The goal of a large number of criminal acts is to generate profits for the individual or

the group that carries out the act. Money laundering is the processing of these
criminal proceeds to disguise their illegal origin. This process is of critical importance,
as it enables the criminal to enjoy these profits without jeopardising their source. In
this paper, the author has discussed the various stages, trends, developments and the
law relating to this subject.

 Money Laundering is a process whereby the origin of the funds

generated by illegal means is concealed (drug trafficking, gun smuggling,
corruption, etc.). It is the practice of engaging in financial transactions in
order to conceal the identity, source and destination of money, and its
main operation of the underground economy.

                                                                                            ………………………….According to Swiss
Bank

INTRODUCTION
Money Laundering is the process whereby the proceeds of crime are
transformed into ostensibly legitimate money or other assets. However,
in a number of legal and regulatory systems the term money laundering
has become conflated with other forms of financial crime, and
sometimes used more generally to include misuse of the financial
system (involving the things such as securities, digital currencies, credit
cards, and traditional currency) including terrorism financing, tax evasion
and evading of international sanctions. Most of anti-money laundering
laws openly conflate money laundering, with terrorism financing (which
is concerned with destination of funds) when regulating the financial
system. Money obtained from certain crimes, such as extortion, insider
trading, drug trafficking, illegal gambling and tax evasion is “dirty”. It
needs to be cleaned to appear to have derived from non-criminal
activities so that banks and other financial institutions will deal with it
without suspicion. Money can be laundered by many methods, which
vary in complexity and sophistication.[i]

Different countries may or may not treat tax evasion or payments in

breach of international sanctions as money laundering. Some
jurisdictions differentiate these for definition purposes, and others do
not. Some jurisdictions define money laundering as obfuscating sources
of money, either intentionally or by merely using financial systems or
services that do not identify or track sources or destinations. Other
jurisdictions define money laundering to include money from activity that
would have been a crime in that jurisdiction, even if it were legal where
the actual conduct occurred.[ii]

Many regulatory and governmental authorities issue estimates each year

for the amount of money laundered, either worldwide or within their
national economy. In 1996, the International Monetary Fund estimated
that two to five percent of the worldwide global economy involved
laundered money. The Financial Action Task Force on Money Laundering
(FATF), an intergovernmental body set up to combat money laundering,
stated, “Overall, it is absolutely impossible to produce a reliable estimate
of the amount of money laundered and therefore the FATF does not
publish any figures in this regard.[iii]

When a criminal activity generates substantial profits, the individual or

group involved must find a way to control the funds without attracting
attention to the underlying activity or the persons involved. Criminals do
this by disguising the sources, changing the form, or moving the funds to
a place where they are less likely to attract attention. In response to
mounting concern over money laundering, the Financial Action Task
Force on money laundering (FATF) was established by the G-7 Summit
in Paris in 1989 to develop a co-ordinated international response. One of
the first tasks of the FATF was to develop Recommendations, 40 in all,
which set out the measures national governments should take to
implement effective anti-money laundering programmes.[iv]

CONCEPT OF MONEY LAUNDERING-

THREE STAGE PROCESS
The money laundering cycle can be broken down into three distinct
stages; however, it is important to member that money laundering is a
single process. The stages of money laundering include the[v] :-

A). Placement Stage

B). Layering Stage

C). Integration Stage

 The Placement Stage:-

This is the movement of cash from its source. On occasion the source
can be easily disguised or misrepresented. This is followed by placing it
into circulation through financial institutions, casinos, shops, bureau de
change and other businesses, both local and abroad. The process of
placement can be carried out through many processes including:

