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Modus Operandi in Money Laundering :
An Illustrative Study
Jaya V. S., Assistant Research Professor, Indian Law Institute, New Delhi.
Money laundering is a
process to make illegitimate
money appears legitimate
and it is a Socio economic
offence having wide
repercussions. Combating
this evil requires the expertise
of specialized law
enforcement agencies. The
modus operandi of money
laundering, its facets,
consequences and related
aspects have all been
explained in this article.
e-mail :
Money laundering, a socio-economic offence having trans-border effects, is a sophisticated
and lucrative business for organized criminals. As the term indicates it is laundering or washing
of dirty money to clean money. It is the process by which one conceals the existence of illegal
source or illegal application of income and disguises that income to make it legitimate1 . It is
a serious organized crime with far reaching implications on the revenue of the country.
Though it does not have any direct impact on the society at large, its indirect effect on the states
financial security cannot be ignored equally. The process of money laundering is a complicated
one that can be achieved by multiple ways. This complexity often results in enforcement
agencies failing in their duties to detect the crime at the earliest. Compared to other countries,
the technological advancement in the areas of money laundering techniques in India are not
much high. But still we are struggling to evolve a proper strategy to check the offence of
money laundering before it could make the entire financial system crumble down. One should
not forget the fact that the persons involved in the money laundering activity are from high
intelligentia group and of great wisdom. They commit the offence in such a manner that the
rest of the world is totally uninformed of the true nature of their activities and hidden techniques.
This makes it pertinent to note that the law enforcement agencies should be adequately trained
to capture the sites so that the responsible hands can be punished at the earliest.
As per the Concise Oxford Dictionary the history of money laundering can be traced to Emperor
Vespasianus who had raised taxes on public toilets by relying on the maxim, ‘pecunia non det’
means money does not stink2 . Since commercial, fiscal or environmental offences are without
identifiable victims, the only way to punish the offenders was forfeiture of subject of crime,
which later changed to confiscation of proceeds of crime. But in economic crimes it is very
difficult to forfeit the proceeds of the crime3 . Generally, money laundering has got two goals;
Criminals through their criminal activity dispose of huge amounts of money need to give this
money, a legitimate appearance. They need to launder it. The phenomenon is attracted with
the twin aims of preventing dirty money from serving the crimes that generated it and ensuring
that the money can be used without any danger of confiscation.
Realizing the need to introduce a new law in this regard in India the Money Laundering Act,
2002 is recently amended by the Amendment Act of 2005. The new Act engulfs the allied
legislations such as erstwhile FERA, 1973, FEMA, 1999 etc. Since the offence of money laundering
has got nexus with other crimes such as terrorism and drug trafficking, the insidious cost of
money laundering is always corruption. Today’s world is largely driven by the undue forces
of corrupt practices and bad elements of bureaucracy. Though there are ample legislations
dealing with such crucial issues in specific a proper co-ordination among the enforcement
agencies prescribed under those legislation is lacking. Hence effective implementation of
other socio-economic legislations are equally important in curbing the menace of money
It is the process to make illegitimate money appear legitimate. Section 3 of the Prevention of
Money laundering Act, 20024 has not defined the term money laundering, but the offence of
money laundering is punishable under the Act.5 The offence of money laundering is a very
complicated process with a chain of illegal activities connected to each other. The money
laundering process essentially consists of three stages viz., the placement6 , the layering7 and
the integration of the money8 . In the placement stage money launderer transforms the illegal
money into more flexible and less dubious forms. Once
transformed the money launderer deposits the funds in a financial
institution. The money laundering process is particularly
vulnerable to detection by enforcement agencies during the
placement stage. As this phase is very risky for the culprit, he
will always be trying to shift the money into the next stage,ie.,
layering. When the money is deposited in a number of financial
institutions, it is probably easy for the money launderer to hide
the illegal source.
