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. Even four thousand years before Christ, Chinese merchants used to hide their wealth from their rulers so as to avoid confiscation. The merchants also invested their money in remote provinces and even outside China. Literature is replete with stories of Jewish shylocks that employed innovative methods to hide their money. Meyer Lanski (Capone’s accountant) was very successful in concealing his ill-gotten money. The Hindujas were criticised in British press for ‘obtaining British passports by contributing a substantial sum of the Millennium Dome.’ The term "money laundering" is said to originate from Mafia ownership of Laundromats in the United States. Gangsters there were earning huge sums in cash from extortion, prostitution, gambling and bootleg liquor. The large proceeds so obtained by means of such illegitimate businesses required the showing of a legitimate source. One of the ways in which they were able to do this was by purchasing externally legitimate businesses and to blend their illicit earnings with the legitimate earnings they received from these businesses. Laundromats were chosen as a front for converting the illegitimate proceeds by these gangsters because Laundromats were cash businesses and this was an unquestionable advantage. One of the earliest names to have surfaced in relation to money laundering was that of Al Capone. Al Capone, however, was prosecuted and convicted in October, 1931 for tax evasion. It was this that he was sent to prison for rather than the predicate crimes which generated his illicit income and according to Robinson this tale that the term originated from this time is a myth. He states that: "Money laundering is called what it is because that perfectly describes what takes place - illegal, or dirty, money is put through a cycle of transactions, or washed, so that it comes out the other end as legal, or clean, money. In other words, the source of illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds can eventually be made to appear as legitimate income".
It would seem, however, that the conviction of Al Capone for tax evasion may have been the trigger for getting the money laundering business off the ground. Money laundering as a crime only attracted interest in the 1980s, essentially within a drug trafficking context. It was from an increasing awareness of the huge profits generated from this criminal activity and a concern at the massive drug abuse problem in western society which created the impetus for governments to act against the drug dealers by creating legislation that would deprive them of their illicit gains. Governments also recognised that criminal organisations, through the huge profits they earned from drugs, could contaminate and corrupt the structures of the state at all levels. Money laundering is a truly global phenomenon, helped by the International financial community which is a 24hrs a day business. When one financial centre closes business for the day, another one is opening or open for business. As a 1993 UN Report noted: The basic characteristics of the laundering of the proceeds of crime, which to a large extent also mark the operations of organised and transnational crime, are its global nature, the flexibility and adaptability of its operations, the use of the latest technological means and professional assistance, the ingenuity of its operators and the vast resources at their disposal. In addition, a characteristic that should not be overlooked is the constant pursuit of profits and the expansion into new areas of criminal activity
INTRODUCTION If you were to conduct a survey in our country asking what is money laundering, the general guesses from most people would be that it must be something related to drying, washing or may be dry cleaning of the currency notes. This is rather the human tendency about the world's very big crime. To some extent correct but layman don't know much of this world's third largest industry. As per IMF reports the turnover of this industry could be somewhere around $1.5 trillion. However common man does not pay attention because primarily it seems to be a victimless crime. It has none of the issues associated with a vanishing of the money from economy or performance of the government or organizations involved in the same and yet, money laundering can only take place after a predicate crime has taken place. If the person on the street is the banker he might throw the three letters "KYC" to express his knowledge. Money laundering is the process by which large amounts of illegally obtained money is given the appearance of having originated from a legitimate source. But in simple terms it is the Conversion of Black money into white money. This takes you back to cleaning the huge piles of cash. Indian newspapers frequently report the money laundering scams perpetrated by the Political leaders and some of the prominent stars are the chief ministers of UP, Punjab and Kerala. Other Indian star in the laundering business is Ketan Parekh. If done successfully, it allows the criminals to maintain control over their proceeds and ultimately to provide a legitimate cover for their source of income. The primary purpose of organised crime is to make profits. Like any business, the purposes of profit are to enjoy it and re-invest it in future activity. For the organised criminal, however, profit close to the source of the crime represents a particular vulnerability and unless the criminal can effectively distance himself or herself from the crime which is the source of the profit they remain susceptible to detection and prosecution. Hence there is a need to launder their illicit profits to make them appear legitimate. The biggest source of illicit profits comes from the drugs' trade and it was drug trafficking that provided the initial catalyst for concerted international efforts against money laundering. The drugs' industry is a highly cash intensive business and "in the case of cocaine and heroin the physical volume of notes received is much larger than the volume of drugs themselves". In order to rid themselves of this large
deposittaking institutions.burden it is necessary to use the financial services industry and in particular. .
" it said. funds transferred through the hawala market are between 30 to 40 percent of the formal market. and income tax evasion. and noted that the central Reserve Bank of India estimated . the major challenge for the finance sectors like banking. brokerage houses and insurance companies would be combating money laundering and terrorist financing. corruption." the report said." the US narcotics survey has said. arms traffickers and other criminals in India. 2008. KPMG's report also highlighted the vote of confidence in parliament. "Some common sources of illegal proceeds in India are narcotics trafficking. KPMG feels that in future. KPMG. $1 trillion laundered every year in India: 5 Aug. Over $1 trillion is being laundered every year by drug dealers. India continues to be a drugtransit country. which exposed the prevalence of unaccounted for money in the country. according to a report by audit and consulting firm. trafficking in persons. trade in illegal gems (diamonds). illegal trade in endangered wildlife. smuggling. KPMG said India's emerging status as a regional financial centre and informal crossborder money flows are the main contributors to growing money laundering in the country. "According to Indian observers.MONEY LAUNDERING -THE INDIAN SCENARIO The following article throws light on the penetration of money laundering business in India. This confirms the continued existence of a parallel banking system popularly called as 'hawala'. "A few politicians threw a large sum of cash in parliament and alleged that there was an attempt to bribe them for their vote.
can generate huge amounts of proceeds. bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimize” the ill-gotten gains through money laundering. Embezzlement. formal monitoring of AML systems and controls. and the activities of organized crime. When a criminal activity generates substantial profits. Along with . or moving the funds to a place where they are less likely to attract attention. MONEY LAUNDERING – THE NITTY GRITTY What is Money Laundering? The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. as it enables the criminal to enjoy these profits without jeopardizing their source. How much money is laundered per year? By its very nature.2 billion.official remittances to the country to be around $28. smuggling. The report suggests for India to reduce the informal money transfer channels it needs to focus anti-money laundering (AML) policies and procedures. Criminals do this by disguising the sources. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. and ensuring sanctions compliance. changing the form. including for example drug trafficking and prostitution rings. money laundering is an illegal activity carried out by criminals which occurs outside of the normal range of economic and financial statistics. This process is of critical importance. insider trading. the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Illegal arms sales.
launderers might choose to invest laundered funds in still other locations if they were generated in unstable economies or locations offering limited investment opportunities. Money laundering activity may also be concentrated geographically according to the stage the laundered funds have reached. in the country where the funds originate. Where does money laundering occur? As money laundering is a consequence of almost all profit generating crime. At the placement stage. for example. Finally. it can occur practically anywhere in the world. or a world banking centre – any location that provides an adequate financial or business infrastructure. The International Monetary Fund. rough estimates have been put forward to give some sense of the scale of the problem. With the layering phase. often. At this stage. at the integration phase. for example. the funds are usually processed relatively close to the under-lying activity. the launderer might choose an offshore financial centre. but not in every case. the laundered funds may also only transit bank accounts at various locations where this can be done without leaving traces of their source or ultimate destination. has stated in 1996 that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross domestic product. launderers usually prefer to move funds through stable financial systems. money launderers tend to seek out countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programmes. Generally. a large regional business centre.some other aspects of underground economic activity. As the objective of money laundering is to get the illegal funds back to the individual who generated them. .
Economies with growing or developing financial centres. If funds from criminal activity can be easily processed through a particular institution – either because its employees or directors have been bribed or because the institution turns a blind eye to the criminal nature of such funds – the institution could be drawn into active complicity with criminals and become part of the criminal network itself. the more entrenched organised crime can become. Evidence of such complicity will have a damaging effect on the attitudes of other financial intermediaries and of regulatory authorities. Some might argue that developing economies cannot afford to be too selective about the sources of capital they attract. Fighting money . there is a damping effect on foreign direct investment when a country’s commercial and financial sectors are perceived to be subject to the control and influence of organised crime. who tend to move their networks to countries and financial systems with weak or ineffective countermeasures. but inadequate controls are particularly vulnerable as established financial centre countries implement comprehensive anti-money laundering regimes. A reputation for integrity is the one of the most valuable assets of a financial institution. What influence does money laundering have on economic development? Launderers are continuously looking for new routes for laundering their funds. professional and ethical standards. as well as ordinary customers. Differences between national anti-money laundering systems will be exploited by launderers.How does money laundering affect business? The integrity of the banking and financial services marketplace depends heavily on the perception that it functions within a framework of high legal. The more it is deferred. But postponing action is dangerous. As with the damaged integrity of an individual financial institution.
Laundering enables criminal activity to continue. money laundering is inextricably linked to the underlying criminal activity that generated it. collective ethical standards. Most fundamentally. or offer bribes to public officials and indeed governments. Organised crime can infiltrate financial institutions. and ultimately the democratic institutions of society. The economic and political influence of criminal organisations can weaken the social fabric. What is the connection with society at large? The possible social and political costs of money laundering. In countries transitioning to democratic systems. acquire control of large sectors of the economy through investment.laundering and terrorist financing is therefore a part of creating a business friendly environment which is a precondition for lasting economic development. this criminal influence can undermine the transition. if left unchecked or dealt with ineffectively. . are serious.
the money re-enters the mainstream economy in legitimate-looking form -. 2. cars. wire transfers between different accounts in different names in different countries. This is often in the form of cash bank deposits. houses. Layering may consist of several bank-to-bank transfers. Layering .Layering involves sending the money through various financial transactions to change its form and make it difficult to follow. the launderer inserts the dirty money into a legitimate financial institution. changing the money's currency. diamonds) to change the form of the money.it appears to come from an legal transaction.STAGES IN MONEY LAUNDERING The basic money laundering process has three steps: 1. This is the most complex step in any laundering scheme. the criminal can . This may involve a final bank transfer into the account of a local business in which the launderer is "investing" in exchange for a cut of the profits.At this stage. the sale of a yacht bought during the layering stage. and it's all about making the original dirty money as hard to trace as possible. and banks are required to report high-value transactions. and purchasing high-value items (boats. making deposits and withdrawals to continually vary the amount of money in the accounts. At this point. 3.At the integration stage. This is the riskiest stage of the laundering process because large amounts of cash are pretty conspicuous. Placement . Integration .
sales and purchase of assets. Invest: The criminal spends the money by investing in assets or his lifestyle. PMLA PMLA ©Rajkumar S Adukia ©Rajkumar S Adukia 20 20 Who would come across these suspicious transactions? . Move: Clearly explains that the money launderer uses transfers. However. and it is these which ultimately prove to be the interface between the criminal and the financial sector 2. and changes the shape and size of the lump of money so as to obfuscate the trail between money and crime or money and criminal. Hide: To reflect the fact that cash is often introduced to the economy via commercial concerns which may knowingly or not knowingly be part of the laundering scheme. 3. General Steps in any money laundering process.use the money without getting caught. It is very difficult to catch a launderer during the integration stage if there is no documentation during the previous stages. The Anti Money Laundering Network recommends the terms 1.