 Currency Smuggling– This is the physical illegal movement of

currency and monetary instruments out of a country. The various
methods of transport do not leave a discernible audit trail FATF
1996-1997 Report on Money Laundering Typologies.
 Bank Complicity– This is when a financial institution, such as
banks, is owned or controlled by unscrupulous individuals
suspected of conniving with drug dealers and other organised
crime groups. This makes the process easy for launderers. The
complete liberalisation of the financial sector without adequate
checks also provides leeway for laundering.
 Currency Exchanges– In a number of transitional economies the
liberalization of foreign exchange markets provides room for
currency movements and as such laundering schemes can benefit
from such policies[vi].
 Securities Brokers– Brokers can facilitate the process of money
laundering through structuring large deposits of cash in a way that
disguises the original source of the funds.
 Blending of Funds– The best place to hide cash is with a lot of
other cash. Therefore, financial institutions may be vehicles for
laundering. The alternative is to use the money from illicit activities
to set up front companies. This enables the funds from illicit
activities to be obscured in legal transactions.
 Asset Purchase– The purchase of assets with cash is a classic
money laundering method. The major purpose is to change the
form of the proceeds from conspicuous bulk cash to some equally
valuable but less conspicuous form[vii].
The Layering Stage
The purpose of this stage is to make it more difficult to detect and
uncover a laundering activity. It is meant to make the trailing of illegal
proceeds difficult for the law enforcement agencies. The known
methods are[viii]:

a).  Cash converted into Monetary Instruments – Once the placement is

successful within the financial system by way of a bank or financial
institution, the proceeds can then be converted into monetary
instruments. This involves the use of banker’s drafts and money orders.

b).  Material assets bought with cash then sold – Assets that are bought
through illicit funds can be resold locally or abroad and in such a case
the assets become more difficult to trace and thus seize.

After placement comes the layering stage. The layering stage is the
most complex and often entails the international movement of the
funds. The primary purpose of this stage is to separate the illicit money
from its source. This is done by the sophistical layering of financial
transactions that obscure the audit trail and server the link with the
original crime[ix].

The Integration Stage

This is the movement of previously laundered money into the economy
mainly through the banking system and thus such monies appear to be
normal business earnings. This is dissimilar to layering, for in the
integration process detection and identification of laundered funds is
provided through informants. The known methods used are:

a). Property Dealing – The sale of property to integrate laundered money

back into the economy is a common practice amongst criminals. For
instance, many criminal groups use shell companies to buy property;
hence proceeds from the sale would be considered legitimate.

b). Front Companies and False Loans – Front companies that are
incorporated in countries with corporate secrecy laws, in which criminals
lend themselves their own laundered proceeds in an apparently
legitimate transaction.

c). Foreign Bank Complicity – Money laundering using known foreign

banks represents a higher order of sophistication and presents a very
difficult target for law enforcement. The willing assistance of the foreign
banks is frequently protected against law enforcement scrutiny. This is
not only through criminals, but also by banking laws and regulations of
other sovereign countries[x].

d). False Import/Export Invoices – The use of false invoices by

import/export companies has proven to be a very effective way of
integrating illicit proceeds back into the economy. This involves the
overvaluation of entry documents to justify the funds later deposited in
domestic banks and/or the value of funds received from exports.

ORIGIN & BACKGROUND OF MONEY

LAUNDERING
Money laundering offences have similar characteristics globally. There
are two key elements to a money laundering offence:

 The necessary act of laundering itself i.e. the provision of financial

services; and
 A requisite degree of knowledge or suspicion (either subjective or
objective) relating to the source of the funds or the conduct of a
client.

The act of laundering is committed in circumstances where a person is

engaged in an arrangement (i.e. by providing a service or product) and
that arrangement involves the proceeds of crime. These arrangements
include a wide variety of business relationships e.g. banking, fiduciary
and investment management.

The requisite degree of knowledge or suspicion will depend upon the

specific offence but will usually be present where the person providing
the arrangement, service or product knows, suspects or has reasonable
grounds to suspect that the property involved in the arrangement
represents the proceeds of crime[xi]. In some cases the offence may
also be committed where a person knows or suspects that the person
with whom he or she is dealing is engaged in or has benefited from
criminal conduct.

Different jurisdictions define crime predicating the offence of money

laundering in different ways. Generally the differences between the
definitions may be summarized as follows:

 Differences in the degree of severity of crime regarded as

sufficient to predicate an offence of money laundering. For
example in some jurisdictions it is defined as being any crime that
would be punishable by one or more year imprisonment. In other
jurisdictions the necessary punishment may be three or five years
imprisonment; or
 Differences in the requirement for the crime to be recognized both
in the country where it took place and by the laws of the
jurisdiction where the laundering activity takes place or simply a
requirement for the conduct to be regarded as a crime in the
country where the laundering activity takes place irrespective of
how that conduct is treated in the country where it took place[xii].

