Money Laundering in

India and its

prevention.
Submitted to: Submitted by:

Ms. Snigdha Kuriyal Ankit Kumar

(Forensic Accounting.) 1405C00020

5th Year B.B.A-LL.B (Hons.)

ICFAI LAW SCHOOL, Dehradun

1
 INDEX

[Link]. TOPIC PAGE NO.

1. INTRODUCTION 3-4
2. PROCESS OF MONEY LAUNDERING 4-5
3. IMPACT OF MONEY LAUNDERING 5-6
4. INDIAN LAWS ON TTHE PREVENTION OF MONEY 7-12
LAUNDERING
5. CASE STUDIES 13-15
6. RESEARCH ANALYSIS 16-17
7. SUGGESTIONS 18
8. BIBLIOGRAPHY 19

2
 INTRODUCTION

Money laundering is a process where the proceeds of crime are transformed into apparently
legitimate money or other assets. It is the processing of criminal proceeds to disguise its
illegal origin. In simple words, it can be defined as the act of making money that comes from
one source to look like it comes from another source. INTERPOL's definition of money
laundering is: "any act or attempted act to conceal or disguise the identity of illegally
obtained proceeds so that they appear to have originated from legitimate sources". The act of
money laundering is done with the intention to conceal money or other assets from the State
so as to prevent its loss through taxation, judgement enforcement or blatant confiscation. The
criminals herein try to disguise the origin of money obtained through illegal activities to look
like it was obtained from legal sources because otherwise they will not be able to use it as it
would connect them to the criminal activity and the law enforcement officials would seize it.
Article 1 of EC Directive defines Money Laundering as “The conversion of property,
knowing that such property is derived from serious crime, for the purpose of concealing or
disguising the illicit origin of the property or of assisting any person who is involved in
committing such an offence(s) to evade the legal consequences of his action, and the
concealment or disguise of the true nature, source, location, disposition, movement, rights
with respect to, or ownership of property, knowing that such property is derived from serious
crime.” The most common types of criminals who need to launder money are drug
traffickers, embezzlers, corrupt politicians and public officials, mobsters, terrorists and con
artists. Drug traffickers are in serious need of good laundering systems because they deal
almost exclusively in cash, which causes all sorts of logistics problems. Criminal activities
such as terrorism, illegal arms sales, financial crimes, smuggling, or illicit drug trafficking
generate huge sums of money and criminal organizations need to find a way to use these
funds without awakening suspicions about their illicit [Link] purpose of these criminal
organisations is to generate profits for the group or for one of its individual members. When a
criminal activity generates substantial profits, the individual or group involved in such
activities route the funds to safe heavens by disguising the sources, changing the form or
moving the funds to a place where they are less likely to attract attention. The logic of
controlling the drug money trial is that profit motivates drug sales, and because most sales are
in cash, the recipient of cash has to find some way of converting these funds into utilizable
financial resources that appear to have legitimate origins.

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The objective of criminalising money laundering is to take profit out of the crime. The
rationale for the creation of the offence is that it is wrong for individuals and organisations to
assist criminals to benefit from the proceeds of their criminal activity or to facilitate the
commission of such crimes by providing financial services to them.1

PROCESS OF MONEY LAUNDERING

Money laundering is a single process however, its cycle can be broken down into three
distinct stages namely, placement stage, layering stage and integration stage.

Placement Stage: It is the stage at which criminally derived funds are introduced in the
financial system. At this stage, the launderer inserts the “dirty” money into a legitimate
financial institution often in the form of cash bank deposits. This is the riskiest stage of the
laundering process because large amounts of cash are pretty conspicuous, and banks are
required to report high-value transactions. To curb the risks, large amounts of cash is broken
up into less conspicuous smaller sums that are then deposited directly into a bank account, or
by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then
collected and deposited into accounts at another location.

Layering Stage: It is the stage at which complex financial transactions are carried out in
order to camouflage the illegal source. At this stage, the launderer engages in a series of
conversions or movements of the money in order to distant them from their source. In other
words, the money is sent through various financial transactions so as to change its form and
make it difficult to follow. Layering may consist of several bank-to-bank transfers, wire
transfers between different accounts in different names in different countries, making
deposits and withdrawals to continually vary the amount of money in the accounts, changing
the money's currency, and purchasing high-value items such as houses, boats, diamonds and
cars to change the form of the money. This is the most complex step in any laundering
scheme, and it's all about making the origin of the money as hard to trace as possible. In some
instances, the launderer might disguise the transfers as payments for goods or services, thus
giving them a legitimate appearance.

