Money Laundering

Regulatory

Quick Definition

Money Laundering is the process of converting illegally earned money into legitimate-looking funds by hiding its true origin.

Detailed Explanation

Money laundering is a financial crime where criminals try to make “dirty money” appear clean by routing it through legal channels like businesses, banks, or investments.

It is strictly prohibited and monitored globally and in India by laws such as the Prevention of Money Laundering Act 2002.

Stages of Money Laundering

  1. Placement:
    Illegal money is introduced into the financial system
  2. Layering:
    Multiple transactions are made to hide the source
  3. Integration:
    Money re-enters the economy as “clean” funds

Why Money Laundering is Dangerous

  • Promotes criminal activities
  • Harms financial systems
  • Reduces government revenue
  • Threatens economic stability

How It Is Prevented

  • KYC (Know Your Customer) norms
  • Transaction monitoring
  • Reporting suspicious activities
  • Regulatory compliance by banks

Money Laundering vs Tax Evasion

  • Money Laundering: Hiding illegal money source
  • Tax Evasion: Avoiding tax on legal income

Example

"A person earns illegal money and routes it through a fake business to show it as legitimate income—this is money laundering."

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