When black money being converted to white it comes under money laundering.

In India we have
prevention of money laundering act. It constitutes of various accident forms proceeds of crime.

Proceeds of Crime: The money that has been acquired illegally or through illegal business or rather we
can call it as black money as well. Examples:

Drug trafficking, prostitution, terrorist funding, illegal arms sale.

Now what you do with this money is what comes under money laundering. Example helping any criminal
concealing it, possessing that money, projecting it as untainted or claiming it as white money.

How is money laundered?

Placement: The black money is introduced in a financial system. Example A has a coffee shop and he
earns say 1000 every day and he deposits rupees 10,000 everyday resuming it or stating it that the
money has been brought through that coffee shop. under such circumstances there he is depositing
9000 more than the actual amount of 1000 which forms the black money. by doing so he is introducing
black money into the financial market.

Layering: the second stage consist of layering where the launderer tries to move the money from its
original source. For example by creating multiple accounts only one bank for disbursing the money.
Later using that accounts to launder money.

Integration: now this black money that has been layered are for the reinstated into the market in the
form of white money does the money is laundered. An example of this would be there criminals might
purchase the shares of any company or by investing in any other means thus converting it into white
money. Even cryptocurrencies are used as a tool for money laundering for such cases.

Sahara example of suspected money laundering, satyam scam,

Ransomware

It is the huge business that has been adopted by these various software experts where they input a
Malware into a device to lock your data and then they demand a ran some amount in the form of
Bitcoins only then they will unlock your data and provided to you. Such transaction is done by them
through a public wallet address where you have to input the Bitcoins.

After this when they have collected the various Bitcoins into their wallet they try to convert it from one
Crypto to another to hide its original source. Which is when the concept of krypton mixers come into
effect where in this mixtures are used by such criminals to spread the Crypto out into various multiple
directions so that we are not able to track them. Now once this cripto has been out of the reach it is
again converted into Fiat money through exchanges and deposited to bank or can be easily used by
these criminals.

A Peculiar example of this is the one where the China through its certain applications used to provide
the Indian customers with certain loan and charged huge amount of interest over it does it converted its
black money into white. Hence a lot of Crypto exchanges are currently being investigated by the
enforcement directorate for a system Chinese apps in money laundering.

How can we determine the money laundering of cryptos under such circumstances?
kyc: Also known as know your customer

Aml: Anti money laundering

As a bank it is essential that it must know who its customer is and keep updating his records and keep
checks on him. It is the responsibility of the bank as to check whether any unlawful or illegal activity is
being conducted and through such in activity the money is being transferred or deposited to the bank.
Does a solid money laundering checking mechanism is to be place. Though there is not any specific act
pertaining to the cryptor transactions or crimes pertaining to it but in India we have money laundering
act that covers such crimes.

Prevention of money laundering act

Section 3 of this act defines offence of money laundering. The explanation clause that has been inserted
through 2019 made this section some what strictier where it included certain acts such as concealment
position acquisition use projecting or projecting and untented property or climbing as untainted
property all these conditions that person would be liable under section 3 and route come within the
purview of money laundring. Under circumstances he cannot claim that he was not aware of such crypto
transactions and can be prosecuted by the court. However for that it is essential to prove that the
person who was carrying out this transactions was aware of or was having knowledge regarding the
illegality or criminality behind it. The punishment for it has been prescribed under Section 4 where it
inculkets the term of rigorous imprisonment which is not less than 3 years and can extent up to 7 years
or can also be liable for fine.

The concept of Krypton mixers: And example of this could be the very own tool of blender.io that has
been used by the US government for aiding the hacking group that was associated with the Government
of North Korea. And the blender tool was used to mix up these criptos so as to desource them from its
original source. In order to prevent such things the sanctions were put on these criminals where under
anyone who shall be dealing or shall be doing transaction with these criminals will also be liable to be
prosecuted.

Tornado Cash: Another such mixer is a tornado cash where it is an open source non custodial full
decentralized Crypto currency Tumblr. It was governed through the centralised autonomous
organisation also known as Dao and uses the STORN token for voting and protocol updates. Now here
the open source code means such software source code where this tornado was built was available to
the whole world on a platform called as data hub. Does it was not a company but just a software that
was used for Crypto mixers.

Block Chain:

Now this transactions on etherium virtual machine eVM compatible networks were public by default.
These various blockchains were compatible with this EVM mechanism where every transaction that has
been carried out through them was available to public. Now what this tornado cash used to do was that
it used to mix these tainted cryptos and used to and acted as a privacy tool where it used to hide the
transaction details by mixing this tinted cryptos and hiding its trail.

How does this works?

