Trade Based Money Laundering

Money laundering is the process of clouding source of money by using financial systems or services. Profits of crime and corruption are transformed into legitimate assets. Typically money laundering involves three steps: Placement, Layering and Integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the, dirty money appears clean.

- G. Janardhan

Money laundering was first seen in individuals hiding wealth to avoid taxation or confiscation or a combination of both. Money laundering is an offence in its own right, but it is also closely related to other forms of serious and organized crime as well as the financing of terrorism.

Reverse money laundering : It is a process that disguises a legitimate source of funds that are to be used for illegal purposes. It is usually executed for the purpose of financing terrorism, but also be used by criminal organizations that have invested in legal businesses and would like to withdraw legitimate funds from official circulation. Unaccounted cash received via disguising financial transactions is not included in the official reporting and could be used to evade taxes, hand in bribes and pay under the table salaries.

Some of the common methods of money laundering are :

Tax evasion : Tax evasion and false accounting practice are the most common types of money laundering.

Structuring : Often known as smurfing, which is a method of placement whereby cash is broken into small deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments and then ultimately deposit these, again in small accounts.

Cash smuggling : This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy, less regulation, reduced taxation and less rigorous money laundering enforcement.