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Meaning of money laundering

Money laundering is the practice of concealing the origin of monies received from unlawful sources and transferring them to legitimate ones in order to avoid being prosecuted, convicted, and having the proceeds of the crime seized. For the purpose of making illegally obtained money appear legitimate, criminals employ a wide range of money-laundering strategies.

The definition of Money Laundering which is given by Financial Action Task Force (FATF) is “the processing of criminal proceeds to disguise their illegal origin” in order to “legitimise” the “ill-gotten gains of crime”.

What It Is and How It Works

Illegal organisations who desire to successfully employ money gained unlawfully need to master the art of money laundering. It is unsafe and ineffective to deal with significant amounts of unlawful currency. Criminals require a mechanism to deposit money in reputable financial institutions, but they can only do this if the money appears to come from reputable sources.

Placement, layering, and integration are the common three processes in the money laundering process

• Placement secretly introduces “dirty money” into the established financial system.
• Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
• The now-laundered money is taken out of the legal account in the final phase, integration, to be utilised for whatever the crooks have planned for it.

Please take note that this template might not apply in real-world scenarios. All three steps in money laundering might not be necessary, or some steps might be merged or done numerous times.

From the very simple to the most complicated, there are several ways to launder money. Using a legitimate, cash-based business run by a criminal organisation is one of the most popular tricks. For instance, if the company operates a restaurant, it can overstate daily cash collections in order to transfer unlawful funds through the eatery and into the restaurant’s bank account. The money can then be withdrawn as required after that.

Case Study: Hasan Ali Khan v. Union of India, CRIMINAL BAIL APPLICATION NO.994 OF 2011

First, let’s understand Hasan Ali Khan’s identity.

The 67-year-old Khan was little known outside of his Pune business community and the horse racing circles when he first entered the national headlines in 2007 as one of the largest money launderers in the nation when the Income Tax raided his homes years ago. Khan lived in Hyderabad with his sisters and a brother before settling down in Pune around 2000. According to authorities, his father worked for the excise agency.

Khan is a well-known businessman who has tried his hand at a variety of companies in Hyderabad. He developed a car rental company, managed a metal and scrap trading company, and started a finance company that was later charged with defrauding various institutions.

In 2007, Khan was looked into by Indian officials on accusations of money laundering. He deposited $8 billion into a Swiss bank account. With the aid of businessmen Kashinath Tapuriah, from Kolkata, and Praveen Kumar, from Delhi, he allegedly used hawala to hide billions in Swiss bank accounts.

The allegation against Hasan Ali Khan and Kashinath Tapuriah is that they have committed the offence punishable under Section 4 of the Prevention of Money-Laundering Act, 2002, (hereinafter referred to as “the PML Act”). The said case arises on the basis of a complaint filed by the Deputy Director, Directorate of Enforcement, Ministry of Finance, Department of Revenue, Government of India.

On the said date, the Income Tax Department carried out a search in the premises owned and/or possessed by the applicant and a sum of Rs.88,05,000/- of cash was discovered and seized from his home in Peddar Road, Mumbai. Several imported watches and some jewellery were also discovered during the investigation and taken into custody.

Additionally, a probe was carried out in accordance with the Foreign Exchange Management Act of 1999, or “FEMA.” Show-cause letters were sent to Khan for alleged violations of Sections 3A and 4 of the FEMA for dealing in, acquiring, and holding foreign currency in his account with the Union Bank of Switzerland, AG, Zurich, Switzerland, in the amount of US$ 80,004,53,000, or approximately Rs. 36,000 crores in Indian currency.

Investigations further showed that Shri Hassan Ali Khan had submitted fake documents, given fraudulent testimony, and concealed the fact that he previously held a passport in order to get at least three passports in his name. In addition to the foregoing, it was also stated that investigations had shown he had sold a diamond from the Nizam of Hyderabad’s collection and had transferred the proceeds of the sale to the Barclays Bank in the UK using his account at Sarasin Bank in Basel, Switzerland.

Based on the foregoing information, the applicant was detained on March 7, 2011. On March 8, 2011, he appeared before the Special Court to request his remand into the care of the Directorate of Enforcement. It appears that the Special Court first ordered the Applicant to be kept in jail but then denied the Directorate of Enforcement’s request to keep the Applicant in custody in an order dated March 11, 2011. The said order of the Special Judge, PMLA, Mumbai, rejecting the applicant’s prayer for bail was challenged before the Bombay High Court in  Bail Application No.994 dated 2nd July, 2011. Following a contentious hearing, the Bombay High Court granted bail to the applicant in an order dated August 12, 2011.

