Money laundering is a process used by offenders who attempt to conceal the true origin and ownership of the proceeds; these proceeds are results of criminal activities. It allows them to maintain control over the proceeds and provide a legitimate cover for their source of income.
The laundering of the proceeds that result from criminal activity is done through the financial system. The people who are involved in such an action exploit the facilities of the financial institutions of the world. Such an action is done easily under these conditions of free movement of capital. Banks involved in such actions risk to lose their market reputation.
Although the observable fact of money laundering has taken on increase attention, from every country in the world its notion is still a controversy in the criminological phraseology. In anticipation of the concept of money laundering phrase, which has almost been talked about and documented over for the past seven decades, it is extraordinary that this subject has been given fewer research studies, regardless of the fact that organised crime has been part of the society for such a long time.
Money laundering has been defined as the cover up of unlawfully get your hands on assets or proceeds so the can be then made to appear as they have been acquired in a lawfully manner. On the other hand, money laundering can mean different thing to different countries and organisation as there are variations on the definition of money laundering, nevertheless, almost certainly accepted definition that fit within the framework and the global idea intended to provide a global definition of money laundering is the one outlined (UN Organised Crime Convention). Article 6 of the convention regards the following conduct as money laundering:
- The conversion or transfer of property, knowing that such property is the proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offence to evade the legal consequences of his or her action;
- The concealment or disguise of the true nature, source, location, disposition, movement or ownership of or rights with respect to property, knowing that such property is the proceeds of crime;
- The acquisition, possession or use of property, knowing, at the time of receipt, that such property is the proceeds of crime.
According to FATF, money laundering is defined as the processing of a enormous number of criminal acts to generate profit for individual or group that carries out the act with the intention to disguise their illegal origin in order to legitimize the ill gotten gains of crime. Any crime that generates significant profit extortion, drug trafficking, arms smuggling and some kind of white collar crime may create a “need” for money laundering (FATF).
Money laundering is accomplished in three stages, involving numerous transactions of the launderers. Here they are:
- Placement — It means a physical disposal of cash proceeds got from illegal activity. Illegal activities like drug trafficking, extortion, generate very volumes of money. People involved in these activities cannot explain the origin and source of these funds to the authorities. There is a constant fear of getting caught. So the immediate requirement is to send this money to a different location using all available means. This stage is characterized by facilitating the process of inducting the criminal money into the legal financial system. Normally, this is done by opening up bank accounts in the names of non-existent people or commercial organizations and depositing the money.
- Layering — It implies a separation of illicit proceeds from their source; there are created complex layers of financial transactions meant to disguise the audit trail and they assure anonymity. This is used to distance the money from the sources. This is achieved by moving the black money from and to offshore bank accounts in the names of shell companies or front companies by using Electronic Funds Transfer (EFT) or by other electronic means. During this process, they make use of the banks wherever possible as in the legal commercial activity.
- Integration — Supposing that the laundering process was successful, the proceeds are placed back into the economy; they re-enter the financial system and seem to be normal business funds. This is achieved by making it appear as legally earned. This is normally accomplished by the launderers by establishing anonymous companies in countries where secrecy is guaranteed. They can then take loans from these companies and bring back the money.