Reality of Money Laundering: Methods, Prevention and Notable Cases in India

Introduction: –

Over the last decade, we all have seen ‘scams’ making headlines in the newspapers. The word has been well heard and understood by the people of India. But the actual reality behind this concept of the scams is not yet known to all in its true sense. The main source through which the scams are carried on is Money Laundering. Money Laundering in simple terms would mean disguising illegal money as legal money.

In the past, the concept of money laundering was applied only to the financial transactions related to crime. But today the definition has been expanded to include any financial transaction which generates any assets or a value as the result of an illegal act. The process involves illicit activity followed by the transfer of the funds to some legitimate source through smaller batches to avoid suspicions. Following to this, process of layering is carried out with the assistance of complicated financial transactions. And finally the laundered amount is re-added into the economy to portray it as legitimate in the eyes of law.

Methods of Money Laundering: –

Methods to Combat Money Laundering: –

1. Know Your Customer – RBI has enunciated guidelines for KYC to manage the risks in financial institutions. Based on risk categorization, additional data should be obtained.

2. Transaction Screening – Proper monitoring and control should be taken by financial institutions for customer with broader portfolios, since transactions involve several other institutions and entities. Severe administrative losses can occur as a consequence of minor crimes.

3. Activity Reporting – Encouragement should be given to institutions and individuals to report suspicious transactions to appropriate authorities. Guidelines for clear reporting as well as protection of the whistle-blowers should be established.

4. 2. Customer due diligence (CDD): Implement thorough CDD procedures, including Know Your Customer (KYC) protocols. Financial institutions and other relevant entities should verify the identities of their customers, monitor transactions for suspicious activity, and maintain updated records.

5. Technological Solutions – Implementation of Artificial Intelligence and machine learning can enhance the power of transaction screening, anomaly detection and risk assessment capabilities.

Examples of Money Laundering cases in India:-

There have been some legendary cases of money laundering in India that have been heard by many. Let us look at the facts of few of such famous cases –

Conclusion: –

The greed has driven the individuals to commit the financial crimes such as money laundering which has adverse effects on the economy leading to financial instability in the country. Majorly the financial institutions are affected since their reputation is jeopardized because of increased attention of the public authorities. Also the Professionals such as CA/CS/CWA are also into the radar of Central Government for Money Laundering cases. The professionals were exposed to such risk due to the notification dated 3^rd May,2023 of Prevention of Money Laundering Act, 2002.  The society as a whole is also affected by such activities leading to upsurge in crimes and decline in human development. Today there are many authorities set up by the government like Financial Intelligent Units to prevent such financial crimes in the society.  

(Note: This article represents the views of the authors and does not intend to provide legal opinions on any matter.)

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Authors:

CA Hardik Patel | Partner | +919870738130 | [email protected]

Shripriya Aithal | Consultant | +918779984264 | [email protected]