What is Money Laundering?
It is a process by which black or illegal money are converted into white or legal money.
For prevention of such type of activities, Prevention of Money Laundering Act, 2002 has been introduced.
This Act prevents money laundering & provide confiscation of property derived from or involved in money laundering and matters connected therewith.
There are various methods through which black money is made. Some of them are as follows:-
- Cash deposited in Swiss Bank A/c
- Buy a land and sell for legal profit.
- Booking of false incomes.
- Hawala
- Bribery and corruption.
- Kidnapping and extortion.
Stages/Process
- Placement :-
- This is the initial stage, in this stage, black money is injected into the financial system. Here, launderer purchases and sells of investment instruments by decomposing money.
- Layering :-
- In this stage, after injecting the money into financial system, the launderer channelizes the funds or spread over various transactions in different countries and through various bank accounts at various banks across many countries.
- Integration :-
- after completion of above two stages, here, funds re-enter the legitimate economy, the launderer tries to remove the original connection with crime by which it can be used as clean money.
Note:- Hawala
Under hawala system, money is transferred via a network of hawala agents or hawaladars [here, money transfer without money movement].
Example:- Mr. Ram in country X wants to transfer some money to Mr. Shyam in country Y.
Steps to be followed:-
- Mr. Ram gives money that is to be transferred to the hawala broker in country X.
- The hawala agent accept the money from Mr. Ram and calls another hawala agent in country Y.
- The broker gives the money to Mr. Shyam in country Y in currency of that country.
- Password is shared among each other for completion of Transaction.