In practice almost all serious crimes, including, drug trafficking,

terrorism, fraud, robbery, prostitution, illegal gambling, arms trafficking,
bribery and corruption are capable of predicating money laundering
offences in most jurisdictions.

Tax evasion and other fiscal offences are treated as predicate money
laundering crimes in most of the world’s most effectively regulated
jurisdictions[xiii].

The United Nations Office on Drugs and Crime (UNODC) conducted

a study to determine the magnitude of illicit funds generated by drug
trafficking and organized crimes and to investigate to what extent these
funds are laundered.  The report estimates that in 2009, criminal
proceeds amounted to 3.6% of global GDP, with 2.7%  (or USD 1.6
trillion) being laundered[xiv].
This falls within the widely quoted estimate by the International
Monetary Fund, who stated in 1998 that the aggregate size of money
laundering in the world could be somewhere between two and five
percent of the world’s gross domestic product.  Using 1998 statistics,
these percentages would indicate that money laundering ranged
between USD 590 billion and USD 1.5 trillion. At the time, the lower figure
was roughly equivalent to the value of the total output of an economy
the size of Spain.

However, the above estimates should be treated with caution.  They are
intended to give an estimate of the magnitude of money laundering. Due
to the illegal nature of the transactions, precise statistics are not
available and it is therefore impossible to produce a definitive estimate
of the amount of money that is globally laundered every year.  The FATF
(Financial Action Task Force) therefore does not publish any figures in
this regard[xv].

EVOLUTIONARY TRENDS OF MONEY

LAUNDERING
As money laundering is a consequence of almost all profit generating
crime, it can occur practically anywhere in the world. Generally, money
launderers tend to seek out countries or sectors in which there is a low
risk of detection due to weak or ineffective anti-money laundering
programmes. Because the objective of money laundering is to get the
illegal funds back to the individual who generated them, launderers
usually prefer to move funds through stable financial systems.Money
laundering activity may also be concentrated geographically according
to the stage the laundered funds have reached. At the placement stage,
for example, the funds are usually processed relatively close to the
under-lying activity; often, but not in every case, in the country where the
funds originate[xvi].

Money laundering takes several different forms, although most methods

can be categorized into one of a few types. These include “bank
methods, smurfing (also known as structuring), currency exchanges, and
double-invoicing”.

a). Structuring: Often known as smurfing, this is a method of placement

whereby cash is broken into smaller deposits of money, used to defeat
suspicion of money laundering and to avoid anti-money laundering
reporting requirements. A sub-component of this is to use smaller
amounts of cash to purchase bearer instruments, such as money orders,
and then ultimately deposit those, again in small amounts.

b). Bulk cash smuggling: This involves physically smuggling cash to

another jurisdiction and depositing it in a financial institution, such as
an offshore bank, with greater bank secrecy or less rigorous money
laundering enforcement[xvii].

c). Cash-intensive businesses: In this method, a business typically

involved in receiving cash uses its accounts to deposit both legitimate
and criminally derived cash, claiming all of it as legitimate earnings.
Service businesses are best suited to this method, as such businesses
have no variable costs, and it is hard to detect discrepancies between
revenues and costs. Examples are parking buildings, strip clubs, tanning
beds, car washes and casinos.

d). Trade-based laundering: This involves under- or

overvaluing invoices to disguise the movement of money.

e). Shell companies and trusts: Trusts and shell companies disguise the
true owner of money. Trusts and corporate vehicles, depending on the
jurisdiction, need not disclose their true, beneficial, owner. Sometimes
referred to by the slang term rathole though that term usually refers to a
person acting as the fictitious owner rather a business entity[xviii].