Life insurance companies. trusts and lending institutions/companies and agents of the such institutions who accept deposit liabilities. It can be done by one or more persons by making deposits into one or more accounts during several visits to bank. It involves multiple deposits of low value monetary instruments purchased from banks or financial institutions with proceeds of crime. it involves. It may be in several forms like. .Financial entities. selling National Saving Certificates. Chartered Accountants while carrying out certain activities on behalf of their clients. portfolio managers and investment bankers. brokers or sales representatives of real estate when they carrying out certain activities on behalf of their clients. Some times. Agents. etc. and other middleman in securities markets. money orders etc. popularly known as Hawala. which includes alternative remittance systems. includes banks. Hundi. Money services businesses. Real estate. multiple deposits of cash or monetary instruments in amounts specifically below the ceiling amount (it is Rs. brokers or agents.50. Forex Dealers: People who are engaged in the business of foreign exchange. 000 in India). Chitti. deposit of multiple monetary instruments into accounts with different financial institutions. Securities dealers. METHODS OF MONEY LAUNDERING Smurfing: It is used as a tool by money launderer. credit societies.
Both structuring and smurfing are similar types of suspicious activity. meaning that for all intents and purposes. E-Banking/Cyber Banking Many banks have started providing their banking services on net by taking advantage of the global reach of the Internet and World Wide Web. which may result in money laundering. Overseas banks Money launderers often send money through various "offshore accounts" in countries that have bank secrecy laws.Structuring It is through multiple cash deposits or withdrawals at amounts below than ceiling amount.Cyber banking is vulnerable to money laundering because it facilitates fast movement of funds across the globe within a short span of time and anonymity of user. these countries .
They may use large business like brokerage firms or casinos that deal in so much money it is easy for the dirty stuff to blend in.allow anonymous banking. legal alternative banking systems that allow for undocumented deposits. Investing in legitimate businesses Launderers sometimes place dirty money in otherwise legitimate businesses to clean it. Shell companies These are fake companies that exist for no other reason than to launder money. they simply create the appearance of legitimate transactions through fake invoices and balance sheets. . This includes the hawala system in Pakistan and India and the fie chen system in China. withdrawals and transfers. Underground/alternative banking Some countries in Asia have well-established. often with ancient roots. They take in dirty money as "payment" for supposed goods or services but actually provide no goods or services. that leave no paper trail and operate outside of government control. These are trust-based systems. the company reports higher revenues from its legitimate business than it is really earning. or they may use small. A complex scheme can involve hundreds of bank transfers to and from offshore banks.in this case. This method typically works in one of two ways: The launderer can combine his dirty money with the company's clean revenues -.These businesses may be "front companies" that actually do provide a good or service but whose real purpose is to clean the launderer's money. or the launderer can simply hide his dirty money in the company's legitimate bank accounts in the hopes that authorities won't compare the bank balance to the company's financial statements. cash-intensive businesses like bars.
2) Money laundering on an international level necessitates it having a national dimension as well. Owners of such fronts may convert their illegally obtained income into legitimate income by showing sales through the retail business and paying the requisite taxes as applicable. . Some of the techniques of money laundering maybe depicted as follows: 1) Retail Businesses: These businesses maybe used as mere fronts where most of the sales disclosed are fictitious. Money laundering may. 3) Money laundering requires embracing of economic liberalization. thus the typologies of money laundering are observed at both levels. however. be practices exclusively on a national level.Mechanics/Classifications of money laundering: 1) Money laundering is multi-dimensional. a consequence of which is greater integration of financial and banking systems worldwide. Also there exists a possibility of overlap between the national and international dimension of laundering money. constituting of both a national as well as an international dimension. Techniques used for Money laundering at the National Level: Money laundering is a vibrant and continually evolving process which demands keeping abreast of its latest developments with regard to its techniques and instruments through which it is affected. The same technique of money laundering as applicable to retail sale also applies to wholesale businesses.
500. Money launderers acquire lottery tickets from genuine winners by paying them the lottery prize with their illegitimately acquired proceeds. the profits can easily be recorded on paper to launder the illegal proceeds. A similar technique of legitimizing illegal proceeds is given effect by purchasing winning tickets of racecourses. 6) Inheritance laws: Laws of inheritance related to jewellery comprise yet another technique of laundering money. The key to laundering money by this mode lies in the fraudulent sale of tickets. In the securities market. The extant to which fraudulent tickets can be sold is the extent to which money can be laundered. The markets so capitalized are also known as the stock exchanges. The stock market characterizes as one of its features that as long as the prices of shares moves up or down. 4) Casinos: Money laundering is given effect in casinos by way of the launderers taking their proceeds to the casinos and buying large number of casino chips with which they did little or practically no gambling. The level to which the price is inflated is the extant to which money is laundered. Sale of low value property at highly inflated prices is one such technique. the participants in this market make money. 7) Securities market: The capitalization of markets is one of the primary ways to mobilize funds for economic growth. the launderer conveniently encashes the casino chips passing them off as genuine winnings. Illegal proceeds may be laundered to this extant by the families of such married women. Indian inheritance law permits a married woman to acquire jewellery worth Rs.000. The encashment of these tickets leads to the legitimization of their proceeds. 3) Lottery tickets: The lottery constitutes big business in several countries. At the end of the day. 5) Property: The sale of property at random prices constitutes an effective way of laundering money.2) Charity Shows: Money laundering by way of organizing charity and entertainment shows constitutes an effective method of money laundering. .
The payment of the premature policies received by the insurer is passed on as legitimate money. 10) Indira Vikas Patras: The Indian economy is flooded with a high component of black money. 9) Amnesty schemes: Money laundering is an offence which is punishable by law but it is no secret that laws against money laundering have not entirely succeeded in curbing its practice. Under these schemes the government facilitates for the people to declare their illegally acquired proceeds on the payment of a certain amount of tax. These schemes are introduced to bring black money into the open.8) Insurance sectors: Insurance companies offer life insurance and other forms of general insurance. The government. The Indian government too had implemented such a scheme in the form of the ‘Indira Vikas Patras’. These bearer certificates offered to double the investment amount in a matter of six years and more importantly required no identification. introduces amnesty schemes from time to time. To achieve this privilege the Government introduced the Indira Vikas Patras. . This scheme prompted huge sums of illegitimately earned income to be pushed into the government machinery. The scheme also provisions for non-inquiry of the source of the money and after payment of tax it becomes legitimate money. needless to say. applying for premature encashment of policies at a discounted rate. including health and property insurance. therefore. faced the urgent requirement of channeling this huge amount of black money circulation into more productive means for the upbringing and development of the country. Laundering of money is given effect by investing in very expensive insurance policies and after paying a few premiums. The Government.
terrorist attacks on the United States. has increased. public interest in informal systems of transferring money around the world. assess their economic and regulatory implications. governments and international bodies have tried to develop a better understanding of these systems. . The reason is the hawala system's alleged role in financing illegal and terrorist activities. along with its traditional role of transferring money between individuals and families. often in different countries. particularly the hawala system. 2001. and design the most appropriate approach for dealing with them.HAWALA -THE TRADITIONAL REMITTANCE SYSTEM Since the September 11. Against this background.
No records are produced of individual transactions. The hawala system is one of the IFT systems that exist under different names in various regions of the world. The hawala broker calls another hawala broker in the recipient's city. the hawala system can also be used to send funds from a developing country. which means "transfer" or "wire" in Arabic banking jargon. even though the purpose of the funds transfer is usually different. the transaction takes place entirely on the honor system. and need not take the form of direct cash transactions.Informal funds transfer (IFT) systems are in use in many regions for transferring funds. The hawala system refers to an informal channel for transferring funds from one location to another through service providers—known as hawaladars— regardless of the nature of the transaction and the countries involved. it can operate even in the absence of a legal and juridical environment. to distinguish the hawala system from the term hawala. and promises to settle the debt at a later date. A customer approaches a hawala broker in one city and gives a sum of money to be transferred to a recipient in another. usually foreign. Settlements of debts between hawala brokers can take a variety of forms. It is important. While hawala transactions are mostly initiated by emigrant workers living in a developed country. however. As settlements often . How Hawala Works? In the most basic variant of the hawala system. money is transferred via a network of hawala brokers. city. hawala brokers often earn their profits through bypassing official exchange rates. The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers. both domestically and internationally. gives disposition instructions of the funds (usually minus a small commission). only a running tally of the amount owed by one broker to another is kept. or hawaladars. In addition to commissions. As the system does not depend on the legal enforceability of claims. Generally the funds enter the system in the source country's currency and leave the system in the recipient country's currency.
and the term 'black hawala' refers to illegitimate transactions. there are regulations governing inbound and outbound remittances. of the transactions is illegitimate. In addition. Hawala provides a ready means of doing this. Many 'white' hawala transactions are essentially remittances. possible to state 'hawala is illegal in India with nearly complete accuracy. The important point for our purposes is that the existence of these regulations is another reason hawala is still used. and. in part. this question really addresses regulations governing remittance services and the circumstances of the remittance. and impose strict licensing requirements on money remitters and foreign exchange dealers. The existence of these laws also explains.take place without any foreign exchange transactions. Many people in these countries have money that they would like to move to another country due to concerns about stability. How Hawala Is Used To Launder Money? Up to this point. however. prohibit foreign exchange transactions at anything other than the official rate of exchange. the situation is more complicated. are not . specifically hawala money laundering. In South Asia. they can be made at other than official exchange rates. and intent. It is. Following Indian usage. the prevalence of invoice manipulation as part of hawala schemes. and its use as a facilitator of 'capital flight' on both large and small scales is very common. Is Hawala Legal? Since hawala is a remittance system. to pay for education or medical treatment. Many South Asian nations (such as India and Pakistan) have laws that prohibit speculation in the local currency. the term 'white hawala' is used to refer to legitimate transactions. This distinction is valuable for money laundering enforcement. while illegal under Indian and law. no distinction has been made between hawala transactions where the source of the money is legitimate and where the source.
