RESEARCH PAPER

AN ANALYSIS OF ANTI-MONEY LAUNDERING

LEGISLATION

INTERNATIONAL BANKING AND FINANCE- 2ND INTERNAL

ASSIGNMENT

Guided by-
 Adv. M.G. Bapat
Submitted by-
Ashutosh Patil (072)
Tejal Suvarna (307)
Prathyaksha Pramod Raj (324)
Jaskeerat Singh Johar (330)
Tanvi Rai (372)
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INDEX

CONTENTS PAGINATIONS

Chapter- I 3-6
INTRODUCTION

Chapter- II 7-8
STAGES IN MONEY LAUNDERING AND FRAUD

Chapter- III 8-9

WAYS TO LAUNDER MONEY

Chapter- IV 9-14
A COMPARISON OF ANTI MONEY LAUNDERING LAWS OF INDIA AND UNITED
KINGDOM

Chapter- V 14-16
RECENT DEVELOPMENTS

Chapter- VI 16-18
LIMITATIONS OF ANTI MONEY LAUNDERING LAWS

Chapter- VII 18
SUGGESTIONS TO COMBAT MONEY LAUNDERING

Chapter- VIII & IX 19-21

CASE STUDY AND CONCLUSION

X. REFERENCES & BIBLIOGRAPHY 22-23

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I. INTRODUCTION: ANALYSIS OF ANTI-MONEY LAUNDERING LEGISLATION

1.1 An Overview on Money Laundering

Money laundering is the process of concealing the origins of money obtained illegally by
passing it through a complex sequence of banking transfers or commercial transactions.

One problem of criminal activities is accounting for the proceeds without raising the suspicion
of law enforcement agencies. Considerable time and effort may be put into strategies which
enable the safe use of those proceeds without raising unwanted suspicion. Implementing such
strategies is generally called money laundering. After money has been laundered it can be used
for legitimate purposes. Law enforcement agencies of many jurisdictions have set up
sophisticated systems in an effort to detect suspicious transactions or activities, and many have
set up international cooperative arrangements to assist each other in these endeavours1.

In a number of legal and regulatory systems, the term "money laundering" has become
conflated with other forms of financial and business crime, and is sometimes used more
generally to include misuse of the financial system (involving things such as securities, digital
currencies, credit cards, and traditional currency), including terrorism financing and evasion of
international sanctions. Most anti-money laundering laws openly conflate money laundering
(which is concerned with source of funds) with terrorism financing (which is concerned with
destination of funds) when regulating the financial system.
Some countries treat obfuscation of sources of money as also constituting money laundering,
whether it is intentional or by merely using financial systems or services that do not identify or
track sources or destinations. Other countries define money laundering in such a way as to
include money from activity that would have been a crime in that country, even if the activity
was legal where the actual conduct occurred.

1.2 History and Background

Laws against money laundering were created to use against organized crime during the period
of Prohibition in the United States during the 1930s. Organized crime received a major boost
from Prohibition and a large source of new funds that were obtained from illegal sales of
alcohol. The successful prosecution of Al Capone on tax evasion brought in a new emphasis

1
Mariano-Florentino Cuellar, The Tenuous Relationship between the Fight against Money Laundering and the
Disruption of Criminal Finance, Journal of Criminal Law and Criminology, (2003),
https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=7123&context=jclc

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by the state and law enforcement agencies to track and confiscate money, but existing laws
against tax evasion could not be used once gangsters started paying their taxes.

In the 1980s, the war on drugs led governments again to turn to money-laundering rules in an
attempt to seize proceeds of drug crimes in order to catch the organizers and individuals
running drug empires. It also had the benefit from a law enforcement point of view of turning
rules of evidence upside down. Law enforcers normally have to prove an individual is guilty
to get a conviction. But with money laundering laws, money can be confiscated, and it is up to
the individual to prove that the source of funds is legitimate if they want the funds back. This
makes it much easier for law enforcement agencies and provides for much lower burdens of
proof.

The September 11 attacks in 2001, which led to the Patriot Act in the U.S. and similar
legislation worldwide, led to a new emphasis on money laundering laws to combat terrorism
financing. The Group of Seven (G7) nations used the Financial Action Task Force on Money
Laundering to put pressure on governments around the world to increase surveillance and
monitoring of financial transactions and share this information between countries. Starting in
2002, governments around the world upgraded money laundering laws and surveillance and
monitoring systems of financial transactions. Anti-money laundering regulations have become
a much larger burden for financial institutions and enforcement has stepped up significantly.
During 2011–2015 a number of major banks faced ever-increasing fines for breaches of money
laundering regulations. This included HSBC, which was fined $1.9 billion in December 2012,
and BNP Paribas, which was fined $8.9 billion in July 2014 by the U.S. government. Many
countries introduced or strengthened border controls on the amount of cash that can be carried
and introduced central transaction reporting systems where all financial institutions have to
report all financial transactions electronically. For example, in 2006, Australia set up the
AUSTRAC system and required the reporting of all financial transactions.