f). Round-tripping: Here, money is deposited in a controlled foreign

corporation offshore, preferably in a tax haven where minimal records
are kept, and then shipped back as aforeign direct investment, exempt
from taxation. A variant on this is to transfer money to a law firm
orsimilar organization as funds on account of fees, then to cancel the
retainer and, when the money is remitted, represent the sums received
from the lawyers as a legacy under a will or proceeds of litigation.
g). Bank capture: In this case, money launderers or criminals buy a
controlling interest in a bank, preferably in a jurisdiction with weak
money laundering controls, and then move money through the bank
without scrutiny[xix].

h). Casinos: In this method, an individual walks into a casino with cash
and buys chips, plays for a while, and then cashes in the chips, taking
payment in a check, or just getting a receipt, claiming it as gambling
winnings.

i). Other gambling: Money is spent on gambling, preferably on higher

odds. The wins are shown if the source for money is asked for, while the
losses are hidden.

j). Real estate: Someone purchases real estate with illegal proceeds and
then sells the property. To outsiders, the proceeds from the sale look like
legitimate income. Alternatively, the price of the property is manipulated:
the seller agrees to a contract that under-represents the value of the
property, and receives criminal proceeds to make up the difference.

k). Black salaries: A company may have unregistered employees without

a written contract and pay them cash salaries. Dirty money might be
used to pay them.

l). Tax amnesties:Those that legalize unreported assets in tax havens

and cash[xx].

 m). Fictitious loans

A goal of money laundering is to be able to use the dirty money for

private consumption. If unable to use it openly, the traditional way to
keep the dirty money near is hiding it as cash at home or other places. A
more modern method is a credit card connected to a tax haven bank.

ANTI-MONEY LAUNDERING LAWS IN

INDIA-PMLA
The Prevention of Money Laundering Act (PMLA), 2002 was enacted in
January, 2003. The Act along with the Rules framed thereunder have
come into force with effect from 1st July, 2005. Sec. 3 of PMLA defines
offence of 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. It prescribes obligation of banking companies,
financial institutions and intermediaries for verification and maintenance
of records of the identity of all its clients and also of all transactions and
for furnishing information of such transactions in prescribed form to the
Financial Intelligence Unit-India (FIU-IND). It empowers the Director of
FIU-IND to impose fine on banking company, financial institution or
intermediary if they or any of its officers fails to comply with the
provisions of the Act as indicated above and as stated in the facts and
the statements as specified herein[xxi].

PMLA empowers certain officers of the Directorate of Enforcement to

carry out investigations in cases involving offence of money laundering
and also to attach the property involved in money laundering. PMLA
envisages setting up of an Adjudicating Authority to exercise jurisdiction,
power and authority conferred by it essentially to confirm attachment or
order confiscation of attached properties. It also envisages setting up of
an Appellate Tribunal to hear appeals against the order of the
Adjudicating Authority and the authorities like Director FIU-IND.

PMLA envisages designation of one or more courts of sessions as

Special Court or Special Courts to try the offences punishable under
PMLA and offences with which the accused may, under the Code of
Criminal Procedure 1973, be charged at the same trial. PMLA allows
Central Government to enter into an agreement with Government of any
country outside India for enforcing the provisions of the PMLA,
exchange of information for the prevention of any offence under PMLA
or under the corresponding law in force in that country or investigation
of cases relating to any offence under PMLA[xxii].
RECENT DEVELOPMENTS AND
CHANGES IN PMLA
The PMLA (Amendment) Act, 2012 has enlarged the definition of money
laundering by including activities such as concealment, acquisition,
possession and use of proceeds of crime as criminal activities. “Criminal
intent is the main ingredient of any offence” under money laundering.

The chances of harassment would still have been negligible had the
government not proposed to change yet another provision of the same
Act. Till last month, money-laundering crimes with the exception of
serious ones like terrorism were taken up only when the money involved
was Rs. 30 lakh or above. And that’s why there have been only 165-odd
cases of money laundering so far.

But the amended version of the Act has removed the threshold. That
means all money-laundering offences, big or small, will now be taken up
for investigation. If someone makes a small profit by violating Sebi Act
or Environment Protection Act or even Air (Prevention and Control of
Pollution) Act, the offender will be booked for money laundering. Till last
month, laundering money by violating 24 such acts was considered a
crime under PMLA only when the proceeds of crime used to be Rs 30
lakh and more.