Integration stage: It is the final stage at which the ‘laundered’ property is re-introduced into
the legitimate economy. At this stage, the launderer might choose to invest the funds into real
estate, luxury assets, or business ventures. At this point, the launderer can use the money

1
[Link] (accessed on 23rd September 2018)

4
without getting caught. It's very difficult to catch a launderer during the integration stage if
there is no documentation during the previous stages. At each of the three stages of money
laundering various techniques can be utilized.

Following are the various measures adopted all over the world for money laundering, even
though it is not exhaustive but it encompasses some of the most widely used methods:

1. Structuring Deposits: This is also known as smurfing, this is a method of placement

whereby cash is broken into smaller deposits of money, used to defeat suspicion of money
laundering and avoid anti-money laundering reporting requirements.

2. Shell companies: These are fake companies that exist for no other reason than to launder
money. They take in dirty money as "payment" for supposed goods or services but actually
provide no goods or services; they simply create the appearance of legitimate transactions
through fake invoices and balance sheets.

3. Third-Party Cheques: Counter cheques or banker’s drafts drawn on different institutions

are utilized and cleared via various third-party accounts. Third party cheques and traveller’s
cheques are often purchased using proceeds of crime. Since these are negotiable in many
countries, the nexus with the source money is difficult to establish.

4. Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and
depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or
less rigorous money laundering enforcement.

IMPACT OF MONEY LAUNDERING

Launderers are continuously looking for new routes for laundering their funds. Economies
with growing or developing financial centres, but inadequate controls are particularly
vulnerable as established financial centre countries implement comprehensive anti-money
laundering regimes. Differences between national anti-money laundering systems will be
exploited by launderers, who tend to move their networks to countries and financial systems
with weak or ineffective counter measures. The possible social and political costs of money
laundering, if left unchecked or dealt with ineffectively, are serious.

Organised crime can infiltrate financial institutions, acquire control of large sectors of the
economy through investment, or offer bribes to public officials and indeed governments. The
economic and political influence of criminal organisations can weaken the social fabric,
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collective ethical standards, and ultimately the democratic institutions of the society. In
countries transitioning to democratic systems, this criminal influence can undermine the
transition.

If left unchecked, money laundering can erode a nation’s economy by changing the demand
for cash, making interest and exchange rates more volatile, and by causing high inflation in
countries where criminal elements are doing business. The draining of huge amounts of
money a year from normal economic growth poses a real danger for the financial health of
every country which in turn adversely affects the global market2. Most fundamentally, money
laundering is inextricably linked to the underlying criminal activity that generated it.
Laundering enables criminal activity to continue.

Thus, the impact of money laundering can be summed up into the following points:

 Potential damage to reputation of financial institutions and market

 Weakens the “democratic institutions” of the society
 Destabilises economy of the country causing financial crisis
 Give impetus to criminal activities
 Policy distortion occurs because of measurement error and misallocation of resources
 Discourages foreign investors
 Causes financial crisis
 Encourages tax evasion culture
 Results in exchange and interest rates volatility
 Provides opportunity to criminals to hijack the process of privatisation Contaminates
legal transaction.

2
Chapter-IV Money Laundering in India: An Offshoot of Drug Trafficking available at
[Link] (accessed on 23rd
September 2018) Pg. 12-13.

6
 INDIAN LAWS ON THE PREVENTION OF MONEY LAUNDERING.

In India, before the enactment of Prevention of Money Laundering Act, 2002 (PMLA) the
major statutes that incorporated measures to address the problem of money laundering were:

 The Income Tax Act, 1961

 The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,
1974 (COFEPOSA)
 The Smugglers and Foreign Exchange Manipulators Act, 1976 (SAFEMA)
 The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPSA)
 The Benami Transactions (Prohibition) Act, 1988
 The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act,
1988
 The Foreign Exchange Management Act, 2000, (FEMA)

During the second half of the 20th century, with the increasing threat of modern and
sophisticated forms of transnational criminal activity, concern has arisen over the lack of
effective national laws to combat organized crime and the laundering of its proceeds. India
has had separate laws to deal with smuggling, narcotics, foreign trade violations, foreign
exchange manipulations etc, and also special legal provisions for preventive detention and
forfeiture of property etc, which were enacted over a period of time to deal with such serious
crimes. However, the provisions under one of the Indian laws, namely, the Foreign Exchange
Regulation Act, 1973 (FERA) were considered to be 'draconian’ and it was repealed making
foreign exchange violations civil offences under a new law called the Foreign Exchange
Management Act (FEMA).