Now a days since the States have introduced new norms for the
banks and other financial institutions to be followed, the bank
secrecy provisions are acting as a hindrance to the enforcement
agencies to trace the origin of the illicit fund. In that way, such
special norms have become a boon to the money launderers in
deceiving the law enforcement officials. Once the money is
adequately layered through a series of composite transactions,
the illegally obtained funds can be integrated into the lawful
financial realm. Once the funds are integrated back into the
financial system, the money is obtainable from anywhere in the
world, while the inceptive source of the funds remains
The predicate crimes can be divided into five categories viz; drug
trafficking, blue-collar crimes, white-collar crimes, bribery/
corruption and terrorism. These crimes differ in terms of their
reliance on cash, the quantities of money involved, the severity
of their negative social impact and the people affected. As a result
policy decisions may have different consequences for each
category9 . The offence of money laundering has got serious
international repercussions. Many a times it becomes difficult to
present it with due procedural care and attention because of the
corruption in the preventive system. Large international criminal
organizations owe their power and sophistication to alliances
with political and economic interests within money laundering
mafia who in turn mobilize their support through political
institutions to delay or weaken preventive machinery including
legislation. There are so many such instances in India wherein
the illegal money transactions had gone beyond the controlling
power of the law enforcement agencies10 .
Within India, the system of money laundering is further
complicated by the ancient underground form of banking known
as Hawala. Hawala, which means providing a code was, established
much before the financial systems of the west. The Hawala
includes the complete service from placement to integration.
Similar services are provided under other names in other parts
of the world such as Fa-Chiecen in China. Created as a means to
secure flow of funds, the system has become intensively popular
over the last few decades. Under the present Hawala system, a
person wanting to transfer money to another country deposits
the money with a Hawala dealer. The depositor also gives the
dealer a code, which must be given by any one trying to access
the funds. Through the use of corporate accounts, the dealer is
able to move the funds to one of the dealer’s agents in another
country. Armed with the code, the intended recipient of the
money is able to obtain it from the dealer’s agent. This is the
most problematic area. With the dearth of governmental
surveillance, the Hawala system allows the individuals to make
deposits and withdrawals through dealers rather than financial
institutions.11 In recent years, the Hawala system has become
more susceptible to laundering of illicit funds than its usual mode
of business.
As stated earlier, money laundering is conventionally divided
into three phases; placement of funds derived from an illegal
activity, layering of those funds by passing them through many
institutions and jurisdictions to disguise their origin and
integration of the funds into an economy where they appear to
be legitimate. Conceptually money laundering is straightforward
in the sense that it is an effort to conceal the origins of illegally
obtained funds that have been converted for legitimate purposes.
The five major techniques of money laundering are (i) cash
smuggling, (ii) casinos covering horse racing/ gambling and
lotteries, (iii) insurance policies and (iv) securities12 . According
to official reports, US customs officials spend most of their
resources inspecting people and cargo coming to US, so it is
relatively easy to ship currency to another country. In casinos
also, chips are bought with cash and then after a period of time
during which gambling may or may not take place, the chips are
traded in the form of cheque in the name of a third party. Similarly
in horse racing also, winning tickets are bought at a high premium
allowing the winner to collect his or her money without tax
liability and enabling the launderer to collect a cheque on which
relevant taxes will be deducted. Likewise in lotteries also, winning
tickets are purchased from the winners as they arrive at the lottery
office to collect their winnings. In that way they can launder
money using these tickets.
Single premium insurance policies for which the premium is
paid in an upfront lump sum rather than in annual installments
have increased in popularity. Launderers or their clients purchase
them and then redeem them at a discount, paying the required
fees and penalties and receiving a sanitized check from the
insurance company. Insurance policies can also be used as
guarantees for loans from financial institutions13 .
Similarly, the securities sector is characterized by frequent and
numerous transactions and several mechanisms can be used to
make proceeds appear as legitimate earnings from the financial
market. Securities transaction is most commonly used during
the layering and integration process. The fact that law-abiding
brokers do not accept such transactions is not at all an obstacle
for the criminals operating within the financial sector itself, such
as embezzlers, insider traders or perpetrators of security frauds
because these funds are already present in the financial system.
During the layering phase, a launderer can simply purchase
securities with illicit funds that are transferred from one or more
accounts, then use the proceeds from selling these securities as
legitimate money. Unlike regular securities, bearer securities do
Modus Operandi in Money Laundering : An Illustrative Study
not have a registered owner and when they change hands, the
transaction involves physically handing over the security, thus
leaving no proper trail. The securities owner is simply the person
who possesses it 14 .
Structuring and smurfing of money is another method involving
breaking down cash deposits into amounts below the reporting
thresholds. Couriers or Smurfs are used to make the deposits in
several banks or to buy cashiers cheques in small denominations.