These checks may also have some sort of notation. narcotics trafficking. Switzerland. What Are Some Indicators Of Hawala? The hawala is actually quite simple. Money laundering consists of three phases: placement. These checks may be made out to the primary account holder. One of the most consistent and valid indicators of hawala activity in investigations conducted in the many countries is seen in bank accounts. are almost always associated with some serious offense (e. many checks were seen with the word 'bangle' written on them. which were almost all for even dollar amounts. or some secondary entity (often outside the United States) somehow associated with the account. this was done apparently in order to make it appear as though the checks. consisting of a name (presumably of the person to whom the money is remitted to) or something supposedly indicating what was 'bought' with the money. Afghan. Three of the most common locations are Great Britain.g.illegal in other jurisdictions. which are often from one or more ethnic communities (e. This complexity of variation makes it nearly impossible to lay out a straightforward guide to recognizing hawala money laundering as part of a criminal undertaking. layering and integration. In one case. however. it can be used at any phase. Somali) associated with the hawaladar. `Black' hawala transactions. that is illegal in most jurisdictions. usually in the forms of cash and checks. Pakistani. and Dubai. fraud). Bangladeshi. A 'hawala' bank account almost always shows significant deposit activity. Since hawala is a remittance system. much of the complexity associated with and ascribed to hawala money laundering comes from the nearly infinite number of variations that are encountered in hawala transactions. however. possible to provide a few indicators that may be useful. Indian. Given the flexible and casual nature . These accounts will also almost always show outgoing transfers (usually by wire) to a major financial center known to be involved in hawala. had been written to purchase jewelry. It is.g.
of the hawala business. Hundi (India). IFT systems were used for trade financing. Once again. Eastern . Africa. The hawala (or hundi) system now enjoys widespread use but is historically associated with South Asia and the Middle East. precious stones) Foreign Exchange Rugs/Carpets Used Cars Car Rentals (usually non-chain or franchise) Telephones/Pagers Why Hawala Developed? In earlier times. it is not possible to give an exhaustive list. its primary users are members of expatriate communities who migrated to Europe. but the following is a starting point: Import/Export Travel and Related Services Jewelry (gold. the Persian Gulf region. They were created because of the dangers of traveling with gold and other forms of payment on routes beset with bandits. and North America and send remittances to their relatives on the Indian subcontinent. Padala (Philippines). and Phei Kwan (Thailand). Hui Kuan (Hong Kong). They go under various names—Fei-Ch'ien (China). The following diagram summarizes 'hawala account' behavior: Certain businesses are also more likely than others to be involved in hawala. East Asia. Local systems were widely used in China and other parts of East Asia and continue to be in use there. hawala accounts will not always be seen to balance. At present.
While hawala is used for the legitimate transfer of funds. These higher fees often cover all the expenses of the hawaladars. Many expatriate communities are exclusively male. hawaladars sometimes exempt expatriates from paying fees. In addition to economic factors. and elsewhere. capital. These emigrant workers have reinvigorated the system's role and importance. more reliable. or e-mail. instructions are given to correspondents by phone. The minimal documentation and accounting requirements. The system is swifter than formal financial transfer systems partly because of the lack of bureaucracy and the simplicity of its operating mechanism. hawaladars may instruct their counterparts to deliver funds to beneficiaries before expatriate workers make payments. and funds are often delivered door to door within 24 hours by a correspondent who has quick access to villages even in remote areas. more convenient. or administrative controls. cultural considerations encourage expatriate workers to remit funds through the hawala system. Hawaldars charge fees or sometimes use the exchange rate spread to generate income. and personal relations between hawaladars and expatriate workers make this system convenient and easy to use. It is less expensive. ethnic ties. thanks mainly to minimal overhead expenses and the absence of regulatory costs to the hawaladars. Moreover. The fees charged by hawaladars on the transfer of funds are lower than those charged by banks and other remitting companies. The flexible hours and proximity of hawaladars are appreciated by expatriate communities. its anonymity and minimal documentation have also made it vulnerable to abuse by individuals and groups transferring funds to finance illegal activities. To accommodate their clients. kinship. who often operate other small businesses. To encourage foreign exchange transfers through their system. and the lack of bureaucratic procedures help reduce the time needed for transfer operations. facsimile. they reportedly charge higher fees to those who use the system to avoid exchange.Europe. In contrast. the simple management. and such considerations also apply to family members in the home country. Economic and cultural factors explain the attractiveness of the hawala system. swifter. because wives and other family members . and less bureaucratic than the formal financial sector.
They continue to develop in regions where financial development has been slow or repressed. However. especially women. and village solidarity depends more on absolute trust between the participants than on legal documents. where family traditions prevail. would be an acceptable intermediary. These traditions may require family members. On the receiving side. the remittance of funds from one country to another is not recorded as an increase in the recipient country's foreign assets or in the remitting country's liabilities.remain in the home country. protecting women from having direct dealings with banks and other agents. repressive financial policies and inefficient banking institutions. In addition to overly restrictive economic policies. hawala transactions may affect the composition of broad money in a recipient country. even though they exist in financially mature countries as well. A trusted hawaladar. known in the village and aware of the social codes. Most IFT systems have prospered in areas characterized by unsophisticated official systems and during times of instability. unstable political situations have offered fertile ground for the development of the hawala and other informal systems. Because these transactions are not reflected in official statistics. have contributed to the development of IFT systems. In the remittance business. unlike funds transferred through the formal sector. which have often lacked interest in the remittance business. One aspect is its potential impact on the monetary accounts of countries on either end of the hawala transaction. financial development tends to check the spread of informal fund transfer systems. a system based on national. Thus. As a consequence. to maintain minimal contacts with the outside world. but broad money is unaltered. the hawala system has direct and indirect macroeconomic implications—for financial activity as well as for fiscal performance. Economic implications Despite its informality. such transactions are conducted . value changes hands. ethnic. Overall.
. hawala-type transactions tend to increase the amount of cash in circulation. the authorities of some countries have sporadically made estimates of hawala activity based on their expatriate populations and balance of payments data. especially. Policymakers believe that the potential anonymity afforded by these systems presents risks of money laundering and terrorist financing that need to be addressed. Individuals from developing countries who transfer funds abroad through the hawala system for investment or other purposes are usually members of wealthy groups. even though hawaladars may use the banking system for other purposes. Yet selecting the appropriate regulatory and supervisory response requires a realistic and practical assessment and an understanding of the specific country environment in which the IFT dealers operate.mainly in cash. more should be done to keep an eye on IFT systems to avoid their misuse by illicit groups. This holds true for both the remitting and. Hawala transactions cannot be reliably quantified because records are virtually inaccessible. Nevertheless. especially for statistical or balance of payments purposes. The negative impact on government revenue applies equally to both legitimate and illegitimate activities that involve the hawala system. the receiving sides of the transactions. the amounts involved in hawala transactions are likely to entail billions of dollars. In any case. IFT systems have fiscal implications for both remitting and receiving countries because no direct or indirect tax is paid on hawala transactions. Difficulties for regulators There is also a consensus that. Hawala transactions from developing countries are sometimes driven by capital flight motivations. Furthermore. leaving no traceable records. As a consequence. Although it would be impossible to provide a precise figure. They supply local hawaladars with cash by making withdrawals from their bank accounts. all crude estimates should take into account both hawala and reverse hawala transactions (see box) as well as transactions driven by illicit activities. in the wake of heightened international efforts to combat money laundering and terrorist financing. they may also be driven by a desire to circumvent exchange control regulations and the like.
as long as there are reasons for people to prefer such systems. a longerterm and sustained effort should be aimed at modernizing and liberalizing the formal financial sector. security. and the financial aspects of crime have become more complex due to rapid advances in technology and the globalization of the financial services industry. they will not. . with a view to addressing its inefficiencies and weaknesses. be at odds with existing laws and regulations and would be seen as legitimizing parallel foreign exchange operations and capital flight. Therefore. While these measures could deter illegal activities. succeed in reducing the attractiveness of the hawala system. Where IFT regulations are conceivable. As a matter of fact. including legitimate ones. further underground. terrorists. government. If the formal banking sector intends to compete with the informal remittance business. The purpose of any approach is not to eliminate these systems but to avoid their misuse. which are already in force in some countries: registration or licensing of IFT systems. policymakers tend to favor two options. Against this background. illegal arms dealers. Money laundering has potentially devastating economic. and others to operate and expand their criminal enterprises. they will continue to exist and even expand. Any attempt to regulate this system in these countries would. It provides the fuel for drug dealers. therefore. The variety of legal systems and economic circumstances across countries make a uniform approach technically and legally impractical.Regulation of IFT systems in various jurisdictions will be a complex endeavor. it should focus on improving the quality of its service and reducing the fees charged. CONSEQUENCES OF MONEY LAUNDERING Money laundering has a corrosive effect on a country's economy. the hawala system is prohibited. there is agreement that overregulation and coercive measures will not be effective because they might push IFT businesses. Crime has become increasingly international in scope. in isolation. and social well-being. corrupt public officials. In a number of countries. and social consequences.
These front companies have access to substantial illicit funds. laundered money flows into global financial systems. but also for emerging markets. to hide the ill-gotten gains. . Unfortunately. Due to the high integration of capital markets. Ultimately. the negative impacts of money laundering tend to be magnified in emerging markets. Exposed Emerging Markets Money laundering is a problem not only in the world's major financial markets and offshore centers. allowing them to subsidize front company products and services at levels well below market rates. There is evidence. where it can undermine national economies and currencies. any country integrated into the international financial system is at risk. The Economic Effects of Money Laundering Undermining the Legitimate Private Sector: One of the most serious microeconomic effects of money laundering is felt in the private sector. organized crime has used pizza parlors to mask proceeds from heroin trafficking. money laundering can also adversely affect currencies and interest rates. they become increasingly viable targets for money laundering activity. Increased efforts by authorities in the major financial markets and in many offshore financial centers to combat this activity provide further incentive for launderers to shift activities to emerging markets. Money laundering is thus not only a law enforcement problem. money laundering can erode the integrity of a nation's financial institutions. Money launderers often use front companies. for example. which co-mingle the proceeds of illicit activity with legitimate funds.Unchecked. for example. Indeed. of increasing cross-border cash shipments to markets with loose arrangements for detecting and recording the placement of cash in the financial system and of growing investment by organized crime groups in real estate and businesses in emerging markets. In the United States. it poses a serious national and international security threat as well. As emerging markets open their economies and financial sectors.
coupled with the attendant loss of policy control. such as construction and hotels. have been financed not because of actual demand. the management principles of these criminal enterprises are not consistent with traditional free market principles of legitimate business. to the extent that money laundering and financial crime redirect funds from sound investments to low-quality investments that hide their proceeds. Furthermore. Thus. The unpredictable nature of money laundering. interest. economic growth can suffer. may make sound economic policy difficult to achieve. In short. Clearly. And money laundering can increase the threat of monetary instability due to the misallocation of resources from artificial distortions in asset and commodity prices. for legitimate business to compete against front companies with subsidized funding. rather than where rates of return are higher. and exchange rates. which results in further negative macroeconomic effects. Economic Distortion and Instability: Money launderers are not interested in profit generation from their investments but rather in protecting their proceeds. This makes it difficult. front companies have a competitive advantage over legitimate firms that draw capital funds from financial markets. Thus they "invest" their funds in activities that are not necessarily economically beneficial to the country where the funds are located. money laundering and financial crime may result in inexplicable changes in money demand and increased volatility of international capital flows.In some cases. a situation that can result in the crowding out of private sector business by criminal organizations. for example. In some countries. front companies are able to offer products at prices below what it costs the manufacturer to produce. entire industries. if not impossible. but because of the short-term . Loss of Control of Economic Policy: Money laundering can also adversely affect currencies and interest rates as launderers reinvest funds where their schemes are less likely to be detected.