1.3 Anti-Money Laundering Laws in India

Prevention of Money Laundering Act, 2002 is an Act of the Parliament of India enacted by the
NDA government to prevent money-laundering and to provide for confiscation of property
derived from money-laundering. PMLA and the Rules notified there under came into force
with effect from July 1, 2005. The Act and Rules notified there under impose obligation on
banking companies, financial institutions and intermediaries to verify identity of clients,
maintain records and furnish information in prescribed form to Financial Intelligence Unit -
India (FIU-IND). The act was amended in the year 2005, 2009 and 2012.

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On 24 Nov 2017, in a ruling in favour of citizens' liberty, the Supreme Court has set aside a
clause in the Prevention of Money Laundering Act, which made it virtually impossible for a
person convicted to more than three years in jail to get bail if the public prosecutor opposed it.
(Section 45 of the PMLA Act, 2002, provides that no person can be granted bail for any offence
under the Act unless the public prosecutor, appointed by the government, gets a chance to
oppose his bail. And should the public prosecutor choose to oppose bail, the court has to be
convinced that the accused was not guilty of the crime and additionally that he/she was not
likely to commit any offence while out on bail- a tall order by any count.) It observed that the
provision violates Articles 14 and 21 of the Indian Constitution.

1. The PMLA seeks to combat money laundering in India and has three main objectives:
 To prevent and control money laundering
 To confiscate and seize the property obtained from the laundered money; and
 To deal with any other issue connected with money laundering in India.
2. Punishment for money-laundering
 The act prescribes that any person found guilty of money-laundering shall be
punishable with rigorous imprisonment from three years to seven years and where the
proceeds of crime involved relate to any offence under paragraph 2 of Part A of the
Schedule (Offences under the Narcotic Drugs and Psychotropic Substance Act, 1985),
the maximum punishment may extend to 10 years instead of 7 years.
3. Powers of attachment of tainted property
 Appropriate authorities, appointed by the Govt of India, can provisionally attach
property believed to be "proceeds of crime" for 180 days. Such an order is required to
be confirmed by an independent Adjudicating Authority.
4. Adjudicating Authority
 The Adjudicating Authority is the authority appointed by the central government
through notification to exercise jurisdiction, powers and authority conferred under
PMLA. It decides whether any of the property attached or seized is involved in money
laundering.
 The Adjudicating Authority shall not be bound by the procedure laid down by the Code
of Civil Procedure,1908, but shall be guided by the principles of natural justice and

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subject to the other provisions of PMLA. The Adjudicating Authority shall have powers
to regulate its own procedure2.
5. Presumption in inter-connected transactions
 Where money laundering involves two or more inter-connected transactions and one or
more such transactions is or are proved to be involved in money laundering, then for
the purposes of adjudication or confiscation, it shall presume that the remaining
transactions form part of such inter-connected transactions.
6. Burden of proof
 A person, who is accused of having committed the offence of money laundering, has to
prove that alleged proceeds of crime are in fact lawful property.
7. Appellate Tribunal
 An Appellate Tribunal is the body appointed by Govt. of India. It is given the power to
hear appeals against the orders of the Adjudicating Authority and any other authority
under the Act. Orders of the tribunal can be appealed in appropriate High Court (for
that jurisdiction) and finally to the Supreme Court
8. Special Court
 Section 43 of Prevention of Money Laundering Act, 2002 (PMLA) says that the Central
Government, in consultation with the Chief Justice of the High Court, shall, for trial of
offence punishable under Section 4, by notification, designate one or more Courts of
Session as Special Court or Special Courts for such area or areas or for such case or
class or group of cases as may be specified in the notification.
9. FIU-IND
 Financial Intelligence Unit – India (FIU-IND) was set by the Government of India on
18 November 2004 as the central national agency responsible for receiving, processing,
analysing and disseminating information relating to suspect financial transactions. FIU-
IND is also responsible for coordinating and strengthening efforts of national and
international intelligence, investigation and enforcement agencies in pursuing the
global efforts against money laundering and related crimes. FIU-IND is an independent
body reporting directly to the Economic Intelligence Council (EIC) headed by the
Finance Minister.