Legitimate business ownership can also pave way for money
laundering transactions through indirect ways. Dirty money can
be added to the cash revenues of a legitimate enterprise
particularly those that are cash incentives such as restaurants,
bars and video rental stores. The extra money is simply added to
the bill. The cost of this laundering method is the tax paid on the
income. With companies whose transactions are better
documented, invoices can be manipulated to stimulate legitimacy.
Shell corporations also exist on paper but transact either business
or illegal business. These have many potential users. One example
is that, they buy real estate or other assets and then sell them for
a nominal sum to one’s own Shell Corporation which can then
pass the funds on to an innocent third party for the original
purchase price15 .
The above discussion on the various modes of money laundering
gives a clear picture as to the monstrous nature of money
laundering activities taking place all over the world. Hence the
same calls for an effective machinery for the management and
prevention of money laundering. The three dimensions of antimoney
laundering regime involves; (1) national and international
building blocks (2) a firm legal and enforcement foundation and
(3) close interaction between the private and public sectors in
order to lower compliance costs and raise the possibility of
achieving its objectives16 . This attracts the need for an
international co-operation and collective responsibility among
nations. In actual practice, this collaboration of the global anti
money laundering regime is unattainable. The establishment of
a global anti money laundering regime is a challenge because of
differences in institutions, perspectives and priorities among
countries as well as within them. As a result compromises driven
by the need to balance competing interests are made at all levels
in all jurisdiction.
Money laundering as generally understood is invariably
connected with a number of other crimes, the detection of most
of them are very difficult. Many high-class society professionals
in one or the other way are associated with money laundering
activities. This new class of criminals can be called professional
money launderers who aid and abet criminals through money
laundering activities. As in the case of economic crimes generally
and the white-collar crimes particularly, money laundering is
also committed with such sophisticated and advanced
technologies that its detection is almost impossible through open
eyes. In countries like India, the vulnerable financial system itself
stands as an impediment to detect and punish those offenders.
Many governments fear that when credit and financial systems
are used to launder the proceeds of crime, the stability of the
system as well as consumer confidence will systematically
Money laundering requires some sort of financial intermediaries
in order to successfully launder the funds back into the legitimate
economy. Bank frauds are committed with such intelligent
techniques that even a person of enough discernment cannot
trace the actual persons who are involved in this. As banks and
other financial institutions are vital to the success of money
laundering, anti- money laundering efforts shall also be directed
to target them. There are certain stages in money laundering,
which are vulnerable to detection by others.18 If proper training
is given to bank employees to spot potentially suspicious
activities, such manipulators could be deterred at the right time
and right stage. It may indirectly help the enforcement agencies
to capture the criminals at an early stage.
India is one of the largest economies in the world with a growing
economic power and a highly sophisticated financial sector.
Criminalizing money-laundering activity will essentially aid
Indian currency attaining legitimate investment. In India banks
have become a major target of money laundering operations
and economic crimes because of the nature of services they are
providing. There is a criticism that relaxation in the bank secrecy
laws in India may go against the fundamental right to privacy as
enshrined in the Constitution of India.19 International
recognition of strict financial regulations, especially bank secrecy
laws has compelled India also to adopt provision for ensuring
confidentiality in banker-customer transactions.20 Under know
your customer laws, a bank will never be able to ascertain how
much information it must require of its customers before it is
deemed to know them well enough. Government financial
institutions with long standing tradition of bank secrecy often
fear that reducing or eliminating the bank secrecy protection
may cause an erosion of customer confidence in their domestic
banking. So enactment of an anti money laundering legislation
which heavily regulates banking industry can lead to several
economic policy problems for the developing countries. Hence
it becomes the duty of the enforcement agencies to give proper
guidance to the banks as to how much information they can
With these difficulties in mind, and realizing the need for
international commitment towards an effective legislation to
prevent money laundering and to provide for confiscation of
property derived from, or involved in it, Indian Parliament
enacted the Prevention of Money-laundering Act, 200221 . The
Act was amended in the year 200522 to rectify the practical
difficulties involved in the implementation of the provisions in
the Act23 . But still the Indian industry has expressed serious
apprehensions about the Money-Laundering Prevention
(Amendment) Act24 .