and embezzlement. Confidence in markets and in the signaling role of profits is eroded by money laundering and financial crimes such as the laundering of criminal proceeds. In the past. reviving it is very difficult and requires . criminals have been able to purchase marinas. Furthermore. especially in today's global economy. while privatization initiatives are often economically beneficial. widespread financial fraud. It also makes government tax collection more difficult. Reputation Risk: Nations cannot afford to have their reputations and financial institutions tarnished by an association with money laundering. When these industries no longer suit the money launderers. Furthermore. This loss of revenue generally means higher tax rates than would normally be the case if the untaxed proceeds of crime were legitimate. causing a collapse of these sectors and immense damage to economies that could ill afford these losses. they can also serve as a vehicle to launder funds. they abandon them. once a country's financial reputation is damaged. The negative reputation that results from these activities diminishes legitimate global opportunities and sustainable growth while attracting international criminal organizations with undesirable reputations and short-term goals. insider trading of securities. This can result in diminished development and economic growth. Criminal organizations have the financial wherewithal to outbid legitimate purchasers for formerly state-owned enterprises. Risks to Privatization Efforts: Money laundering threatens the efforts of many states to introduce reforms into their economies through privatization. and banks to hide their illicit proceeds and further their criminal activities. Loss of Revenue: Money laundering diminishes government tax revenue and therefore indirectly harms honest taxpayers. casinos.interests of money launderers. resorts.
it can lead to the virtual take-over of legitimate government. and other criminals to expand their operations.significant government resources to rectify a problem that could be prevented with proper anti-money-laundering controls. especially in emerging markets. it turns the old adage that crime doesn't pay on its head. Due to these drastic effects anti money laundering comes into picture and plays a very crucial role in combating money laundering in any country . for treatment of drug addicts) to combat the serious consequences that result. In extreme cases. money laundering transfers economic power from the market.and macroeconomic realms helps explain why money laundering is such a complex threat. Overall. and citizens to criminals. In short. the global nature of money laundering requires global standards and international cooperation if we are to reduce the ability of criminals to launder their proceeds and carry out their criminal activities A closer examination of some of these negative impacts in both the micro. the sheer magnitude of the economic power that accrues to criminals from money laundering has a corrupting effect on all elements of society. It allows drug traffickers. Money laundering is a process vital to making crime worthwhile. Furthermore. Among its other negative socioeconomic effects. government. money laundering presents the world community with a complex and dynamic challenge. This drives up the cost of government due to the need for increased law enforcement and health care expenditures (for example. Indeed. smugglers. Social Costs: There are significant social costs and risks associated with money laundering.
investigate and report transactions of a suspicious nature to the financial intelligence unit of the central bank in the respective country. For example.ANTI MONEY LAUNDERING Anti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. 2001 attacks and other terrorist activities. a bank must perform due diligence by having proof . Anti-money laundering guidelines came into prominence globally after the September 11. Today. all financial institutions globally are required to monitor.
These regimes aim to increase awareness of the phenomenon – both within the government and the private business sector – and then to provide the necessary legal or regulatory tools to the authorities charged with combating the problem. Some of these tools include making the act of money laundering a crime. extortion. the criminal activity will not continue.of a customer's identity and that the use. it is often the connections made through financial transaction records that allow hidden assets to be located and that establish the identity of the criminals and the criminal organisation responsible. embezzlement or fraud. a money laundering investigation is frequently the only way to locate the stolen funds and restore them to the victims. How Does Fighting Money Laundering Help Fight Crime? Money laundering is a threat to the good functioning of a financial system. What Should Individual Governments Be Doing About It? A great deal can be done to fight money laundering. indeed. seize and ultimately confiscate criminally derived assets. however. In law enforcement investigations into organised criminal activity. however. it can also be the Achilles heel of criminal activity. and building the necessary framework for permitting the agencies . many governments have already established comprehensive anti-money laundering regimes. and. When criminal funds are derived from robbery. giving investigative agencies the authority to trace. Without a usable profit. source and destination of funds do not involve money laundering. targeting the money laundering aspect of criminal activity and depriving the criminal of his ill-gotten gains means hitting him where he is vulnerable. Most importantly.
The President gave its assent to the Bill in January. In November. customer identification. regarded as a diluted version of the original one. involving the relevant authorities in establishing financial transaction reporting systems. parliament approved the long-pending legislation to prevent the offence of money laundering. however. 2003. The Upper House approved the Bill in July 2002 with amendments suggested by the Select Committee. The Bill in its modified form is. . bring law enforcement and financial regulatory authorities together with the private sector to enable financial institutions to play a role in dealing with the problem. for example.involved to exchange information among themselves and with counterparts in other countries. among other things. growing problem of money laundering. They should. 2002. STEPS TAKEN BY INDIAN GOVERNMENT TO COMBAT MONEY LAUNDERING INDIAN INITIATIVES With the intention of protecting our society from the globally recognized and. This means. the Central Government moved the Prevention of Money laundering Bill in the Parliament on 29th October 1999. The Bill was originally passed in December 1999 by the Lok Sabha and sent to the Rajya Sabha. It is critically important that governments include all relevant voices in developing a national anti-money laundering programme. record keeping standards and a means for verifying compliance.
Co-operative banks. The amendments will bring terrorism financing and customs offenses under the glare of prevention of money laundering. The Act also makes it mandatory for banking companies. 2005. 2002 (PMLA 2002). The Act also lists modalities of disclosure by financial institutions regarding reportable transactions. PMLA 2002 and the rules notified came into force with effect from July 1.10 lakh. these entities are required to maintain the record of the transactions for 10 years.This is because the definition of the offence of money-laundering itself has been watered down. Money Laundering Act is an endorsement of various international conventions to which India is a party. forms the core of the legal framework put in place by India to combat money laundering. . declaring money laundering as an extraditable offence and promoting international cooperation in investigation of money laundering. and it seeks to declare laundering of monies carried through serious crimes a criminal offence. The Prevention of Money Laundering Act. non-banking financial companies. The Government of India has decided to move amendments to the Prevention of Money Laundering Act (PMLA) that will entail taking tougher measures to block terrorist financing through banking channels. financial institutions and intermediaries to maintain a record of all transactions of a prescribed value and to furnish information whenever sought within a prescribed time period. Thus. This limit is further likely to be reduced to Rs. The Act allows for confiscation of property derived from or involved in money laundering. The minimum threshold limit for certain categories of offences under the Indian Penal Code and other legislations has been fixed at Rs 30 lakh in the Bill. chit funds and housing financial institutions come under its ambit. confiscation of the proceeds of crime.
seizure and confiscation of the proceeds of crime. FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence and enforcement agencies in pursuing the global efforts against money laundering and related crimes. PMLA 2002 defines moneylaundering offenses and provides for the freezing. as outlined below. analyzing and disseminating information relating to suspect financial transactions. processing. 1961 The Benami Transactions (Prohibition) Act. while the Prevention of Money Laundering Bill is yet to be enacted as a law. which incorporate certain measures which attempt to address the problem: • The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act. The Financial Intelligence Unit and Enforcement Directorate have been entrusted with exclusive and concurrent powers under relevant sections of the act to implement its provisions. financial institutions and intermediaries to verify the identity of clients. Existing Legal Framework to Curb Money Laundering in India In India. FIU-IND has been established as the central national agency responsible for receiving. 1988 The Indian Penal Code and Code of Criminal Procedure. we have certain statutes. The PMLA 2002 and notified rules impose obligations on banking companies. maintain records and furnish information to the Financial Intelligence Unit (FIU). 1985 .The Government of India has also set up Financial Intelligence Unit India (FIU-IND) on 18th November 2004 as an independent body to report directly to the Economic Intelligence Council (EIC) headed by the Finance Minister. 1973 The Narcotic Drugs and Psychotropic Substances Act. 1974 • • • • The Income Tax Act.
including those of over Rs 10 lakhs. series of connected transactions . 23 May 2008. 2002. RBI tightens anti-money laundering norms. seeks to deal with types of heinous crimes like subversion. 2001 and re-promulgated thereafter in December 2001. "The banks should report information in respect of all transactions referred under Rule 3 to the Director. The Act replaces the Ordinance that was first promulgated on October 24. which is not designed to deal with such horrific crimes." RBI said in a notification on Thursday. 1988 The Prevention of Terrorism Act (POTA). MUMBAI: Tightening the anti-money laundering norms. The following article highlights the steps taken by RBI to curb money laundering. the Rule 3 includes all cash transactions of more than Rs 10 lakh (or its equivalent in foreign currency). Financial Intelligence Unit-India (FIU-IND). to the directorate of financial intelligence. insurgency and terrorism in place of the existing criminal justice system. In addition to suspicious transactions. The Act also meets the requirement of the United Nations resolution calling upon member nations to enact a model deterrent law to curb the growing menace of internal and global terrorism.• The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act. the Reserve Bank India (RBI) on Thursday made it mandatory for banks to report all suspicious transactions.
lawyer) depositing funds that it manages for its clients. • Customers who are politically exposed persons (PEP’s) may significantly raise the potential for reputation risk.e. The account holder can be a customer that does not present himself or herself for interview at the bank (i.g. the notification said. or a professional intermediary (e. trust. and cash transactions where forged currency notes are used." The central bank further clarified that banks should include transactions in the STRs if they have reasonable ground that these involve proceeds of crime. though the amount may be below threshold limit prescribed by the Prevention of Money Laundering Act. which by nature involve a large measure of confidentiality. mutual fund. . RBI has also asked the banks to put in place appropriate software "to throw alerts when the transactions are inconsistent with risk categorisation and updated profile of customers. a non face-to-face customer) or one introduced to the bank by third party. because of its ability to move funds rapidly. It may also be a legal entity (e. • Private banking operations. corporates. professional intermediaries) to open an account so as to hide their true identities.g.g. Pointing out that customers may abandon the transactions on being asked to provide details. even if not completed by the customers. trust) interposed between the ultimate beneficial owners and the bank. the banking system is especially vulnerable to money laundering. irrespective of the amount of transaction. Customers of the bank include the person of entity that maintains an account with the bank or those on whose behalf an account is maintained (i. RBI has asked the banks not to alert the customer about the suspicious transactions being reported to the FIU-IND. corporate.with aggregate value of Rs 10 lakh." Nature of customer relationship and specific vulnerabilities of each sector Banking By its nature. beneficial owners) and the beneficiaries of transactions conducted by professional intermediaries. Specific activities for which the risk of money laundering is relatively higher are: • Customers who use fronts e. "Banks should report all such attempted transactions in STRs (Suspicious Transaction Reports).e.