2
Mohammed Ahmed Naheem, FIFA – highlighting the links between global banking and international money
laundering, Emerald Insight, (Aug. 2015), https://www.emeraldinsight.com/doi/abs/10.1108/JMLC-08-2015-
0037?af=R&

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II. STAGES IN MONEY LAUNDERING AND FRAUD

How is fraud connected to money laundering and terrorist financing? Criminal activity related
to fraud generates money that needs to be laundered, so where there is fraud there is money
laundering. Fraud is a crime and is a predicate offense (these crimes are the underlying source
of the money laundering) for money laundering. In many financial institutions, there are
separate departments that try to protect the institution from money laundering and fraud.
The money laundering process will theoretically involve three fundamental stages of the whole
process that are totally independent and often occur simultaneously.
 The first stage of the process is the placement of money in the country's economic
system, aiming to conceal its illicit origin in view of the lower visibility, where the
criminal executes money movements in countries with more permissive rules and in
those that can thus be countries that have “Off Shores”. The assignment will take place
through the following means: full or fractional deposits, purchase of negotiable
instruments or purchase of goods. To make it difficult to identify the origin of money,
criminals apply sophisticated and increasingly dynamic techniques, such as the
smurfing method, which is the fractionation of the values that transit through the
financial system and the use of commercial establishments that usually work with cash,
as well as jewellery markets, exchange houses, travel agencies and factories.
 Layering – 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:
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.
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.
 The final step of the money laundering scheme is integration. As the term implies,
integration is when profits and goods are reinserted into the legal economy without
raising suspicion or giving them a legitimate source of appearance. Thus, at this stage,
money is reincorporated into the financial system in a legitimate way - transferring the

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image of a currency from legal transactions. This can be done through a bank transfer
to the account of a local company in which the criminal "invests" in exchange for profit
sharing; of the sale of a yacht purchased during the concealment phase. At this stage,
the criminal can use the money without being caught in the act. It is very difficult to
catch a criminal during the integration phase if there is no documentation during the
previous phases.

III. METHODS OF MONEY LAUNDERING

The following are some of the common ways through which money is laundered:

1. Mixing funds in legitimate business

Another common way one can use to legalize illicit funds is by setting up various businesses
that exist for the sole purpose of blending dirty money with legitimate incomes. While the
companies set up are legal in nature and can operate like ordinary businesses, they can overstate
their income, which comes from over-invoicing to allow inflow of ‘dirty’ money. Businesses
that are on cash basis like nightclubs make the inflow even more difficult to trace.

Shell companies that are set up without any significant assets or operations can also be used
for money laundering. These companies simply create fake transactions similar to normal
businesses to allow inflow of cash. The funds can be cycled in a few more companies before
reaching your pocket as legitimate cash.

2. Smurfing Funds

Owing to banks that have anti-money laundering procedures, you face a barrier to transfer large
amounts of money through banks. This is where you can try smurfing or structuring. This
practice requires you to hire many short term employees to make multiple small deposit into
multiple accounts in several cycles before ending up in your account again, either in offshore
accounts or in shell company accounts.

This method might take some time to launder if the amount is huge as transfers are done in
throughout multiple days to avoid suspicion. One must have to be meticulous enough to transfer
those funds several times through foreign exchanges and conduct transfers to banks that
maintain high levels of secrecy like the Swiss Bank.

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3. Cryptocurrency

Speaking of virtual currencies, cryptocurrency, a digital currency designed to work as a

medium of exchange, offers another avenue for money launderers to clean their money.
According to a report from the US Drug Enforcement Administration, China-based
manufacturers were trying to avoid capital controls by accepting bitcoin for their trading
operations. The Department of Justice stated, “The increasing use of OTC bitcoin brokers, who
are capable of transferring millions of dollars in bitcoin across international borders, as part of
a capital flight scheme is expected to continue to intertwine criminal money laundering
networks with capital flight.”

4. Flipping in Real estate

Money laundering makes use of wide networks to perform multiple transactions with different
names and accounts. One example is allowing illicit money to flow through real estate
transactions. One can purchase a property or land from a seller but understates the purchase
value in paper. The seller then agrees to receive the difference between the actual purchase
value and paper value under the table.

The purchaser then “sells” the property to another partner with a much higher value. The
difference between the sale price and purchase price then becomes clean money earned from
property flipping. It's important not to attempt this and always go the legal way and apply
through a home loan.

IV. A COMPARISON OF ANTI-MONEY LAUNDERING LAWS OF

INDIA AND UNITED KINGDOMS

4.1 Legal Framework:

In India, the Prevention of Money Laundering Act 2002 (hereinafter referred to as the PML
Act), together with the rules issued thereunder and the rules and regulations prescribed by
regulators such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of
India (SEBI), set out the broad framework for the anti-money laundering laws.

The PML Act was enacted by the Indian Parliament in 2002 and came into force in 2005. The
PML Act not only criminalizes the offence of money laundering, but also puts in place
preventive measures. These measures are proposed to be achieved through provisional
attachment of ‘proceeds of crime’, which are likely to be concealed, transferred or dealt with

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in a manner that may obstruct proceedings, and through obligations imposed on banks,
financial institutions and intermediaries to maintain records and furnish information regarding
certain types of transactions. Under the PML Act, financial institutions and intermediaries,
reference to which includes, inter alia, non-banking financial companies (NBFCs),
stockbrokers and payment system operators, are required to maintain records of transactions of
a prescribed nature and above certain thresholds.

The PML Rules, 2005

The PML Rules have been issued by the central government in consultation with the RBI,
setting out the process to be adopted by banks, financial institutions and intermediaries for
identifying and verifying their clients before commencing a business relationship with them.

The PML Rules cast obligations on banks, financial institutions and intermediaries to maintain
records of certain prescribed transactions, which include all transactions in excess of a certain
value, series of interconnected transactions that may cumulatively amount to a prescribed
value, and suspicious transactions (as defined in the PML Rules), whether or not such
transactions are effected in cash.

In this regard, the RBI has issued the Bank KYC Guidelines and the NBFC KYC Guidelines
for banks and financial institutions, and the SEBI has issued the SEBI AML Guidelines for
SEBI-registered intermediaries.

In UK, the Proceeds of Crime Act 2002 (POCA) created a number of money laundering
offences. The main offences under POCA are found at sections 327-329 (the Primary Offences)
and include the offences of:

 concealing, disguising, converting or transferring proceeds of crime (proceeds), or

removing them from the jurisdictions of England and Wales, Scotland or Northern
Ireland (section 327);
 entering into, or becoming concerned in, an arrangement that one knows or suspects
enables the retention, use or control of the proceeds (section 328); and
 acquiring, using or possessing proceeds (section 329).
In addition to the three Primary Offences listed above, it is an offence for those operating in
the regulated sector to fail to disclose knowledge or suspicion of money laundering (sections
330-331). It is also an offence if, during the course of business, they gain knowledge or
suspicion that a disclosure has been made and an investigation into money laundering is being

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contemplated or carried out and then make a disclosure or ‘tip off’ regarding the existence of
that investigation which is likely to prejudice the investigation (section 333A).

The Serious Crime Act, 2015

Section 37 of this Act introduced, via amendment to POCA, an exclusion of civil liability
relating to good-faith authorised disclosures of suspicion of money laundering.

The Terrorism Act, 2000

The Terrorism Act creates separate offences of funding terrorism, using money or property for
terrorism or entering any arrangement that makes funds available for the purposes of terrorism
(sections 15-17). In addition, it is an offence to enter into, or become concerned in, an
arrangement that facilitates the retention or control by, or on behalf of, another person, of
terrorist property in any way (section 18). Similarly to POCA, it also produces separate
offences of failure to disclose the laundering of terrorist property or of ‘tipping off’ a third
party that a disclosure had been made.

4.2 The Offence of Money Laundering:

In India, money laundering is defined in the PML Act as direct or indirect attempts to indulge
or knowingly assist or knowingly become a party to or have actual involvement in the process
or activity connected with the proceeds of crime and projection of such property as untainted
property. The PML Act was amended in 2013 to include the activities of concealment,
possession, acquisition or use of the proceeds of crime in activities that have been criminalised.
To constitute an offence of money laundering under section 3 of the PML Act, a person must
knowingly assist or knowingly be a party to any process or activity connected with the proceeds
of crime and in the projection or claiming of such proceeds of crime as untainted property, or
be involved in concealing, acquiring or using such proceeds of crime. Therefore, the element
of knowledge is an important constituent for the offence of money laundering in India, and thus
a strict liability standard may not be applicable in India in the context of an offence of money
laundering.

In UK, concealing, disguising, converting or transferring proceeds of crime (proceeds), or

removing them from the jurisdictions of England and Wales, Scotland or Northern Ireland
(section 327); entering into, or becoming concerned in, an arrangement that one knows or
suspects enables the retention, use or control of the proceeds (section 328); and acquiring, using
or possessing proceeds (section 329) constitute offences of money laundering.

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4.3 Enforcement Authorities:

In India, the Directorate of Enforcement (ED) and the director of the Financial Intelligence
Unit of India under the Ministry of Finance have been appointed to exercise exclusive powers
under specific sections of the PML Act. Some officers are also empowered to assist these
authorities.

In England and Wales, money laundering offences are normally investigated by the police or
HM Revenue & Customs (HMRC). Where the alleged money laundering has been committed
by an institution based in the City of London (which refers to the financial centre rather than
the metropolitan area), it will generally be investigated by the Money Laundering
Investigations Unit, which sits within the Financial Investigation Unit of the City of London
Police. If the matter relates to money laundering by politically exposed persons (PEPs), then a
specialist unit within the National Crime Agency (NCA) will investigate the matter. In cases
where the money laundering is linked to a serious fraud or corruption case, the matter may be
both investigated and prosecuted by the Serious Fraud Office.

4.4 Qualifying Assets and Transactions:

In India, the commission of a scheduled offence is required to ascertain whether the offence of
money laundering has been committed. For such a determination, a monetary threshold has
been prescribed for certain scheduled offences (namely, Part B offences). Part B offences
include offences of false declarations and false documents under section 132 of the Customs
Act 1962, for which a monetary threshold of 10 million rupees has been prescribed.
Accordingly, only if the total value involved in the commission of such a Part B offence
exceeds 10 million rupees would the other elements of the offence of money laundering be
satisfied.

In UK, there is no limitation on the types of assets or transactions that can form the basis of a
money laundering offence.

4.5 Defences

In India, there are no codified defences to the charge of money laundering, other than
demonstrating lack of knowledge.

In UK, under the Primary Offences (sections 327-329) it will be a defence to show that:

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 before committing the prohibited act, the alleged offender (or in the case of a company,
the nominated officer) made a disclosure to the NCA and obtained prior permission to
undertake the otherwise prohibited act.
 when the alleged offender began the prohibited act, he had no reason to know or suspect
that the property constituted or represented benefit from criminal conduct, and he, on
his own initiative, made a disclosure as soon as was practicable after he gained such
knowledge or suspicion;
 the disclosure is made after the alleged offender has committed the prohibited act but
he had a reasonable excuse for failure to make the disclosure, and made the disclosure
as soon as it was practicable for him to do so; or
 the act was done in the carrying out of a function of the individual relating to the
enforcement of POCA or any other enactment relating to criminal conduct.
In addition, the offence under section 329 provides for an additional defence where a person
acquired the property (which otherwise would form the basis of the offence) for adequate
consideration, though this can, in certain circumstances, be a complex area.

4.6 Sanctions:

In India, an offence of money laundering is punishable by imprisonment for a term of between

three years and seven years, and additionally a fine. The maximum term of imprisonment may
extend to 10 years in the event that the proceeds of crime relate to an offence under the NDPS
Act. Under the PML Act, fines ranging from 10,000 rupees to 100,000 rupees for each failure
can be imposed on the banks, financial institutions and intermediaries in the event that the
bank, financial institution or intermediary has failed to maintain records or furnish information
in the manner prescribed under the PML Act and the PML Rules. In the event that an NBFC
fails to comply with the provisions of a direction issued by the RBI, including for instance the
NBFC KYC Circular, the RBI is empowered to cancel the registration of such NBFC. Section
11 of the SEBI Act empowers the SEBI to cancel the licence of an intermediary for non-
compliance with the directions issued by the SEBI, including the SEBI AML Guidelines. 3

In United Kingdoms, for POCA offences, a breach of the failure to disclose or tipping-off
offences carries a maximum penalty of five years’ imprisonment and an unlimited fine, with
the exception of the tipping-off offence at section 333A, where the maximum length of

3
Aditya Vikram Bhat and Pankhuri Govil, AZB & Partners, Anti-Money Laundering Laws in India. (May 2018)
accessible at https://gettingthedealthrough.com/area/50/jurisdiction/13/anti-money-laundering-india/

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imprisonment is two years (although an individual found guilty of the wider section 342
tipping-off offence can receive up to five years).

An individual found guilty of one of the Primary Offences (sections 327-329) is liable to a term
of imprisonment not exceeding 14 years and an unlimited fine, if sentenced in a Crown Court.
Following a breach of the Regulations, the designated regulatory and supervisory body for the
business can impose a penalty of such amount as it considers appropriate. However, it shall not
take action where there are reasonable grounds to show that the individual took all reasonable
steps to ensure that the breached requirement would be complied with.
The Regulations contain a criminal offence for failure to comply with the other terms of the
Regulations. If found guilty of this in the Crown Court, a person faces the maximum penalty
of two years’ imprisonment and an unlimited fine.

There are also other offences, including of prejudicing an investigation into a potential
contravention, providing false or misleading material in purported compliance with a
requirement and contravening a prohibition on being a beneficial owner, officer or manager of
a relevant firm unless approved as a beneficial owner. Each has a maximum penalty of two
years’ imprisonment, a fine, or both.
Where a breach in relation to a company is found to be with the consent of, or as a result of the
neglect of, an officer of that company (or a partner in a partnership), then both the body
corporate and the officer in question will be guilty of the offence.4

V. RECENT DEVELOPMENTS

5.1 India

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. Before amendment, money-laundering crimes

4
Anne Marie Ottaway, Michael Ruck, Elena Elia and Jennifer Burton, Anti Money Laundering Laws In United
Kingdoms (May 2018) accessible at https://gettingthedealthrough.com/area/50/jurisdiction/22/anti-money-
laundering-united-kingdom/

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with the exception of serious ones like terrorism were taken up only when the money involved
was Rs. 30 lakhs or above and that’s why there were 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. Before the
amendment, 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.

