Banking & Insurance

ASSIGNMENT 2 (based on Module 5)

MAHADEV MONEY LAUNDERING
CASE

Money Laundering – Money laundering is a covert and illicit financial practice that involves the
process of making unlawfully obtained funds, often referred to as "dirty money," appear legitimate
and clean. This usually entails a string of complex transactions that mask the source of the funds,
allowing criminals to profit from their illicit riches without raising suspicion. Money laundering,
which promotes illegal activities including drug trafficking, terrorism, and corruption, is a serious
threat to financial institutions and can have catastrophic effects on economies. Governments and
financial institutions all over the world have put strong legislation and anti-money laundering (AML)
systems in place to combat money laundering in order to identify and stop these illegal financial
activities.

Anti Money Laundering - Anti-Money Laundering (AML) refers to a collection of rules, policies, and
practises intended to stop criminals from passing off stolen money as legitimate wages. Making
"dirty" money gained through unlawful means, such as drug trafficking or corruption, appear "clean"
and respectable, is a practise known as money laundering.

Some key components of AML are –

1) Transaction Monitoring – it involves continuous monitoring of transactions to detect unusual

activities that can indicate money laundering.
2) Reporting – AML involves reporting suspicious financial activities to proper authorities.
3) Due diligence and record keeping – verification of customers by financial institutions.

AML's main objective is to stop criminals from utilising the financial system to hide their illegal
earnings. By doing this, it protects the integrity of the financial markets and stops the financing of
criminal activities like terrorism.

Most nations have AML laws in place that cover a variety of financial institutions, such as banks,
insurance companies, and securities firms, as well as a number of non-financial companies, including
casinos, real estate brokers, and merchants of high-value commodities. To stop financial institutions
from being used as conduits for money laundering and to defend the global financial system against
misuse by criminal organisations, compliance with AML legislation is crucial.

Some Indian provisions against money laundering –

1) Prevention of Money Laundering Act, 2002 (PMLA)

2) Enforcement Directorate (ED)
3) Financial Intelligence Unit-India (FIU-IND)
4) Know Your Customer (KYC) Norms
5) Prohibition on Cash Transactions
Anti money laundering – What happened, Which layers were used, How it was caught?

In the Mahadev Money Laundering Case, a major money laundering scheme was discovered in 2023.
An organised crime group headed by Alok Mahadev was implicated to this case. To hide the criminal
origins of their income, the business deployed a number of money laundering procedures. Some
important aspects of this case are –

a) 3 stages of Money Laundering with respect to Mahadev Betting Scam

1) Placement – In this phase, those in possession of "dirty" money—funds derived from illicit
activities like drug trafficking, corruption, or fraud—look for ways to integrate them into
the legal financial system. Placement involves converting this illegal money into a form that
can be used more conveniently while avoiding detection. This occurred when Mahadev
received large sums of money from illegal betting activities. Various methods like making
small, numerous contributions to different bank accounts or spending money to buy
luxurious items were used.
2) Layering – In order to confuse authorities and hide the sources of the funds, money
laundering individuals or groups weave a web of financial transactions during this stage.
The goal of layering is to make it difficult for law enforcement to track down the money's
illegal source by creating a complicated paper trail. Mahadev could employ a variety of
strategies, including money transfers between accounts, gambling with the funds to
combine them with real winnings, or cryptocurrency exchanges. These actions are
intended to perplex investigators and make it challenging to connect the money's source to
the betting scam.
Layers used –
a) Multiple companies and bank accounts: Fraud was carried out using a network of
businesses and bank accounts, both domestically and internationally. This made it
challenging to trace the money's flow and find the criminals.
b) Benami accounts: Accounts opened in other people's names without their knowledge
or consent are known as benami accounts, and a large number of the bank accounts
used in the scam fit this description. Due to this, it was challenging to connect the
accounts to the scammers.
c) Hawala transactions: Hawala is an unbanked method of sending money. Due to this, it is
challenging to follow the flow of money and pinpoint the participants.
d) Cryptocurrency: Bitcoin and other cryptocurrencies were also used by the scam to
launder money. Because they are decentralised and challenging to trace,
cryptocurrencies are perfect for criminals.
e) The Mahadev betting scam benefited from the fact that online gambling is prohibited in
India in addition to these layers. Authorities found it challenging to look into the fraud
and prosecute the perpetrators as a result.
3) Integration - Integration is the last step in the money-laundering process. At this point, the
funds that have been cleaned up are returned to the legitimate economy while still
presenting a legitimate source. Integration enables those engaged in money laundering to
use the proceeds in the open and without arousing suspicion. In the scam, it included
investing the money in real estate and assets, setting up businesses and for bribing the
 officials. The money appears to be clean at this point and can be used without raising any
red flags. The criminals used the businesses to create fake invoices to justify the movement
of money through their personal and business accounts.

b) How It was caught?

India's financial intelligence agency, the Enforcement Directorate (ED), discovered the Mahadev
money laundering case. The ED started an investigation after receiving a tip about the case. The
ED discovered that the accused were laundering money using cryptocurrency, shell companies,
and hawala. The police worked closely with banks and payment processors to track the flow of
money. This allowed the police to identify the people involved in the scam. The investigation led
to a number of arrests including the masterminds of the scam Saurabh and Ravi. A number of
Bollywood celebrities were also summoned by ED.
c) Your comments - (Future Repercussions/Way to Avoid or Market/Any other observation
Future repercussions-
The Mahadev money laundering case is likely to have a number of future repercussions. First, it
is likely to lead to increased scrutiny of the betting industry in India. Second, it is likely to lead to
increased calls for reform of India's AML laws and regulations. Third, it is likely to lead to
increased demand for AML compliance services from businesses in India.

Ways to Avoid- Businesses can avoid getting involved in money laundering by having strong AML
controls in place. These controls should include:

 Knowing your customers: Businesses should know who their customers are and what they
do. This includes verifying the identity of customers and understanding their business
activities.
 Monitoring transactions: Businesses should monitor customer transactions for suspicious
activity. Suspicious activity may include large cash transactions, transactions that do not
make sense in the context of the customer's business activities, or transactions that are
structured to avoid AML reporting requirements.
 Reporting suspicious activity: Businesses should report suspicious activity to the appropriate
authorities.
 Technological Advancements: Continuous investment in advanced technology and data
analytics is crucial for detecting and preventing increasingly sophisticated money laundering
schemes, especially those involving cryptocurrencies.
 Individuals can avoid getting involved in money laundering by being aware of the risks of
money laundering and avoiding getting involved in schemes that promise high returns with
little risky

Observations-

One observation about the Mahadev money laundering case is that it could have been caught
sooner if the accused had not been so reckless. The accused spent lavishly on their weddings and
other events, which attracted the attention of the ED.
Another observation is that the case is a reminder of the importance of international cooperation in
combating money laundering. The ED worked with law enforcement agencies in other countries to
investigate the case and arrest the accused.

Conclusion – The money laundering scam serves as a stark reminder of the ever-evolving challenges
in the fight against money laundering. The case emphasizes the significance of robust AML
measures, international cooperation and advancement in technology.