Money laundering is the process wherein the criminals attempt to conceal their booty and make an attempt to cover them as legitimate source of income. The bill on money laundering described it as an offence (i) when crime has been committed. (ii)There are proceeds or gains from the crime. (iii) There is a transaction in respect of the proceeds of the gains.
As for as, banking and financial transactions are concerned money laundering has three distinct stages.
- Placement: Placement is the physical disposal of the proceeds resulted 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 so as to disguise audit trial 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:
(i) The financial institutions and intermediaries are required to maintain records of all transactions-irrespective of whether it was a single transactions or series of integrally connection transactions connected to 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 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.