Offence of money laundering [Section

CH. 18 : PREVENTIONOF MONEY LAUNDERING ACT, 2002

18.3

Process of money laundering

Impact of money laundering on development

maintain records. To deal with any other issue connected with money laundering in India. Scope: The Money Laundering Act, 2002 extends to the whole of India. Money laundering is commonly defined as happening in three steps: the first step involves introducing cash into the financial system by some means (placement); the second involves carrying out complex financial transactions to camouflage the illegal source (layering); and the final step entails acquiring wealth generated from the transactions of the illicit funds (integration). Placement Stage: Placement stage represents the initial entry of the “dirty” cash or proceeds of crime into the financial system. Generally, this stage serves two purposes: It relieves the criminal of holding and guarding large amounts of bulky of cash; and It is during the placement stage that money launderers are the most vulnerable to being caught. Layering Stage: Layering stage is the most complex and often entails the international movement of the funds. The primary purpose of this stage is to separate the illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime. During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police co-operation. Integration Stage: In final stage, the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose. There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, art work, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits. Impact of money laundering on development is given below: (1) Increased Crime & Corruption: Successful money laundering helps to make criminal crime and corruption. It also enhances the use of bribery. (2) Damaged reputation and international consequences: A reputation as a money for development in a country. Foreign Financial Institutions (FII) may decide to limit their transactions with institutions from money laundering havens. Even legitimate businesses and enterprises from money laundering havens may suffer from reduced access to world markets or access at a higher cost due to extra scrutiny of their ownership, organization and control systems. (3) Weakened Financial Institutions: