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.

But 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. used some innovative techniques to launder the money by avoiding Other Indian star in the laundering Business is Ketan Parekh.It is believed that he shifted the proceeds of money received from the BoI pay order scam to various tax heavens and ultimately in the Swiss Banks.These transactions are believed to be just the tip of the iceberg.

If done successfully, it allows the criminals to maintain control over their proceeds and ultimately to provide a legitimate cover for their source of income. Money laundering plays a fundamental role in facilitating the ambitions of the drug trafficker, the terrorist, the organised criminal, the insider dealer, the tax evader as well as the many others who need to avoid the kind of attention from the authorities that sudden wealth brings from illegal activities. By engaging in this type of activity it is hoped to place the proceeds beyond the reach of any asset forfeiture laws.

Money laundering is a crime if it is used to disguise the origins of illegally-obtained money, because the proceeds of a crime are made to appear legitimate. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996 the International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money. However, the FATF, an intergovernmental body set up to combat money laundering, admitted that "overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and

therefore the FATF does not publish any figures in this regard.Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance. Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions and poses a significant policy concern for governments. ] As a result, governments and international bodies have undertaken efforts to deter, prevent and apprehend money launderers. Financial institutions have likewise undertaken efforts to prevent and detect transactions involving dirty money

Methods
Money laundering often occurs in three steps: first, cash is introduced into the financial system by some means (placement), the second involves carrying out complex financial transactions in order to camouflage the illegal source (layering), and the final step entails acquiring wealth generated from the transactions of the illicit funds (integration). Some of these steps may be omitted, depending on the circumstances; for example, non-cash proceeds that are already in the financial system would have no need for placement.[3] Money laundering takes several different forms although most methods can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing."[4]

Structuring: Often known as "smurfing," it is a method of placement by which cash is

broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use

smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.[5]

Bulk cash smuggling: Physically smuggling cash to another jurisdiction, where it will be

deposited in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement.[6]

Cash-intensive businesses: A business typically involved in receiving cash will use its

accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Often, the business will have no legitimate activity.[7]

Trade-based laundering: Under- or over-valuing invoices in order to disguise the

movement of money.[8]

Shell companies and trusts: Trusts and shell companies disguise the true owner of money.

Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner.[7]

Bank capture: Money launderers or criminals buy a controlling interest in a bank,

preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.

Casinos: An individual will walk in to a casino or a horse race track with cash and buy

chips, play for a while and then cash in his chips, for which he will be issued a cheque. The money launderer will then be able to deposit the cheque into his bank account, and claim it as gambling winnings.[6] If the casino is controlled by organized crime and the money

launderer works for them, the launderer will lose the illegally obtained money on purpose in the casino and be paid with other funds by the criminal organization.

Real estate: Real estate may be purchased with illegal proceeds, then sold. The proceeds

from the sale appear to outsiders to be legitimate income. Alternatively, the price of the property is manipulated; the seller will agree to a contract that under-represents the value of the property, and will receive criminal proceeds to make up the difference.[7]

Black salaries: Companies might have unregistered employees without a written contract

who are given cash salaries. Black cash might be used to pay them

Enforcement

Anti money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti-money laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the USA PATRIOT Act.

Know your customer

Today, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit in the respective country. For example, a bank must perform due diligence by verifying a customer's identity and, if necessary, monitoring transactions for suspicious activity. This is often termed as KYC -- "know your customer." This means, to begin with, knowing the identity of the

customers, and further, understanding the transactions and businesses the customers do. Knowing one's customers, financial intermediaries will often be able to identify unusual or suspicious behavior, including false identities, unusual transactions, changing behaviour, or other indicators of laundering. But for institutions with millions of customers and thousands of customer-contact employees, traditional ways of knowing their customers must be supplemented by technology. Many Companies provide software and databases to help perform these processes. Bank and corporate security directors can also play an important role in fighting money laundering.