PREVENTION OF MONEY LAUNDERING ACT, 2002

In view of an urgent need for the enactment of a comprehensive legislation for preventing
money laundering and connected activities, confiscation of proceeds of crime, setting up of
agencies and mechanisms for coordinating measures for combating money laundering etc. the
Prevention of Money Laundering Bill 1998 was introduced in Parliament on 4th August,
1998. The Bill received the assent of the President and became Prevention of Money
Laundering Act, 2002 on 17th January 2003. The Act has come into force with effect from
1st July 2005. It has been amended in 2005, 2009 and recently in 2012. The objective of the

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Act is to prevent money-laundering and to provide for confiscation of property derived from,
or involved in, money-laundering and for matters connected therewith or incidental thereto.

SCHEME OF THE ACT

The Act consists of 10 chapters containing 75 sections and 1 schedule divided in 5 parts.
Chapter I contain section 1 and 2 which deals with short title, extent and commencement and
definitions. Chapter II contain section 3 and 4 which provide for offences and punishment for
money laundering. Chapter III has sections 5-11 which provide for attachment of property,
adjudication and confiscation. Chapter IV has sections 12-15 which deals with obligations of
banking companies, financial institutions and intermediaries. Chapter V has sections 16-24
which relates to summons, searches, seizures, retention, presumptions etc. Chapter VI has
sections 25-42 which deals with the establishment, composition, qualifications, powers and
procedures etc of the Appellate Tribunal. Chapter VII has sections 43-47 which deal with
Special Courts and Chapter VIII has sections 48-54 which provide for various authorities
under the Act their appointment, powers, jurisdiction etc. Chapter IX has sections 55-61
which deals with reciprocal arrangement for assistance in certain matters and procedure for
attachment and confiscation of property. Chapter X has sections 62-75 which deals
miscellaneous provisions including punishments, cognizance of offences, offences by
companies etc.

SALIENT FEATURES OF THE ACT

1. Offence of Money Laundering and its punishment

An offence of money laundering is said to be committed when a person in any way deals
with the proceeds of crime3. The proceeds of the crime referred above include the normal
crimes and the scheduled crimes. The prescribed punishment is 3-7 years rigorous
imprisonment for an offence of money laundering with fine 4 . In case of an offence
mentioned under Part A, imprisonment would extend up to 10 years5.

2. Attachment, Adjudication and Confiscation

The confiscation of the property under the Act is dealt with in accordance with the
chapter III of the said Act. An official not below the rank of Deputy Director can order

3
Section 2(u) of the Act.
4
Section 4 of the PMLA.
5
Proviso to Section 4 of the PMLA.

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 attachment of proceeds of crime for a period of 180 days, after informing the Magistrate.
Thereafter he will send a report containing material information relating to such
attachment to the Adjudicating Authority 6 . Section 8 details the procedure of
adjudication. After the official forwards the report to the Adjudication Authority, this
Authority should send a show cause notice to concerned person(s) within 30 days. After
considering the response and all related information, the Authority can give finality to the
order of attachment and make a confiscation order, which will thereafter be confirmed or
rejected by the Special Court.

3. Obligations of Banking Companies, Financial Institutions and Intermediaries

The reporting entity is required to keep a record of all material information relating to
money laundering and forward the same to the Director. Such information should be
preserved for 5 years7. The functioning of the reporting entity will be supervised by the
Director who can impose any monetary penalty or issue warning or order audit of
accounts, if the entity violates its obligations8. The Central Government, after consulting
the Reserve Bank of India is authorised to specify rules relating to managing information
by the reporting entity9.

