Money Laundering is the process by which large amounts of illegally obtained money (from drug trafficking, terrorist activity or other serious crimes) is given the appearance of having originated from a legitimate source.

Thus, we can say Money Laundering' is the introduction of illegally gained assets into the legal financial system with the aim of covering up its true origin.

Some estimate annual amounts of laundered money exceed $500 billion in the world.

Therefore, we can say that the major objectives of Money Laundering activities are:

(a) Concealing the true ownership of illegally-obtained money and

(b) Placement, layering and integration of such funds

The concept of Money Laundering can be traced back to the "Hawala" transactions well known in India for long time now. Hawala mechanism facilitates the conversion of money from black to white."Hawala" is an Arabic word meaning the transfer of money or information between two persons using a third person.The Hawala mechanism usually does not leave any paper trail and thus is a nightmare for the investigative agencies. The profits generated from Hawala transactions are covertly invested in real estate, films etc. so as to launder them.

A few years back it was thought of only petty crime, but with the changed circumstances, especially after terrorist activities after September 11, 2001 attack on World Trade Centre, money laundering is considered as a very serious crime. Worldwide special Acts have been passed to check such activities.

The criminals have developed number of methods for the purpose of "Structuring" and "Laundering" currency in the process of converting it from "dirty" to "clean" funds. The major risk to a bank is in the potential for complicity and violation of Acts if such funds are channeled through that Bank.

In India, a number of Acts have existed which played the role of prevention of money laundering, though these were not so named. However, in India, we have certain statutes, as given below that incorporate measures which attempt to address the problems of money laundering:-

In November, 2002, PARLIAMENT approved the long-pending legislation to prevent the offence of money laundering. The President gave its assent to the Bill in January, 2003. The Bill was originally passed in December 1999 by the Lok Sabha and sent to the Rajya Sabha. The Upper House approved the Bill in July 2002 with amendments suggested by the Select Committee. The Bill in its modified form is, however, regarded as a diluted version of the original one. This is because the definition of the offence of money-laundering itself has been watered down.

Money Laundering Act is an endorsement of various international conventions to which India is a party, and it seeks to declare laundering of monies carried through serious crimes a criminal offence. The Act also lists modalities of disclosure by financial institutions regarding reportable transactions, confiscation of the proceeds of crime, declaring money laundering as an extraditable offence and promoting international cooperation in investigation of money laundering.

The Act allows for confiscation of property derived from or involved in money laundering. Co-operative banks, non-banking financial companies, chit funds and housing financial institutions come under its ambit.

The Act also makes it mandatory for banking companies, financial institutions and intermediaries to maintain a record of all transactions of a prescribed value and to furnish information whenever sought within a prescribed time period. Thus, these entities are required to maintain the record of the transactions for 10 years.

The minimum threshold limit for certain categories of offences under the Indian Penal Code and other legislations has been fixed at Rs 30 lakh in the Bill.This limit is further likely to be reduced to Rs.10 lakh.