Technology
Anti-money laundering software filters customer data, classifies it according to level of suspicion, and inspects it for anomalies. Such anomalies would include any sudden and substantial increase in funds or a large withdrawal. Smaller transactions that meet certain criteria may be also be flagged as suspicious. For example, structuring can lead to flagged transactions. The software will also flag names that have been placed on government "blacklists" and transactions involving countries that are thought to be hostile to the host nation. Once the software has mined data and flagged suspect transactions, it generates a report. The various software packages are capable of name analysis, rule-based systems, statistical and profiling engines, neural networks, link analysis, peer group analysis, and time sequence matching. Also, there are specific KYC solutions that offer case-based account documentation acceptance and rectification, as well as automatic risk scoring of the customer taking account of country, business, entity, product, transaction risks that can be reviewed intelligently. Other

elements of AML technology include portals to share knowledge and e-learning for training and awareness. This software is not used exclusively to track money laundering, but more often the common theft of credit cards or bank details. Unusual activity on an account may trigger a call from the card issuer to make sure it has not been misused.

FATF: Financial Action Task Force against Money Laundering and other Organizations
Formed in 1989 by the G7 countries, the Financial Action Task Force on Money Laundering (FATF) is an intergovernmental body whose purpose is to develop and promote an international response to combat money laundering. The FATF Secretariat is housed at the headquarters of the OECD in Paris.In October 2001, FATF expanded its mission to include combating the financing of terrorism. FATF is a policy-making body, which brings together legal, financial and law enforcement experts to achieve national legislation and regulatory AML and CFT reforms. Currently, its membership consists of 34 countries and territories and two regional organizations. In addition, FATF works in collaboration with a number of international bodies and organizations. These entities have observer status with FATF, which does not entitle them to vote, but permits full participation in plenary sessions and working groups.[10] FATF has developed 40 Recommendations on money laundering and 9 Special Recommendations regarding terrorist financing. FATF assesses each member country against these recommendations in published reports. Countries seen as not being sufficiently compliant with such recommendations are subjected to financial sanctions.[11]

FATFs three primary functions with regard to money laundering are:

Monitoring members progress in implementing anti-money laundering

measures.

Reviewing

and

reporting

on

laundering

trends,

techniques

and

countermeasures.

Promoting the adoption and implementation of FATF anti-money laundering

standards globally.

The FATF currently comprises 34 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe including India :

Laws and enforcement by region

India
The Prevention of Money-Laundering Act, 2002 came into effect on 1 July 2005. Section 12 (1) prescribes the obligations on banks, financial institutions and intermediaries (a) to maintain records detailing the nature and value of transactions which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, and where such series of transactions take place within a month; (b) to furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed and t records of the identity of all its clients. Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above, must be maintained for ten years after the transactions finished. It is handled by the Indian Income Tax Department.

The provisions of the Act are frequently reviewed and various amendments have been passed from time to time. The recent activity in money laundering in India is through political parties, corporate companies and share market. It is investigated by the Indian Income Tax Department

CASES

ON

MONEY

LAUNDERING

AND REPORTS ON THEM : ED may file money laundering case against Jagan
Hyderabad, Aug 23 (PTI) The Enforcement Directorate may file a money laundering case against Y S Jaganmohan Reddy and some of his associates, days after the CBI searched various premises belonging to the Kadapa MP.

The Directorate is understood to have made a discreet probe trailing the funds pumped

by the MP and son of former Andhra Pradesh chief minister Y S Rajasekhara Reddy and his associates into the companies owned by them.

The agency, according to sources, has gone through some official documents of transactions as part of its investigation under the provisions of the Prevention of Money laundering Act (PMLA).

The CBI has already registered a case against Reddy on the instructions of Andhra Pradesh High Court under relevant sections of the IPC pertaining to cheating, criminal conspiracy, criminal breach of trust and under provisions of Prevention of Corruption Act.

The CBI said searches were conducted at Hyderabad, Bangalore, Chennai, Kolkata, Rajkot, Delhi and Mumbai in this connection.

