– Harsh Shekhar, 1st Year Student at New Law College, BVDU, Pune
Money Laundering is a process, which is used by people or organizations to convert the money earned through illegal activities into legitimate fund or “White Money” as we say in common words.
Today in this fast – moving world, where the world is witnessing rapid globalization and industrialization, a lot of illegally generated money whose source can’t be traced is generated for someone’s ulterior motive. To curb this, which can be detrimental to any country’s economy and development the governments across the globe have introduced Acts and Laws to limit the same.
Money Laundering consists of three Stages:
- Placement: In this process, the money is introduced into a legitimate business, organization or financial institution however the source of the same is still kept hidden.
- Layering: The second step involves the dismantling of concentrated funds into small transactions and the same money is moved into several bank accounts, which usually involves international money movement, this rotation of small funds into several accounts makes it difficult to trace the money.
- Integration: This is the final step where the illegal money is again introduced or invested into some kind of legitimate/legal business activity or financial institution where it appears as clean money or funds.
Money Laundering is being practised for a long time and it has a major impact on the financial sector and those sectors of a country that are critical for a country’s economic growth. This practice of generating illicit fund has a major impact on:
- Money Demand: If in a country there are no proper laws regarding money transfer and financial institutions. The inflow and outflow of money becomes very easy for launderers. This also may lead to an excessive sale of luxurious goods however, there will also be huge exports, imports, inflation and foreign debt. These all things are very harmful to the financial policy of the country.
- Tax Revenues: Tax collection is the major source of public revenue. If the same is not proper it will lead to a deficit in the budget. Thus higher the black money generated in the economy, lower will be the tax revenue as Tax collection doesn’t constitute of dirty money.
- Effect on Income Distribution: Increase in black money, means it hurts the financial functioning. This also leads to a chasm between a certain section of the society where one is ridiculously rich and the other section finds it difficult to meet the basic daily requirements.
- Effect on Growth Rates: Every country seeks some sort of foreign investment/aid from companies, governments, however countries having high money laundering rates find it difficult to attract investors as they are sceptical about the returns and growth of the money being invested in that country.
All these are key functions for any country to succeed economically, socially and politically and thus governments have been working together and have introduced laws to tackle this grievous issue which has the potential to plague any economy of this world.
Laws in India:
- Prevention of Money Laundering Act, 2002
This law was introduced by the NDA Government (Ruling Government of India in 2002). This act ensures the taking over of the illegal land and money which could have been used in drug trafficking, illegal arms supply and other white-collar crimes. All the government institutions, entities and departments are under strict vigil under these laws. This act was introduced on 17th January 2003 and came into force on 1st July, 2005. Any individual(s) found guilty under this act can be punished into 3-7 years of rigorous imprisonment along with a certain amount to be paid as fine.
- Black Money and Imposition of Tax Act, 2015
This law came into force in the year 2015, and the primary motive behind this was to strengthen the rules regarding transactions taking place in the international banks and accounts of Indian citizens. If any Indian citizen performs any international bank transaction be it deposit or withdrawal he/she needs to pay a certain amount of tax and if anyone is found guilty for not doing the same, they can be held liable under this act. The penalty for having any undisclosed property is a sum equal to three times the tax computed plus basic taxes.
International Laws and Bodies:
- The Financial Action Task Force
The FATF was found at the G7 Summit in 1989. Presently there are 39 member countries. The primary function of this body is to set proper standards w.r.t to anti-money laundering laws and it also provides feedback to the member countries regarding the same. India became the 34th member of the FATF in 2010.
- The European Union Fifth Anti-Money Laundering Directives
It aims to protect the EU from any kind of financial scams and collapses. Lays down laws and regulates them which apply to all the legal entities in the EU.
All the financial institutions, wallet holders and virtual currency holders need to comply with EU’s Anti-Money Laundering Laws.
- The Bank Secretary Act: United States
This act is also known as Currency and Foreign Transactions Reporting Act. This act makes all the financial institutions comply with certain rules and they have to assist the government bodies to trace any kind of laundering activities. They have to keep records of all the transactions of negotiable instruments and file a caution report if the daily limit of $10,000 is exceeded, so the AML bodies can trace any kind of laundering or tax evasion. Any individual or organization found guilty under this Act has to spend 5-7 years in prison along with $25,000 fine.
Infamous Scams of Money Laundering in India:
- Commonwealth Games Scam: 70,000Cr Scam
This scam took place in the year 2010, which caught international eyeballs and also became a hot-topic discussion in the Indian media domain. There was a huge mishandling of 70,000cr allocated funds for the conduct of Common Wealth Games in New Delhi. It is said that only half the amount of allocated funds was used aptly which caused a major debacle in certain areas of the event and also led to delay in payments of certain purchases and tenders.
- Group Financial Scam 2013: 11,000Cr Scam
A massive financial scam caused due to the collapse of a Ponzi Scheme run by Saradha Group, a consortium of over 200 private ventures.
- Indian Coal Allocation Scam:185,591Cr Scam
This was one of the biggest scams in the Indian History. The coal allocation scam involved top politicians, businessmen and others. The scam was primarily concerned with the allocation of coal mines to private and public companies at a lesser value than that of the market price. This scam was busted when the Comptroller and Auditor General of India conducted an investigation which also involved Chief Vigilance Commission and Central Bureau of Investigation, found a mislay of Rs.185,591,000,00,00. This scam created a huge uproar in public and became a topic of discussion in the Indian and International media for several months.
- 2G Scam: 1.76,00,000Cr Scam
This is also one of the biggest scams of Independent India and the prime accused in this was the Minister of Telecom and MLA(then) Andimuthu Raja. While making the report that CAG came out with a report which said that 2G licenses were issued to telecom operators at disposable prices which were far less than the actual cost. This led to an investigation involving CAG and CBI. Eventually, a loss 1.76 Lakh crore was recorded.
The problem of Money Laundering and scams has led to major losses causing vital damage to the Economical sector and financial institutions of this country. A Huge amount of money is spent to ensure the prevention of scams, drug/human trafficking, illegal trade of weapons etc. but still funds continue to be misplaced and mismanaged. These things indicate there is a need for change in laws and the introduction of more rigid and extensive acts and laws, which ensures there are no major scams in the coming future. Despite the present laws and vigil of bodies like SEBI, CBI, CAG etc. organizations and individuals who are trapped in this vicious cycle of corruption are able to get away after doing monetary scams for their ulterior motive. Thus the society needs to play a much greater role to uproot this problem. We as citizens need to ensure that we prevent ourselves from doing any wrong and if the same happens around us, the same must be reported to appropriate authorities. These measures might prevent any major scams from happening in our country and will also ensure proper growth and upliftment of India.
LinkedIn: https://www.linkedin.com/in/harsh-shekhar-259829202
Indian Society for Legal Research 