5.2 European Union

Many countries have been reviewing and revising their regimes, in the face of present and
developing dangers. Recently, the European Union updated its laws on anti-money laundering
and countering the financing of terrorism in an effort to crack down on financial crimes.

While the EU has strong anti-money laundering rules in place, recent cases involving money
laundering in some EU banks have raised concerns that those rules are not always supervised
and enforced effectively across the EU. This not only creates risks for the integrity and
reputation of the European financial sector, but may also have financial stability implications
for specific banks. As part of the broader efforts to complete the Banking Union and the Capital
Markets Union, the European Commission therefore proposes to amend the Regulation
establishing the European Banking Authority (EBA) in order to reinforce the role of the EBA
in anti-money laundering supervision of the financial sector. This is part of an overall strategy
to strengthen the EU framework for prudential and anti-money laundering supervision for
financial institutions, which the Commission is setting out in a Communication. These

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measures will contribute to promoting the integrity of the EU's financial system, ensuring
financial stability and protection from financial crime.

5.3 Canada

In Canada, the Financial Transactions and Reports Analysis Centre of Canada

(FINTRAC) is the national regulator in charge of anti-money laundering and anti-terrorism
financing. It provides information and interpretations relevant to accountants, including
reporting requirements related to suspicious transactions, terrorist property and large cash
transactions. For example, if you receive more than $10,000 in a single transaction or in
multiple transactions within 24 hours, you must submit a report within 15 days.

There is also guidance on knowing your client and their assets, such as methods to identify
individuals and confirm the existence of entities, and third party determination requirements.

Canada is a founding member of the Financial Action Task Force (FATF), the inter-
governmental body that issues international anti-money laundering and terrorism funding
standards. FATF released an evaluation report in 2016 on Canada’s efforts to combat these
issues and stated: “Canada has a strong anti-money laundering and combating the financing of
terrorism (AML/CFT) regime which achieves good results in some areas but requires further
improvements to be fully effective.”

In response to the FATF review and other initiatives to further develop and enhance the
Canadian regime, the federal government issued a discussion paper in February 2018 for
public consultation and proposed revisions to regulations in June 2018. Results of
a parliamentary study of Canada’s PCMLTFA are soon expected and changes to corporate
registry requirements are anticipated by July 2019 with regards to beneficial ownership
reporting.

VI. LIMITATIONS OF ANTI-MONEY LAUNDERING LAWS

India has taken up various Anti-Money Laundering measures to curb with this issue but these
measures somewhere or the other have some loopholes or lacunas and thus is not fulfilling their
complete purpose. Some of such problems are pointed out below:

 Growth of Technology: with the advent of technology at such a greater speed it has
been possible for the money launderers to act on obscuring the origin of proceeds of

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crime by cyber finance techniques. The enforcement agencies are not able to match up
with the speed of growing technologies.
 Lack of awareness about the problem: the issue of money laundering is growing at a
very high pace. Its unawareness among the common public is an impediment for
implementation of proper anti-money laundering measures. The poor and illiterate
people, instead of going through lengthy paper work transactions in Banks, prefer the
Hawala system where there are fewer complexities and formalities, little or no
documentation, lower rates and they also provide security and anonymity. This is
mainly because such people don’t know the seriousness of this crime and are not aware
of its harmful after effects.
 Non-fulfilment of the purpose of KYC Norms: RBI has issued the policy of KYC
norms with the objective to prevent banks from being used by criminals for money
laundering or terrorist financing activities. However, it does not cease or abstain from
the problem of Hawala transactions as RBI cannot regulate them. Further, such norms
are only a mockery as the implementing agencies are indifferent to it. Also, the
increasing competition in the market is forcing the Banks to lower their guards and thus
facilitating the money launderers to make illicit use of it in furtherance of their crime.
 The widespread act of smuggling: there are a number of black market channels in
India for the purpose of selling goods offering many imported consumers goods such
as food items, electronics etc. which are routinely sold. The black merchants deal in
cash transactions and avoid custom duties thus offering better prices than the regular
merchants. After liberalization of government, though this problem has been lessened
but it has not been done away with completely and still poses a threat to a nation’s
economy.
 Lack of comprehensive enforcement agencies: the offence of money laundering is
no more stuck to one area of operation but has expanded its scope include many
different areas of operation. In India, there are separate wings of law enforcement
agencies dealing with money laundering, cyber-crimes, terrorist crimes, economic
offences etc. Such agencies lack convergence among themselves. The issue of money
laundering, as we have seen, is a borderless world but these agencies are still stuck with
the laws and procedures of the states.

