Money laundering spurs global and local response

Money laundering is an act or attempted act to conceal the identity of illegally obtained proceeds from drug trafficking, terrorist activity or other serious crimes. Laundered money appears to have originated from legitimate sources.

Money laundering occurs in three steps: first, cash is introduced into the financial system by some means (placement); second, complex financial transactions are carried out to camouflage the illegal source (layering); finally, wealth generated from transactions using the illicit funds is acquired (integration).

Varying forms

• Structuring, also known as “smurfing”, is a method of placement by which cash is broken into smaller deposits 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.
• Bulk cash smuggling involves physically smuggling cash to another jurisdiction with greater bank secrecy or less rigorous money laundering enforcement, and depositing it in a financial institution (offshore bank).
• Cash-intensive businesses typically receive cash and use the businesses’ accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Such businesses may have no legitimate activity.
• Trade-based laundering involves under or overvaluing invoices to disguise the movement of money.
• Shell companies and trusts disguise the ownership of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner.
• Bank capture means money launderers buy a controlling interest in a bank, preferably in a jurisdiction with a weak money laundering regime, and move money through the bank without scrutiny.
• Real estate may be purchased with illegal proceeds and then sold. The proceeds from the sale appear to be legitimate income.

Shardul Thacker is a partner at Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.