What is money laundering?
THE Government of India has decided to move amendments to the Prevention of Money Laundering Act (PMLA) that will entail taking tougher measures to block terrorist financing through banking channels. The amendments will bring terrorism financing and customs offences under the glare of prevention of money laundering.
What is the Financial Action Task Force (FATF)? The Paris-based inter-governmental organisation was launched in 1989, primarily to fight the flow of drug money, but has now also focused on fighting terror financing. It sets policies that guide countries in adopting anti-money laundering measures. The organisation has designated 20 categories of offences that should be brought under anti-money laundering rules. The FATF does not have a tightly defined constitution or an unlimited life span. The task force reviews its mission every five years. In 2004, ministry representatives from the 33 FATF members agreed to extend the mandate of the task force until 2012. What is money laundering? Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source. Illegal arms sales, smuggling and the activities of organised crime can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to legitimise the ill-gotten gains through money laundering, says the FATF. The IMF, for example, has stated in 1996 that the aggregate size of money laundering in the world could be somewhere between 2-5% of the world’s gross domestic product. Using 1996 statistics, these percentages would indicate that money laundering ranged between $590 billion and $1.5 trillion. What steps has India taken to combat it? The Prevention of Money Laundering Act, 2002 (PMLA 2002), forms the core of the legal framework put in place by India to combat money laundering. PMLA 2002 and the rules notified came into force with effect from July 1, 2005. The Financial Intelligence Unit and the Enforcement Directorate have been entrusted with exclusive and concurrent powers under relevant sections of the act to implement its provisions. The PMLA 2002 and notified rules impose obligations on banking companies, financial institutions and intermediaries to verify the identity of clients, maintain records and furnish information to the Financial Intelligence Unit (FIU). PMLA 2002 defines money-laundering offences and provides for the freezing, seizure and confiscation of the proceeds of crime. Why is the Indian government planning to update its existing legal framework to combat money laundering? The government is also hopeful that the amendments to the prevention of money laundering act will give India an observer status with the FATF, which is to be decided early next year. While the FATF has also asked for making insider trading in stock markets a money laundering offence, the government is not in favour of doing so. The amendments are significant as monetary authorities in the US, Europe, and Singapore are not satisfied with the existing framework to curb money laundering in India. Therefore, the decision to update the existing act is driven by the demands of the US and EU to take tougher action to block terrorist financing through banking channels. Indian banks can then look forward to an easy entry into the US market. The demands had been affecting the global expansion plans of banks. Where does money laundering occur? Money launderers usually prefer to move funds through stable financial systems. Anti-money laundering measures often force launderers to move to parts of the economy with weak or ineffective measures to deal with the problem. At an advanced stage of a transaction, the funds are usually processed relatively close to the underlying activity; often, in the country where the funds originate. The launderer might choose an offshore financial centre, a large regional business centre, or a world banking centre — any location that provides an adequate financial or business infrastructure. At this stage, the laundered funds may also only transit bank accounts at various locations where this can be done without leaving traces of their source or ultimate destination.
THE Government of India has decided to move amendments to the Prevention of Money Laundering Act (PMLA) that will entail taking tougher measures to block terrorist financing through banking channels. The amendments will bring terrorism financing and customs offences under the glare of prevention of money laundering.
What is the Financial Action Task Force (FATF)? The Paris-based inter-governmental organisation was launched in 1989, primarily to fight the flow of drug money, but has now also focused on fighting terror financing. It sets policies that guide countries in adopting anti-money laundering measures. The organisation has designated 20 categories of offences that should be brought under anti-money laundering rules. The FATF does not have a tightly defined constitution or an unlimited life span. The task force reviews its mission every five years. In 2004, ministry representatives from the 33 FATF members agreed to extend the mandate of the task force until 2012. What is money laundering? Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source. Illegal arms sales, smuggling and the activities of organised crime can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to legitimise the ill-gotten gains through money laundering, says the FATF. The IMF, for example, has stated in 1996 that the aggregate size of money laundering in the world could be somewhere between 2-5% of the world’s gross domestic product. Using 1996 statistics, these percentages would indicate that money laundering ranged between $590 billion and $1.5 trillion. What steps has India taken to combat it? The Prevention of Money Laundering Act, 2002 (PMLA 2002), forms the core of the legal framework put in place by India to combat money laundering. PMLA 2002 and the rules notified came into force with effect from July 1, 2005. The Financial Intelligence Unit and the Enforcement Directorate have been entrusted with exclusive and concurrent powers under relevant sections of the act to implement its provisions. The PMLA 2002 and notified rules impose obligations on banking companies, financial institutions and intermediaries to verify the identity of clients, maintain records and furnish information to the Financial Intelligence Unit (FIU). PMLA 2002 defines money-laundering offences and provides for the freezing, seizure and confiscation of the proceeds of crime. Why is the Indian government planning to update its existing legal framework to combat money laundering? The government is also hopeful that the amendments to the prevention of money laundering act will give India an observer status with the FATF, which is to be decided early next year. While the FATF has also asked for making insider trading in stock markets a money laundering offence, the government is not in favour of doing so. The amendments are significant as monetary authorities in the US, Europe, and Singapore are not satisfied with the existing framework to curb money laundering in India. Therefore, the decision to update the existing act is driven by the demands of the US and EU to take tougher action to block terrorist financing through banking channels. Indian banks can then look forward to an easy entry into the US market. The demands had been affecting the global expansion plans of banks. Where does money laundering occur? Money launderers usually prefer to move funds through stable financial systems. Anti-money laundering measures often force launderers to move to parts of the economy with weak or ineffective measures to deal with the problem. At an advanced stage of a transaction, the funds are usually processed relatively close to the underlying activity; often, in the country where the funds originate. The launderer might choose an offshore financial centre, a large regional business centre, or a world banking centre — any location that provides an adequate financial or business infrastructure. At this stage, the laundered funds may also only transit bank accounts at various locations where this can be done without leaving traces of their source or ultimate destination.
source: Economic Times (6/11/2006)
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