a transaction reporting requirement under State.Their law even speaks on movement of such money, be it within the United States or beyond them.

United Kingdom recognizes the concept through various legislations, but primarily it operates through The Proceeds of Crime Act, 2002. According to it, if any person conceals, disguises, converts, transfers, removes a criminal property, he is committing the offence of money laundering. Furthermore, the act of concealing the nature, source, location, disposition, movement or even ownership is included for the purpose of definition of the offence.

Indian Legislature through ‘The Prevention of Money Laundering Act, 2002’, defines money laundering as act of directly or indirectly attempting to indulge or knowingly assisting or knowingly being a party or being actually involved in an activity or process connected with proceeds of a crime and projecting it as untainted property.
Therefore, to be precise, it can be concluded that money laundering is the process of converting and showing illegally gained profits as legitimate earnings by way of manipulations.

History and Evolution of Anti-Money Laundering Laws :-

This unlawful activity was first noticed in around 2000 BCE in Chinawhere merchants would hide their wealth from rulers who would simply take it from them.In addition, merchants would move and invest it in businesses in and outside China. Gradually with passing of about thousand years, many States slowly and gradually introduced laws through which they would take wealth from their citizens and this led to the beginning of tax evasion and money hiding.

In the 20th century, State recognized an unusual phenomenon that, the seizing of wealth was an additional crime prevention tool. The first time was during the period of Prohibition in the United States around 1930s. State and law enforcement agencies understood that it is necessary to track and confiscate money. Organized crime received a major boost from Prohibition and a large source of new funds that were obtained from illegal sales of alcohol. In fact, during 1980s, war involving drugs were initiated and this led to forceful fall-back of Government to impose money laundering laws.

Then Global 7 formed a committee called ‘The Financial Action Task Force’ a.k.a. FATF targeting money laundering, terrorist financing, and other threats to the global financial system inn 1989, which pressurized Governments throughout the globe to increase surveillance and monitoring of financial transactions and share this information between countries. This sharing would also act as third person surveillance and monitoring which would again make sure no offence is committed, because own country member may indulge into corruption. Starting in 2002, Governments around the world upgraded their respective money laundering laws along with mechanisms of surveillance and monitoring of financial transactions.

Far most important revolution that took place in money laundering realm was attacks of 9/11 in 2001 in USA. The United States had passed ‘The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001’. This Act aimed to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and for other purposes. Throughout the globe similar legislations took place to fight terrorism, including anti-money laundering rules.

As for today, anti-money laundering regulations have become a much larger burden for financial institutions and enforcement has stepped up significantly. With awareness and education, loopholes are being misused throughout the world. During 2011–2015 a number of major banks faced ever-increasing fines for breaches of money laundering regulations. This included HSBC BNP Paribas, which was fined $8.9 billion by Manhattan Court in July 2014. Rather, many countries have introduced their border controls on the amount of cash that can go in or out of territory with central transaction reporting systems where all financial institutions have to report all financial transactions electronically to ensure even superior monitoring of money exchange.

How is Money Laundering committed?

Money Laundering is committed through numerous means across the globe. However, there are two main elements of this illicit act, which are as follows:-
a) ‘Arrangements’ by a person who’s engaged in provision of financial services. These services may include banking, fiduciary and investment managements etc.
b) Such person having knowledge or suspicion of sources being illegal. This part of the offence is very crucial because this role helps determine the greatest liability.