The overriding object of money laundering in all circumstances
Modus Operandi in Money Laundering : An Illustrative Study
is to allow criminals to access the profit of their illegal conduct
by distancing themselves from it. Thus the hazards of money
laundering process to an economy are manifold. Laundering
undermines and manipulates legitimate business by allowing
considerations other than sound business practices to influence
decisions. It corrupts public officials, perhaps even entire
government by buying votes and influencing the actions of
politicians and bureaucrats. It destabilizes the financial
institutions through the creation of illegal economies. Tainted
money must pass trough the financial institutions at some point
before the funds and the criminal origin become totally alleviated.
While passing through the institutions, the funds, their custodians
and beneficiaries pass through several points wherein they are
vulnerable to detection.
In this connection it can be seen that confiscation of the property
has the most deterrent effect on the criminals profit motive. It
assumes importance that the upper levels of organized criminal
groups are far able to distance themselves effectively from their
criminal activities, but they cannot divorce themselves from the
profits of those activities. More over, identifying and confiscating
the proceeds of the crime is an effective way to permit law
enforcement agencies to pay for its own investigative activities.
The Act requires credit and financial institutions to have adequate
control and communication systems.
By any technique, whatsoever, money from illicit sources are
introduced into an economy and used for legitimate purposes;
sometimes it is hard to describe the process as laundering. It
involves at some point, elaborate conversion process making it
appear that the money has a legitimate source, so that it raises no
suspicion when it is finally turned into apparently legitimate
wealth. Since money launderers locate themselves in places
having facilities for the commission of the crimes unhampered,
it becomes very difficult to identify the actual criminals involved
in the process.
Money laundering has been expanded to include almost all
offences including drug trafficking and other organized crimes.
They have in a sense, inaugurated a new criminal justice policy
which is oriented towards the financial profits of crime. This
new policy strives to curb crime by taking away profits of crime,
rather than by punishing the individuals who have allegedly
committed the crimes25 . The fight against money laundering is
thus looked on as a means of gathering evidence against the top
criminals of organised crime groups.
Bank frauds are generally committed by the money launderers
with the intention to deceive the government machinery and
thereby get an entry into the illegal and corrupt economy.
Techniques like smurfing26 and misinvoicing27 are some of those
examples. Parallel credit transactions can be used to avoid the
intricacy of formal bank transactions and inter bank wire transfers
are generally not subjectd to report on money laundering giving
the manipulators a chance to win over the regulatory
mechanisms. With increasing sophistication in the use of
technology for transfer of funds and given the fact that there has
been considerable liberalization and progressive dismantling of
controls in the regulatory framework in India, banks in India
need to be in a state of high alert so that there is proper check on
undesirable transactions.
Money laundering not only destabilizes a country economically
but also exposes it to terrorist attacks threatening its integrity
and sovereignty. International terrorist groups, such as maintain
complex financial global network, which they use to raise and
launder money. Since the attacks of September 11th 2001, global
informal financial networks collectively referred to as ‘the
informal value transfer systems’ (IVTS) have received increased
attention. The IVTS exist outside of the banking system, but serve
a similar purpose to facilitate the transfer of valued goods and
money. Though a powerful tool for the terrorist and other illegal
activities, the IVTS also serves legitimate purposes. Infact, the
vast majority of money transferred via IVTS i.e., clean money
not derived from any illegal activities or used for criminal
purposes also constitutes the same. These informal networks are
known by various names like Hawala, Hundis etc.
Thus, it is found that money laundering has far reaching effects
on economic and social fabric of a nation. It allows drug traffickers,
smugglers and other criminals involved in organized crimes to
expand their illegal business activities. United Nations
Convention28 against illicit drug trafficking casts obligation on
the member nations to adopt counter measures to fight against
drug trafficking and other related illegal activities. This drives
up the cost of law enforcement and health care. There has been a
major shift in the economic policies of major powers of the world
after the terrorist attacks on America29 .
At the international level, there is lot many norms established
solely to take care of the situation. The Financial Action Task
Force (FATF) is an international body focussing on studying the
phenomenon of money laundering and building consensus
around measures to combat it. It was established in 1989 by the
G-7 Nations. Following the terrorist attacks in the USA, the FATF
held an extra ordinary plenary meeting in Washington D.C. on
October 29-30, 2001 for the purpose of launching an initiative to
combat terrorist financing30 .
