Criminals now try to find new ways of laundering money to cover illegal revenue sources and thereby have a powerful influence on economic growth within the state. The process of legalizing the revenue is very important since it allows criminals to use the money, they receive illegally without revealing their source. The benefits of crime include illicit arms trafficking, trafficking and organized crime, drug trafficking, and prostitution.
The proliferation of modern information technologies offers a comprehensive use in all areas of life of computing and communication technology, automation, and process optimization, linked by interconnected economies and state infrastructure borders. There has been a single global information space in which all can access information, manage their properties, and sign agreements worldwide without any personal interaction. On the other side, the room for knowledge becomes a location and an instrument of a crime. In addition, it is difficult to identify, erase and record, even though investigative acts are essential information to use as evidence. There exist characteristics and substantial profitability of the crimes related to the legalization and alcohol trafficking in comparison with other types of crime, which is a significant “benefit” of this type of crime.
When a large sum of money is introduced into a financial system, they have to be transferred from one location to another in order to escape any doubt. This approach is essentially implemented in a variety of ways, such as offshore accounts, i.e., financial institutions, trusts, companies etc., in foreign countries or territories where the rules on bank secrecy are very strict. These entities do not disclose where the funds came from; the Anonymous Shell Accounts, i.e., the corporation, bank, or organization that does not run a real business. Basically, these accounts are used to conceal and transfer funds and evade taxes. These accounts hide the identity of the recipients, and it is very difficult for law enforcement authorities to access the company records; Money Mules, i.e., these are the individuals who collect, and pass funds illegally obtained for others, and they get commissions for such work. They help cybercriminals cash out compromised accounts; unregulated financial services, i.e., companies for which there is no proper control, such as stored-value cards that allow electronic money to be put directly on card and used, casinos do not always comply with regulatory requirements and help to transfer illegal funds, and there is an underground network of money dealers.
In order to escape any doubt, a large amount of money has to be transferred from one location into another. This approach is implemented essentially in a range of ways, such as offshore accounts in countries or regions where banking secrecy rules are very strict, i.e., financial entities, trusts, companies, etc. These entities do not report where their funds originated, i.e., the company, bank or organization that does not operate a real business. Anonymous Shell Accounts, these accounts are used essentially for hiding and transferring funds and tax evasion. These accounts hide the identity of the beneficiaries, and access to corporate records is very difficult for law enforcement authorities, namely Money Mules, the person who collects and transfers funds that are illegal to others and receives commissions for this task.
- Criminal Law Amendment Ordinance (XXXVIII of 1944): it protects only the proceeds of such offences such as corruption, breach of confidence and cheating and not all the offences under the Indian Penal Code.
- The Smugglers and Foreign Exchange Manipulators (Forfeiture of Land) Act, 1976: It includes the punishment of smugglers’ and foreign exchange manipulators’ unlawfully obtained land and for matters connected with it and incidental to it.
- Narcotic Drugs and Psychotropic Disorders Act, 1985: It provides for the prosecution of property obtained from or used in the illicit narcotic drug trade.
- Prevention of Money-Laundering Act, 2002 (PMLA): It forms the foundation of India’s legal structure for combating Money Laundering. All financial institutions, banks (including RBI), mutual funds, insurance companies and their financial intermediaries are subject to the provisions of this Act.
- PMLA (Amendment) Act, 2012: Adds the ‘reporting agency’ definition which would include a banking business, financial institution, intermediary etc. PMLA, 2002 levied a fine up to Rs 5 lakh but this upper limit was abolished by the amendment act. It has made provision for the temporary attachment and confiscation of any person engaged in such activities.
- Financial Intelligence Unit-IND: It is an independent body which reports directly to the Economic Intelligence Council (EIC) headed by the Minister of Finance.
- Enforcement Directorate (ED): It is a law enforcement agency and economic intelligence agency in charge of enforcing economic laws in India and combating economic crime. One of ED’s key duties is to prosecute money laundering crimes under the 2002 Prevention of Money Laundering Act (PMLA) provisions. It can take steps such as property confiscation if the same is found to be the proceeds of a Scheduled Offence under PMLA and prosecute the persons involved in the money laundering offence.
Global efforts to combat Money Laundering:
- The Vienna Convention: It establishes a duty for signatory states to criminalize the laundering of money from drug trafficking.
- The 1990 Council of Europe Convention: It defines a collective criminal policy on Money Laundering.
- The International Organization of Securities Commissions (IOSCO): It urges its members to take appropriate action in the stock and future markets to prevent money laundering.
- The Financial Action Task Force: It was founded by the G-7 governments at their Economic Summit in 1989 and has members from 24 OECD countries.
- The European Commission: It monitors progress of members in implementing counter-money laundering measures.
It thus focuses on the use of various types of cash services and providers if you correspond to “traditional” money laundering and cyber laundering. Cash cancellations, transfers and e-money are provided. In general, the chain ends when “money mules” use cash to use the conventional payment system. If the billing process includes online transfers, the funds can be transferred anonymously to the e-mail and sent to another country. The detection and follow-up of suspicious cash flows is considered a challenge for law enforcement agencies.
In this regard, the legalization of illegal incomes can be effectively combated and crime levels can be reduced in this field to the early detection of financial activities that can be related to money laundering in cybercrime. The government must therefore take adequate measures to prevent this crime.
Kosha Doshi, Cyber Laundering: A Nuclear Way of Money Laundering, Ex Gratia Law Journal, (March 29, 2021), https://exgratialawjournal.in/blawg/technology-and-law/cyber-laundering-a-nuclear-way-of-money-laundering-by-kosha-doshi/.