MONEY LAUNDERING

By Sudipto MallickAcharya School of Management, B’lore

PGDM 2010-12

MONEYDIRTY MONEY

CLEAN

TERRORIST

FINANCE

Money Laundering is the criminal practice of processing ill-gotten or “dirty money , through a series of transaction; in this way the funds are “cleaned”, so that they appear to be proceeds for legal activities.

In Common Man’s Language:

It’s a process by which money or other assets obtained as proceeds of crime are exchanged for “clean money” or other assets.

Dirty MoneyClean Money

How It Is Done??

Money Laundering Process

Placement

Layering

Integration

Placement

The first and most vulnerable stage is placement. The goal is to introduced the unlawful money into the financial system without attracting the attention of financial institution or law enforcement.

Ex: Dividing large amount of money into less smaller terms that are deposited directly into different bank account.

Layering

Layering involves moving funds around the financial system, often in a complex serious of transactions to create confusion and complicate the paper trail..

Acct 1, Bank A

Acct 1, Bank D

Acct 1, Bank C

Acct 2, Bank B

Acct 2, Bank B

Acct X, Bank Y

Ex: Exchanging money in larger or smaller amount, or transferring funds to numerous accounts in one or more financial institutions.

Integration

The ultimate goal of money laundering process is integration. Once the funds are in the financial system and insulated through the layering stage, the integration stage is used to create the appearance of legality through additional transactions.

Ex: Purchase or resale of real estate, investment in securities etc.Or funnel such money into various dummy firms and get repaid through salaries, rent, leas on non- existing assets.

18/10/2009

• Raj Rajanathram, a portfolio manager of Galleon group (managing $7 billion assets) has caught for allegedly raising fund for a Sri lankan terrorist group ($1.5bl).

• This is the largest ever hedge fund insider case – the paper reported.

http://en.rian.ru/world/20091018/156506875.html

How to prevent??

Anti Money Laundering Laws - The Prevention of Money Laundering Act,

came into effect on 1st July 2005.

Implementation-KYC Norms

World Check-BMR Advisor AML Survey 2009

• 168 banks in India including PSB, Private sector and Foreign Banks.• An amount 13 times larger than the country's foreign debt - USD 1500 billion has been alleged to have been laundered by Indians in Swiss banks

News Paper Article

http://www.business-standard.com/india/news/financial-institutions-need-investment-in-anti-money-laundering-system/64974/on

SELF CHECK

Creating the appearance of

legality

Injecting illegal money into the system

Making a complex web of transaction

1, 2, 3 3, 2, 1 1, 3, 2 3, 1, 2 2, 1, 3

None of the above 2, 3, 1

ANY ?????