As stated earlier India has included among the list of economic
legislation, the Prevention Of Money-Laundering Act, 2002 as a
measure to combat money laundering and related criminal
activities in partial fulfillment of India’s obligations at the
international level31 . Though the Act speaks about the nature of
offence and the quantum of punishment, the Act is not very clear
about the definition of money laundering or the offence of money
laundering 32 . On the aspect of punishment also, there may arise
lot of confusion between scheduled and non-scheduled offences.
This anomaly brings in to notice the fact that it is high time that
we need to strengthen our efforts to tackle the issues of money
The individual shall have full protection as respects person and
Modus Operandi in Money Laundering : An Illustrative Study
property is a principle as old as the common law. But it has been
found necessary from time to time to define the exact nature and
extent of such protection. As an activity involves such a staggering
amount of money, money laundering poses a threat to national
security and poses major foreign policy risks. The potentially
hazardous effects of money laundering include the facilitation of
official corruption, the distortion of markets and the
destabilization of the economies of developing countries. Banks
that offer private banking services are particularly exposed to
reputation risk and should therefore apply due diligence to such
operations. As Basel guidance says, at least one person of
appropriate seniority, rather than the private banking manager
should approve all new clients and new accounts33 .
There have been a number of important changes in the financial
services industry and in the markets. The first and second of
these developments have been the primary rationale for the
regulatory reform that is now taking place all over the world.
Money laundering includes the use of legitimate funds to
facilitate a criminal activity, like terrorism. The primary source
of these funds worldwide is drug trafficking and financial crimes
such as bank fraud and credit card fraud. As an activity that
involves such a staggering amount of money, the offence of
money laundering poses a significant threat to national security
and major foreign policy risks. The potentially hazardous effect
of money laundering includes the facilitation of official
corruption, the distortion of the markets and the destabilization
of the economies of the developing countries. As a result, any
successful attempt to combat money laundering, as a source of
terrorist funding necessarily requires broader enforcement
mechanisms than those were used to combat typical money
laundering schemes.34
Significant variation in national money laundering legislation
also facilitates money laundering. Practice varies with regard to
the type of financial institutions States monitor and often they
are treated as suspects and the sort of information they require to
be reported is not given proper notice. Such discrepancies hamper
coordinated investigations between states and create
opportunities for money launderers to exploit. As a result, money
launderers can create a new market or expand an existing market
for their dirty dollars by investing in states, which enact lenient
monitoring measures or no measures at all. The prospect of the
considerable revenue that this investment might generate is an
incentive to provide a safe haven for money launderers. As a
consequence, more responsible states are likely to suffer.
Money laundering being a criminal activity stretched over
different legal systems, it requires effective curbing through
active cooperation of various international enforcement agencies.
Since the national legal systems vary in every aspect with each
other, there may arise practical difficulties in the actual
commitment towards an international cooperation. But, still there
are chances of nations coming together and holding hands to
combat the menace of serious socio-economic offences affecting
national security like money laundering, due to the constant
pressure at the international level35 . For the purpose of analysis
of how nations should come together, it may be useful to make a
distinction between principle violators of money laundering
laws36 and those who aid and abet their unlawful enterprise37 .
Defining the parameters of liability for the secondary parties is
more problematic. This is because the most critical element of
any scheme to prevent money laundering is the financial
institutions duty to report ‘suspicious activities’ to the proper
authorities. Technological problems can also be addressed, once
a model is chosen and the institutional infrastructure is in place.
Computers must be developed to record and trace the tremendous
volume of financial activities that transpire everyday38 .
Because of its corruptive influence on financial markets and the
reduction of public confidence in the civil financial system, it
may entail, money laundering creates a certain risk of inherent
instability for the world economy and even a potential for
organised crime groups to destabilize a national economy.
Combating money laundering requires the expertise of
specialised law enforcement agencies. The setting up of
specialised FIUs39 designed to receive and process financial
information from financial institutions should be seen against
the background of the larger phenomenon of an increasing
proliferation of specialised law enforcement agencies. This may
on the other hand help the financial institutions to divest their
information to the intermediary units than to police or judicial
officers. This significantly reduces the risk that innocent
customers will be faced with police or judicial investigations. In
India, we have an enforcement directorate clothed with the
responsibility to handle the issues of money laundering.