Banks are vulnerable from the Money Laundering point of view since criminal proceeds can enter banks in the form of large cash deposits. Know your employee accurate information about your employees is equally important because they are the people who handle money and other confidential data hence if no proper information about their background is obtained they might be the loose link in the . SEBI has prescribed the certain requirements relating to KYC norms for Financial Institutions and Financial Intermediaries (such as Mutual Funds) to 'know' their clients. Bank officials therefore need to exercise constant vigilance in opening of accounts with large cash deposits and in checking suspicious transactions. The underlying principle is to follow the principles enshrined in the PMLA as well as the SEBI Act. Many companies who do not have face-to-face transacting (such as Mutual Funds) employ the verification route. The major objectives of Money Laundering activities are: • • Concealing the true ownership of illegally-obtained money and Placement. or if the respondents are shell banks or located in a jurisdiction which has poor know-your-customer standards. 2. This could be in the form of personal meetings or verification of identity and address. a term commonly used for Client Identification Process. 1992 so that the intermediary is aware of the clients on whose behalf it is dealing. are: 1. occupation and such other personal information. Know your employee Know your customer KYC is an acronym for “Know your Client” or “Know your customer”.• • • Introduced business. financial status. where a bank may place undue reliance on the due diligence conducted by an introducer. Know your customer (KYC) and. layering and integration of such funds Two cardinal rules that are to be invariably observed by bank officials for steering clear of the Money Laundering Trap. Correspondent banking business. Pursuant to PMLA. especially where banks do not fully understand the nature of the respondent banks’business.
This is known as "smurfing". the need for prompt recognition of suspicious / irregular transactions is emphasised. Each deposit is such that the amount thereof is not significant but the aggregate of all credits is sizeable. the human resourse department here has a pivotal role to play. which have no obvious purpose or relationship to the account holder and / or his business Reluctance to provide normal information when opening an account or providing minimal or fictitious information Depositing high value third party cheques endorsed in favour of the customer or other transactions on behalf of non-account holders Large cash withdrawals from a previously dormant or inactive account. Banks need to be wary of such transactions. or from an account which has received an unexpected large credit from abroad Sudden increase in cash deposits of an individual with no justification Employees leading lavish lifestyles that do not match their known sources of income • • • • • Although the above list is only indicative of the possible occurrence of Money Laundering. • • A substantial increase in turnover in a dormant account. The financial resources of insurance companies will in particular attract . • Customers depositing cash through a large number of cash deposit slips into the same account or customers having numerous accounts into which large cash deposits are made. Insurance the insurance industry is at risk of being misused by criminals for fraudulent activities.chain and may result in money laundering. Receipt or payment of large sums of cash. Irregular / Suspicious Transactions related to Money Laundering The list below provides examples of some of the basic ways in which money can be laundered..
i. Insurance is another mode used in different ways by money launderers. Various ‘trigger events’ occur after the contract date and indicate where due diligence is also applicable. the insured person and the beneficiary. e.fraudsters. i. Accordingly. The insurance industry has several.e.g. In this regard. investigated and filed. These intermediaries could work exclusively for the company in question or work independently. the nature of the insurance business means that other financial institutions are more vulnerable to money laundering. Well understood. In insurance several parties could be involved in transactions that may raise the possibility for money laundering: the insurer. ways to market its products. However. The contracting parties are generally free. Sometimes insurance companies use other companies in the same group to market its products. Examples of the type of contracts that are particularly attractive as a vehicle for laundering money are single premium invested policies. Some companies use intermediaries. benefits early surrender and designation of beneficiaries. information on the background of the client is collected. Some companies (direct writers) sell insurance directly to the customer and have their own call centers or agents.g. In insurance. with respect to duration. selling products for more than one company. It has clearly specified factors to be considered while issuing the policy and how to investigate. • Lump sum contribution to personal pension contacts. the policy holder.to determine the conditions of the insurance contract e. • Lump sum top-ups to an existing life insurance contract. International Association of Insurance Supervisors has issued guidance paper on AntiMoney laundering and Combating the financing of terrorism. risk management and premium-setting are essential elements within the underwriting process. To assess risk. sale over the branches of bank.e. • Unit-linked single premium contacts • Purchase of annuities. Some of the important factors are – ype and background of customer and/or beneficial owner T The customer’s and/or beneficial owner’s geographical base The geographical sphere of the activities of the customer and/or beneficial owner .within the boundaries of law. self-interest leads insurance companies to be careful in their payment of claims which are normally only paid after thoroughly checking the circumstances of the loss and the identity of the claimant. These trigger events include claim notification and surrender requests. especially in the case of insurance of large risks. insurer should assess the customer prior to establishment of a business relationship.
The nature of the activities Means of payment as well as the type of payment (cash, wire transfer, etc.,) The source of funds The source of wealth The frequency and scale of activity The type and complexity of the business relationship Whether or not payments will be made to third parties Whether a business relationship is dormant Any bearer arrangements The agency monitoring the AML activities in India, Financial Intelligence Unit (FIU IND) and compliance is required by all financial intermediaries. IRDA has made the AML guidelines mandatory for all insurance companies from 1st August 2006. IRDA has instructed all insurers to classify their customers, into the following risk categories: - High risk: Antique dealers, arms dealers / explosive dealers, money changers, film personalities, persons dealing with real estate, politically exposed persons, NRIs, HNIs, etc - Low risk: All others The following article published in times of India gives detailed information about it. IRDA readies plan to curb money laundering Insurance regulator IRDA has issued anti-money laundering guidelines that include strict adherence of KYC norms by insurance companies.IRDA has asked the insurers to put in place a proper policy framework by July 1 as the AML regime becomes effective from August 1.The AML makes it mandatory for insurers to comply with 'Know Your Customer' norms by obtaining documents to clearly establish the customer identity in case of all new insurance contracts.Where premium is Rs 100,000 per annum in case of individual policies, a detailed diligence should be exercised to establish KYC.
If insurance premium is paid by person other than the policy holder, the insurer should look into to establish the motive behind it.The companies are advised to classify the customer into high risk and low risk based on the individual's profile and product profile, to decide upon the extent of due dilligence. The AML guidelines should be strictly followed in vulnerable products like unit linked products, which provide for withdrawals and unlimited top up premiums; single premium products where investment is made in lumpsum and surrendered at the earliest opportunity; and free look cancellations, especially in the big ticket cases. However, products like standalone health insurance, group insurance issued by a company and term life insurance contract are exempted from AML purviews Moreover, larger number of documents has to be submitted before buyingan insurance policy. For example a big insurance company has made the following documents compulsory:
Verification Documents Identify proof -PAN Card -Voters Identity Card -Driving License -Passport -Letter from a recognized public authority (e.g. Gazetted authority/ municipal corporation) verifying identity of the customer -Employee identity card of a listed company or public sector company -Ration card (where photograph of customer is present)
Verification Proof of Residence
Documents -Telephone Bill (not more than 3 months old) -Electricity Bill (not more than 3 months old) -Credit card statement (not more than 3 months old) -Bank account statement (showing transactions within the last 6 months) -Valid lease agreement along with rent receipt which is not more than 3 months old -Passport -Ration Card -Letter from any recognized public authority (e.g. Gazetted authority/ gram panchayat/ municipal corporation) verifying residence of the customer -Letter from a listed/ public sector company/ armed forces employer/ government depts. along with latest salary Verification Documents Standard -Income tax assessment orders/ Income slip Income Proofs -Tax returns slips -Form 16 in case of employed individual -Salary slips from reputed private limited / public sector employers (within last 3 months) -Audited company account -Audited firm accounts -Audited proprietorship profit & loss account -Copies of form no. 10CCAC under section 80 HHC of IT ACT 1961 for export income
Securities The customer of an investment service provider can be a person or entity that opens a securities account on its own behalf or on whose behalf a securities account has been opened. A customer can open an account with an investment service
When the trades are liquidated. the securities industry is less at risk than the banking sector regarding the placement of laundered funds directly into the securities industry. Specific activities which the securities sector is potentially vulnerable to the risk of money laundering include: • The activities of employees that unwittingly are requested to take actions which further a customers money laundering scheme and the activist of rogue employees who undertake activities (in violation of the firm’s internal controls and policies) such as the establishment of bank and securities accounts in multiple jurisdictions on behalf of the customer and the transfer of funds and securities between such accounts in furtherance of a customer’s money laundering scheme. • Acceptance of orders and related funds from intermediaries or banks operation from jurisdictions that do not have an effective AML/CFT system in place to prevent the introduction of laundered funds into the firms and banks operating in those jurisdiction o in which the securities regulator and/or banking supervisor will not share information regarding customer positions or funds held by or through firms operating in that jurisdiction with non-domestic regulators.in this type of scheme. the securities industry Is potentially vulnerable to the layering of laundered funds subsequent to the placement phase. • Wash sales or other fictitious trading schemes to transfer money or value through the clearing and settlement infrastructure. the profits are paid in the ordinary course through the clearance and settlement system from the account/party suffering the loss to the account/ party earning the profit. illiquid issues at artificially arranged prices .provider in person or via remote means (e.g. They require their customers to remit funds to them either by check or by Wire transfer to the deposit account of the investment firm at a bank. It is possible for a direct relationship to be established between an investment service provider and a customer where a third party introduces the customer to the investment service provider. internet). Reciprocal trades in offsetting positions can generate profits in the account of one party and losses in the account of the other party . and the opening of such account would generally establish a direct relationship between he investment service provider and the customer. the money launderers intentionally generate trading losses in a securities account into which criminal proceeds have been deposited and generate reciprocal trading profits in a seemingly unrelated securities account into which criminal proceeds have been deposited and generate reciprocal trading profits in a seemingly unrelated securities account that cannot be easily identified or associated with the money laundering scheme.e. However. while the risk of rogue employees engage in may differ from those in the banking and insurance sectors. omnibus account). Consequently. . Investment service providers generally do not maintain cash deposit accounts for their Customers. such as where an investment service provider maintains an account for another provider (i. Value can also be transferred between parties through the sale of shares in small. There also exist indirect relationships in the securities industry. Rather.
stores compliance rules. a means to detect and investigate suspicious transactions. AMLOCK facilitates ingestion of data from multiple source systems. Commercial Banks. ensure compliance with regulatory KYC norms. thus enabling a single view of the customer across products and services. Investment Banks. It offers financial institutions of different sizes. monitors transactions and flags any violation of transactions against customer profile and compliance rules. It also captures customer details. Such schemes often constitute a violation of the securities laws as well as a money laundering offence SOFTWARE SOLUTIONS Recently many software development enterprises have come out with innovative banking and financial solutions towards Anti-money laundering and it can be useful to Retail Banks. Such schemes may or may not also involve an intent to generate additional profits from a manipulation of the value of the shares. The system generates all statutory reports and provides for generation of Suspicious activity reports. AMLOCK is an automated Anti Money Laundering Solution that assists reporting organizations in complying with regulatory requirements under the Anti Money Laundering regimes. The ingestion can be real-time where blocking of transactions is required. or can be scheduled at stipulated intervals. This solution pro-actively monitor all transaction activities across the organisation and effectively detects money laundering activities and terrorist financing.without regard to fair market value. and a host of valuable investigation and analysis tools to aid the compliance officer in performing his duties effectively and with ease.. Brokers & Trading Organisations and Insurance Firms etc. AMLOCK caters to: .
