Basics of Illegal money and Money Laundering:

In today’s world money is the key to unlock everything and anything. It unlocks our food,  shelter, dress, education, etc,. But it also unlocks, monsters into the economy i.e. money is also the key support for any criminal activity. Banks and Financial Institutions are dealing in public money and they are the financial intermediaries between legitimate source and end-users. But they should not be used by criminals for criminal activities. So as a banker we need to know about illegal money, money laundering, its source and the techniques involved in laundering. So that we can combat them using anti-money laundering rules in a right place at a right time.

Currency or Money:

Currency has taken over almost everything and become an only fundamental need for us. It even completely replaced the meaning of money in people’s mind. But its correct meaning and it’s use has been forgotten by us.  Currency including coins and paper notes are issued by Government (if Govt thinks they can issue more and more so it can be unlimited ) to use it as medium of exchange for good and services.  It doesn’t have any intrinsic value (in-built value). Where as money such as gold and silver issued by nature (so it is limited) has a storage of value and so purchasing power for the past 5000 years. The intrinsic value of gold such as durability, divisibility,  homogeneous, scarcity makes them perfect for exchange of medium.

Value of currency:

When an increase in price of petrol occurs most people think quantity of petrol to  be purchased is reduced.  But what actually happen is the value of currency gets reduced not the value of petrol. We have to keep in mind that the value of currency or purchasing power is not constant. It is changing every second and it may even go to zero.That is why, we have future, present, past value of currency.

Criminal Currency or money

Why we need to know these things while learning about money laundering??. The reason is  simple value of currency is purely derived from the goods or services it is representing. Remember the currency has no intrinsic value we cannot eat currency but a food (has intrinsic value because we need to eat it). This difference we should know since currency value is derived from the goods and services it is dealing. So the question of which goods and services?  and whether they are legal or illegal as per law? comes into the picture. This lead us to illegal or criminal use of currency. So the currency used for funding illegal/criminal activities or providing illegal good & services is called Proceeds of crime or Criminal money or Illegal Money or Tainted Money or Dirty Money etc etc..

What is Money laundering ?

As per Prevention of Money Laundering Act (PMLA) 2002 money laundering means

“Engaging directly or indirectly in a transaction that involves property, that is proceeds of crime or derived from proceeds of crime or knowingly receiving ,possessing, concealing, disguising, transpiring, converting,  disposing off within territories of India,  removing from or bringing into the territory of India the property that is proceeds of crime”.

In simple  words engaging  directly or indirectly in a process of keeping, hiding, deleting, converting the money which earned through or derived its value from Criminal activities is called money laundering.

If any one tries to do the following directly or indirectly then they are doing money laundering.

  1. hide the illegal money,
  2. hiding the illegal source,
  3. having /possession of illegal money,
  4. converting the illegal money to legal money.

In very simple language, the process of laundering the dirty money by using complex cycle of transactions to make them as clean in front of law is money laundering.

Criminal activities Examples :

  1. Drug trafficking – selling of prohibited drugs.
  2. Illegal weapons sales.
  3. Smuggling – moving goods illegally from one country to another.
  4. Extortion /theft – Forcefully obtaining a property.
  5. Gambling – betting on uncertain outcomes.
  6. Bootlegging – selling of illegal alcoholic drinks.
  7. Bribe etc.

The above list is not exhaustive there are many activities, I mentioned very few for understanding. In upcoming days I will be writing a post on sources, steps and methods of money laundering.