4. Enforcement Paraphernalia

Adjudicating Authority - The Act empowers the Central Government to constitute an

Adjudicating Authority having a Chairman and 2 members and define their scope of
functioning and other terms of service. The Adjudicating Authority will operate through a
Single or Division bench. The Authority has been given autonomous powers to regulate
its adjudicating procedure. 10

Administrator - The property laundered will be taken care of i.e. managed after
confiscation by an Administrator who will act in accordance with the instructions of the
Central Government.11

6
Section 5 of the PMLA.
7
Section 12 of PMLA.
8
Section 13 of PMLA.
9
Section 15 of PMLA
10
Section 6 of PMLA.
11
Section 10 of PMLA.

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 Appellate Tribunal - All appeals from an order made by the Adjudicating Authority will
lie to an Appellate Tribunal constituted by the Central Government12. It will consist of 2
members headed by a Chairman13. An official can resign by sending his resignation to the
Central Government thereby giving a 3 months’ notice. He can also be removed by an
order made by the Central Government on the grounds of misbehaviour or incapacity.14

Special Courts - the Central Government, after consulting the High Court is empowered
to designate Court of Sessions as Special Courts 15 . The Special courts can try all
scheduled offences and that under section 4 and also offence under section 3, but after the
authority requests in this behalf. 16

Authorities under the Act - There shall be the following classes of authorities for the
purposes of this Act, namely:

(a) Director or Additional Director or Joint Director,

(b) Deputy Director,

(c) Assistant Director, and

(d) such other class of officers as may be appointed for the purposes of this Act.17

5. Summons, Searches and Seizures etc.

The power of surveying and scrutinizing records kept at any place is conferred on the
Adjudicating Authority. The Authority may ask any of its officials to carry on the search,
collect all relevant information, place identification marks and thereafter send a report to
it18. The search of a person to be conducted is allowed if it is ordered by the Central
Government. The authority authorized in this behalf cannot detain a person beyond 24
hours, must ensure the presence of 2 witnesses, prepare a list of things seized signed by
the witnesses and forward the same to the Adjudicating Authority19.

12
Section 25 of PMLA.
13
Section 27 of PMLA.
14
Section 32 of PMLA.
15
Section 43 of PMLA.
16
Section 44 of PMLA.
17
Section 48 of PMLA.
18
Section 16 of PMLA.
19
Section 18 of PMLA.

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 A property confiscated or frozen under this Act can be retained for 180 days. This period
can be extended by the Adjudicating Authority after being satisfied of the merits of the
case. The Court or the Adjudicating Authority can subsequently also order the release of
such property20. There shall be a presumption of the ownership of property and records
recovered from a person's possession. The burden of proof will be on the accused to
prove that he is not guilty of an offence under this Act21. The offences under the Act are
to be cognizable and non-bailable. 22

ANTI MONEY LAUNDERING STANDARDS

RBI issued Master Circular on Know Your Customer (KYC) norms/ Anti-Money Laundering
(AML) standards/ Combating of Financing of Terrorism (CFT)/ Obligation of banks under
Prevention of Money Laundering Act, 2002 and Banks were advised to follow certain
customer identification procedure for opening of accounts and monitoring transactions of a
suspicious nature for the purpose of reporting it to appropriate authority. These KYC
guidelines have been revisited in the context of the Recommendations made by the Financial
Action Task Force (FATF) on Anti-Money Laundering (AML) standards and on Combating
Financing of Terrorism (CFT). Banks have been advised to ensure that a proper policy
framework on KYC and AML measures with the approval of the Board is formulated and put
it place.

The Objective of KYC Norms/ AML Measures/ CFT Guidelines is to prevent banks from
being used, intentionally or unintentionally, by criminal elements for money laundering or
terrorist financing activities. KYC procedures also enable banks to know/ understand their
customers and their financial dealings better which in turn help them manage their risks
prudently.

OBLIGATION OF BANKS

Banks should keep in mind that the information collected from the customer for the purpose
of opening of account is to be treated as confidential and details thereof are not to be divulged
for cross selling or any other like purposes. Banks should, therefore, ensure that information
sought from the customer is relevant to the perceived risk, is not intrusive, and is in

20
Retention of Property u/s 20 of PMLA.
21
Section 24 of PMLA.
22
Section 45 of PMLA

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conformity with the guidelines issued in this regard. Any other information from the
customer should be sought separately with his/her consent and after opening the account.

