Money laundering:
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Money laundering is the process of making large amounts of money generated by criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
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Criminal activities like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud schemes produce large profits.
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Thereby it creates the incentive for money launderer to "legitimize" the ill-gotten gains through money laundering.
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The money so generated is called 'dirty money' and money laundering is the process of conversion of 'dirty money', to make it appear as 'legitimate' money.
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Some common methods of Money Laundering :
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Bulk Cash Smuggling, Cash Intensive Businesses, Trade-based laundering, Shell companies and trusts, Round-tripping, Bank Capture, Gambling, Real Estate, Black Salaries, Fictional Loans, Hawala, False invoicing.
legal framework in India to deal with Money Laundering :
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In India, the specific legislation dealing with money laundering is the Prevention of Money-Laundering Act((PMLA), 2002
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The law was enacted to combat money laundering in India and has three main objectives :
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To prevent and control money laundering.
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To provide for confiscation and seizure of property obtained from laundered money.
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To deal with any other issue connected with money-laundering in India.
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Under the PMLA Act, the Enforcement Directorate is empowered to conduct a Money Laundering investigation.
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The provisions of this act are applicable to all financial institutions like banks, mutual funds, insurance companies, and their financial intermediaries.
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The act was amended thrice, first in 2005, then in 2009 and 2012. PMLA(Amendment) Act, 2012 has enlarged the definition of money laundering by including activities such as concealment, acquisition, possession and use of proceeds of crime as criminal activities.
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Apart from the provisions of PMLA, there are other specialised provisions such as RBI/SEBI/IRDA anti-money laundering regulations.
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