In addition to the international harmonization of substantive
criminal law, an effective fight against money laundering requires
that jurisdictional problems that are likely to arise in an
international context be solved. Often it will be unclear which
state has jurisdiction to investigate money-laundering offences
and to prosecute and try alleged money launderers or to seize
and order the confiscation of the proceeds of crime40 . Thus, the
question whether the state has jurisdiction to provide for the
confiscation of criminal proceeds and to incriminate money
laundering acts corresponds to the question as to whether the
courts of that state can issue confiscation orders and try alleged
money laundering acts. Unlike in private international law, in
international criminal law, a judge can apply only the lex fori. The
unilateral application of criminal law flows from the deeply
imbedded national character of criminal law.
Related to this is the fact that territoriality principle is the
predominant factor determining prescriptive jurisdiction.
Territorial jurisdiction stems from and is considered as a part of
state sovereignty, although it cannot be equated with that. Thus,
international co-operation is necessitated by the concept of
sovereignty, which limits powers of a state to take investigatory,
provisional and enforcement measures to its own territory.
Modus Operandi in Money Laundering : An Illustrative Study
Reasons are many like, information required to prove money
laundering is located in the territory of one state or criminally
derived proceeds may be located in the territory of another state.
Hence international cooperation is required in investigation,
seizure and enforcement of confiscation sanctions41 .
An issue for the global system is to develop a criterion upon
which similar sanctions can be imposed on other jurisdictions.
Serious consideration should be given to increase technical and
financial assistance to countries trying to establish and implement
national anti money laundering regimes on the basis of
international standards. International co-operation is always a
challenge not only because of differences in anti money
laundering regime but also owing to differences across the country
with respect to the structure and development of their financial
systems. 􀂉
Footnotes :
1. Jill. R. Aranson, Jon. S. Bouker Jn.etal, Money Laundering, [1994]
American Criminal Law Review, Vol. 31 at p.721.
2. “ Money laundering- A New International Enforcement Model” Guy
Stessens, Cambridge University Press, London, (2000) at p.4.
3. In R v. Cuthbertson (1981) AC 470, the criminal courts
acknowledged the incompetence in realising the proceeds of crime.
4. As amended by the Money laundering (Amendment) Act, 2005.
5. Section 3 of the Money laundering Act, 2002 says, “Whoever
directly or indirectly attempts to indulge or knowingly or
unknowingly 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 the offence of money
6. Placement refers to the physical disposal of illicitly obtained
cash in to a financial institution.
7. Layering of money refers to the movement of money through
several accounts or institutions in an effort to separate the money
from the illegal source.
8. Integration refers to the reintroduction of money in to the
legitimate economy.
9. Edwin M Truman and Peter Reuter, “Chasing Dirty Money: The
fight Against Money Laundering” Institute for International
Economics, Washington D.C. (2004) at p.4.
10. For example, the Hawala transactions and violations of foreign
exchange laws by way of illegal export and import.
11. Kavita Natarajan “Combating India’s Heroin trade through antimoney
laundering legislation”, Fordham Law Journal,
Vol.21:2014 [1998].
12. Supra n. 7 at pp. 25-43.
13. Ibid.
14. Id., at pp.30-32.
15. Shell Corporations (paper companies/ bogus companies) are
registered in offshore havens. They are common tool in the layering
phase. These companies whose directors are often local attorneys
act as nominees to obscure the identity of beneficial owner through
restrictive Bank secrecy laws and attorney-client privileges.
16. Id. at 43
17. Id. at 2023. The credibility of some important financial
institutions in India is at stake only due to the reported instances
of money laundering which might have been done under the
supervision of a group of such unscrupulous professionals with
the help of habitual criminals.
18. These vulnerable stages include the entry of cash into financial
system, the cross-border flow of cash and transfers within and
from the financial system.
19. The Constitution of India, Article 21 says, “ No person shall be
deprived of his right to life and personal liberty except according
to the procedure established by law.” The Supreme Court in
Kharak Singh v. Union of India, held that right to life as a
fundamental right includes right to privacy also.
20. The declaration of the Basle Committee on banking supervision
was established in 1988 with the first international code of
conduct for banks, with an aim to preventing abuse of the banking
industry for money laundering process. These principles suggest
policies and procedures in four areas to curb money laundering
in four ways like customer identification, compliance with laws,
co-operation with law enforcement agencies and adherence to
the statement.
21. The enactment of this legislation was the outcome of India’s
obligation to implement the political declaration adopted by the
Special Session of the United Nations General Assembly held in
June 1999 which called upon member-states to adopt national
money-laundering legislation and programme.
