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Money launderingrefers to the process of concealing financial transactions. Various
laundering techniques can be employed by individuals, groups, officials and
corporations. The goal of a money laundering operation is usually to hide either the
source or the destination of money.
Perhaps the best way to understand the concept is to take a look at some common
examples. Suppose, for example, that an employee was stealing large sums of cash
from her employer without getting caught. If she was to make large deposits into her
bank account, some regulator (or computer program) might notice the unusually large
deposits, thereby increasing the chances of getting caught. To launder the money, the
criminal might simply use the cash to make purchases and then resell the items in a
legitimate market. The revenue gained from these sales is 'cleaner' and the criminal is
drawing less attention to herself----
Secton -3 defines money laundering as Whosoever directly or indirectly attempts to
indulge or knowingly assists or knowingly is a party or is actually involved in any
process or activity connected with the proceeds of crime and projecting it as untainted
property shall be guilty of offence of money-laundering.
In general, money laundering follows a three-stage process. First comesplacement, when
black money is injected into the financial system. Then comeslayering, when money is
layered or spread across multiple entities, in order to conceal the identity of the source.
The last stage is integration, which is routing the money back to the original entity
through legal channels.
Black Money in India
If we come to define the term black money we can say that it actually refers
to the money that is being earned in black market and/or on which the tax is
not paid. Though this black money trend has prevailed in every other
country but this problem is quite serious in India. According to a report
being published in a business magazine, India possesses more black money
as compared to the rest of the world. Other countries that failed to top the
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list include Russia, United Kingdom, Ukraine and China.
At first, the Government of India was not willing to disclose the total amount
of black money either in their country or the money transferred in foreign
accounts, however, official sources estimate this amount to be around $ 1.4trillion. Amazing isn't it? Well the Indian nation is quite wealthy in terms of
their black money savings. It is very thwarting for a nation to be known as a
leading black money holder because this is the money that has been illegally
saved by the people into their respective accounts. Most of these personal
accounts belong to corrupt politicians, high-ranked officers and industrialists.
This total amount accounts for around 40% of India's Gross Domestic
Products and hence one can imagine how the growth could prosper if India
gets back this money.
It is a known reality that 450 million Indian people are living below the
threshold of poverty and that means on average a poor person gets less
than Rs. 1.25 (Indian currency) per day. So why the Government has
become a silent spectator of this issue and cannot think of bringing the black
money back to the country which can later be used for the prosperity of the
Indians. The country has already taken enough loans from foreign countries
and it has been impossible to get free from these debts since then.
Beholding the taxpaying population of India, it has been seen that 31 million
Indians pay annual taxes that means that only 2.5 % of the whole
population is in fact paying taxes. The number of people legally responsible
for tax payment is 10 times higher than this.
Ways used by people to earn black money
There are number of ways used to earn black money in India. One super
way that comes at the top of the list is making money and not paying tax on
it. It is where you utilize the money in a way that it cannot be taxed
including sending the cash to a friends' bank or especially a foreign bank
where the Indian Government cannot access easily. Black money has also
been earned by using criminal ways such as payment to kidnappers, drugs
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and weapons business (smuggling), bribes taken on the grounds of
immorality etc. some very common sources of black money are described
here in some detail.
Escape from taxation: This is considered as the root source of
black money as it allows the holders to hide money from the
government in order to evade the taxation.
Voting scenario: This is the time when all the political members
pull up their socks and get ready to earn as much black money as
possible. In reality they ask for money to support the electioncampaigns and thus they get a chance to use less and earn more
later.
Under the table income: : People approve a project and get
commission on it. Such people never bother to understand the
danger of approving an unethical project and they simply do it for
the sake of earning black money.
Taking bribes: Anything that people think they can undertake can
only become possible if they receive money from the other party.
This bribe taking system is very common in India and has become
an important factor in any work dealing.
On the name of social welfare: This trick of making black money
in India is prevailing in the high society as the people are aware of
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the fact that government would definitely have no objection if they
channel their cash into a welfare project.
Overnight visa offers: Using this people open an office (rental) in
aside area and claim to provide work visa in few days. Once a
person is convinced to their bogus ideas they ask to submit non-
refundable visa registration fee and give a time limit. After they
have gathered enough money, they simply close their offices and
run away.