Combating the offence of money laundering is a dynamic process since the criminals involved
in it are continuously looking for new ways to do it and achieve their illicit motives. Moreover,

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since various countries are entering into multiple agreements and conventions in order to
strengthen their measures to combat money laundering, the money launderers are targeting and
exploiting those jurisdictions which are weak and do not have sufficient laws to deal with such
an offence. There is an urgent need for a definite policy of anti-money laundering.

VII. SUGGESTIONS TO COMBAT MONEY LAUNDERING

One of the most common ways of tapping black money has been amnesty schemes. There have
been 12 such schemes between 1946 and 1997. Many of them helped to convert huge sums of
money into white without the payment of any tax.5 During 1997 itself Rs. 33,000/- crore worth
of assets were declared under the scheme.6 Some suggestions to combat money laundering
have been added below:

1) Identification of the various important sectors of the economy that generate black
money.
2) Constant updating of causes and circumstances that lead to the generation of such
money and wealth.
3) Identification of ways and means that are currently followed to convert black money
into white.
4) Introduction of methods to reduce the existing vast accumulation of unaccounted
income and wealth be best tapped without demoralizing honest taxpayers.
5) Effective and expeditious punishments for tax evaders.
6) Ensuring honest compliance with tax laws.

Moreover, any effective system to combat money laundering must be obviously based on the
following three principles:

 Increased international co-operation;

 Strengthened mutual assistance in criminal proceedings; and
 A guarantee that criminals laundering funds derived from illicit activities will be
brought to book and that they will be extradited, where necessary.

5
“Black Money: Where is the Strategy”, Business Standard, New Delhi (2.12.2004).
6
Arun Kumar, The Black Economy in India, p.198.

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VIII. CASE STUDY: WACHOVIA BANK CASE (THE UNITED STATES)

8.1 Overview of the Case

The Wachovia Bank case is a major bank in the United States which was merged with Wells
Fargo in the year 2008. The bank was allegedly involved in a $300 billion dollar money
laundering scandal where Mexican law enforcement agencies revealed that Mexican drug
smugglers had laundered hundreds of billions of dollars for smuggling of cocaine as well as
weapons to and from the Unites States.7

The Bank shuffled $378.4 billion to fund their operations. The entire scheme was uncovered
in a Mexican law enforcement investigation concerning a DC-9 private jet. The cartel bought
several other jets to transport tons of cocaine during the 2000s. Sinaloa and other cartels employ
a wide variety of deceptive techniques to manage their funds, which are used to purchase
weapons, buy and sell drugs, extend their operations, protect themselves through bribery and
corruption, and acquire property and other assets needed to be able to operate anonymously.

While cartels utilize innumerable financial gambits, money laundering is considered one of the
most common methods. The U.S. Customs Service defines money laundering a “The process
whereby proceeds, reasonably believed to have been derived from criminal activity, are
transported, transferred, transformed, converted, or intermingled with legitimate funds, for the
purpose of concealing or disguising the true nature, source, disposition, movement or
ownership of those proceeds”8

The process allows an individual or an organization to take funds derived from or associated
with illicit activity and make them seem legitimate, thus putting them beyond the reach of law
enforcement.

The Office of National Drug Control Policy estimates that Americans spend approximately $65
billion annually on illegal drugs.9 This massive volume of sales means that large amounts of
cash accumulate in stash houses and collection points across the country.10 There is a myriad

7
Michael Smith, “Banks Financing Mexico Gangs Admitted in Wells Fargo Deal,” Bloomberg, June 29, 2010.
8
Phil Williams, “Money Laundering,” IASOC Magazine 10, no. 4 (1997).
9
Inside the DEA, DEA Programs, Money Laundering, United States Drug Enforcement Administration, 21
November, 2011.
10
Oriana Zill and Lowell Bergman, Do the Math: Why the Illegal Drug Business is Thriving, October 2000

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of methods used to launder this money to insure its safe and efficient delivery as payment of
salaries and bribes and as profit to the cartels.

Simplistically, money laundering in the Wachovia case occurred in three stages:11

(1) Placement: putting the money into the system;

(2) Layering: actions taken to obscure the paper trail; and

(3) Integration: Where illicit money is mixed with licit finance.

8.2 Money Laundering Techniques Used By Drug Cartels

Money laundering techniques utilized by the cartels at the placement stage include: (a)
smurfing or structuring deposits (breaking up large funds into amounts of less than $10,000-
threshold mandated for reporting—and then depositing them into banks); (b) cash-based front
companies; (c) smuggling of cash abroad; (d) international gold trade; (e) black-market
Mexican and Colombian peso exchanges; (f) private bankers; (g) non-bank financial
institutions; (h) international shell corporations; (i) lawyers, accountants, and other financial
intermediaries; (j) non-financial high-value transactions in real estate or artworks; (k) system
of internet money transactions; (l) Electronic transfers; (m) exploitation of offshore banking
and (n) use of trade and free trade zones.