Respecting the mobility of resources and the consequent location neutrality required. This may relate to the same or multiple products or locations and is very handy when there are multiple source systems. Acknowledging the diversity in the quantification of risk. • Duplicate checks to fish out undisclosed multiple accounts. AMLOCK extends the facility of SMS and e-mail Alerts to specified recipients. Transaction monitoring tools to identify suspicious activity is central to the AML compliance facilitation offered by AMLOCK. prioritizing and monitoring potential suspicions include – • Risk Categorization. This helps in the Blacklists and internal control lists termed the Watchlists. AMLOCK provides for a parameter-driven risk module. It supports both published lists or Scores for KYC to monitor the levels of adherence. . Customer Due Diligence is one of the foremost requirements in an AML program to deter miscreants from entering the financial system. Features that assist in identifying. • Compliance updating the KYC levels of existing customers and serves as a handy audit tool. AMLOCK provides tools such as: • List Screening for screening blacklisted entities. besides being an access controlled browser based solution. • Link Tracer and Grouping for identifying hidden relationships between customers so as to enable enhanced monitoring over a group of people who appear to be connected or acting in concert.• Banks • Insurance • Securities • Money • Asset companies broker-dealers transmitters Management companies Regulatory Reporting is facilitated by AMLOCK by way of auto-population of the required regulatory reports CTRs and STRs while also providing for the input of comments of the Compliance Officer. wherever required. which facilitates focusing on activities of higher risk customers by segregating them on the basis of money laundering risks.
notes can be appended to the Alert. banking and capital market intermediaries like brokerages. AMLOCK is an anti-money laundering (AML) and fraud detection software that is tailored for the insurance. • Visual Event Response Builder (VERB) is a Rules Engine to introduce suspicions based on the unique experiences in the geography. This enables the demarcation between normal and potentially suspicious deviations in the account activity. February 27. Subjective Alerts which facilitate the recording of non-transaction based suspicions. • Pre-defined Industry specific Alert Scenarios of AMLOCK enable identification of established typologies. There are three variants: Red Flags (Online Alerts). which consider several attributes and / or a specified period of time and are scheduled as per the required periodicity. The Following 2 Articles Give Information About The Step Taken By Indian Banks To Curb Money Laundering. This is aided by the Profiling facility that tracks the changes in identification attributes as also the transactions patterns. To back this decision. • Alert resolution facilitates the closure of an Alert as non-suspicious without further investigation. This enables the user to set / define conditions that would qualify individually or in combination with other conditions qualify a transaction or a set of transactions as suspicious. normal behavior has to be established. mutual funds and . • Alerts assignment enables the distribution of workload between the resources in the compliance team and also in ensuring that resources with the appropriate expertise address the Alerts raised. Union Bank to Deploy 3i Infotech's AMLOCK Wednesday.• Profiling to judge what is abnormal or suspicious. 2008: 3i Infotech and Union Bank of India (UBI) have forged an alliance under which the former will implement AMLOCK at the bank. which are based on single transaction and are triggered at the time of data ingestion. industry or institution. • Benchmarking facilitates defining global or specific tolerances in transaction behavior. Aggregated Alerts (Offline Alerts).
3i Infotech will undertake complete system integration. database. AMLOCK helps companies comply with global Know Your Customer (KYC) and transaction monitoring norms. . 3i Infotech’s Anti Money Laundering (AML) software. As part of this agreement. from procurement and installation of hardware including storage. middleware and report writer.registrars. 2008: Bank of India has signed an agreement to implement AMLOCK. July 21. Bank of India has signed an agreement to implement AMLOCK Monday.
regional groupings – the European Union. to name just a few – established anti-money laundering standards for their member countries. Asia / Pacific Group on Money Laundering (APG) The purpose of the Asia/Pacific Group on Money Laundering (APG) is to ensure the adoption. Council of Europe. International organizations. international co-operation is a critical necessity in the fight against it. confiscation. such as the United Nations or the Bank for International Settlements. The Caribbean.MULTILATERAL INITIATIVES Large-scale money laundering schemes invariably contain cross-border elements. Asia. providing guidance in setting up systems for reporting and investigating suspicious transactions and helping in the establishment of financial intelligence units. Following the creation of the FATF in 1989. Europe and southern Africa have created regional anti-money laundering task force-like organizations. mutual legal assistance. A number of initiatives have been established for dealing with the problem at the international level. and similar groupings are planned for western Africa and Latin America in the coming years. The effort includes assisting countries and territories of the region in enacting laws to deal with the proceeds of crime. The APG also enables regional factors to be taken into account in the implementation of anti-money laundering measures. and Organization of American States. took some initial steps at the end of the 1980s to address the problem. implementation and enforcement of internationally accepted anti-money laundering and counter-terrorist financing standards as set out in the FATF Forty Recommendations and FATF Eight Special Recommendations. Since money laundering is an international problem. . forfeiture and extradition.
Australia.The origins of the APG go back to "awareness raising" activities undertaken by the FATF in the early 1990s as part of its strategy to encourage adoption of money laundering counter-measures throughout the world.Japan .Myanmar . The APG is supported by a Secretariat. The first meeting was held in Tokyo in 1998 and then annually thereafter.India . Its work mandate has been set out in a document containing specific terms of reference for the group. Following the events of 11 September 2001. Hong kong.Pakistan. the APG expanded its scope to include the countering of terrorist financing.Thailand. The APG became an Associate Member of the FATF in 2006. Singapore .Nepal . an agreement was reached in Bangkok in 1997 which created the APG. china . Some of the member countries of APG are Afghanistan. The APG conducts mutual evaluations of its members and holds a periodic workshop on money laundering methods and trends. In order to achieve more concrete results. . Australia agreed to set up a Secretariat for the purpose of obtaining regional commitment and establishing a regional FATF-style body with practical objectives. Subsequently.Indonesia .Mongolia .Sri lanka .Malaysia . Canada. which serves as the focal point for its activities. Bangladesh.
and concrete implementation of its 40+9 Recommendations throughout the world. In October 2001. It sets policies that guide countries in adopting anti-money laundering measures. to combat money laundering (ML) and terrorist financing (TF). . reviews money laundering and terrorist financing techniques and counter-measures. Starting with its own members. Since its inception.The Financial Action Task Force (FATF) The FATF is an inter-governmental policy-making body whose purpose is to establish international standards. The organization has designated 20 categories of offenses that should be brought under anti-money laundering rules.. requiring a specific decision of the Task Force to continue. and. MISSION The priority of the FATF is to ensure global action to combat money laundering and terrorist financing. both at national and international levels. It was established in July 1989 by a Group of Seven (G-7) Summit in Paris. the FATF has operated under a finite life-span. the FATF monitors countries' progress in implementing AML/CFT measures. and develop and promote policies. initially to examine and develop measures to combat money laundering. The task force reviews its mission every five years. The current mandate of the FATF (for 2004-2012) was subject to a mid-term review in 2007-2008 and was reaffirmed and revised at a Ministerial meeting in April 2008. the FATF expanded its mandate to incorporate efforts to combat terrorist financing. promotes the adoption and implementation of the 40+9 Recommendations globally. in addition to money laundering.
. These 34 Members are at the core of global efforts to combat money laundering and terrorist financing. 32 jurisdictions and 2 regional organisations (the Gulf Cooperation Council and the European Commission).MEMBERSHIP DETAILS There are currently 34 members of the FATF. There are also 27 international and regional organisations which are Associate Members or Observers of the FATF and participate in its work Any country can become a member of FATF these countries who desire to become the members of FATF have to follow the membership policy laid down by the organization.
using the AML/CFT Methodology applicable at the time of the evaluation. the FATF’s geographic balance should be enhanced. (iii) Agreeing to undergo a mutual evaluation during the membership process for the purposes of assessing compliance with FATF membership criteria. b) If the jurisdiction was to become a member. as well as agreeing to undergo subsequent periodic mutual evaluations following admission as a full member. financial sector and its interaction with international markets. (ii) Agreeing to implement all the FATF Recommendations within a reasonable timeframe (3 years).Fundamental criteria of membership a) The jurisdiction should be strategically important: Indicators 1 2 3 4 5 Size of gross domestic product (GDP).Step 1 . Participation in other relevant international organisations. including the degree of openness of the Regional prominence in AML/CFT efforts. Impact on the global financial system. the Nine Special Recommendations 2001 (together referred to as the FATF Recommendations) and the FATF AML/CFT Methodology 2004 (as amended from time to time). Size of the banking sector. Level of AML/CFT risks faced and efforts to combat those risks. Step 2 .Technical and other criteria a) The country should provide a written commitment at the political level: (i) Endorsing and supporting the FATF Forty Recommendations 2003. Level of commitment to AML/CFT efforts. Additional considerations 1 2 3 Level of adherence to financial sector standards. .
however. • It is expected that a country should obtain ratings of fully or largely compliant for all FATF Recommendations listed above in paragraph c). If that is not achieved however. and in particular the level of compliance for the Recommendations dealing with the money laundering and terrorist financing offences. should demonstrate substantial progress toward full implementation and provide a clear commitment at Ministerial level to come into compliance within a reasonable timeframe and a detailed action plan setting out the steps to be taken and the timeframe for taking them. c) The overall mutual evaluation needs to be regarded as satisfactory. including supporting the role and work of the FATF in all relevant aspects. b) The country should be a full and active member of a relevant FATF-style regional body. freezing and confiscation. and international co-operation need to be acceptable. The assessed country is.(iv) Agreeing to participate actively in the FATF and to meet all the other commitments of FATF membership. financial sector supervision. some flexibility may be allowed with respect to Recommendation due to its complexity and multi faceted requirements. and for the remainder. expected to demonstrate significant progress toward full compliance with the components of Recommendation. customer due diligence. then the country must at a minimum achieve ratings of LC or C for a large majority of these Recommendations. 1 . In determining whether the overall level of compliance is satisfactory. suspicious transaction reporting. recordkeeping.
India became an FATF Observer in February 2007. While the RBI has put in place a trail by asking agents. For instance. which would help local banks access developed country markets more easily. including those for wire transfer. six major prerequisites for a membership have already been put in place. Until recently. the FATF – that has 35 members. specifying that suspected cases of terror financing would be part of the suspicious transaction reporting system. with India being an observer – wanted the government to establish a trail of all foreign exchange transactions. India has completed all but one formality – to amend the Prevention of Money Launder Act (PMLA) – to include a host of offences. such as insider trading and human trafficking. Bank of Baroda and State Bank of India branch licences on the grounds that India was not a member of FATF. . the United States was denying ICICI Bank. These banks managed to win a temporary reprieve after the government and the RBI withheld fresh branch permission to the likes of Citibank.Steps taken by Indian government to become the member of FATF India is the members of the APG (the Asia Pacific Group on Money Laundering). it managed to convince FATF that hawala deals could not be tracked as such transactions were illegal. The Bill to amend the PMLA would be placed in Parliament and the government would be able to share the provisions of the proposed law and win a membership. to maintain records for a specified period of time. including hawala. The other five commandments already complied with since the government lnotified changes to the rules related to the PMLA. India is set to join the anti-money laundering syndicate – Financial Action Task Force (FATF) . in the schedule of offences. a FATF-style regional body.
