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 Money Laundering

Money laundering is the processing of criminal proceeds to disguise its illegal origin. Money laundering has 3 main parts:

1. Placement: where larger amounts of money broken into small amounts.

2. Layering: Movements of funds to distance from their original sources.

3. Integration: such funds re-enter into legitimate economy.

Then such funds are invested into real estate, luxury assets or business ventures.

Do you remember (Shivaji –the boss) movie of Rajnikant, exactly. That truly describe the process of money laundering.

First he just obtain the illegal money from criminals and let that money be distributed  into accounts of  many people and then he establish a trust. Then the money which was given to those people was taken and deposited into the trust into the form of donation or others. So in short money laundering means changing of money from illegal to legal.

Efforts in abroad  for prevention of money laundering:-

The 1st major initiative in prevention of money laundering was United Nations Convention against illicit traffic in Narcotic Drugs and Psychotropic substances  in 1988.

But major change came with the introduction of Financial action task force in 1989, when European union, council of Europe & organization of American states also established money laundering standards for their member countries. FATF was  setup by the govt of G-7 countries.

Act  for preventing money laundering in India:

Prevention of money laundering act 2002 came into force w.e.f 1 July 2005. And it extends of whole of India.

Punishment for offence of money laundering:

1. Under section 4, there can be punishment of imprisonment upto 3-7 years with fine upto 5 lakh rupees.

2. But in case of offences done under Narcotic Drugs and Psychotropic Substance Act 1985, maximum punishment is extent to 10 years rather than 7 years.

Obligation of banking companies, financial  Institutions and Intermediaries:-

A. Banking companies have to follow the procedure of KYC Norms (Know your customer)

B. Maintain record according to Section 12 which includes:

a. Nature and value of the transaction to be transacted.

b. Whether such transaction was singly transacted or  series of transaction taken place in a month.

c. Maintain record for a period of 10 years from the date of cessation of transaction between the clients  and the banking company or financial institution or intermediary as the case may be.

C. Furnish information of above transaction to director within the prescribed time.

D. Verify and maintain the records of identity of all clients in respect of such transactions to Director within the prescribed time.

Power of the Director:-

Section 13  describes the power of director to call for records.

a. Either in suo-moto.

b. Or an application made by any authority.

c. And if banking & other fails to comply with the provisions.

The director can levy the fine after passing an order. The order should be intimated to the banking and other companies. And the fine can be levied from  Rs.1000 to Rs.100000 for each failure.

Protection to banking, FI and Intermediaries is available under section 14 only against legal proceedings and not others.

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