22. Prevention of Money Laundering (Amendment) Act, 2005.
23. The major concern is that a person can be picked up on suspicion
of indulging in money laundering and acquiring property with
that money. Another apprehension is about the provisions relating
to falsification of accounts. The definition of falsification of
accounts under IPC was ambiguous, and hence, could empower
officials with discretionary authority.
24. This amendment has been brought forward to remove certain
practical difficulties in the effective implementation of this Act.
According to the new amendment, the police officer should start
his investigation only after he has been specifically authorized by
the Central Government. Wide powers of arrest, survey, search
and seizure have been conferred on these officers.
25. Supra n. 2 at p. 11
26. Smurfing involves the use of multiple cash deposits, each smaller
than the minimum cash-reporting requirement.
27. Misinvoicing of exports and falsification of import letters of credit
and customs declarations can conceal cross-border transfers of
the proceeds of drug trafficking.
28. United Nations Convention against illicit Traffic in Narcotic
Drugs and Psychotropic Substances, 1988.
29. After September 11 terrorist attacks, a major shift in US executive
policy took place. Measures that were squarely rejected in the
Congressional Bill, 1999, such as know your customer Rule and
brokers-dealers reporting and records keeping duties were readily
and promptly accepted without much challenge as part of the
USA Patriot Act, 2001.
30. Joseph. J. Norton and Heba Shams, Money laundering law and
Modus Operandi in Money Laundering : An Illustrative Study
Terrorist Financing: Post- September Response- Let us step back and
take a deep breath?, The International Lawyer, (2002), Vol.36,
No. 1 at p.112.
31. The enactment of this Act had become necessary to implement
the political declaration adopted by the Special session of the
United Nations General Assembly held in June 1999 which called
upon the member states to adopt national money laundering
legislation and programme.
32. Chapter 2 of the Act though says about the offence of money
laundering, it does not give any definition for the term as such. It
says that the mandatory punishment for the offence of money
laundering is rigorous imprisonment of three years, which may
extend to seven years along with fine which may extend to five
lakh rupees. It further says that If the offence is under the Narcotic
Drugs and Psychotropic Substances Act, 1985 more severe
punishment is provided which may extend to ten years of rigorous
33. The declaration of the Basle Committee on Banking Supervision,
which in 1998, established the first international code of conduct
for banks, with an aim to prevent any abuse of the banking
industry for money laundering purposes. The Basle Principles
suggest policies and procedures in four areas to curb money
laundering such as (1) Customer identification (2) Compliance
with laws (3) Cooperation with law enforcement agencies and
(4) Adherence to the statement.
34. John M O’ Sullivan Butler, Combating money laundering and
international terrorism: Does the USA Patriot Act, require the judicial
system to abandon fundamental due process in the name of homeland
security, St. Thomas Law Review, [2004], Vol. 16, P. 395.
35. The United Nations through its agencies has been taking active
role in creating awareness among nations about the need for an
extended cooperation among nations in this regard. The main
reason behind the drafting of the United Nations Convention
against illicit Traffic in Narcotic Drugs and Psychotropic
Substances, 1988 was the need felt for an active international
36. Principle violators of money laundering laws include professional
money launderers, typically those who either are employed by
one particular criminal group or those who make their services
available to clients on commission basis. These parties are the
primary targets of all money laundering legislation.
37. Aiders and abettors are otherwise legitimate financial institutions
that are utilized by the principals as conduits for their money
laundering activities.
38. Jeffrey Lowell Quillen, The International Attack on Money
Laundering; European Initiatives, Duke Journal of Comparative
International Law, Vol. 1991:213 at 220.
39. Financial Intelligence Units.
40. The term jurisdiction has more than one meaning. In a domestic
context, it usually denotes power or the competence of a judicial
authority to do certain legal acts. In an international context, it
refers to a state’s right under international law to regulate the
conduct in certain matters not exclusively of domestic concern.
41. Cooperation in taking evidence may be primary or secondary.
Primary cooperation is introduced in 1965 by the Dutch scholar
Louk Hulsman. This requires one state to take over at least part
of the procedure of the other state, either by instituting criminal
proceedings or by enforcing criminal sanctions pronounced in
another state. Secondary cooperation means rendering of
assistance by one state to another, but do not involve the transfer
of procedural responsibility.
Modus Operandi in Money Laundering : An Illustrative Study

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