GUJARAT NATIONAL LAW UNIVERISTY

Economic Offences and

White-Collar Crime
Money Laundering in India

Submitted by

Registration Number 05A067

Submitted to

Faculty, Seminar Paper, Economic Offences (Semester X)

Money laundering involves disguising financial assets so that they can be used without
detection of the illegal activity that produced them. Through money laundering, the launderer
transforms the monetary proceeds derived from criminal activity into funds with an
apparently legal source.
 Contents

1. Objective and limitation of study ............................................................................................ 3

2. Hypothesis............................................................................................................................... 3

3. Aim ......................................................................................................................................... 3

4. Scope ....................................................................................................................................... 3

5. Research methodology ............................................................................................................ 3

6. Review of Literature ............................................................................................................... 3

7. Chapterization ......................................................................................................................... 4

(i) Introduction .................................................................................................................. 4

(ii) Magnitude of the problem ............................................................................................ 4

(iii) Process of Money Laundering ...................................................................................... 5

(iv) Who commits such crimes? .......................................................................................... 6

(v) Money Laundering – Indian Legal Framework............................................................ 6

(vi) Conclusion .................................................................................................................... 7

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 1. Objective and limitation of study
The objective of this study is to find the main modus operandi of committing money
laundering. The suggestions and methods of correcting the criminals have to be improvised
upon every day, as the criminal keep finding novel methods for commission of crimes. The
role of the various government organizations in investigating and booking down the criminals
like the Financial Intelligence Unit will be taken account of.

2. Hypothesis
The author proposes to suggest following proposition:

Money Laundering is a flourishing business where there are many stake holders and profit
bearers.

3. Aim
The aim of this learning exercise is to find out the roles of various intermediaries in a Money
Laundering scheme, and also, to discover the function of various Indian Regulators like RBI,
SEBI in curbing these activities.

4. Scope
Other economic crimes namely, tax frauds, primary/secondary market fraud, insurance,
import/export fraud, IPR thefts, fake documents shall not be dealt in this paper. The paper
will restrict its content to Indian market.

5. Research methodology
Doctrinal method of research will be followed in making this dissertation.

CITATION METHOD

Uniform Method of Citation; Chicago Manual of Style, 15th Edition will be followed for
citation during the course of dissertation. The quotes having more than fifty words will be
italicized and left and right intended.

6. Review of Literature
The books by B.N., Gururaj, “Commentaries on Fema, Money Laundering Act and
COFEPOSA by Wadhawa Pulications, Nagpur:, (2005), is an important book to know the
basics of the money laundering. It deals with almost all the aspects of the money laundering,

Alagiri,Dhandapani, Ed. Money Laundering :Issues and Perspectives, Hyderabad: Icfai

University Press, 2006, has also helped me in gathering significant details about the
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operations of Hawala and the other modes of conducting money laundering. Anti money
laundering has also been a well researched area in this books.

The website hosted at www.laundryman.unet.com/forhistoricalmaterialsonmoneylaundering,

and http://fiuindia.gov.in/faq-moneylaundering.htm#1b have also been instrumental in
unleashing the modalities and the penalties for money laundering offences.

The book of Mr. Brigitte Unger named ‘The Scale and Impacts of Money Laundering, UK’
published by Edward Elgar in 2007, is also important to understand the process of money
laundering in United Kingdom.

7. Chapterization
This is the preliminary Chapterization proposed to be done in dissertation.

(i) Introduction
Money Laundering is the process by which large amounts of illegally obtained money (from
drug trafficking, terrorist activity or other serious crimes) is given the appearance of having
originated from a legitimate source. Thus, we can say Money Laundering' is the introduction
of illegally gained assets into the legal financial system with the aim of covering up its true
origin.

(ii) Magnitude of the problem

Economic offenders have exploited weaknesses in almost all areas of economic activity and
siphoned off thousands of crores. Their depredations will continue till the law makers plug
loopholes in the affected system. But the economic offenders, as they have the knack of
exploiting weaknesses in any system either traverse a new territory or subvert the system
which is their specialized field. In the recent past alone, scams have cost the exchequer and
millions of Indians, astronomical sums of money.

In simple terms it is the Conversion of Black money into white money. This takes you back
to cleaning the huge piles of cash. Indian newspapers frequently report the money laundering
scams perpetrated by the Political leaders and some of the prominent stars are the chief
ministers of UP, Punjab and Kerala. UP chief minister Ms. Mayawati as per the Indian
Express reports used some innovative techniques to launder the money by avoiding the tax in
legitimate manner. She accepted the donations from persons who were road side heroes.

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When CBI raided these guys were found in no position to donate huge sums for political
motives.

