Money Laundering : Global Problem Case Presentation Essay

MONEY LAUNDERING GLOBAL business CASE PRESENTATION AS PART OF LEGAL ASPECTS OF BUSINESS , MBA exchange la low is the attend of privateness illicit sources of silver or in simple language it is the process of washing dirty notes ( bills pull in with il intelligent activities) to set hail forward it appear to be legitimate. Now head word arises that who la chthonics the bullion? No doubt, it is of either time launder by criminals. And who helps the criminals to launders the cash is overly a money launder. coin laundering is the dynamic that enables criminal exercise of all descriptions to grow and expand.INTRODUCTION home laundering is the process of concealing illicit sources of money or in simple language it is the process of washing dirty money (money earned through illegal activities) to make it appear to be legitimate. Now question arises that who launders the money? No doubt, it is al ways launder by criminals. And who helps the criminals to launders the mo ney is also a money launder. Money laundering is the dynamic that enables criminal activity of all descriptions to grow and expand. As per Cambridge Dictionary, definition of money laundering is The crime of moving money that has been obtained illegally through banks and other businesses to make it seem as if the money has been obtained legally. If we numerate at historical aspect of money laundering it is not a new concept.There atomic number 18 historical evidences that in China, merchants would hide their wealthiness from rulers (4000 BC). many regulatory and governmental authorities quote estimates each roll for the amount of money laundered, either worldwide or in spite of appearance their issue economy. In 1996, the International Monetary Fund estimated that two to five per centum of the worldwide global economy involved laundered money. However, the Financial toyion childbed Force on Money Laundering (FATF), an intergovernmental body set up to combat money launderi ng, secernd that overall it is absolutely impossible to fix a reliable estimate of the amount of money laundered and in that respectfore the FATF does not publish any figures in this regard. Academic commentators have withal been unable to estimate the volume of money with any degree of assurance.mechanics of Money LaunderingThere argon 3 stages of money laundering1. Placement Stage At this stage launderer introduces the illegal money into the legal financial system. It could be done to deposit money into financial institutions by various methods. 2. Layering stage At this stage launderer engages in movements of funds to withdrawnness them from their source. Various financial instruments ar purchased and resale many times especially through Shell companies and financial institutions. 3. The Integration Stage At this stage, the funds get in the legitimate economy. Then launderer may choose to invest the funds into accepted estate, luxury assets, or business ventures. Method s of money launderingThe methods by which money may be laundered atomic number 18 varied and put up pad in sophistication1. Hawala2. Shell Corporation and co.3. Structuring4. Bulk cash smuggling5. apportion based laundering6. Round tripping7. Bank capture8. Casinos9. original estate10. Black salaries11. Fictional loans12. Tax amnestiesREGULATORY FRAMEWORKprembleThe streak of Money Laundering Act, 2002 (PMLA) was enacted in 2003 and brought in to force with effect from beginning(a) July 2005 to pr in timet money laundering and to provide for attachment, seizure and confiscation of post obtained or derived, directly or indirectly, from or involved in money laundering and for matters connected therewith or incidental thereto. Necessary Notifications/Rules under the said Act were published in the Gazette of India on July 01, 2005. pursuant(predicate) to the recommendations made the Financial Action Task Force on anti- money laundering standards, SEBI has issued a master circular No. CIR/ISD/AML/3/2010 go out December 31, 2010 on anti-money laundering/ Combating the Financing of Terrorism (CFT) in extraction with the FATF recommendations and PMLA Act, 2002. As per the Guidelines on Anti Money Laundering standards notified by SEBI, every last(predicate) registered intermediaries have been advised to ensure that proper policy frameworks are stick in place.The objective is to ensure that we delineate and discourage any money laundering or terrorist financing activities and that the measures taken by us are adequate enough to follow the spirit of the Act and guidelines As per the furnish of the PMLA, Intermediary includes a stockbroker, sub-broker, share transfer Agent, banker to an issue, relianceee to a trust deed, registrar to an issue, asset charge party, depository participant, merchant banker, underwriter, portfolio manager, investment advisor and any other intermediary associated with the Securities market and registered under section 12 of the S ecurities and Exchange Board of India Act,1992(SEBI Act) shall have to adhere to client account source social occasions and exert records of such proceeding as prescribed by the PMLA and Rules notified there under.SEBI has issued necessary directives vide circulars from time to time, covering issues related to Know your Client (KYC) norms, Anti- Money Laundering(AML), Client Due Diligence(CDD) and combating Financing of Terrorism (CFT). The directives lay down the nominal requirements and it is emphasized that the intermediaries may, according to their requirements, specify additional disclosures to be made by clients to address concerns of money laundering and suspicious deeds undertaken by clients. Obligations under Prevention of Money Laundering PML Act 2002 Section 12 of PML Act 2002 places certain obligations on every Financial Institution/Intermediary/ banking company which include (i) Maintaining a record of prescribed transactions.(ii) Furnishing information of prescri bed transactions to the specified Authority (iii) Verifying and maintaining records of the identity of the investors/customers (iv) Preserving records in respect of (i), (ii), (iii) supra for a period of 10 social classs from the date of cessation of transactions i.e, the date of termination of account or business relationship between the client/ investor and the intermediary Legal highlights of PML Act 2002* Special courts The trial for the offences mentioned in the act are conducted by a special court, also called PMLA dally. The Central Government (in consultation with the Chief Justice of the High Court), designates a Sessions Court as Special Court. Any appeal against order passed by PMLA court can directly be filed in the High Court. * punishment Punishable with rigorous imprisonment from three years to seven years. He could also be liable to fine of upto 5 lakh. * Burden of induction A person, who is acc utilize of having committed the offence of money laundering, has to prove that assert payoff of crime are in fact lawful propertyOBJECTIVE OF PML Act 2002The main objectives of the PMLA are as follows1. To have a proper Customer Due Diligence (CDD) process before registering clients. 2. To supervise/maintain records of all cash transactions of the value of more than Rs.10 lakhs. 3. To maintain records of all series of integrally connected cash transactions within one calendar month. 4. To monitor and report suspicious transactions.5. To discourage and identify money laundering or terrorist financing activities. 6. To take adequate and permit measures to follow the spirit of the PMLAct 2002.Current Issue of money laundering by Indian banksThe on-camera sting carried out by website cobrapost.com has not only brought into focusthe front man of black money in our economy but also the methods used to convert it into neat. Estimates of black money circulating in the system range between 10-30% of the actual size of the economy Rs 88 lakh crore. As h olding large chunks of cash is cumbersome, the search is always on for ways to convert it into mainstream assets. From the expose carried by cobrapost, it accounts like even Indian banks are being used to launder cash of their prospective clients, taking gain of the lax know-your-client(KYC) procedures. Video-clippings showed some employees of select branches of ICICI Bank, HDFC Bank and Axis Bank crack full support to bringing cash into the mainstream.AnalysisA person with black money is told by the customer relations executives to deposit cash in any bank and prepare demand draft (DD) in favor of single-premium insurance products. KYC norms are generally flouted while making DDs. Or clients were advised to make deposits in small amounts, generally below Rs 50000, for which KYC norms are less stringent or the compliance is ignored. Then this investment is routed in products with a horizon of seven or more years as tax revenue authorities have statute limitations of asking asses ses to produce documents breathing out back beyond six years. The insuranceproducts chosen are such that the proceeds are tax-free in the hands of the investor.Thus, a person can easily get away without paying any tax on his black moneyand convert it into white. Second, investors can also use the recent window of investing an amount of Rs 20000 per fund house per year. On the facial expression of it, Rs 20000 may look small. But considering there are 40 asset management companies (AMCs) in India, an investor can put in as much as Rs 8 lakh a year in mutual funds and hold the investment beyond six years to escape the tax authorities. A family with five heads can invest Rs 40 lakh in mutual funds in bits of Rs 20000 to conveniently convert the cash into white seven years down the line. As the amount per investment is low, the transaction may skip the taxmans lenses. Also, those investing up to Rs 50000 per year through the systematic investment plan have been kept out of the KYC ne t. Such loopholes are being used for money laundering. Current norms state that investors can become KYC-compliant while making investment.The investment is accepted even if the KYC information is incomplete. Thus, a person can deliberately give disparage information so that the application is rejected. But this does not affect his investment. The form will have the remark KYC not OK, which hardly matters as he can still redeem the proceeds. An investor can repeat the procedure by submitting wrong KYC for each of his investment.Bank officials are interested in such clients as these investors have few options and tend to invest in insurance products where banks earn hefty commissions. Also, a large portion of the commissions come back to the employees as performance incentives. The staff are under aeonian pressure to meet gross revenue quotas as their jobs and career growth are at stake. Thus, they resort to mis-selling and money laundering to achieve their internal targets. Many p rivate banks are also focusing on non-core areas like sales of financial instruments to boost their non-core banking income. Very often a banks strength is judged by the fee-based income as it is unaffected by the interest-rate cycle.On the face of it, the KYC rules for transactions in financial instruments put in place by regulators like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) may look quite stringent. But the cobrapost investigation has revealed the loopholes. Thus, Sebi and the RBI should take the incident hard and see how KYC can be made leak-proof. Punishment for flouting norms should be stricter for all financial intermediaries.References1. Dirty Dealing, the untold truth about global money laundering Peter Lilley 2. Money laundering, An insight into the dark world of financial frauds BuhreLal 3. Capital Market April 1-14 20134. PML Act 20025. Cambridge dictionary