Case Study: Union of India v. Hasan Ali Khan & Anr CRIMINAL APPELLATE N0. 1883 OF 2011  (Arising out of SLP (Crl.) NO. 6114 of 2011

The Special Leave Petition out of which this Appeal arises has been filed against the judgement  and final order dated 12th August, 2011, passed by the Bombay High Court in Crl. Bail Application No.994 of 2011, whereby the High Court granted bail to Hassan Ali Khan.

Therefore, it was argued that the Bombay High Court’s decision to grant bail to Respondent No. 1 was based on an inaccurate reading of the law, and as a result, the aforementioned order granting bail was, therefore, liable to be set aside.

Additionally, the learned counsel for respondent said that it had never been proven that the funds held in Respondent No. 1’s accounts in Switzerland, the United Kingdom, and Indonesia had been projected as clean cash. Furthermore, the claim that the jewellery belonging to the Nizam was stolen was based solely on allegations, and there was no evidence to back up this claim given the case put forth by Respondent No. 1 that he had arranged for the sale of some of the jewellery, for which he had been paid a commission of US$30,000, which he had spent in Dubai.

The learned counsel for respondent argued that once bail had been granted, even if the special leave petition was maintainable, the High Court or the Court of Sessions had the authority to revoke the grant of such bail under Section 439(2) Cr.P.C. As a result, all the guidelines established by this Court regarding the revocation of bail would have to be taken into account before the order granting bail could be revoked.

Even though the Respondent No. 1 is accused of having committed the crimes as early as 2007, up until his arrest on May 7, 2011, there had been no claims that he had somehow hampered the investigation or tampered with any of the witnesses. Even the concern expressed by the appellant that the Respondent No. 1 might flee to another country after being released on bail, was unfounded because such attempts, if they were made at all, could be prevented by using a variety of tactics. Such a claim could not be the justification for revoking the bail which had already been granted to the Respondent No.1.

Furthermore, after his original passport was ordered to be deposited, the Respondent No. 1 obtained three additional passports in his name, which supports the concern that if freed on bail, the Respondent No. 1 may flee.

The distinction between an application for cancellation of bail and an appeal filed against a bail order cannot be discarded when it comes to Section 439(2) Cr.P.C. The two are on different bases. While the basis for cancelling bail would be post-bail incidents that showed abuse of the privilege, an appeal against a bail-granting ruling would call into question the validity of the order itself.

Therefore it is believed that the High Court’s order needs to be changed after adopting a fresh perspective on the facts that are unique to this case and in light of the information provided above. As a result, this appeal is allowed and the judgement of the Bombay High Court is set aside and the bail is cancelled which was granted to Respondent No.1.

Conclusion

Money laundering is a severe offence that is not to be handled lightly and is not a local crime. Financial organisations like the Insurance Regulatory and Development Authority (IRDA), Reserve Bank of India (RBI), and Securities and Exchange Board of India (SEBI) are covered by the Prevention of Money Laundering Act, 2002, which also applies to all intermediaries, insurance providers, banks, and mutual funds. Perhaps as a result of this, the Supreme Court maintained the constitutional legality of the broad authority granted to the ED by the Prevention of Money Laundering Act, 2002. 

Numerous anti-money laundering procedures have been implemented in India, yet there are several flaws that prevent them from working as intended. The reason for this is that because of technological advancement, money launderers can use cyber tactics to conceal the source of criminal activity’s revenues.

However, because the RBI is unable to control them, Hawala transactions cannot be prevented. Crimes involving money laundering are not exclusive to a single organisation but rather are pervasive.  The government needs to put more emphasis on the issue of money laundering and black money.

Works Cited

• Bairagra, Amrut. “Money Laundering in India.” TaxGuru, 28 January 2022, https://taxguru.in/finance/money-laundering-india.html. Accessed 22 July 2023.
• “Hasan Ali Khan vs Union Of India on 12 August, 2011.” Indian Kanoon, 12 August 2011, https://indiankanoon.org/doc/744839/. Accessed 22 July 2023.
• Kabir, A. “Union Of India vs Hassan Ali Khan And Anr on 30 September, 2011.” Indian Kanoon, 30 September 2011, https://indiankanoon.org/doc/3764/. Accessed 22 July 2023.
• “Money Laundering: What It Is and How to Prevent It.” Investopedia, https://www.investopedia.com/terms/m/moneylaundering.asp. Accessed 22 July 2023.

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Written by- Meghana D