According to Financial Crime Enforcement Network of the United States Department of the Treasury, money laundering is committed through by implementing the following steps:-
1. Placement - the introduction of the unlawfully earnt funds into the legitimate financial system. This is followed by movement of the funds, otherwise source can be tracked.
2. Layering - the process of money being moved around to create confusion, through complex transactions. Idea is to make it more difficult to detect the laundering activity.
3. Integration – the process of camouflaging of this money into the financial system through additional transactions or creating confusions until the unlawfully earned money appears legitimate. It is entry of laundered money into the economy through the financial systems which make such monies appear to be normal and usual business earnings.
Or, simply put “introduction of money # manipulation of system # misrepresentation”

The following are few of many methods through which this offence is committed:-

a) Smurfing

In this method, money is broken into smaller deposits, used to overcome the suspicion of money laundering, so to avoid anti-money laundering authorities. Individual may use smaller amounts of cash to purchase bearer instruments, example shares or bonds, but ultimately depositing them again, but in small amounts.

b) Cash smuggling

This method includes literal physical transportation of money from one territory to other, even abroad, such as offshore banks having more secrecy policies.

c) Cash intensive business opening

This method calls for opening up of a business which is expected to receive chunks of it’s generated revenue in form of cash. Such businesses may be car washes, casinos, parking areas, etc. This expectation of receiving money in form of cash allows the owner to include his tainted money in the evaluation and convert all of his undeclared money into accounted money.

d) Currency exchange

Tainted money is transferred to offshore banks, which is shipped back as foreign direct investments, which allow these criminal minds to have tax exemptions. This method is also known as Round-tripping as the money comes around.

e) Fraudulent company

Few brilliants of criminal minds open up their company, registered or not, and show that such company is involved in business activities, allowing them to invest money in the company and converting their assets into legal declarations. Documents found in relation to such companies are also called as ‘Panama Papers’.

f) Owning interest in Banks

Through purchasing or controlling interests in banks where there is lesser or no scrutiny of moving of money, these criminal minds may opt to operate and transfer their funds absolutely according to their wills and fantasies.

g) Real Estate Scam

Sale of property Person A who’s having illicit money gains to Person B. The seller agrees to contract the property at an under price of the actual value, which allows him to make up the difference in money previously gained illegally.

h) Casino Winnings

Through purchasing casino chips with illicit money, the person is able to submit on official record that they have rather earnt the money by winning in several games. As one wins the game, casinos are under obligation to credit respective money to the winner and while crediting this money, they give invoice/receipt/other document, which proves that the money now won is lawfully earnt money.

Money flow controls the market and economy of a State. When this controlling agency is maliciously overturned, economy starts shaking and eventually falls. There are numerous consequences and effects of money laundering, with respect to both, society and individual.

1. Economic instability – When money is being laundered, it leaves a great impact on the economy. If big players themselves indulge into this activity, which they do, they cause economic misbalance. Money which was never on the record previously, now gets inserted. If not the insertion of new money, transaction of the money which was never on the record, is put in records by way of false proofs. This laundering causes impact not just on the Gross Domestic Product but also on international capital flow, taxable income determination, exchange rates, collection of funds to be used by Government and etc.

2. Loss of confidence in financial system – It is a common practice of human mind that when it sees a neighbour flourishing and making multi-digit earnings, it starts accusing the neighbour of various crimes such as bribery, under-table transactions, white collar crimes, and one such being, money laundering. One easily loses faith in the financial system of the State when he proceeds in the said direction.

3. Puppet Financial Section – Criminals having deep contacts often use the financial sector itself to launder money. They frequently put in and pull out their money from these institutions, which also undermines the stability of financial market. This master puppetry, when exposed, leads to fall in reputation and goodwill of the said institution.

4. Social disbalance and Crime Rate – Not just the activity of money laundering itself is a crime, but it also promotes other crimes and criminality between people. It allows criminal relations to sustain and expand. So, the crime rate increases in a society. Additionally, it is objective of every State to have economic equality in it’s people. But through this unlawful activity, the objective of the State is beaten and social unrest is caused. Riots and criminal activities during these riots are committed.

5. Future unpredictable – Many academic commenter have admitted that it is impossible to determine how much money is laundered. This makes doubtful on part of the State whether it is making actual-effective measures to lead the country to development. People question the integrity and power of the Government.