The PMLA was enacted in 2002, but was amended thrice, first in 2005,
then in 2009 and then 2012. The 2012 version of the amendment
received president’s assent on January 3, 2013, and the law became
operational from February 15, when the finance ministry notified it.

The government’s argument is that it had to amend the existing law

once more as India became a member of the Financial Action Task
Force (FATF) in October 2010. Headquartered in Paris, the FATF is an
inter-governmental body that promotes policies to combat money
laundering and terrorist financing. And it was the FATF that pointed out a
few deficiencies in India’s anti-money-laundering legislation.
ANTI-MONEY LAUNDERING LAWS
ACROSS THE GLOBE
 FATF–  The Financial Action Task Force (FATF) is an inter-
governmental body whose purpose is the development and
promotion of national and international policies to combat money
laundering and terrorist financing. Its 40 Recommendations are
backed by mutual evaluations of its member countries. Countries
which are not members of FATF may be members of a FATF-style
regional body. For convenience, the ICAEW has extracted those
Recommendations that apply to professional accountancy firms
into a single document. In consultation with members of the
accounting profession, FATF has also issued Risk Based Approach
Guidance for Accountants and a report on Virtual Currencies and
AML Risks.

European requirements:-
The European Federation of Accountants (FEE) has a Money Laundering
Task Force, which coordinates AML policy for the profession across
Europe, including lobbying the European Commission and FATF. FEE has
issued a survey on the implementation of the Third Money Laundering
Directive in September 2009, and a Fact Sheet on money laundering and
the fight against organized crime in October 2003. The European Union’s
current requirements are as laid out in the Third Money Laundering
Directive. The Fourth EU Money Laundering Directive is currently moving
through the EU legislative process. The first reading in the (previous)
European Parliament took place on 11 March 2014, when the Parliament
adopted its position on the directive.  Trilogue negotiations are due to
have commenced with a final Directive expected Q1 2015.

US requirements:-
The United States of America has strict federal AML systems and
procedures requirements on banks and certain other financial
institutions, which tend to have extra-territorial effect, through
requirements for US banks to control their relationships with
correspondent and shell banks. As at September 2014 the AML
procedures requirements of the US Patriot Act do not apply to non-
financial institutions including accounting firms and law firms. Nor are
these institutions required to file SAR’s.

 FINCEN-Money laundering can facilitate crimes such as drug

trafficking and terrorism, and can adversely impact the global
economy.In its mission to “safeguard the financial system from
the abuses of financial crime, including terrorist financing, money
laundering and other illicit activity,” the Financial Crimes
Enforcement Network acts as the designated administrator of the
Bank Secrecy Act (BSA). The BSA was established in 1970 and has
become one of the most important tools in the fight against money
laundering. Since then, numerous other laws have enhanced and
amended the BSA to provide law enforcement and regulatory
agencies with the most effective tools to combat money
laundering. An index of anti-money laundering laws since 1970
with their respective requirements and goals are listed below in
chronological order:-

 Bank Secrecy Act (1970)

 Established requirements for recordkeeping and reporting by
private individuals, banks and other financial institutions.
 Designed to help identify the source, volume, and movement of
currency and other monetary instruments transported or
transmitted into or out of the United States or deposited in
financial institutions.
 Required banks to (1) report cash transactions over $10,000 using
the Currency Transaction Report; (2) properly identify persons
conducting transactions; and (3) maintain a paper trail by keeping
appropriate records of financial transactions.

 Money Laundering Control Act (1986)

 Established money laundering as a federal crime
 Prohibited structuring transactions to evade CTR filings
 Introduced civil and criminal forfeiture for BSA violations
 Directed banks to establish and maintain procedures to ensure
and monitor compliance with the reporting and recordkeeping
requirements of the BSA

 Money Laundering Suppression Act (1994)

 Required banking agencies to review and enhance training, and
develop anti-money laundering examination procedures
 Required banking agencies to review and enhance procedures for
referring cases to appropriate law enforcement agencies
 Streamlined CTR exemption process
 Required each Money Services Business (MSB) to be registered by
an owner or controlling person of the MSB
 Required every MSB to maintain a list of businesses authorized to
act as agents in connection with the financial services offered by
the MSB
 Made operating an unregistered MSB a federal crime
 Recommended that states adopt uniform laws applicable to MSBs

