A historical overview of anti-money laundering

Investment Banking course

Do you want to make a glorious career in investment banking? If that is the case, you have to learn all about funds and how transactions are recorded by auditing and bookkeeping agencies. The main reason behind this is to curb illegal transactions and avoid the movement of funds for evading taxation. 

To avoid such illegal transactions, some protocols are followed all over the corporate world. This helps to avoid the circulation of black money or illegal funds, also referred to as anti-money laundering.  

Let’s read about this in detail.

What do you mean by Anti-Money Laundering?

It points towards the law and regulations web, which carries protocols and procedures for a single objective. The main purpose behind this network of agencies is to uncover illegal funds. The government seized these funds and levied fines and taxes on them. 

Money laundering feeds tax evasion or the trafficking of drugs, or public corruption. It also covers fund transfers related to terrorist gangs.  

Anti-money laundering or AML legislation was set up in response to surveying the financial industry’s growth. But the legislation also helped to lift the controls on international capital. This also simplified the financial transaction procedures, which were quite complex earlier.

History of Anti-Money Laundering 

The Indian Parliament passed the Prevention of Money Laundering Act in 2002. The sole purpose is to prevent any money-laundering activity in the Indian jurisdiction. As per the anti-money laundering act's provisions, the property purchased from black money will be labelled as an asset of money laundering.

Section 12 (1) describes the obligations that banks and other financial institutions have to follow:

(a) Timely maintenance of records that give every possible detail about the transaction, irrespective of the fact that it is a single transaction or a series of transactions that are connected and have taken place recently.

(b) Furnish information to the right authority.

Section 12 (2) prescribes the time duration, and the information about the transaction should be recorded and maintained regularly. These duties are fulfilled by the Income Tax Department of India.

The provisions of the Act have undergone multiple amendments at regular intervals.

As per the Indian Government, India’s total tax arrears are around ₹2,480 billion. If the remaining pending cases on money laundering and securities scam cases will help release funds, another ₹1,300 billion will be released into the money market. 

Also, Bank accountants have been instructed to record all transactions over ₹10 lakhs and maintain these records for 10 years. Cash transaction reports (CTRs) must also be made. The reports must be submitted to the ED and Indian IT department.

The PMLA became law and came into force on 1st July 2005.

What Are Some Ways That Money Is Laundered?

Money launderers frequently funnel illegal capital through the cash-generating businesses of their accomplices. Another trick they follow is that they inflate invoices by overcharging for products or services in the transactions of the shell company.

A shell company is created to hide the extra and undeclared money by showing them as transactions, forming a covering layer on these illegal transactions. They are used to disguise the source of these dishonest funds. This is called smurfing. 

In this practice, a large transaction is broken into smaller transactions to evade tax authorities and cover up the source from AML agencies.

How to stop money laundering?

Around 3% of global economic output is lost because of money laundering malpractices. One of the many methods to stop money laundering is by making the enforcement of anti-money laundering stricter. This will require thorough scrutiny of anti-national bodies and off-shore companies. The second stage to contain money laundering is to crack down on all the flow chains by tracking every transaction of such suspicious bodies. Whenever they come across a fraudulent transaction or a dummy transaction, the AML enforcement agencies should crack down on the source of origin of such illegal capital.

If you want to learn more about money laundering, you need to learn investment banking. Imarticus offers an insightful investment banking course with placement assistance, helping secure your future. It teaches all topics about investment banking and anti-money laundering in detail. To know more about the course, make sure you download the brochure and read more about the executive program for investment banking and capital markets

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