Evolution of Anti-Money Laundering Laws internationally:-

Criminal activities at international level back in the 90s were much less as compared to today. First step against the fight with money laundering was The United Nations Convention against Illicit Traffic in Narcotics Drugs and Psychotropic Substances of 1988. The Convention targeted money laundering and drug trafficking. It demanded that drug trafficking be criminalized under domestic laws and acknowledged the fact that out of this offence, comes illicit profits. So, the convention targeted both, drug trafficking and it’s proceeds. This was followed by forming of The Basle Committee on Banking Regulations and Supervisory Practices in 1988 itself. The Committee constituted of officials from the central banks and supervisory authorities of eleven major industrialized nations and Luxembourg. The main ideology was to form principles were prohibit and prevent money laundering. Consequently, the Committee directed banks to make themselves aware of the customers’ identities clearly. Thus, KYC policies were formulated.

Fight against money laundering activities sped when FATF released two of it’s deeply researched findings. The Report on Non-Cooperative Countries and Territories and The Review to Identify Non-Cooperative Countries and Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering Measures were the two analysing reports, through which FATF globally pin-pointed the countries which were non-complaint to anti-money laundering laws. According to these findings, there were “serious systemic problems with money laundering controls and that they must improve their rules and practices as expeditiously as possible or face possible sanctions.”Then came the Wolfsberg Anti-Money Laundering Principles in October 2000. It was mutual and consensual outcome of thinking of eleven world money centre banks addressing private banks. The main ideology was that worldwide operations of banks shall not be used for criminal purposes. Following this, came out the United Nations Convention against Transnational Organized Crime in December 2000, where more than 125 Countries were signatories, which included many significant provisions with respect to money laundering and international cooperation in financial investigations. It made significant developments in the effort to promote international cooperation against money laundering and other forms of organized crime.

Anti-Money Laundering Laws and India:-

The Offence of money laundering has been seen growing in India, mainly because of speeding awareness and overpopulation. Hawala system is the modified Indian version of money laundering. India is a party to The United Nations Convention against Illicit Traffic in Narcotics Drugs and Psychotropic Substances of 1988, and is a member of the Asia/Pacific Group on Money Laundering. India was observer to FATF in 2006 and became part of FATF in 2010. India, with growing literacy rate, has realized the problem and is attempting to fight against it as well. Indian Legislature has enacted numerous statutes dealing with money laundering, such asThe Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, The Benami Transactions (Prohibition) Act, 1988, The Income Tax Act, 1961, The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988 and others.

The Indian Penal Code and The Code of Criminal Procedure, 1973 establishes India's basic framework for confiscating the proceeds of crime. The Narcotic Drugs and Psychotropic Substances Act, 1985 calls for the tracing and forfeiture of proceeds that have been gained through illegal narcotics trafficking, and prohibits transfers and concealment of the same. But today, the major law which addresses this evil is The Prevention of Money Laundering Act, 2002. The two-fold objectives of the Act are as follows:-
1. Prevent money-laundering and declare it an offence and deal with incidental matters.
2. To provide for confiscation of property derived from or involved in money laundering.

Law enforcers usually have to prove that such individual is guilty to get a conviction. But under the Indian Law, property can be attach/confiscated under presumption of illicit act. This act is authorized by Section 5 of the Act. After the confiscation, the individual is under obligation to prove that the source of funds is legitimate if he wants the property back. This allows law enforcement agencies and Courts to deliver justice at speedy rates. Thus, onus of proof is upon the person from whom the money is confiscated, that his so called earnings are legitimate and through lawful means. The guilty person can be sentenced to rigorous imprisonment of not less than 3 years but extending up to 10 years in certain conditions with fine.

The Prevention of Money Laundering Act, 2002 and Other Initiatives by India:-

The Act consists of 75 Sections in total. The Act imposes duty upon baking companies, financial institutions, intermediaries and person carrying on a designated business or profession to perform the following under

Section 12 of the Act:-

1. Maintain a record of all transactions.
2. Verify the identity of its clients.
3. Furnish information relating to such transactions to Director within prescribed time.
4. Identify the beneficial owner.
5. Maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.

