The most emerging problem in India is of money laundering. The word Launder itself describes the act of ‘washing out’ something. Whereas, by reading the term ‘Money Laundering’, we get an idea of dirty money being converted into the legitimate assets or the white money. In simple way, it can be described as conversion of black money into the entities. If people get wealthier in terms of money, and if they are not able to justify how did they managed such huge amount from small resources; then they intend to buy new things (or assets), or to convert that money as legal income just to avoid the penalty of confiscation.
It’s an unsaid rule that the amount you are having must be justifiable. There are various sources of ‘dirty money’ such as- extortion aiming anything, drugs flows or any kind of illegal activity like bribe. Now, money-launders need to pretend as the money is not received by any dirty resource. For this, they usually fix up this problem by following steps:
1) Placement: In this, firstly the money launders introduce the cash to the banks or financial institutes.
2) Layering: In this step, the money launders shows some tricks and presents few complex financial transactions to make the money ‘white’.
3) Integration: Finally, launders get illicit money converted into the white money.
These steps depend on the circumstances, whether launder aims to get the returns in terms of money or in terms of any asset.
Up till now, we saw what is money laundering. So, to make control over it, Anti-money laundering takes place. According to the Enforcement Directorate (generally known as ED), tax arrears pertaining to the money laundering is almost 50% of the total arrears. The central authority has been set up for reporting against money laundering and is known as – ‘Financial Intelligence Unit – India’ (FIU-IND). This body is totally independent and reports directly to the finance minister. The FIU-IND receives the financial information, analyses it and disseminates to support anti money laundering.
Hawala Scandal was a famous scam in India. An alternative remittance system takes place in India, such that one can transfer X amount from one location to another, without transferring the actual money (in the physical form of currency).
To prevent the money laundering, the Prevention of Money Laundering Act has been introduced in the year of 2002 in the parliament of India. This act allows the government or the financial institutes to confiscate the assets obtained from money laundering, to prevent and control money laundering and to deal with any other issue connected with money laundering in India.
Due to this act, financial institutes and banks or the other intermediaries must keep all the records of all the transactions describing the nature as well. The act also states that all the information should be furnished whenever and wherever required. Income tax department of India must have to keep records at least for ten years after completion of that transaction. Few amendments are done to this act in 2005 and 2009. By the act, if any person found guilty in money laundering, he is punishable with the imprisonment of 3 to 7 years and can be extended up to 10 years.