Commercial dons: In certain areas where the control of the
government is not strong, people demand money from the
businessmen and if they do not pay money, they do not allow the
businesses to run in their area.
Smuggling: This includes all kinds of smuggling ranging from drugs
and weapons to humans.
Property: Any property in the form of house or building has shown
the way to create black money. People simply sale or purchase the
property and hide it to evade taxes by either taking half of the
money cash and rest is taken or given as a cheque.
investing in a foreign market: Many times people use this way by
creating a fake company in any foreign country where usually the
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tax is less and then notify an investment being made in that.
Afterwards the money is diverted back in no time.
Impact of Black Money
The circulation of black money has adversely affected the Indian economy in
several ways.
1. It leads to the misdirection of precious national resources.
2. It has enormously worsened the income-distribution. The fixed income salary
class finds itself ever
be the lower rung of the income-ladder as they pay taxes. They are not able to
catch up with the
people in business, or in professions, or many of those employed who make
money by black activities. Many high placed official and honest employees earn
much less than an average small shopkeeper in big cities like Bombay and Delhi.
Money laundering increases the probability that the financial institution itself
will become corrupt or even controlled by criminal interests
3. The existence of a big-sized unreported segment of the econom is a- big
handicap in making a correct analysis and formulation of right policies for it.
4. Black money results in transfer of funds from India to foreign countries
through clandestine channels. Such transfers are made possible by violationsexchange regulations through the device of under invoicing of exports and
over-invoicing of imports etc.
The government actually receives a lot of money though taxes and only about 5
% or maybe less is spend on society welfare or progress
5. Black money requires for its protection, proliferation and expansion of a
service organisation composed of musclemen, touts and brokers to combat the
forces of law and order on the one hand and on the other hand, there are income
tax advisers, or chartered accountants in the pay of black money operators.
There are contact men, liaison officers, dalals who negotiate favors from top
bureaucracy and political bosses through bribes of black money.
6. Black money has corrupted our political system in a most vicious manner. At
various levels, MLAs, MPs, Ministers, party functionaries openly go on collecting
funds for party or elections. Ministers dole out favours of crores by accepting
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black money donations of a few lakhs from businessmen National policies are,
therefore, being bent in favour of the big business under the pressure of black
money.
7. Causes inflations
The politics of black money thus has corroded the moral fibre of Indian polity.
Ministers dole out favours of crores by accepting black money donations of a few
lakhs from businessmen. National policies are, therefore, being bent in favour of
the big business under the pressure of black money.
Due to the pernicious impact of black money on the Indian economy and polity
that the Wanchoo Committee concluded: It is, therefore, no exaggeration to say
that black money is like a cancerous growth in the countrys economy which, if
not checked in time, is sure to lead to its ruination.
When India became independent the value of UK Pound was equal to Rupees
seven and Paise fifty .
The seventies brought the value of US Dollars to around Rupees eight. You can
judge the effect of Black money on Indian economy considering today's
exchange values.
According to a KPMG study money laundered in India is approximately 2% to 3% of the
country's GDP.
The RBI too has played an important role in curbing the menace of money laundering The RBI
issued the Know-Your-Customers (KYC) Guidelines Anti Money Laundering Standards on
16th August 2005. The Government has also established a Financial Intelligence Unit-India(FIU-IND), in rank with FATF recommendations. The FIU would be given the Suspicious Activity
Reports from all FIs and would study them before passing them to the Enforcement Directorate
for investigation and prosecution. The RBI has asked all the banks to put the policy with the
sanction of their boards, within the next three months. The RBI has stressed that banks can
successfully control and decrease their risks only if they have an understanding of the normal
and practical activity of the customer so that they have the means of spotting transactions that
fall outside the standard model of activity.
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Conclusion
Money laundering is a serious threat to global financial system and good governance. It is also
boosting international crimes and terrorist activities. Governments in various countries today
have come up with different legislations to deal with this menace. However more needs to be
done in this regard. Black money in India, it is estimated accounts for around 40% of India's
GDP. Moreover it is politicians in India, who are high risk customers who indulge in this activity.
In times of globalization, Indian financial institutions and banks would like to become important
players in the financial setup. This could be achieved only by ensuring that proper prevention of
money laundering norms are in place and have been setup effectively.
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