"The CBI has registered a case...against a Member of Parliament from Andhra Pradesh, and others, on the orders of High Court of Andhra Pradesh...on the allegation that the investors invested in the companies owned and promoted by the MP at very high premiums as a quid-pro-quo for the favours doled out by the then chief minister of Andhra Pradesh," a CBI spokesperson had said.

Black money case: Supreme Court stays release of Hasan Ali Khan on bail
New Delhi: The Supreme Court today stayed the release of Pune-based stud farm owner Hasan Ali Khan, accused in money laundering cases, on bail which was granted by the Bombay High Court.

A three-judge bench headed by Justice Altamas Kabir said the effect of the Bombay High Court's order granting bail to him shall not be operational till Thursday. The court passed the order on a petition filed by the Enforcement Directorate (ED) challenging the high court's order granting bail to Khan, who has been accused in various money laundering cases.

"Let the matter be listed on Thursday. In the meantime, order of Bombay High Court of August 12 on bail shall not be given effect to," the bench said.

"The documents reveal that Hasan Ali Khan has huge funds in his accounts to the extent of 800 million US dollars with a bank outside India," the Enforcement Directorate contended.

The agency, in its petition, alleged that various transactions led by Khan through his foreign bank accounts reveal his association with international arms dealer Adnan Khashoggi.

"The documents point to deep linkage between Khan and Khashoggi," the agency further said while pressing for a stay on the Bombay High Court's order granting bail to Khan.

The high court had granted bail to Khan on August 12 after observing that the agency had failed to show that the wealth amassed by him was from proceeds of crime.

"There are no ingredients of proceeds of crime in the case made out by the Enforcement Directorate against the applicant. He deserves to be released on bail," the high court had said.

The ED had said that Khan and his arrested accomplice Kashinath Tapuriah had deep links with bank officials in the US, Switzerland, Singapore, UAE and other countries.

It had alleged that Khan has links with Khashoggi, and in 2003, USD 300 million was apparently received by him from the arms dealer from weapon sales.

It had also said the accused had created a complex maze of structures and transactions to hide the true source of funds and frustrate the investigations.

Indians may have much more than $2.5 billion in Swiss banks
Press Trust of India, Updated: July 25, 2011 08:14 IST
Geneva: It's official now - Indians hold about US $2.5 billion (over Rs. 11,000 crore) in Swiss banks, but this figure of Switzerland's Central bank may be a gross understatement of the total wealth directly and indirectly held there by entities from India.

The ever-growing judicial scrutiny and political outcry over alleged stashing of black money in Swiss banks also seems to be forcing Indian entities to move their monies to other safe havens like the Middle East, Singapore and Mauritius.

Some half a billion dollars have been moved out in the last three years, according to the Central bank's figures.

In the first-ever disclosure of money held in various Swiss banks by Indians, Swiss National Bank (SNB) has said the quantum of such deposits stood at 1.945 billion Swiss francs (about US $2.5 billion) at the end of 2010.

Relentless efforts on to deal with black money: Pranab

Amid public outcry over black money, Finance Minister Pranab Mukherjee today said the government was making "relentless" efforts to deal with the menace and bring back unaccounted funds stashed abroad. "Our strategy is to get information (about funds stashed abroad) through legal instrumentalities. Both administrative and legal steps have been taken to fight this menace...our effort against black money is relentless", he said. India has started re-negotiations the Double Tax Avoidance Agreements (DTAAs) with 75 countries and Tax Information Exchange Agreements (TIEAs) with 22 nations. Of this, as on date, India has completed negotiations with 53 countries and sovereign jurisdictions, he said adding 16 treaties (11 DTAAs and 5 TIEAs) have been signed so far. In large number of cases, the government has been able to get "specific information" under DTAAs and appropriate actions have been taken. Besides, the Minister said the regular activities of Income Tax Department (ITD), like search, seizure and raids, too are yielding results.

