Money Laundering

Money laundering is the process of concealing the criminal origin of property so that it can be possessed or used with an appearance of legitimacy. The commonly used model explains this process through three stages: placement, layering and integration, although actual schemes may combine or repeat them.

Placement: entering the financial system

During placement, illicit proceeds, especially cash, are first introduced into the financial system. This may occur through bank deposits, cash-intensive businesses, purchase of financial instruments, or acquisition of assets.

• Placement is often vulnerable to detection because it connects criminal proceeds directly with their initial holder or source.

Layering: obscuring the trail

During layering, funds are moved through multiple transactions to separate them from their criminal origin and obscure the audit trail. Transfers among accounts, conversion into different assets, use of shell or front entities, and movement across jurisdictions can make tracing difficult.

• Layering may involve repeated transfers, withdrawals, purchases, sales, or conversions rather than a single transaction.

Integration: re-entering as apparent lawful wealth

During integration, the layered funds return to the economy as apparently legitimate wealth. They may appear as business income, investment returns, loans, property holdings, or other assets that the offender can openly use.

• Integration completes the concealment cycle by providing a plausible explanation for possession or enjoyment of the funds.

Relationship among the stages and Indian law

The three stages are an analytical model and may overlap, recur, or not appear as a neat sequence. Under Section 3 of the PMLA, 2002, involvement in processes connected with proceeds of crime, including concealment, possession, acquisition, use, or projecting or claiming them as untainted property, can constitute money-laundering.

• Under Section 2(1)(u), proceeds of crime are linked to criminal activity relating to a scheduled offence.