What Is Money Laundering in India: In the current scenario, crimes are happening in various fields which are the result of Greed. Moreover, the introduction and enforcement of strict laws to prevent anti-social practices have made criminals smarter.

As they always try to showcase themselves as guilt-free in front of the world, the act of money laundering is one such shortcut to hide the source of illegally earned money and convert the black money into legal money.

In this blog, let us learn in detail about what is money laundering in India along with examples, how it is done, what are the consequences of money laundering, and the ways to prevent money laundering.

What is Money laundering?

Money laundering is a criminal act of hiding the source of money obtained from illegal sources such as terrorist funding, corruption, drug trafficking, and many more and converting them into a legitimate source. In simple words, it is a way of disguising illegal sources of funds and turning them into white money.

For instance, Mr A has earned black money through corruption, then to convert it into a clean source of money, he opens a fake charity trust in an anonymous name and shows the black money as charity funds.

Money laundering is a serious financial crime that leads to economic instability, tax fraud, and embezzlement if left unchecked. In the Indian context, the majority of money laundering occurs through Hawala transactions.

Thus Anti Money Laundering measures and laws have been framed and supervised by Government authorities and banking institutions to curb such practices.

Generally, money launderers always look for an easy option to ‘“clean” their money and get it legitimized. The money laundering that takes place can be divided into 3 steps. Let us see them one by one:

1. Placement:

This is the first step where the black money is placed into the legitimate financial system of the country. Normally the money launderers try to place the illegal money into the legal system through financial institutions which would be an easier option for them. It may be done by depositing the money into accounts of anonymous corporations.

2. Layering:

In the next step, the placed illegal money is concealed with the layer of legality by using a series of spurious transactions. Conversion of illegal money into tradable assets like premium cars, houses, and real estate through purchase is also considered as the layering of funds.

3. Integration:

In the final stage, the laundered clean money is infused back into the economy, in a way that can be withdrawn legitimately. This integration of illegal money is usually done by putting it into legal businesses and claiming gains by producing fake invoices, masking financial statements, etc.

Money launderers are creative enough to find many criminal ways to convert their illicit funds into legal funds, and the advanced digitization of finance has made their purpose easier.

Now let’s see how money laundering activity takes place;

  • Smurfing: It is a money laundering technique where a big chunk of money is broken into smaller pieces and spread across various anonymous accounts making it harder to detect the source of origin.
  • Money Mules: The money mule is done by a third party, where illegal money is transferred across the accounts and gets converted to legal money, on behalf of someone else, here the third party has access to the anonymous accounts that don’t belong to them.
  • Offshore Accounts: Another common way of money laundering is done by offshore money transfers. The people who have big chunks of black money deposit their money offshore in countries where there is less jurisdiction related to money laundering and legitimately convert their money.

Money Laundering In India

Money laundering in India

Money laundering is a serious financial crime that can severely hamper the economic system of the country by weakening the financial sector and related institutions, banks are the major prey for money launderers. Along with this, money laundering also leads to social and economical consequences like corruption and crime.

As per the reports by the Enforcement Directorate (ED) to the Government of India, In the past decade, India has recorded the highest number of money laundering cases.

During the fiscal years between 2012-13 to 2021-22, ED filed a total of 3,985 criminal complaints under the Prevention of Money Laundering Act (PMLA) and 24,893 under the civil law of the Foreign Exchange Management Act (FEMA).

Thus to combat the practice of money laundering strictly all financial institutions like banks, regulatory bodies in the country, and private companies have introduced strict Anti-Money Laundering (AML) policies at the place, to detect and stop the activity.

RegulationsTo Prevent Money Laundering In India

  • Prevention of Money Laundering Act, 2002 (PMLA):

The act was enforced to curb the practice of money laundering in India. The act provides the right to confiscate and seize property derived from money laundering. The person found guilty under this act is punishable with imprisonment.

  •  Indian Customs Act, 1962:

The Customs Act of 1962 is the most crucial Act that helps in the prevention of money laundering. The act provides implementation and collection of duty on goods imported and exported in the country. It also deals with the Import and Export procedures, Prohibitions on the import and export of illegal goods. The act imposes strict penalties for wrongful acts and imprisonment for the guilty.

  • FEMA and FERA Act:

 FEMA and FERA have curated detailed regulations to ensure legal financial transactions offshores and have developed strict surveillance to stop activities like financial terrorism. Under FEMA, all the international financial transitions are supposed to be done under the surveillance of RBI, the Central Bank of India.

These acts help in promoting Anti – Money Laundering activities.

  • Income Tax Act, 1962:

The Income Tax Act also keeps a check on illegal money by timely supervision and penalty imposition.

Major Money Laundering Cases In India

The Indian stock exchange has always reacted to all major financial crises and scams instantly including cases of money laundering. The stock market is one of the easiest targets for money launderers due to its liquidity features.

Here  are a few money laundering cases that shook the confidence of people in the Indian market:

1. The Satyam Scam:

Money laundering in India: biggest corporate scam Satyam computer

Also known as the biggest corporate scam, the scam of Satyam Computers revolves around the key person, B. Ramalinga Raju, the chairman of Satyam Computers. At its time, Satyam Computers was one of the major software exporters in the industry in India.

For any company, the company must disclose its true financial reports to all of its stakeholders. But, the Chairman was found guilty in the case as he created false financial statements with elevated figures. To attract more investors, he manipulated the financial statements of the company and showed false profits.

Finally, the scam was exposed in 2009 and the company accepted its fault for the manipulation of accounts of over 7,000 crore rupees in front of its stakeholders.

Post confession of mistake, the chairman, B. Ramalinga Raju was arrested and charged with criminal conspiracy, forgery, and breach of trust cases.

Also Read: Satyam Scam – The Story of India’s Biggest Corporate Fraud!

2. Kingfisher Airlines:

Money Laundering in India: Kingfisher Airlines By Vijay Mallya

The case of Kingfisher Airlines was the biggest bank defaulting case in India, as the business tycoon, Vijay Mallya 2013 defaulted on the repayment of loans worth 9000 crores taken from 10 plus banks in India.

When Kingfisher Airlines purchased low-cost carrier Air Deccan in 2010 it was in severe losses at that time. Gradually the company continued to lose as a result of which debt was around 50% of the Net worth of the company. Later he was declared a fugitive economic offender under the Fugitive Economic Offenders Act.

These were some of the examples of Money laundering cases in India.

Also Read: Vijay Mallya Scam Demystified | Vijay Mallya Case Study

In Conclusion

Among several financial scams that have been ruining the economic strength of the country, money laundering is a major crime that weakens the financial system of the country. Hope this blog has given you a brief idea about what is money laundering in India and how it is done.

We also saw the consequences of money laundering and the ways to prevent it along with a few case studies. As cautious investors, we should always be updated about such financial crimes happening around us and try our best to prevent them.

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