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The word 'money laundering' has
created a tremendous political furore in India. In India, money laundering is
popularly known as hawala transaction. It was most popular in India during the
1990s when the names of many politicians came out in it.
Money laundering refers to the
conversion of black money earned illegally into money earned in a legitimate
way. Money laundering is a way to hide money illegally earned. Through money
laundering, money is invested in such activities or investments that even the
investigating agencies are unable to locate the main source of the money. A
person who makes money in this way is called a launderer. In money laundering,
black money earned through illegal means comes back to its rightful owner in
the form of valid currency.
The process of laundering money
involves three stages.
1. Placement
Under this first phase is the arrival
of cash in the market. In this, the launderer deposits the money illegally
earned in financial institutions such as banks or other types of formal or
informal financial institutions.
2. Layering
Layering the second stage in money
laundering is related to hiding money. In this, the launderer hides his real
income by making a mess in the book of accounting and making other suspicious
transactions. The launderer deposits the funds in investment instruments such
as bonds, stocks, and traveller's checks or in his bank accounts abroad. This
account is often opened in banks of countries which do not have strict law of
money laundering.
3. Integration
This is the last step of the money
laundering process. Through this process, the money sent out or spent in the
country comes back to the launderer in the form of money. Such money often
comes back through investing in a company, buying real estate, buying luxury
goods etc.
There can be many ways to do money
laundering, one of which is the most important to create a fake company which are
also called shell companies. Shell companies are a company like a real company
but do not actually have any assets nor do they have any real-time production
work or any kind of business. In fact, these shell companies exist only on
paper and do not exist in the real world. The launderer shows large
transactions in the balance sheets of these companies. He takes a loan in the
name of the company, takes tax exemption from the government, does not fill the
income tax returns and through all these fake works he collects a lot of black
money. If a third party wants to examine the financial records, then the third
party is shown false and fabricated documents to confuse the investigation as
to the source and location of the funds.
Other methods of money laundering
include buying a big house, shop or mall but showing its priceless on paper
when the actual market price of that purchased property is much higher, this is
done so that you have to reduce it. Thus black money is also raised through tax
evasion. In another way, money laundering is done when the launderer deposits
his money in banks of many countries where the government of any other country
does not have the right to check his account. The biggest example of this is
the Swiss Bank of Switzerland, where a large number of Indians have black money
deposited by money laundering.
The Money Laundering Act in India was
enacted in 2002, but it has been amended 3 times in 2005, 2009 and 2012. The
last amendment of 2012 was approved by the President on January 3, 2013, and
this law has come into force from February 15, 2013. The PMLA (Amendment) Act,
2012 has included concealment of funds, acquisition possession and use of funds
in criminal activities etc. in the list of crimes. The Prevention of Money
Laundering Act, 2002 (PMLA Act), 2002 brought the RBI, SEBI and Insurance
Regulatory and Development Authority (IRDA) under the PMLA Act and hence the
provisions of this Act are applicable to all financial institutions, all
private and public banks, mutual Applies to funds, insurance companies and
their financial intermediaries.
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