They included naming of enforcement agencies to deal with the notified laws and mandating ‘know your client (KYC)' norms that would be legally binding.The other four specifications were in place as soon as the PMLA came into effect. . The establishment of the Financial Intelligence Unit (FIU-Ind) was also part of the exercise to gain a membership of the elite group.
and. Adherence to the Statement. KYC requires that banks should make reasonable efforts to determine the customer’s true identity. These are dealt with in some detail below: • Customer Identification This reemphasis’s the motto "Know your Customer" (KYC). Stringent rules should be followed by banks and other financial institutes in these four areas. and must introduce effective procedures for verifying the bonafides of new customers. • Adherence to the Statement Adhering to the Statement implies that banks need to adopt policies that are consistent with the Statement and ensure that all staff .RECOMMENDATIONS AT THE GRASSROOT LEVEL THE FOLLOWING IMPLICATIONS CAN BE MADE TO CURB MONEY LAUNDERING. 4. Compliance with Laws 3. 1. must be observed. • Compliance with Laws The laws and regulations pertaining to financial transactions as enacted in different banking related statutes. Cooperation with Law Enforcement agencies. Customer Identification 2. Banks should not offer services or provide active assistance in case of transactions where they have good reason to suppose that these are associated with Money Laundering activities. • Co-operation with Law Enforcement Authorities Banks should co-operate fully with national law enforcement authorities to the extent permitted by specific local regulations concerning customer confidentiality.
We need:a. We must urge all countries to ratify the U. we must continue to identify the points where the money is most vulnerable and identify what we can do to separate criminals from their ill-gotten gains. to increase public awareness of the threat from money laundering.our international partnerships. to encourage financial supervisors to apply bank licensing procedures strictly. d. to strengthen international co-operation on information exchange and law enforcement. Knowing what is on this list can give rise to specific measures for countries to adopt to fight money laundering. Above all. AT THE INTERNATIONAL LEVEL WE MUST DO THE FOLLOWING We must continue to work with . . Convention and to pass more effective money laundering and forfeiture laws. N. and maintain strong ties with our counterparts in the financial centers of the world. The above act as an effective guideline for what banks and financial institutions should do to cope with Money Laundering. and train practitioners. e. b. Some key factors in promoting adherence to the Statement of Principles are staff training and implementing specific procedures for customer identification and retaining internal records of transactions. a compliance culture among financial institutions. and to ensure that they put proper systems and procedures in place. Launderers have a list popularly called a "shopping list" which they use to size up specific opportunities when searching for jurisdictions to use.members are informed of the banks policy in this regard. These measures are a natural progression for countries that have the political will to combat this insidious crime. exchange information.and strengthen . c. proper mechanisms for handling suspicious reports.
input tax may also be deducted for capital goods. to focus on new technologies and increase countermeasures to combat their use for money laundering. g. 14 Will the Value Added Tax (VAT) system become a potential source for obtaining dirty money? In a special report on `Money laundering . "VAT fraud is a typical convenient white-collar crime. increasing co-ordination between the multiple agencies (national and international) involved and to improve the limited intelligence sharing. to increase the limited human resources involved in the labour intensive and time consuming work of investigating suspected violations. Except for specific input tax denials relating to motor cars and air-conditioners. Oct. .Definition.f." Mr Rustagi said that input tax deductions are allowed on the VAT component of the purchase price of all goods or services acquired by a trader for consumption or taxable supplies. i.' presented at a workshop on `Emerging fiscal trends vis-à-vis economic reforms. has pointed out that in contrast with the violent nature of cash-in-transit robberies and motor vehicle hijackings. a practising chartered accountant. `VAT system can spawn money laundering' Mohan Padmanabhan Kolkata . h. j. Implementation on a world-wide basis of a consistent set of policies. To share forfeited proceeds with law enforcement agencies. (a particular police gripe). Tools & Means and Prevention.' organised by the Direct Taxes Professionals' Association (DTPA) here recently. Mr Anshuma Rustagi.
include export fraud. Mr Rustagi said that in a federal set-up. Typically.e. in the domestic market."This creates the opportunity for disguising a large fraudulent input tax claim as merely relating to an extraordinary acquisition of capital goods." Article E-Mail :: Comment :: Syndication :: Printer Friendly Page ." Mr Rustagi held that the availability of the deduction is not suspended until output tax linked to the goods or services has been derived. a dealer registers under VAT. charges VAT and disappears without submitting any return or paying the VAT. i. in MTIC frauds. the purchaser and the missing trader intra-community (MTIC). and then going missing without paying the output tax due in the member-state of registration.. conspiracy among the seller. MTIC fraud is one of the most prevalent systems of misleading the tax authorities. it is proposed that Central Sales Tax would be phased out. "International experience suggests that this VAT-exempt cross-border supply of goods shall present the perfect breeding ground for MTIC fraud to take roots. which can be a means of money laundering. thereby making cross-border transactions across States VAT-free. purchasing goods free from VAT from another member-state (as imports are VATfree). He said that in the EU. This involves obtaining a VAT registration number in one memberstate. sells goods to a trader. which is known to occur in EU countries. Common VAT frauds. and selling goods at a VAT-inclusive purchase price in the member-state of registration. This enables defrauders to claim large input tax credits and subsequently disappear.
and the stock market reacted and crashed within days. Later. Over the years. which in turn set into motion a chain reaction. the person who was all along considered as the architect of the Bull Run was blamed for the crash. he lived almost like a movie star in a 15. who did very well for himself. he got interested in the stock markets and along with brother Ashwin. he was called upon by the banks and the financial institutions to return the funds. started investing heavily in the stock market. When the scam broke out. But Raipur could not hold back Mehta for long and he was back in the city after completing his schooling. His favorite stocks included . which had a swimming pool as well as a golf patch. Mehta gradually rose to become a stock broker on the Bombay Stock Exchange. It transpired that he had manipulated the Indian banking systems to tap off the funds from the banking system. At his peak.000 square feet house. As they learnt the ropes of the trade. much against his father’s wishes.Harshad Mehta scam Harshad Shantilal Mehta was born in a Gujarati Jain family of modest means. and Harshad Mehta. His early childhood was spent in Mumbai where his father was a small-time businessman. necessitating liquidating and exiting from the positions which he had built in various stocks. The panic reaction ensued. Mehta first started working as a dispatch clerk in the New India Assurance Company. they went from boom to bust a couple of times and survived. He also had a taste for flashy cars. The fall In April 1992. the Indian stock market crashed. who by then had left his job with the Industrial Credit and Investment Corporation of India. He was arrested on June 5. and used the liquidity to build large positions in a select group of stocks. which ultimately led to his downfall. the family moved to Raipur in Madhya Pradesh after doctors advised his father to move to a drier place on account of his indifferent health. 1992 for his role in the scam.
typically at a slightly higher price. Crudely put. and the National Housing Bank. The extent The Harshad Mehta induced security scam. deliveries of securities and payments were made through the .” It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system. The broker handles neither the cash nor the securities. the bank lends against government securities just as a pawnbroker lends against jewellery…. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. though that wasn’t the case in the lead-up to the scam. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan. a subsidiary of the Reserve Bank of India. (TISCO) • BPL • Sterlite • Videocon.• ACC • Apollo Tyres • Reliance • Tata Iron and Steel Co. In this settlement process. a number of foreign banks operating in India. as the media sometimes termed it. The crucial mechanism through which the scam was affected was the ready forward (RF) deal. which is the central bank of India. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. How the case was cracked The broker was dipping illegally into the banking system to finance his buying. adversely affected at least 10 major commercial banks of India.
the buyer and the seller might not even know whom they had traded with. In a ready forward deal.bank receipt.broker. the shares were sold for a profit and the BR was retired. obviously assuming that they were lending against government securities when this was not really the case. Another instrument used in a big way was the bank receipt (BR). Instead. either being know only to the broker. The game went on as long as the stock prices kept going up. while the buyer gave the cheque to the broker. It acts as a receipt for the money received by the selling bank. Once these fake BRs were issued. Metha needed banks. gave the buyer of the securities a BR. who passed them to the buyer.the banking system had been swindled of a whopping Rs 4. These banks were willing to issue BRs as and when required. .e.came in handy for this purpose. a lot of banks were left holding BRs which did not have any value .the Bank of Karad (BOK) and the Metropolitan Cooperative Bank (MCB) . the seller handed over the securities to the broker.000 crore. who then made the payment to the seller. The money due to the bank was returned. the seller of securities. In this settlement process. which could issue fake BRs. and no one had a clue about Mehta’s blunder. the seller holds the securities in trust of the buyer. the borrower. for a fee. Having figured this out. It also states that in the mean time. they pretended to be undertaking the transactions on behalf of a bank. securities were not moved back and forth in actuality. though. i. This the brokers could manage primarily because by now they had become market makers and had started trading on their account. When time came to return the money. That is. Once the scam was exposed. they were passed on to other banks and the banks in turn gave money to Mehta. Hence the name . To keep up a impression of legality. It promises to deliver the securities to the buyer. or BRs not backed by any government securities? Two small and little known banks . This money was used to drive up the prices of stocks in the stock market.
Allowing similar petitions by the Jain brothers. the high court quashed the proceedings against them too.The scam hovered around the fact that the Hawala channels through which terrorist outfits in Kashmir like Hijbul-Mujahideen used to get funds. He and others were acquitted in 1997 and 1998. Those accused included Lal Krishna Advani who was then Leader of opposition. the same channels used to grease the palms of over 115 top bureaucrats and politicians of the country. notebooks and loose sheets cannot be legal evidence in one case arising out of the same first information report.The jain hawala scandal The Hawala scandal was an Indian political scandal involving payments allegedly received by politicians through hawala brokers. Justice Shamim had ruled in his 70-page judgment that the Jain diaries could not be converted into legal evidence against them. The case Jain Hawala Case put the career of 24 politicians in Jam. N K Jain and B R Jain and their employee. then certainly it cannot be legal evidence in the present cases based on the same F .Panja. seeking pardon. Citing the high court order.The Jain Hawala Case has shown that corruption has now taken the front seat in India. P Shiv Shankar. Sinha and Vora discharged in Jain hawala case Former Union ministers Ajit Kumar Panja. The quashing of charges against Advani and Shukla by the high court triggered a spate of petitions with the trial court by other politicians involved in the hawala case. ''When the diaries. Allowing the petitions by Advani and Shukla challenging the special judge's order. partly because the hawala records (including diaries) were judged in court to be inadequate as the main evidence. Shiv Shankar. former Uttar Pradesh governor Motilal Vora. S K Jain. It was a US$18 million dollar bribery scandal that implicated some of the country's leading politicians. the Jain brothers. J K Jain. Bharatiya Janata Party leader Yashwant Sinha and the Jain brothers were discharged by Special Judge V B Gupta in the Rs 650 million Jain hawala case . he said..