Banks should ensure that any remittance of funds by way of demand draft, mail/ telegraphic
transfer or any other mode and issue of traveller’s cheques for value of Rupees fifty thousand
and above is effected by debit to the customer’s account or against cheques and not against
cash payment.

Banks should ensure that provisions of Foreign Contribution (Regulation) Act, 1976 as
amended from time to time, wherever applicable are strictly adhered to.

KYC Policy

Banks should frame their KYC policies incorporating the following four key elements:

 Customer Acceptance Policy;

 Customer Identification Procedures;
 Monitoring of Transactions; and
 Risk Management.

For the purpose of KYC policy, a ‘Customer’ is defined as:

 A person or entity that maintains an account and/or has a business relationship with
the bank;
 One on whose behalf the account is maintained (i.e. the beneficial owner);
 Beneficiaries of transactions conducted by professional intermediaries, such as Stock
Brokers, Chartered Accountants, Solicitors etc. as permitted under the law; and
 Any person or entity connected with a financial transaction which can pose significant
reputational or other risk to the bank, say, a wire transfer or issue of a high value
demand draft as a single transaction.

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 Case Studies

1. PAREENA SWARUP vs. UNION OF INDIA, 23

In this case, the Supreme Court has determined the constitutionality of the Adjudicating
Authorities and the Appellate Tribunal under the PMLA, 2002. A Public Interest Litigation
was filed under Article 32 of the Constitution seeking to declare various sections of the Act
such as Section 6 which deals with adjudicating authorities, composition, powers etc., Section
25 which deals with the establishment of Appellate Tribunal, Section 27 which deals with
composition etc. of the Appellate Tribunal, Section 28 which deals with qualifications for
appointment of Chairperson and Members of the Appellate Tribunal, Section 32 which deals
with resignation and removal, Section 40 which deals with members etc. as ultra vires of
Articles 14, 19(1)(g), 21, 50, 323B of the Constitution of India. It was also pleaded that these
provisions are in breach of scheme of the Constitutional provisions and power of judiciary.

The Court said that it is necessary to draw a line which the executive may not cross in their
misguided desire to take over bit by bit and judicial functions and powers of the State
exercised by the duly constituted Courts. While creating new avenue of judicial forums, it is
the duty of the Government to see that they are not in breach of basic constitutional scheme
of separation of powers and independence of the judicial function. The Court agreed that the
provisions of Prevention of the Money Laundering Act are so provided that there may not be
independent judiciary to decide the cases under the Act but the Members and the Chairperson
to be selected by the Selection Committee headed by Revenue Secretary. Thus, the Court
found merit in the arguments of the Petitioner and ordered to implement amended rules in the
Act which can be seen by way of amendment of 2008 in the Act.

Observation: The Court maintained the basic structure of the Constitution which includes
separation of powers and independence of judiciary and did not allow the Executive to act
beyond their powers curbing the judicial powers.

2. UNION OF INDIA vs. HASSAN ALI KHAN & ANR.24

The allegation against the accused is that they have committed an offence punishable under
Section 4 of the Prevention of Money Laundering Act, 2002. The said case has been
registered on the basis of a complaint filed by the Deputy Director, Directorate of

23
(2008) 14 SCC 107.
24
(2011) 11 SCR 778.

13
Enforcement on the basis of the Report based on certain information and documents received
from the Income Tax Department. An investigation was also conducted under the Foreign
Exchange Management Act, 1999, (‘FEMA’). Show-cause notices were issued to the accused
for alleged violation of Sections 3A and 4 of FEMA for dealing in and acquiring and holding
foreign exchange to the extent of Rs.36,000 crores approximately in Indian currency, in his
account with the Union Bank of Switzerland. Inquiries also revealed that Shri Hassan Ali
Khan had obtained at least three Passports in his name by submitting false documents,
making false statements and by suppressing the fact that he already had a Passport. Based on
the aforesaid material, the Directorate of Enforcement arrested the accused and produced him
before the Special Judge, PMLA and was remanded in custody which was rejected and the
accused was released on bail. The Union of India thereupon filed Special Leave Petition and
upon observing that the material made available on record prima facie discloses the
commission of an offence by the accused punishable under the provisions of the PMLA, the
Supreme Court disposed of the appeal as well as the Special Leave Petition and set aside the
order of the Special Judge, PMLA and directed that the accused be taken into custody.
Thereafter, the accused was remanded into custody from time to time.

