Originally posted on July 22, 2014. Updated and reposted on 04.08.2024
Money laundering is the process wherein criminals attempt to conceal their booty and make an attempt to cover them as a legitimate source of income. A person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is involved in one or more of the following processes or activities connected with proceeds of crime, namely:— (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever. Proceeds of crime mean any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad.
Whosoever directly or indirectly attempts to indulge or knowingly assists or is a party or is involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering.
As far as banking and financial transactions are concerned money laundering has three distinct stages.
- Placement: Placement is the physical disposal of the proceeds resulting from illegal activity. Example: Purchase of high-value goods, property, or business assets by cash.
- Layering: Layering is the process of separating proceeds derived from criminal activity through complex financial transactions to disguise audit trials and provide anonymity. Example: Wire transfer either using shell companies or funds disguised as proceeds of legitimate business. Cash deposit overseas or resale of assets etc.
- Integration: If layering is successful, the money enters the economy as normal business funds. Examples: Repayment of false loan. Bogus invoices as cover for transfer of funds and so on.
Obligations of financial institutions under money laundering and prevention bill: for details read “What is prevention of money laundering
(i) The financial institutions and intermediaries are required to maintain records of all transactions-irrespective of whether it was a single transaction or a series of integrally connected transactions connected to the IT department.
(ii) All such records should be maintained for five years from the date of transactions (Closing of account). This is a legal obligation, failure to adhere to the above stipulations may attract a penalty ranging from Rupees ten thousand to Rupees one lakh.
(iii) Financial institutions get immunity from civil proceedings under other laws for disclosure of transaction details.
For more details, read “What is the prevention of money laundering?
Financing of Terrorism Risks:
Threat levels of terrorism do not have an expiry date. They can change at any time as different information becomes available.
There are 5 levels of threat:
low – an attack is highly unlikely
moderate – an attack is possible but not likely
substantial – an attack is likely
severe – an attack is highly likely
critical – an attack is highly likely in the near future
Terrorism financing is the act of providing financial support to terrorists or terrorist organisations to enable them to carry out terrorist acts or to benefit any terrorist or terrorist organisation. Financing of Terrorism Risk is now considered one of the main forms of material support to terrorist groups.
While funds may come from criminal activities, they may also be derived from legitimate sources, for example, through salaries, revenue from legitimate businesses, or donations including through non-profit organisations. Similar to money laundering, there are generally three stages in terrorism financing: raising, moving, and using funds. Despite the different stages, how terrorism financing is done is similar and, in some cases, may be identical to the methods used to launder money. In both cases, the perpetrator seeks to misuse the financial or non-financial sectors for illegitimate purposes.
The terrorist financing risks identified in the FINANCIAL ACTION TASK FORCE’s (FATF’s) 2008 FATF Terrorist Financing Typologies Report report, while still evolving, are as relevant today, as they were back then. However, developments since 2008 have created new terrorist financing risks. This report sets out the funding needs, sources, and methods of FTFs and the challenges associated with combatting them. New technologies have also introduced new terrorist financing vulnerabilities. New technologies have also introduced new terrorist financing vulnerabilities. The broad reach and anonymity associated with social media and new payment methods could make these attractive tools for terrorists and terrorist organisations to use in their financial activities. All terrorists and terrorist groups, particularly large terrorist organisations, will require a financial management strategy to allow them to obtain, move, store, and use their assets. Understanding these financial management strategies is essential in developing effective measures to counter terrorist financing.
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