 Money Laundering and Financial Crimes Strategy Act (1998)

 Required banking agencies to develop anti-money laundering
training for examiners
 Required the Department of the Treasury and other agencies to
develop a National Money Laundering Strategy
 Created the High Intensity Money Laundering and Related
Financial Crime Area (HIFCA) Task Forces to concentrate law
enforcement efforts at the federal, state and local levels in zones
where money laundering is prevalent. HIFCAs may be defined
geographically or they can also be created to address money
laundering in an industry sector, a financial institution, or group of
financial institutions.

 Uniting and Strengthening America by Providing Appropriate

Tools to Restrict, Intercept and Obstruct Terrorism Act of 2001
(USA PATRIOT Act) [Title III of the USA PATRIOT Act is referred
to as the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001]
  Criminalized the financing of terrorism and augmented the existing
BSA framework by strengthening customer identification
procedures
 Prohibited financial institutions from engaging in business with
foreign shell banks
 Required financial institutions to have due diligence procedures
(and enhanced due diligence procedures for foreign correspondent
and private banking accounts)
 Improved information sharing between financial institutions and
the U.S. government by requiring government-institution
information sharing and voluntary information sharing among
financial institutions
 Expanded the anti-money laundering program requirements to all
financial institutions
 Increased civil and criminal penalties for money laundering
 Provided the Secretary of the Treasury with the authority to impose
“special measures” on jurisdictions, institutions, or transactions
that are of “primary money laundering concern”
 Facilitated records access and required banks to respond to
regulatory requests for information within 120 hours
 Required federal banking agencies to consider a bank’s AML
record when reviewing bank mergers, acquisitions, and other
applications for business combinations

 Intelligence Reform & Terrorism Prevention Act of 2004

 Amended the BSA to require the Secretary of the Treasury to
prescribe regulations requiring certain financial institutions to
report cross-border electronic transmittals of funds, if the
Secretary determines that such reporting is “reasonably
necessary” to aid in the fight against money laundering and
terrorist financing.

HOW TO PREVENT MONEY

LAUNDERING
Money laundering is a threat to the good functioning of a financial
system; however, it can also be the Achilles heel of criminal activity.In
law enforcement investigations into organized criminal activity, it is
often the connections made through financial transaction records that
allow hidden assets to be located and that establish the identity of the
criminals and the criminal organization responsible.When criminal funds
are derived from robbery, extortion, embezzlement or fraud, a money
laundering investigation is frequently the only way to locate the stolen
funds and restore them to the victims[xxiii].Most importantly, however,
targeting the money laundering aspect of criminal activity and depriving
the criminal of his ill-gotten gains means hitting him where he is
vulnerable. Without a usable profit, the criminal activity will not continue.

A great deal can be done to fight money laundering, and, indeed, many
governments have already established comprehensive anti-money
laundering regimes. These regimes aim to increase awareness of the
phenomenon – both within the government and the private business
sector – and then to provide the necessary legal or regulatory tools to
the authorities charged with combating the problem.Some of these tools
include making the act of money laundering a crime; giving investigative
agencies the authority to trace, seize and ultimately confiscate criminally
derived assets; and building the necessary framework for permitting the
agencies involved to exchange information among themselves and with
counterparts in other countries[xxiv].

It is critically important that governments include all relevant voices in

developing a national anti-money laundering programme. They should,
for example, bring law enforcement and financial regulatory authorities
together with the private sector to enable financial institutions to play a
role in dealing with the problem. This means, among other things,
involving the relevant authorities in establishing financial transaction
reporting systems, customer identification, record keeping standards
and a means for verifying compliance.

Money launderers have shown themselves through time to be extremely

imaginative in creating new schemes to circumvent a particular
government’s countermeasures. A national system must be flexible
enough to be able to detect and respond to new money laundering
schemes.Anti-money laundering measures often force launderers to
move to parts of the economy with weak or ineffective measures to deal
with the problem. Again, a national system must be flexible enough to be
able to extend countermeasures to new areas of its own economy.
Finally, national governments need to work with other jurisdictions to
ensure that launderers are not able to continue to operate merely by
moving to another location in which money laundering is tolerated[xxv].