These features are most often used routinely to compare white collar crimes with other
crimes. As will be seen in subsequent chapters, however, such generalized comparisons can
be misleading because many of these features are not unique to or shared by all white collar
crimes. Some conventional crimes are also invisible, particularly those that take place in the
private sphere of the family. Some, like burglary or robbery, involve considerable expertise
and can also be highly organized and complex, which makes them similarly difficult to
detect. Moreover, successful professional criminals delegate responsibility to minimize the
risk of being detected and prosecuted. Not all conventional crime involves immediately
harmed victims and those crimes that involve willing exchanges between consenting adults,
such as gambling, prostitution or drug offences, are also represented as ‘victimless’ and pose
particular problems for detection and prosecution. These and other conventional crimes are
also characterized by an ambivalent criminal status and perceptions of the ‘criminality’ of
activities vary over time. Intent, so often seen as a major element in criminal liability, is
problematic in other forms of crime – those who drive while drunk may not intend to harm
others and can see themselves as ‘unlucky’. Other, more unambiguously criminal offences
are also perceived to be treated leniently – rape cases, for example, have a high rate of
attrition leading to low prosecution rates– and many sentences are criticized as lenient.

(iii) Process of Money Laundering

We can say that the major objectives of Money Laundering activities are:

(a) Concealing the true ownership of illegally-obtained money and

(b) Placement, layering and integration of such funds

The concept of Money Laundering can be traced back to the "Hawala" transactions well
known in India for long time now. Hawala mechanism facilitates the conversion of money
from black to white."Hawala" is an Arabic word meaning the transfer of money or
information between two persons using a third person. The Hawala mechanism usually does
not leave any paper trail and thus is a nightmare for the investigative agencies. The profits
generated from Hawala transactions are covertly invested in real estate, films etc. so as to
launder them.

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 (iv) Who commits such crimes?
No clear dividing line can therefore be drawn between white collar and other crimes, and
many of these characteristics would be better seen as representing a series of different kinds
of crime to be plotted along a series of continua, it is likely that many white collar crimes
would cluster at one end, with many conventional crimes at the other. Broad comparisons
often draw on extreme examples – thus the invisibility, lack of intent, diffuse victimization
and complexity of a major pollution incident may be compared with the visibility, intent,
direct victimization and simplicity of a mugging.

The recent economic frauds are high-money soigné scams running to multiple crores. The
mother of all the scams of modern India namely the security scam of 1992 involved Rs 8000
crores while the recent fake stamp scam allegedly involves Rs 80,000 crores. The Indian
Bank scam of the 1990s involved Rs 1300 crores while the fodder scam of Bihar ran to Rs
1500 crores. Other major scams of lesser volume are the Bihar bitumen scandal of Rs 350
crores, Bofors scandal of Rs 64 crores, HDW submarine scandal of Rs 64 crores, Bihar
medical bills scandal of Rs 60 crores, Ayurveda scam of Rs 32 crores, Telecom scam of Rs 6
crores inter alia. However, the leading role in such embezzlements must go to the banking
sector that gobbled public money to the tune of Rs 1,20,000 crores in three years with the
euphemism of non-performing assets or bad loans that in most cases are advances paid to
well-to-do favorites for consideration with the understanding that the clause of the non-
performing assets take care of that. Most of them are yet to be proved in court of law.

(v) Money Laundering – Indian Legal Framework

Money Laundering has a close nexus with organized crime. Money Launderers accumulate
enormous profits through drug trafficking, international frauds, arms dealing etc. Cash
transactions are predominantly used for Money Laundering as they facilitate the concealment
of the true ownership and origin of money. It is well recognized that through the huge profits
the criminals earn from drug trafficking and other illegal means, by way of money laundering
could contaminate and corrupt the structure of the State at all levels, this definitely leads to
corruption. Further, this adds to constant pursuit of profits and the expansion into new areas
of criminal activity.

Through money laundering, organized crime diversifies its sources of income and enlarges its
sphere of action. The social danger of money laundering consists in the consolidation of the
economic power of criminal organizations, enabling them to penetrate the legitimate

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economy. In advanced societies, crime is increasingly economic in character. Criminal
associations now tend to be organized like business enterprises and to follow the same
tendencies as legitimate firms; specialization, growth, expansion in international markets and
linkage with other enterprises.

Features, need and importance of Money Laundering (Amendment) Act, 2009 will also be
discussed along with role of other Government organisations like SEBI, RBI, and Financial
Intelligence Unit in curbing Money Laundering Practices.

(vi) Conclusion
We need to revamp the local law which governs the economic offences, and we need to
ensure that the benefits accruing out of such proceeds should not be allowed to be used by
such criminals. This will serve as a major discourage to the offenders. Also we need to have a
separate court to look after this offence. The best way to curb these events is coordination of
the various agencies involved in economic transactions. I wish to propose these changes.

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