Observation: The offence of money laundering is an offence of a grave nature. A person

indulged in it cannot escape from the hands of the law. If such an offence is committed, strict

actions will be taken.

3. SHIV KANT TRIPATHI vs. STATE OF U.P25

Brief facts of the case are: The petitioner lodged an F.I.R. alleging commission of certain
scheduled offences, certain offences under the Prevention of Corruption Act, 1988 as well as
commission of offences under Sections 3 and 4 of the Money-Laundering Act. The substance
of the allegations in the FIR is that Amar Singh while holding the office of the Chairman of
the Uttar Pradesh Development Council, misused his official position and awarded various
Government contracts worth thousands of crores to companies owned and controlled by him
and he also received kickbacks in the form of commission. It was also alleged that he
indulged in Money-Laundering business by creating a web of shell companies. Thus, he was
in possession of wealth disproportionate to his known sources of income and misused his
position by indulging in Money-Laundering business by conspiring with other Directors,

25
2013 (6) ADJ 672.

14
officials and statutory authorities. So far as the offences under the Money-Laundering Act are
concerned the Enforcement Directorate had completed the investigation but on the basis of
materials made available during investigation, the Directorate did not find anything against
Amar Singh to submit a charge-sheet and therefore, the investigation has been closed but no
report has been submitted in any Court. The Court held that the Enforcement Directorate is
duty bound to submit final report or charge-sheet, as the case may be, before the Court which
is designated as Special Court by the Central Government in consultation with the Chief
Justice of the High Court under Section 43 of the Money-Laundering Act. In the present case,
admittedly after completing investigation the Enforcement Directorate has not filed the final
report on the ground that there is no provision for submission of the final report under the
Money-Laundering Act. Since the term 'investigation' shall also include submission of final
report as defined in the Code, it was directed by the Court that if the process is issued by the
Magistrate or upon a further investigation a charge-sheet is submitted in respect of any
scheduled offence, the Enforcement Directorate will submit the Final Form before the
designated Court so that the designated Court shall be in a position to examine the efforts
made by way of investigation, the evidence collected during the investigation and find out as
to whether the final report was justified or not.

Observation: The judgement in this case gives us an example that the Court keep a strict
check and control over the actions of the Authorities under the PMLA and direct them to do
the acts which they are duty bound to do.

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 RESEARCH ANALYSIS

Money laundering is, thus, a very serious offence and it should not be taken lightly as any
other local crime. This study was supposed to be limited for money laundering in Indian
perspective but could not be done so as it is neither possible nor relevant to discuss the issue
of money laundering without taking its international aspect as every act of money laundering
involves various transactions, national and/or international, with the aim of obscuring the
origin of proceeds of crime.

India has taken up various Anti-Money Laundering measures to curb with this issue but these
measures somewhere or the other have some loopholes or lacunas and thus is not fulfilling
their complete purpose. Some of such problems are pointed out below:

 Growth of Technology: with the advent of technology at such a greater speed it has
been possible for the money launderers to act on obscuring the origin of proceeds of
crime by cyber finance techniques. The enforcement agencies are not able to match up
with the speed of growing technologies.
 Lack of awareness about the problem: the issue of money laundering is growing at a
very high pace. Its unawareness among the common public is an impediment for
implementation of proper anti-money laundering measures. The poor and illiterate
people, instead of going through lengthy paper work transactions in Banks, prefer the
Hawala system where there are fewer complexities and formalities, little or no
documentation, lower rates and they also provide security and anonymity. This is
mainly because such people don’t know the seriousness of this crime and are not
aware of its harmful after effects.
 Non-fulfilment of the purpose of KYC Norms: RBI has issued the policy of KYC
norms with the objective to prevent banks from being used by criminals for money
laundering or terrorist financing activities. However, it does not cease or abstain from
the problem of Hawala transactions as RBI cannot regulate them. Further, such norms
are only a mockery as the implementing agencies are indifferent to it. Also, the
increasing competition in the market is forcing the Banks to lower their guards and
thus facilitating the money launderers to make illicit use of it in furtherance of their
crime.
 The widespread act of smuggling: there are a number of black market channels in
India for the purpose of selling goods offering many imported consumers goods such