Large-scale money laundering schemes invariably contain cross-border

elements. Since money laundering is an international problem,
international co-operation is a critical necessity in the fight against it. A
number of initiatives have been established for dealing with the problem
at the international level. International organizations, such as the United
Nations or the Bank for International Settlements, took some initial steps
at the end of the 1980s to address the problem. Following the creation
of the FATF in 1989, regional groupings – the European Union, Council of
Europe, and Organization of American States, to name just a few –
established anti-money laundering standards for their member
countries. The Caribbean, Asia, Europe and southern Africa have created
regional anti-money laundering task force-like organizations, and similar
groupings are planned for western Africa and Latin America in the
coming years[xxvi].

CASE STUDIES
 RUSSIAN MONEY LAUNDERING SCANDA[xxvii]L

This scandal became public during the summer of 1999, with media
reports of $7 billion in suspect funds moving from two Russian banks
through a U.S. bank to thousands of bank accounts throughout the
world. Two Russian banks deposited more than $7 billion in
correspondent bank accounts at a New York bank. After successfully
gaining entry for these funds into the U.S. banking system, the Russian
banks transferred amounts from their New York bank correspondent
accounts to commercial accounts at the bank that had been opened for
three shell corporations. In February 2000, guilty pleas were submitted
by a bank employee and spouse and the three corporations for
conspiracy to commit money laundering, operating an unlawful banking
and money transmitting business in the United States.

 OPERATION WIRE CUTTER[xxviii]

The U.S. Customs Service, in conjunction with the Drug Enforcement

Administration (DEA) and Colombian Departamento Administrativo de
Seguridad, arrested 37 people in January 2002 as a result of a two-and-
one-half-year undercover investigation of Colombian peso brokers and
their money laundering organizations. These people are believed to have
laundered money for several Colombian narcotics cartels. Laundered
monies were subsequently withdrawn from banks in Colombia in
Colombian pesos. Investigators seized more than $8 million in cash, 400
kilos of cocaine, 100 kilos of marijuana, 6.5 kilos of heroin, nine firearms,
and six vehicles.

 WIRE REMITTANCE COMPANY[xxix]

Both a wire remittance company and a depository institution filed SARs

outlining the movement of about $7 million in money orders through the
U.S. account of a foreign business. The wire remittance company
reported various persons purchasing money orders at the maximum
face value of $500 to $1,000 and in sequential order. They received
amounts ranging from $5,000 to $11,000. The foreign business
identified by the wire remittance company also was identified as a
secondary beneficiary. The money orders cleared through a foreign
bank’s cash letter account at the U.S. depository institution.

CONCLUSION
Every year, huge amounts of funds are generated from illegal activities
such as drug trafficking, tax evasion, people smuggling, theft, arms
trafficking and corrupt practices. These funds are mostly in the form of
cash. The criminals who generate these funds need to bring them into
the legitimate financial system without raising suspicion. The conversion
of cash into other forms makes it more useable. It also puts a distance
between the criminal activities and the funds. The criminals who
generate these funds need to bring them into the legitimate financial
system without raising suspicion. The conversion of cash into other
forms makes it more useable. It also puts a distance between the
criminal activities and the funds. ‘Money laundering’ is the name given to
the process by which illegally obtained funds are given the appearance
of having been legitimately obtained.

The goal of a large number of criminal acts is to generate a profit for the
individual or group that carries out the act. Money laundering is the
processing of these criminal proceeds to disguise their illegal origin.
This process is of critical importance, as it enables the criminal to enjoy
these profits without jeopardising their source.

Illegal arms sales, smuggling, and the activities of organised crime,

including for example drug trafficking and prostitution rings, 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.

When a criminal activity generates substantial profits, the individual or

group involved must find a way to control the funds without attracting
attention to the underlying activity or the persons involved. Criminals do
this by disguising the sources, changing the form, or moving the funds to
a place where they are less likely to attract attention.