The first step constitutes of deposit. Here the user generates a random key note and deposits Ether or
any erc C20 token which is any token for that is usually used for etherium. Now this is submitted along
with the hash of that note to the tornado cash smart contract. Thus only we know the particular key.
After depositing it in tornado cash smart contract a person waits for some amount of time before with
drawing so I to improve its privacy. Now once we deposit that amount of Crypto or etherium to this
Tornado it automatically hides the details of the transaction from any authority who is trying to monitor
us. However the major question here can be how such tool like tornado achieve search privacy.

It usually breaks the link between the source and its destination.

In short what this tornado basically does is that it breaks the link between the one who is trying to
transfer any particular amount of cryptocurrency to any another person where this one person lets just
say him depositor deposits the money in the Tornado which creates a new etherium address whose key
just belongs to the depositor only by way of input in this key amount can be withdrawn. During this time
span when the deposited deposits and its withdrawal and lot of transactions which makes it difficult to
trace down the actual address. Apart from that there are various different blockchains as well governed
by different addresses which further increases the difficulties in tracing the actual address and the
details pertaining to transaction. Suppose there is one binance smart chair address it went to Tornado
and later it came out as an etherium. So how can one trace out that particular transaction among these
various transactions occurring among various blockchains. Thus, the government has to band his tool
called Tornado. Another point that needs to be addressed here is that when we deposit the particular
cryptocurrency or that amount to tornado thenwe need to direct the Tornado as to which address that
particular amount is to be reached and then through a smart contract where in it up except the eth
deposits that can be withdrawn by different addresses. Now when these new addresses withdraw that
amount under no circumstances can be trees out the link between depositing that amount and
withdrawal of that amount does ensuring complete privacy.

Sanctions blacklist

In order to deal with such issue very recently the office of foreign assets control of the US Treasury
Department added about 45 public addresses now these address is even included tornado cash smart
contract that was stored. The money laundering of about 1 billion of Elsa transactions was done by this
torndado i.e. the torn currency mixing service. Now the major question that a rose before this Court was
whether this of the power to sanction these smart contracts instead of only persons or entities. Now
here the developer was also held liable of this tornado app for money laundering but was not convicted
was only arrested. A critic to this would be that the software developer was not aware as to how this
software can be missused or the criminal intent behind the people who are using it. sach judgement
could even create problems to the base layer Crypto participants such as validators minors builders pool
operators reLays searchers and sequencers, etc.

Unless the one has properly abide with the KYc Conditions he cannot be prosecuted or legal action
cannot be brought against him.

FATF the financial action task force on money laundering: It is a global task force that works with issues
regarding money laundering at a global level. It was established in 1989 through G7 summit in Paris. It
set certain International standards for prevention of illegal activities money laundering terrorist
financing and proliferation of Weapons of mass destruction. In India the prevention of money
laundering act is due to this recommendations of fatf. It currently it is even focusing on the Crypto and
virtual assets relating to money laundering. It defines virtual assets as digital representation of value
that can be digitally traded transferred or used for payment virtual assets cannot include digital
representation of Fiat currencies. Does if any government includes and e currency then it does not come
within the perview of virtual assets but the cryptocurrency does.

Indian perspective regarding money laundering cases

Now these money laundering cases are majorly handled by Directorate of enforcement in India that
comes under the department of Revenue which ultimately comes under the ministry of finance.Thus
this enforcement directorate does not come under the state perview but comes under the central
government and hence such crime of money laundering is not a state issue but is governed by central
government.

Prevention of money laundering act, 2002

The act is to prevent the money laundering and to provide for confiscation of property derived from or
involved in money laundering and for the matters connected their with or incident thereto.

Under this act one of the most significant terms that needs to be kept in mind is the beneficial owner
section 2 subclause fa provides definition for beneficial owner where in its states it to be an individual
who ultimately owns or controls a client of a reporting entity or a person on whose behave a transaction
is being conducted and even includes a person who exercises ultimate effective control over juridicial
person say a company.

Two subclose n and deals with intermediary.

2ra offence of cross border implications: It's subclose one provides that if any offence that would have
been constituted as an offence under part A B and C of the schedule which has been committed by a
person who is outside India and that such Commission Of Crime took place in India that is the proceeds
of crime in India then he shall be liable in India as per this act. Further the sab close t w o two also
provides that if any person have committed the crime in India and have tried to transfer the proceeds of
crime outside India then also he will be with in the purview of this act and in the definition of provided
about that is offence of cross border implication.

These proceeds of crime are included within the schedule of pmla.

The part a includes the list of offences under IPC. The second part of this part a constitutes of offences
list under ndps and so on.

Part be constitutes of offences Under customs act which includes only two sections and part C
constitutes of certain act that is the black money Act.

12AA enhance due diligencies

reproting entity