16
 as food items, electronics etc. which are routinely sold. The black merchants deal in
cash transactions and avoid custom duties thus offering better prices than the regular
merchants. After liberalization of government, though this problem has been lessened
but it has not been done away with completely and still poses a threat to a nation’s
economy.
 Lack of comprehensive enforcement agencies: the offence of money laundering is no
more stuck to one area of operation but has expanded its scope include many different
areas of operation. In India, there are separate wings of law enforcement agencies
dealing with money laundering, cyber crimes, terrorist crimes, economic offences etc.
Such agencies lack convergence among themselves. The issue of money laundering,
as we have seen, is a borderless world but these agencies are still stuck with the laws
and procedures of the states.

Combating the offence of money laundering is a dynamic process since the criminals
involved in it are continuously looking for new ways to do it and achieve their illicit motives.
Moreover, since various countries are entering into multiple agreements and conventions in
order to strengthen their measures to combat money laundering, the money launderers are
targeting and exploiting those jurisdictions which are weak and do not have sufficient laws to
deal with such an offence. There is an urgent need for a definite policy of anti-money
laundering. The criminals dealing with these activities do not have any particular pattern i.e.
they have distinct patterns of operation.

India has taken extensive measures in order to curb with the issue of money laundering. It can
rightly be said that the manpower has been tripled as there is Directorate of Enforcement
which leads all the money laundering cases and investigations related to it in the country;
there is also Financial Intelligence Unit which tracks down and analyses the risk of money
laundering through the agencies reporting to it and there is time to time up gradation of the
legislative framework through the proposed changes. However, there is still a further need to
increase the enforcement and take more strict actions against the persons violating them.

Also, the financial institutions are required to implement additional levels of control in areas
such as transaction monitoring, annual review, periodic updation of accounts etc. Moreover,
cost factor also plays a very significant role in having an effective anti-money laundering
regime as high costs and low budget may lead to reduced focus and thus higher risks.

17
 SUGGESTIONS

As it can be seen that money laundering involves activities that are international in nature and
are also at a greater level, therefore, to make a heavy impact it is necessary that all countries
should enact strict and as far as possible same laws so that the money launderers will have no
place to target in order to launder their proceeds of crime by way of weakness of jurisdiction
or the like. Since the States have no obligation in deciding which offences should be
considered as predicate offences to money laundering there is no consensus into the
international harmonizing efforts for anti-money laundering. Thus, there is a need to enlist
common predicate offences to solve the problem internationally particularly keeping in mind
the trans-national character of the offence of money laundering.

Furthermore, the provision of financial confidentiality in other countries is an issue. The

states are unwilling in compromising with this confidentiality. There is a need to draw a line
between such financial confidentiality rules and these financial institutions becoming money
laundering havens. Apart from that, many a people are of the opinion that money laundering
seem to be a victimless crime. They are unaware of the harmful effects of such a crime. So
there is a need to educate such people and create awareness among them and therefore infuse
a sense of watchfulness towards the instances of money laundering. This would also help in
better law enforcement as it would be subject to public examination.

Moreover, to have effective anti-money laundering measures there need to be a proper

coordination between the Centre and the State. For that the tussle between the two should be
removed. The laws should not only be the responsibility of the Centre but it should be
implemented at the State level also. The more decentralised the law would be the better reach
it will have. Therefore, to have an effective anti-money laundering regime, one has to think
regionally, nationally and globally.

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 BIBLIOGRAPHY

1. Acts/ Statutes referred:

 The Income Tax Act, 1961
 The Conservation of Foreign Exchange and Prevention of Smuggling Activities
Act, 1974 (COFEPOSA)
 The Smugglers and Foreign Exchange Manipulators Act, 1976 (SAFEMA)
 The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPSA)
 The Benami Transactions (Prohibition) Act, 1988
 The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances
Act, 1988
 The Foreign Exchange Management Act, 2000, (FEMA)
2. Websites:
 [Link]
 [Link]
df
 [Link]
 [Link]
 [Link]
 [Link]
3. Reports:
 2015 NDTA Report
 2014 DEA Drug Threat Report
 2015 Interpol Report on Money laundering.

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