Money Laundering

Money laundering is the process of concealing or transforming criminally derived property so that it appears legitimate. The common analytical model describes placement, layering and integration, but the statutory offence under Indian law depends on involvement with proceeds of crime rather than completion of these stages in sequence.

How laundering commonly occurs

The three stages explain how illicit proceeds may enter the economy, lose their traceable connection with crime, and acquire an appearance of legitimacy. Actual schemes may combine, repeat, or omit stages.

• During placement, illicit proceeds, especially cash, are introduced into the financial system through deposits, cash-intensive businesses, financial instruments, or asset purchases.
• During layering, repeated transfers, conversions, purchases, sales, shell entities, or cross-border movements are used to obscure the audit trail and criminal origin.
• During integration, funds return as apparently legitimate wealth, such as business income, investment returns, loans, property holdings, or other openly usable assets.

Meaning of proceeds of crime

Money laundering under the Act must concern proceeds of crime. A scheduled offence is therefore the predicate source of the property, although laundering is a distinct offence concerning subsequent involvement with that property.

• Under Section 2(1)(u), proceeds of crime include property derived or obtained, directly or indirectly, from criminal activity relating to a scheduled offence, or the value of such property.
• Where such property is taken or held outside India, the definition covers property of equivalent value held within India or abroad.
• The statutory meaning of property is broad and covers movable or immovable, tangible or intangible, corporeal or incorporeal assets and documents evidencing title or interest.

What constitutes the statutory offence

Under Section 3 of the PMLA, 2002, a person commits money laundering by the prescribed form of involvement in any process or activity connected with proceeds of crime. The Act focuses on the connection with criminal proceeds, not merely on a formal banking transaction.

• The provision covers anyone who directly or indirectly attempts to indulge, knowingly assists, knowingly becomes a party, or is actually involved in the relevant process or activity.
• Covered activities include concealment, possession, acquisition or use, as well as projecting or claiming proceeds of crime as untainted property.
• The prosecution need not establish a neat placement-layering-integration sequence; involvement in one or more statutorily identified activities may constitute the offence.
• Money laundering is a continuing activity while a person continues to enjoy proceeds of crime through concealment, possession, acquisition, use, projection, or claiming them as untainted property.