We even relieved them of the power of supervision by the highest authority in the executive (the Prime Minister) and yet they could not perform. otherwise it would not have been possible for all the charge-sheets to end up in a fiasco.'' Justice Verma said. which meant they had tried to say that there was a case to proceed with. ``It is clear that they only put up an excuse of filing a charge-sheet because if the discharge of accused is justified then apparently there was no prima facie case put up along with the charge-sheet for the trial to commence.'' Justice Verma said. despite the non-availability of evidence the agencies still filed charge-sheets. . they should not have filed the charge-sheet. no evidence available from the investigation. It cannot be anything else. adding that if there was no justification. So either the filing of charge-sheets was without proper investigation or the investigation was improper. ``The hawala case was one in which the Court had granted complete insulation to the investigating agencies from extraneous circumstances. adding all this did not go well with the efficient functioning of the agencies. adding this proved that mere insulation was not enough.The investigations done by the cbi was highly criticized as they failed to do justice to hawala scam probe The verdict of the case lead to the following findings Investigating agencies had not done a satisfactory job in probing the case.
which was the will to investigate properly. Meanwhile.'' Justice Verma said. ``Today the judges of the superior judiciary in India are not answerable to anyone for their misconduct as neither impeachment procedures nor internal judicial machinery is workable. therefore. .the hawala case had proved that even if the agency was completely insulated. Probably the agencies wanted to get rid of the Court's control and. in an interview Justice Verma said judges of the Supreme Court and the High Courts should be brought under the ambit of a new law on the lines of the Prevention of Corruption Act to make them more accountable for their misconduct. they had filed the charge-sheet. that by itself was not enough and something more was required -. There were only two ways of ensuring accountability which was either through internal machinery that involved following conventions coupled with social sanction by the judicial community itself or a new law.
com www.org www.indiaforensics.2008 .2004 Gopal rama C –edition May June.2005 Tom K Alweendo -edition August.org www.rbi.com www.timesofindia.carajkumarradukia.com.fatf-gafi.hindubusinessline. www.com www.economictimes.TS Rama Krishna Rao –edition January.Bibliography Websites • • • • • • • www.com Books:Money Laundering and combating the Menance in global & Indian context Arya Ashok Kumar Publication taxman allied services (P).2005 Insurance chronicle Article by:.ltd Magazines:Profeesional banker Articles by:• • • Prasad RS -edition August.
. Martina. BMS (Bachelor of Management Studies) for granting me the authority to do the project on the topic MONEY LAUNDERING-THE INDIAN SCENARIO I sincerely acknowledge with deep sense of gratitude and indebtedness the harmonious and invaluable guidance and encouragement given by my Project Guide Mr. Principal. College of Arts.ACKNOWLEDGEMENT It gives me immense pleasure and satisfaction while presenting this report on: MONEY LAUNDERING-THE INDIAN SCENARIO I would like to thank Mrs.S. Thanking you once again. College library for providing me with the relevant books and magazines required for this project. V. NIKHIL BHOBE. I also appreciate the support and encouragement of my family and my friends in the completion of this project.S. Co-ordinator.E.E. It would have been impossible for me to complete my project without their enthusiastic support which helped me develop a practical insight. Last but not the least is the contribution staff members. I extend my profuse thanks to ms hanita wadhwani who extended so much of learning to me and added value to my project. A. and the non staff members at the V.K. Science and Commerce and Prof. J. Mrs. Phadnis. and also for being a continuous source of inspiration and for constructive criticism to make this project a success.
Harsha jethmalani .
EXECUTIVE SUMMARY Project title Benchmarking of Recruitment Process in IT companies The scope: The project would cover various sources and process of recruitment at different levels of management followed by the IT Companies. Methodology: Questionnaire was designed for the HR professionals and Field interviews were conducted with the managers. like any other service industry. The summary of these interviews has been included in the report along with comparative analysis of the same. The following project is a mixture of descriptive and quantitative comparative analysis of seven Information Technology companies providing ERP solutions to its clients and make businesses easy for them. challenges associated in recruiting incumbents especially in the ERP department. There are a number of challenges in the Indian IT industry. is people driven. which require the serious attention of HR managers to ‘find the right candidate’ and build a ‘conducive work environment’ which will be . Findings: The IT industry.
For this first hand information was collected of seven IT companies. More than half of the executives surveyed expressed that the major challenges for the HR managers are recruiting the right people and retaining them for longer times. supply requirements in the industry. expectations management of the resources and other stakeholders. and have accepted this challenge. seven companies were visited to understand their recruitment strategies. efficiency in processes and HR policies. The companies visited were a mixture of large to mid-sized organizations. The IT industry is already under stress on account of persistent problems such as attrition. and loyalty. The idea was to understand what should be done to overcome this difficulty. In all. The next most important HR concerns listed were meeting the demand. by the various training programmes and employee welfare activities.beneficial for the employees. Emphasis is laid not only on recruiting the right candidate. as such candidates are difficult to source in the IT job markets. Companies now understand that recruitment is not the end all of the HR activities. The companies have realized that there exists a shortage of skilled manpower within the IT job market. The objective of this project was to study the various sources of recruitment of the IT companies and understand the difficulties faced by them in recruiting ERP Consultants who have functional as well as technical experience. They are using various contemporary sources of recruitment with a fine usage of the traditional sources as well. confidentiality. as well as the organisation. but also on retaining him. .
Phadnis. V.S. J.E. I also appreciate the support and encouragement of my family and my friends in the completion of this project. College of Arts.anisha Acknowledgement The most pleasant part of any project is to express gratitude and bestow honor towards all those who directly or indirectly contributed to the smooth flow of the project work and this being the good opportunity I would like to thank them all.E. I would also like to thank the staff and the non staff members at the V. Martina.E. Science and Commerce whose guidance and inspiration right from the conceptualization to the finishing stages has proved to be a very essential and valuable in the completion of the project. Co-ordinator. Science and Commerce and Prof. BMS (Bachelor of Management Studies) for granting me the authority to do the project on the topic ‘The Indian Foreign Exchange Market’ and would also like to express my gratitude towards my guide Prof.S. A. Principal. Mrs. College of Arts.K. Govind Sowani of V. College library for providing me with the relevant books and magazines required for this project. I would like to thank Mrs. .S.
representing their views to the Reserve Bank and other international agencies. Transaction between Ads and their corporate customers. Poet The best way to explain the above quote would be the referral to the Foreign Exchange Markets. Foreign exchange market in India is totally structured and well regulated.9 trillion. British Playwright. The Indian Forex market is a 3-tier structure consisting of: • • • Transaction between RBI and Ads. Interbank market. Foreign Exchange Dealer Association of India (FEDAI) provides a vital link in the administrative set up of foreign exchange in India. also referred to as the "Forex" or "FX" market is the largest financial market in the world. Currencies are traded in pairs. with a daily average turnover of US$1. Due to vast network throughout the world. finance in terms of currency is a necessity to maintain economic relationship. When speaking about the Indian forex market it is not possible to forget the mention of ‘FEDAI’. for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). The Indian forex market is predominantly a transaction based market with the existence of underlying forex exposure generally being an essential requirement for market users. "Foreign Exchange" is the simultaneous buying of one currency and selling of another. It is the mouthpiece of the authorized dealers.Executive Summary “Money speaks sense in a language all nations understand” – Aphra Behn 1640-1689. This project explains how the Forex market behaves differently from other markets with specific reference to the Indian foreign exchange market. . The Foreign Exchange market.
The speed. . and enormous size of the Forex market are unlike anything else in the financial world. free and managed exchange rates. individual. the types of exchange rates like fixed and floating rates.This project also discusses the different exchange rate systems followed by various countries.no single event. The Forex market is uncontrollable . volatility. or factor rules it. There is no perfect market! Just like any other speculative business. increased risk entails chances for a higher profit/loss. and the journey of the Indian Rupee and so on.
the forex market is too informative and any data collected would be less. The data for the project report was collected from diverse sources like books and internet. This report is a collection of secondary data. which is of a very dynamic nature. Methodology Methodology shows how and through which source the data or information is collected. the market in India is sure to bloom. Hence. Also as there is only factual description mostly available. The growth in the trade will surely pave the way for the growth of the Forex market too. The details of the books and sites visited have been mentioned in the bibliography. Through this project I aim to gain a better understanding of the foreign exchange mechanism and the exchange rates prevalent in the market. collecting primary data was not possible. In short. is becoming increasingly competitive day after day. . Foreign exchange market. a detailed study on risks and risk management tools and derivatives have not been included. a study on the Indian Foreign Exchange Market has been done.Objective of the Study Objectives are the base for any work without which work can’t be done. Limitation of the Study With its dynamic nature. To limit the scope of the study. Liberalisation and globalization has paved the way for the development of the Indian economy thus increasing the volume of international trade.
or involved in.Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of moneylaundering. OFFENCE OF MONEY-LAUNDERING 3. 4. extent and commencement. appoint. Offence of money-laundering.(1) This Act may be called the Prevention of Money-laundering Act.ECONOMIC INTELLIGENCE COUNCIL FIU – IND – FINANCIAL INTELLIGENCE UNIT INDIA IFT . (3) It shall come into force on such date as the Central Government may. by notification in the Official Gazette. 2003] An Act to prevent money-laundering and to provide for confiscation of property derived from.. Punishment for money-laundering.Acronyms AML .ANTI-MONEY LAUNDERING CBI .CASH TRANSACTION REPORT EIC . Short title. 2002.INFORMAL FUND TRANSFER IMF –INTERNATIONAL MONETORY FUND IRDA – INSURANCE REGULATORY DEVELOPMENT AUTHORITY KPMG – KLYNVELD PEAT MARWICK GOERDELER KYC – KNOW YOUR CUSTOMER PEP – POLITICALLY EXPOSED PERSON PMLA – PREVENTION OF MONEY LAUNDERING ACT RBI – RESERVE BANK OF INDIA SEBI – SECURITIES AND EXCHANGE BOARD OF INDIA STR – SUSPICIOUS TRANSACTION REPORT UN .-.CENTRAL BUREAU OF INVESTIGATION CTR .Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but . (2) It extends to the whole of India. 2002 (15 of 2003) [17th January. money-laundering and for matters connected therewith or incidental thereto PRELIMINARY 1.-. and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.UNITED NATIONS THE PREVENTION OF MONEY-LAUNDERING ACT.
(1) Every banking company.which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees: Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule. in certain cases. financial institutions. No civil proceeding against banking companies. the words "which may extend to ten years" had been substituted. OBLIGATIONS OF BANKING COMPANIES. 14.Save as otherwise provided in section 13. and where such series of transactions take place within a month.-. the banking companies. financial institutions. etc. Banking companies. FINANCIAL INSTITUTIONS AND INTERMEDIARIES 12. has reason to believe that a single transaction or series of transactions integrally connected to each other have been valued below the prescribed value so as to defeat the provisions of this section. intermediaries and their officers shall not be liable to any civil proceedings against them for furnishing information under clause (b) of sub-section (1) of section 12.-. . (b) furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed. the provisions of this section shall have effect as if for the words "which may extend to seven years". in such manner as may be prescribed: Provided that where the principal officer of a banking company or financial institution or intermediary. as the case may be. the nature and value of which may be prescribed. financial institution and intermediary shall— (a) maintain a record of all transactions. as the case may be.. whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other. such officer shall furnish information in respect of such transactions to the Director within the prescribed time (2) The records referred to in sub-section (1) shall be maintained for a period of ten years from the date of cessation of the transactions between the clients and the banking company or financial institution or intermediary. (c) verify and maintain the records of the identity of all its clients. financial institutions and intermediaries to maintain records.
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