The ITD had detected concealed income of Rs. 18,750 crore in the last two financial years. Also, he said the Directorate of Transfer Pricing has detected mispricing of Rs. 34,145 crore during the period, which has prevented outflow of money. Earlier in the week, Mukherjee had hoped that DTAA with Switzerland would come into effect by end of this year, a move that would enable India to get banking information on black money stashed in Swiss banks. The Government in August last year signed a revised DTAA with the European nation

Preamble :In terms of the guidelines issued by the Reserve Bank of India on the 29th November, 2004 on Know Your Customers (KYC) Standards - Anti Money Laundering (AML) Measures, banks are required to put in place a comprehensive policy framework covering KYC Standards and AML Measures. The guidelines issued by the Reserve Bank of India take into account the recommendations made by the Financial Action Task Force (FATF), an inter governmental agency, on AML Standards and on combating financing of terrorism. The guidelines also incorporate aspects covered in the Basel Committee document on customer due diligence which is a reflection of the international financial community's resolve to assist law enforcement authorities in combating financial crime. This policy document is prepared in line with the RBI guidelines and incorporate the Bank's approach to customer identification procedures, customer profiling based on the risk perception and monitoring of transactions on an ongoing basis. Definition of Money Laundering :Section 3 of the Prevention of Money Laundering (PML) Act, 2002 has defined the "Offence of money laundering as under :"Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering." Money launderers use the banking system for cleansing 'dirty money' obtained from criminal activities with the objective of hiding/disguising its source. The process of money laundering involves creating a web of financial transactions so as to hide the origin and true nature of these funds.

Money launderers use the banking system for cleansing 'dirty money' obtained from criminal activities with the objective of hiding/disguising its source. The process of money laundering involves creating a web of financial transactions so as to hide the origin and true nature of these funds.

For the purpose of this document, the term money laundering would also cover financial transactions where the end use of funds goes for terrorist financing irrespective of the source of the funds

3 Obligations under Prevention of Money Laundering (PML) Act, 2002 Section 12 of PML Act, 2002 places certain obligations on every banking company, financial institution and intermediary, which include.

maintaining a record of prescribed transactionsfurnishing information of prescribed transactions to the specified authority verifying and maintaining records of the identity of its clients. preserving records in respect of (i), (ii) (iii) above for a period of ten years from the date of cessation of transaction with the clients.

These requirements would come into effect after Govt. of India frames rules under the Act.

Money Laundering - Risk Perception:Money Laundering activities expose the Bank to various risks such as operational risks, reputation risk, compliance risk and legal risk.

Policy Objectives To prevent criminal elements from using the Banking System for money laundering activities. To enable the Bank to know / understand the customers and their financial dealings better, which in turn would help the Bank to manage risks prudently.

To put in place appropriate controls for detection and reporting of suspicious activities in accordance with applicable laws/laid down procedures.

To comply with applicable laws and regulatory guidelines. To take necessary steps to ensure that the concerned staff are adequately trained in KYC/AML Procedures.

8 Key Elements of the Policy : Customer Acceptance Policy Customer Identification Procedures Monitoring of Transactions; and Risk Management

8.1 Customer Acceptance Policy<The Bank will : classify customers into various risk categories and based on risk perception decide on acceptance criteria for each category of customers; accept customers after verifying their identity as laid down in Customer Identification Procedures; Not open accounts in the name of anonymous/fictitious/benami persons; strive not to inconvenience the general public, especially those who are financially or socially disadvantaged.

8.2 Customer Identification Procedures :The first requirement of customer identification procedures is to be satisfied that a prospective customer is who he/she claims to be.

The second requirement of customer identification procedures is to ensure that sufficient information is obtained on the nature of the business that the customers expects to undertake and any expected or predictable pattern of transactions.

The information collected will be used for profiling the customer.

Identity to be verified for :-

The named account holder Beneficial owners Signatories to an account and Intermediate parties.