IX. CONCLUSION

Money laundering in all forms is considered to be an offence all over the globe and thus
countries must come together in order to enforce strict laws so as to curb this menace. The
money is used to carry out activities such as smuggling of drugs as well as weapons, conducting
terror activities etc. which is against mankind. Therefore, countries must strengthen existing
global legislations such as the Financial Action Task Force (FATF) and take stringent actions
against offenders.

Countries around the world must create a central database which is to be shared amongst the
law enforcement agencies as well as Economic Offence Departments. Financial institutions
and other intermediaries of money laundering must also have access to this list. The means of

11
David Graver, “Drug-Money Laundering in Mexico,” Mexico: Facing the Challenges of Human Rights and
Crime, ed. William Cartwright (Ardsley, New York: Transnational Publishers, Inc., 1999): 39-82.

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updating this database frequently as new information becomes available is also essential. After
compiling and distributing this list, the financial institutions themselves need the power to act
on suspected acts of money laundering by freezing accounts. Suspicious activities involving
the people on the list should trigger a freeze mechanism that gives authorities the time to
investigate the transaction and the parties involved.

Finally, a major role has to be played by global banks who have unlimited wealth and
investments around the world. Banks must co-operate with the law enforcement agencies in
order to curb money laundering and must strike a balance between preserving the privacy of
their clients as well as establishing norms to curb money laundering. The same money can be
utilized in several global welfare measures including poverty alleviation, promoting education
and healthcare, combating climate change as well cresting a sustainable future for the coming
generations.

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X. REFERENCES AND BIBLIOGRAPHY

BOOKS REFERRED:-

1. Berger Allen N. (2005), Corporate Governance and Bank Performance; A Joint

Analysis of the Static, Selection and Dynamic Effects of Domestic, Foreign and State
ownership, World Bank, Development Research Group, Finance Team, Washington
DC.
2. Choudhary C. M. (2004), Recent Trends in Indian Banking, Sublime, Jaipur.
3. Dittus Peter, Corporate Governance in Central Europe: The Role of Banks, Basle, Bank
for International Settlements, Intergovernmental Organizations.
4. Prepared by: Fonteyne Wim (2007), Cooperative Banks in Europe: Policy Issues,
International Monetary Fund, European Department, Washington DC.
5. Reddy YRK and Raju Yerram (2000), Corporate Governance in Banking and Finance,
Tata McGraw-Hill Publishing Company Limited.

ARTICLES / JOURNALS:-
1. Mariano-Florentino Cuellar, The Tenuous Relationship between the Fight against
Money Laundering and the Disruption of Criminal Finance, Journal of Criminal Law
and Criminology, (2003),
https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=7123&co
ntext=jclc
2. Mohammed Ahmed Naheem, FIFA – highlighting the links between global banking
and international money laundering, Emerald Insight, (Aug. 2015),
https://www.emeraldinsight.com/doi/abs/10.1108/JMLC-08-2015-0037?af=R&
3. Concept of money laundering by Artur Victoria.
4. Aditya Vikram Bhat and Pankhuri Govil, AZB & Partners, Anti-Money Laundering
Laws in India. (May 2018) accessible at
https://gettingthedealthrough.com/area/50/jurisdiction/13/anti-money-laundering-
india/
5. Anne Marie Ottaway, Michael Ruck, Elena Elia and Jennifer Burton, Anti Money
Laundering Laws In United Kingdoms (May 2018) accessible at

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https://gettingthedealthrough.com/area/50/jurisdiction/22/anti-money-laundering-
united-kingdom/
6. “Black Money: Where is the Strategy”, Business Standard, New Delhi (2.12.2004).
7. Arun Kumar, The Black Economy in India, p.198.
8. Michael Smith, “Banks Financing Mexico Gangs Admitted in Wells Fargo Deal,”
Bloomberg, June 29, 2010.
9. Phil Williams, “Money Laundering,” IASOC Magazine 10, no. 4 (1997).
10. Inside the DEA, DEA Programs, Money Laundering, United States Drug Enforcement
Administration, 21 November, 2011.
11. Oriana Zill and Lowell Bergman, Do the Math: Why the Illegal Drug Business is
Thriving, October 2000
12. David Graver, “Drug-Money Laundering in Mexico,” Mexico: Facing the Challenges
of Human Rights and Crime, ed. William Cartwright (Ardsley, New York:
Transnational Publishers, Inc., 1999): 39-82.

ONLINE DATABASES

 www.maupatrafast.com (MANUPATRA)
 www.scconline.com (SCCONLINE)
 www.jstor.org (JSTOR)
 www.yalelawjournal.org (YALE LAW JOURNAL)

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