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Author - Associate Aliza Abdin

What is money laundering?
Money Laundering is the basic term which is used to describe money earned by money launderers through illegal activities like drug trafficking, currency smuggling or terrorist funding, it is also regarded as dirty money and the launders try to cover up their tracks by making it look like it is from a legitimate source. The government does not take any tax on this money because it is not shown in bookkeeping.

It is hard to track down the source of money laundering since it is derived from a series of banking transfers and commercial frauds. The maximum number of money is laundered through financial institutions and then the criminals use a wide range of techniques to conceal the criminal nature of it.

Stages of money laundering are as follows:

1. Placement

2. Layering

3. Integration

What Is Anti-money Laundering? 

Since money-laundering in recent years has increased rapidly it has now become very important for the government to prevent it and hence various anti-money laundering schemes are being implemented and many steps are being taken to protect financial institutions.

Anti-money laundering (AML) is the set of laws, rules, regulations and procedures which deal with the criminal acts of money laundering and prevent criminals from covering up their illegal activities and the money generated from them. Anti-money-laundering (AML) laws do not cover a large variety of crimes or illegal transactions but it provides protection to financial institutions against money laundering and also lays down some rules for banks etc.

For example, Anti-money laundering makes it mandatory for banks and institutions that offer/ give loans to customers to follow rules in order to make sure that they are not aiding in money-laundering.

Anti-money Laundering (AML) in India works under the Prevention of Money Laundering Act, 2002 which was enacted by the NDA government. The motive behind it was to protect people from money launderers and to derive back and confiscate the goods, property and assets obtained by money-laundering. The various acts and rules state that all banking companies and financial institutions have to first verify the identity of clients and have to maintain records and furnish information in prescribed form to Financial Intelligence Unit of India.

This act has been amended three times since its enactment- 2005, 2009 and 2012.

Objectives of the anti-money Laundering Act are as follows:

1. To prevent and control money laundering

2. To confiscate and seize the property obtained from the laundered money; and

3. To deal with any other issue connected with money laundering in India.

 Money laundering is prevented in the country by a tight law (AML) that lays down guidelines for its correct implementation and use.

 Some of the policies with which it keeps a check on money laundering are given below:

1. AML Regulations require all financial institutions to implement Know Your Customer (KYC) ID verification measures.

2. AML Regulations also require all financial institutions to regularly file reports about their clients and completed transactions.

3. And to file a suspicious activity report (SAR) in case of high-risk clients.

Punishment for money laundering
The act states that any person or group found to be involved and guilty in money laundering will be punished by arduous imprisonment for no less than three years extending up to seven years where the crime involved related to an offence under paragraph 2 of Part A of the Schedule (Offences under the Narcotic Drugs and Psychotropic Substance Act, 1985). The maximum punishment may or may not extend to ten years.

What are finances of terrorism?
In simple language the money required to sustain terrorism are known as finances of terrorism. The most dangerous threat to this world is carried out by terrorists through large amounts of money laundering.

 All terrorist groups whether big or small need money in order to carry out their terrorist activities and to buy equipment, weapons, supplies and services. The most used technique of terrorism financing is through money laundering, the terrorists maybe linked to criminals who are involved in money laundering and maybe join forces with them to extract money through drugs, arms trafficking, extortion, currency smuggling and kidnapping for ransom.

One of the most effective ways of eliminating terrorism from the world is by shutting down these finances; if terrorists don’t get monetary help then they would not be able to carry out their activities.

Combating terrorism financing

All over the world steps are being taken to prevent terrorism financing in order to curb the world free of terrorism.  In fact, there is a branch (The Terrorism Prevention Branch) in the United Nations Organization that works on the legal features of countering the financing of terrorism.  

The International Convention for the Suppression of the Financing of Terrorism oversees and carries out the functions that all financial institutions have to first verify the KYC of the respective client and also keep checking the books of records for any suspicious transaction that can lead the government to the terrorists funding groups. 

 It also states that the high risk clients should be kept under surveillance in order to catch them then and there in case of any laundering. 

Detecting and reporting any terrorist funding by concerned citizens is also a very effective way of combating terrorism.

Terrorism as dangerous as it is needs to be eliminated and this can only be done through proper support of each and every individual. It is important to cooperate with the government/agencies and to follow the preventive measures.