MONEY LAUNDERING: APPLICATION AND EXTEND

INTRODUCTION
Money laundering is one of the most heinous crimes against the society as it may have very
vicious consequences. The legislation drafters have time and again tried make more effective
legislations for better enforcement of criminal law in relation to ‘profit- oriented crimes’.1 The
idea behind the criminalising such act is to stop the destructive influence it was having over
the general public. The objective was to track the movement of funds and then understand the
behaviour of the offender it will then be easier for relevant authorities to track organised crime
in the financial sector.2 These funds are generally used for more dreadful crimes such as, drug
trafficking, terrorism, etc. these crimes have effect on larger sect of the society.3 Even in the
past, the act of money laundering created moral panic among the general public, barring such
‘offences’ is the genesis of criminal law in any country.4

Now having learned that money laundering has a large impact over the society we must
understand what actually construes the offence of money laundering. The definition of money
laundering is different across the world. Although, all the definitions lead to almost similar
essentials and compromise of “disguising the original ownership of property or money and
making the source of the same appear to be legitimate. Such conversion or ownership is usually
made via criminal or illegal activities, thereby mandating the need for disguising its illegitimate
source. The ownership is concealed and used like it flows from a legitimate original source.”5

In the US money laundering is understood as, “the process of concealing the source of the
money involved when it is earned via activities that are criminal in nature.”6 Article 1 of the
European Commission Directive defines money laundering similarly and extends to aiding in
such concealment of the source, its nature, and movement.7 In India, the offence is understood
as any direct or indirect efforts of concealing the source of proceeds or property that is achieved

1
Guy Stessens, Money Laundering a New International Law Enforcement Model, Page 3.
2
Cox, Dennings, Introduction to money laundering deterrence- wiley, Page 2.
3
BA Simmons, International Efforts against Money-Laundering, in D Shelton, Commitment and Compliance: the
Role of Non-Binding Norms in the International Legal System, 244-263, (Oxford University Press; 2000 Edn.)
4
Money Laundering as a Law Emergence Study, Page 11; The ‘moral entrepreneur’ thesis was advanced by
Duster in respect of drug legislation: Troy Duster, The Legislation of Morality (NYC, NY, Free Press, 1971).
5
Michael Lev and Peter Reuter, Money-Laundering: Crime and Justice, A Review of Research, Vol. 34, 289-376,
(2006).
6
Laurel Terry, US Legal Profession Efforts to Combat Money-Laundering and terrorist Financing, New York
Law School Review, Vol. 59, Issue 3, 490-491, (2014-15).
7
Sara De Vido, Anti-Money-Laundering Measures v. European Union Fundamental Freedoms and Human Rights
in the Recent Jurisprudence of the European Court of Human Rights and the European Court of Justice, German
Law Journal, Vol. 16, No. 5, 1272-1280, (2015).
via the means of committing crime.8 Therefore, any gain through illegal activities from
organised criminal activities can be termed as money laundering.

PREVENTION OF MONEY LAUNDERING ACT, 2002

The Prevention of Money Laundering Act, 2002 (PMLA) is the primary statute that combats
money laundering, it provides power to confiscate property attained from laundering of money.
PMLA is a special legislation stipulating offences, manner of investigation, attachment and
adjudication, power to summon, search seizure and arrest and other international arrangements.
Before PMLA, the closest legislation to confiscation of ‘proceeds of crime’ however, limited
to drugs, was Narcotics Drugs and Psychotropic Substances Act, 1985. With changing
technological advances in the country the corresponding rules were inserted in 2013 to tackle
money laundering in the country.

The Act defines money laundering as any activity connected with proceeds of crime, it includes
concealment, possession, acquisition or use and projecting or claiming of the untainted
property.9 Money laundering is an intricate and multi- tiered offence to make the illicit proceeds
of crime look authentic by circumventing the law. The definition or the offence may look easy
to comprehend but in light of the objective of this article the procedure to launder money is of
much importance.

ADD MORE STUFF

RETROSPECTIVE AND RETROACTIVE TRANSACTION

This is

The White paper defined black money, “as assets or resources that have neither been reported
to the public authorities at the time of their generation nor disclosed at any point of time during
their possession”

8
Section 2 and 3 of the Prevention of Money-Laundering Act, 2002.
9
The Prevention of Money Laundering Act, 2002, S. 3, as amended by Act 2 of 2013 S. 3.
Money Laundering is essentially a three step process wherein, firstly, black money is parked
in the banks and financial institutions and later removed by converting cash into negotiable
instruments like traveler's checks, bill of exchange, promissory notes, etc.10 This step is called
placement and since in most jurisdictions, banks have to report money transactions over a
certain limit, instead of depositing bulk of money in a single bank account, a cash below
threshold is placed in a number of bank amounts, and this process is called smurfing placed
money is made to travel throughout the world by performing a series of complex transactions
without any commercial justifications so as to conceal the identity of owner and source of black
money. This is called Layering and generally money is transferred to off shore bank accounts
in countries like Panama, Bahamas, Switzerland and Liechtenstein, which have strict bank
secrecy laws or through shell corporations in tax haven jurisdictions to add further level of
complexity to the transaction.11 Finally, the layered money is reinvested in the financial system
by buying stocks, participatory notes or depository receipts like American depository receipts.
This stage is called Integration.

10
Scott Sultzer, Money laundering, The Scope of the Problem and Attempts to Combat it, 63 Tennessee Law
Review 149 (1995).
11
S. Sundar, Anti Money Laundering And Know Your Customer 10 (2007).