Overview Of The Prevention of Money Laundering Act, 2002, Prevention Of Money Laundering Bill, 2011 And The Benami Transactions (Prohibition) Bill, 2011
“It has been said that the love of money is the root of all evil. The want of money is so quite as truly.” {Samuel Butler, English composer, novelist, & satiric author (1835 – 1902)}
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. Money is generally considered to have the following four main functions, which are summed up in a rhyme found in older economics textbooks: “Money is a matter of functions four, a medium, a measure, a standard, a store.”
Money is the root cause of many evils like corruption, black marketing, smuggling, drug trafficking, tax evasion etc. The more developed the nation, the more the standard of living of the people. People want more money to cater to their needs and at a point of time they don’t hesitate to have money from any source i.e. black or white money. This is the point where the concept of money laundering enters and then prospers.
Although the word “laundering” is generally used for cleaning dirty clothes, the term Money Laundering refers to the conversion or “Laundering” of money which is illegally obtained, in order to make it appear to originate from a legitimate source. Thus it is a process by which proceeds from illegal activities are disguised in order to conceal their illicit origin. Money Laundering is being employed by launderers worldwide to conceal criminal activity associated with it such as drug / arms trafficking, terrorism and extortion.
Money laundering, loosely defined, is the transactional processing or moving of illicitly gained funds (such as currency, cheques, electronic transfers or similar equivalents) towards disguising its source, nature, ownership or intended destination and/or beneficiaries. The desired outcome of this process is “clean” money that can be legally accessed or distributed via legitimate financial channels and credible institutions.
Money laundering, at its simplest, is the act of making money that comes from Source A look like it comes from Source B. In practice, criminals are trying to disguise the origins of money obtained through illegal activities so it looks like it was obtained from legal sources. Otherwise, they can’t use the money because it would connect them to the criminal activity, and law-enforcement officials would seize it.
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. One important aspect of money laundering is the tendency and need for perpetrators to operate cross border schemes for the purpose of concealment and/or to take advantage of the uneven developments in the national anti money laundering regimes.
2. HISTORY OF MONEY LAUNDERING
The word “money” is believed to originate from a temple of Hera, located on Capitoline, one of Rome’s seven hills. In the ancient world Hera was often associated with money. The temple of Juno Moneta at Rome was the place where the mint of Ancient Rome was located. The name “Juno” may derive from the Etruscan goddess Uni (which means “the one”, “unique”, “unit”, “union”, “united”) and “Moneta” either from the Latin word “monere” (remind, warn, or instruct) or the Greek word “moneres” (alone, unique).
Money laundering has fairly benign origins in the hawala and hundi systems of South Asia, which were informal financial systems which allowed people to execute financial transactions in confidence and secrecy. These systems were perfectly legitimate to begin with, and merely reflected institutional underdevelopment or unfamiliarity or lack of confidence in the formal banking system. However, these systems soon attracted criminal organizations, which began to use them along with other means in order to launder money to remove the taint of illegality. In the past century, money laundering has become an international problem.
The term “money laundering” is said to originate from Mafia ownership of Laundromats in the United States. Gangsters there were earning huge sums in cash from extortion, prostitution, gambling and bootleg liquor. They needed to show a legitimate source for these monies. One of the ways in which they were able to do this was by purchasing outwardly legitimate businesses and to mix their illicit earnings with the legitimate earnings they received from these businesses. Laundromats were chosen by these gangsters because they were cash businesses and this was an undoubted advantage to people like Al Capone who purchased them. Al Capone, however, was prosecuted and convicted in October, 1931 for tax evasion. It was this that he was sent to prison for rather than the predicate crimes which generated his illicit income.
Meyer Lansky (affectionately called ‘the Mob’s Accountant’) was particularly affected by the conviction of Capone for something as obvious as tax evasion. Determined that the same fate would not befall him he set about searching for ways to hide money. Before the year was out he had discovered the benefits of numbered Swiss Bank Accounts. This is where money laundering would seem to have started and according to Lacey Lansky was one of the most influential money launderers ever. The use of the Swiss facilities gave Lansky the means to incorporate one of the first real laundering techniques, the use of the ‘loan-back’ concept, which meant that hitherto illegal money could now be disguised by ‘loans’ provided by compliant foreign banks, which could be declared to the ‘revenue’ if necessary, and a tax-deduction obtained into the bargain.
Even though the term has been used for a fairly long period of time, the first judicial use of the term was only in 1982 in America. Towards the latter half of the last century, money laundering began to be increasingly connected to the offences of drug trafficking and organized crime, and criminal organizations and drug lords began to conduct large operations to launder their profits of their taint of illegality. The conversion or transfer of proceeds from drug trafficking in order to conceal or disguise the illegal origin of the property was made an offence under the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.
Money laundering also was developed in order to facilitate trade. Nigeria is the money-laundering centre of Africa and that Nigerians around the world are engaged in large-scale crime and laundering. The criminals create an illusion that the money they are spending is actually theirs.
In India money laundering is popularly known as Hawala transactions. It gained popularity during early 90’s when many of the politicians were caught in its net. Hawala is an alternative or parallel remittance system. The Hawala Mechanism facilitated the conversion of money from black into white. “Hawala” is an Arabic word meaning the transfer of money or information between two persons using a third person. The system dates to the Arabic traders as a means of avoiding robbery. It predates western banking by several centuries.
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In India, it is submitted with respect, has been perfected by the bureaucracy over the last 50 years, especially in the last two decades since the common people came to know of this corrupt class of persons’ greed.