The Act also requires such persons to maintain and keep records of all transactions for at least 5 years, and in case where business relationship with a client has ended, keep relevant documents maintained and secure for at least 5 years. Chapter V of the Act holds a great value for adjudication, as it talks about power of survey, search and seizure, summoning powers, power to arrest, power to retain property and records, power to search persons or anything under his possession or ownership, or records or proceeds of crime, and other powers listed therein.

The Act creates the following adjudicating bodies:-

1. Adjudicating Authority

- Under Section 6 of the Act, it is a body which consists of one Chairperson and two other members, who’s job is to exercise jurisdiction, powers and authority conferred by the Act. Main objective of having this body is to have a qualified panel to decide whether the property attached is involved in the offence of money laundering or not. The Authority is not limited by The Code of Civil Procedure, 1908 but instead with the principles of natural justice. It is empowered to regulate it’s own procedure. Ordinarily supposed to sit at New Delhi, the bench is also entitled to sit anywhere else whence the Central Government nods it.

2. Appellate Tribunal

– Under Section 25 of the Act, it is a body which consists of one Chairperson and two other members, which is established to hear appeals against the orders of the Adjudicating Authority and the authorities under Act. Appeals are to be filed before the Tribunal before period of 45 days from the date of copy of order is received. However, appeals may be entertained even after expiration of these 45 days if Tribunal is satisfied with the submitted cause. The Tribunal is also employed to dispense speedy justice within period of expiration of 6 months from filing of appeal. The Tribunal is not limited by The Code of Civil Procedure, 1908 but instead only by the Act and principles of natural justice. Nevertheless, Tribunal is vested with same powers as are vested in a Civil Court under The Code of Civil Procedure, 1908. Appeals from Appellate Tribunal are to be filed before respective High Court within 60 days from date of order made by Appellate Tribunal, but High Court may entertain even after expiration of these 60 days if High Court is satisfied with the submitted cause.

For the purpose of adjudicating upon any suit or proceeding in respect of manner undertaken by the Director, an Adjudicating Authority or the Appellate Tribunal, every Civil Court is barred to exercise it’s jurisdiction and any Court is prohibited from granting injunction in respect of any action taken or to be taken in pursuance of any power conferred by the Act.

3. Special Courts

– Under Section 43 of the Act, Special Courts are formed by Central Government in consultation with Chief Justice of the respective High Court. These Courts are established primarily with a view to adjudicate upon Section 4 of the Act, but can also adjudicate upon any other offence under The Code of Criminal Procedure, 1973 at the same trial. These Courts are deemed to be Court of Sessions and are bound by The Code of Criminal Procedure, 1973. All appeals from these Courts lie before High Court of the respective State.
Section 54 of the Act enlists numerous agencies which are required to assist the authorities made under the Act in order to ensure smooth enforcement of the law, some of which are as follows:-
1. Income Tax Authorities under Section 117 (1) of the Income-tax Act, 1961.
2. Officers of the Customs and Central Excise Departments.
3. Officers of the Stock Exchange.
4. Officers under the NDPS Act.
5. Officers of the police.

The enactment was made giving due consideration to have effects over-seas as well. Chapter IX of the Act deals with foreign agencies to deal with the matters of the Act. Section 56 of the Act empowers Central Government to enter into agreements with a Government not being of India, to help enforce the Act and exchange information for the prevention of any offence under the Act or help enforce the foreign law. This clause, to my belief, is added with especial reason of India being signatory to the various U.N. Conventions dealing with anti-money laundering laws.

India is also signatory to various bilateral and multilateral agreements, who’s purpose is to fight the offence of money laundering. Apart from these laws, there are several vigilance agencies operating in India to keep a check on movement of money and offences therein concerned. For example, Finance Intelligence Unit-India, Ministry of Finance, Government of India works for analysing reports obtained by it having connection with monetary transactions, followed by providing information of the analysis to respective enforcing agency. It is in fact the national data base on cash transactions and suspicious transactions. It also works to secure international cooperation and strength for enforcement of respective laws pertaining to money laundering and related crimes. Enforcement Directorate, Ministry of Finance, Government of India (Economic Offences Wing) is yet another example which is a specialized financial investigation agency. It enforces The Foreign Exchange Management Act, 1999 and The Prevention of Money Laundering Act, 2002. Several other agencies like The Income Tax Authorities, Economic Intelligence Council, Central Economic Intelligence Bureau, Directorate of Revenue Intelligence, the Reserve Bank of India,Securities and Exchange Board of India, and others are also working in harmony with each other to fight the evil of money laundering.


With the growing awareness at the global level and advancement of technology, mankind’s hunger for funds has rather shifted from being submissive to extra-aggressive. This hunger has taken over the world in recent decades as the crime rate at international level is seen to be rising. One of the most common crime, be it restricted to one Country or the world at large, is offence of money-laundering. Everyone wants money. To gain more money in short periods, usually this offence is committed. Major Countries of the World have already met hands and made international organizations to deal with the same, keeping aside several Conventions of the U.N. These international agreements, conventions and treaties demand a country to alter/formulate it’s domestic laws in order to secure goals of these international approaches. India is no alien to this thinking. India has, time and again, cooperated with the world at large and complied with every policies laid down in the soft laws. India has come up with several Statues, Agencies and Vigilance Committees in order to ensure smooth implementation of the same. At present, India is equipped with number of laws to prevent and penalize the offence of money laundering, however, crime rate of the same is substantially not effected by them. India’s constant efforts against this worldwide menace shall be showing better results when enforcement of these concerned laws are made strict. There are numerous agencies operating in this behalf, what is needed is awareness amongst the youth that commission of offence is not the key to success. Instead, regular class-teachings and local/district wide sessions shall be held addressing the issue of money laundering and why it is to be eliminated. It is only time which will tell us about how India is able to abolish the evil of money laundering.


# 18 U.S. Code § 1956
# Part 7 of The Proceeds of Crime Act, 2002
# Section 3 of The Prevention of Money Laundering Act, 2002
# Lords of the RIM by Sterling Seagrave (1995) - ISBN-10: 0399140115
# The New York Times on June 30, 2014
# Released on 14 February 2000 and 22 June 2000 respectively.
# As provided by “Taxing Portfolio Income in Global Financial MarketsDoctoral series” by Doron Herman, published by IBFD, 2002; ISBN 9076078440
# Section 24 of The Prevention of Money-Laundering Act, 2002.
# Section 4 of The Prevention of Money-Laundering Act, 2002.
# Clause 3 and Clause 4 of Section 12 of The Prevention of Money Laundering Act, 2002.
# Section 8 of The Prevention of Money Laundering Act, 2002.
# Clause 15 of Section 6 of The Prevention of Money Laundering Act, 2002.
# Clause 5 of Section 6 of ThePrevention of Money Laundering Act, 2002.
# Clause 3 of Section 26 of The Prevention of Money Laundering Act, 2002.
# Clause 6 of Section 26 of The Prevention of Money Laundering Act, 2002.
# Section 35 of The Prevention of Money Laundering Act, 2002.
# Section 43 of The Prevention of Money Laundering Act, 2002.
# Section 41 of The Prevention of Money Laundering Act, 2002.
# Section 46 of The Prevention of Money Laundering Act, 2002.
# Section 47 of The Prevention of Money Laundering Act, 2002.
# India has operationalised treaties with more than 39 Countries across the globe. Updated list can be learnt at the official website of Ministry of Home Affairs, Government of India “”