The Customer Identification Procedures are to be carried out at the following stages

While establishing a banking relationship when the Bank feels it is necessary to obtain additional information from the existing customers based on the conduct or behavior of the account.

Wherever applicable, information on the nature or business activity, location, mode of payments, volume of turnover, social and financial status etc. will be collected for completing the profile of the customer.

Customers will be classified into three risk categories namely High Medium and Low, based on the risk perception. The risk categorization will be reviewed periodically.

Customer Identification will be carried out in respect of non-account holders approaching bank for high value one-off transaction as well as any person or entity connected with a financial transaction which can pose significant reputational or other risks to the Bank.

8.3 Monitoring of Transactions : Monitoring of transactions will be conducted taking into consideration the risk profile of the account. Special attention will be paid to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose. Transactions that involve large amounts of cash inconsistent with the normal and expected activity of the customer will be subjected to detailed scrutiny.

After due diligence at the appropriate level in the Bank, transactions of suspicious nature and/or any other type of transaction notified under PML Act, 2002 will be reported to the appropriate authority and a record of such transactions will be preserved and maintained for a period as prescribed in the Act.

8.4 Risk Management :While the Bank has adopted a risk based approach to the implementation of this policy. It is necessary to establish appropriate framework covering proper management oversight, systems, controls and other related matters.

Bank's Internal Audit of compliance with KYC/AML Policy will provide an independent evaluation of the same including legal and regulatory requirements. Concurrent/Internal Auditors shall specifically check and verify the application of KYC/AML procedures at the branches and comment on the lapses observed in this regard. The compliance in this regard will be placed before the Audit Committee of the Board at quarterly intervals.

All employees training programmes will have a module on KYC Standards - AML Measures so that members of the staff are adequately trained in KYC/AML procedures.

The Principal Officer designated by the Bank in this regard will have an important responsibility in managing oversight and coordinating with various functionaries in the implementation of KYC/AML Policy.

9 Customer Education :The Bank recognizes the need to spread awareness on KYC, Anti Money Laundering measures and the rationale behind them amongst the customers and shall take suitable steps for the purpose.

10 Introduction of New Technologies : Bank will pay special attention to the money laundering threats arising from new or developing technologies and take necessary steps to prevent its misuse for money laundering activities. Bank will ensure that appropriate KYC Procedures are duly applied to the customers using the new technology driven products.

11 KYC for the existing accounts :While the KYC guidelines will apply to all new customers, the same would be applied to the existing customers on the basis of materiality and risk. However, transactions in existing accounts would be continuously monitored for any unusual pattern in the operation of the accounts. On the basis of materiality and risk the existing accounts of companies, firms, trusts, charities, religious organizations and other institutions are subjected to minimum KYC standards which would establish the identity of the natural/legal person and those of the 'beneficial owners' Similarly, the Bank will also ensure that term/recurring deposit accounts are subject to revised KYC procedures at the time of renewal of the deposits on the basis of materiality and risk.

12 Branches and subsidiaries outside India :This policy shall also apply to the branches, subsidiaries and majority owned joint ventures located abroad to the extent local laws permit. Based on this policy, each foreign office is required to put in place an Anti Money Laundering Policy (duly approved), which shall also contain, the KYC guidelines and Suspicious Activity Reporting (SAR) Procedures as may be required by the rules and regulations of the host country.

13 Correspondent Banking :This Policy will apply to our dealings with correspondent banks. For correspondent banking relationship an appropriate due diligence procedure will be laid down keeping in view KYC Standards existing in the country where the correspondent bank is located and the track record of the correspondent bank in the fight against money laundering and terrorist financing.

14 Principal Officer (Money Laundering Reporting Officer) :Bank will designate a senior officer as Principal Officer who shall be responsible for implementation of and compliance with this policy.

His illustrative duties will be as follows -

Monitoring the implementation of the Bank's KYC/AML Policy. Reporting of Transactions and sharing of the information as required under the law. Maintaining liaison with law enforcement agencies. Ensuring submission of periodical reports to the Top Management/Board.