Clean money, dirty money
A popular song with a catchy tune came to mind when the entire print and electronic media used the maximum space and air time to inform the members of the public of the amount of money derived legally or illegally due to various legitimate and illegitimate transactions. The Central Bank “bond” transaction has been the pet subject of the sensational and selling news to bolster their sales. Every human being needs money and in order to earn money he or she ventures into the world to earn money to sustain himself or herself, or to support family members. Nothing is free in this world, money buys everything. Money earned through services, jobs and any legal transactions is legally earned, and the majority of the citizens of Sri Lanka who are mostly daily or monthly income earners, are in a position to account for whatever amount of money they earned or possessed. The money earned through legitimate means could be considered “clean money”.
Dirty money
The money in circulation is in coins and notes. Coins under normal consideration do not get dirty, but currency notes get soiled, crumpled and dirty. It is not the dirtiness of the currency notes one talks about when dirty money is referred to. Any money derived through any illegal transactions, through drug trafficking, human smuggling, arms smuggling, bribery and corruption, fraudulent transactions, commissions, kick backs and any money derived through various illegal acts utilising his or her official positions is considered “dirty money”. Dirty money amassed cannot be accounted for through legitimate banking and money transaction institutions authorised by the government.
Black money
Money amassed through illegal activities becomes “black” as it cannot be used for legitimate banking or financial transactions. When one possesses a tremendous amount of “black money” and cannot use it for his luxurious living or that of his family members, he has to find a way of washing this dirty money to make it clean so that the money could be used legally for all his luxurious living.
Money laundering
The process of converting the “black money” into clean or white money is known as laundering of money.
Dirty clothes are laundered in order to clean them for the clothes to be worn in the open. In the case of currency notes, they cannot be dumped in a washing machine to make them clean as the currency notes will end up as pulp which will have no value for the owner of such “black money”. Money laundering is defined as the process by which criminals or criminal organisations seek to disguise the illicit nature of their proceeds by introducing them into the stream of legitimate commerce and finance.
There are three main steps in the process of money laundering:
– Physically getting the cash into the financial system including the conversion of cash into other types of negotiable instruments such as money orders and cheques.
– Separating the proceeds from the source through layers of transactions such as wire transactions.
– Providing an apparent legitimate explanation for the illicit proceeds.
In order to provide a legitimate explanation for illicit earnings, fictitious and “shell” companies are formed and records are provided in order to make use of the “black money” to conduct normal financial transactions. They ensure that the origin of the “black money” is obliterated and all the tracks are destroyed or erased so that the origin of the “black money” cannot be established.
Laundered money could be utilised legitimately for a luxurious living, legitimate trade and commerce etc. Laundered money could also be used to fund elections and other commissions of politicians and others seeking important positions in the public and private sectors.
Prevention of Money Laundering Act
The government of Sri Lanka enacted the Prevention of Money Laundering Act No.5 or 2006, declaring money laundering an offence.
The Act further says that “any personwho engages in any transaction in relation to any property which is derived or realised directly or indirectly from any unlawful activity or from proceeds of any unlawful activity, or receives, possesses, conceals, disposes of, or brings into Sri Lanka, transfers out of Sri Lanka, or invests in Sri Lanka, any property which is derived or realised, directly or indirectly, from any unlawful activity, or from the proceeds of any unlawful activity, knowing or having reason to believe that such property is derived or realised, directly or indirectly from any unlawful activity or from the proceeds of any unlawful activity, shall be guilty of the offence of money laundering”.
The Act goes on to say that “To get a clearer view of the new offence that has been created, the offences as it has been defined needs to be dissected into its constituent elements.
Any person who engages directly or indirectly in any transaction in relation to any property which is derived or realised directly or indirectly from any unlawful activity or from proceeds of any unlawful activity,
receives, possesses, conceals, disposes of, or brings into Sri Lanka, transfers out of Sri Lanka, or invests in Sri Lanka, any property which is derived or realised directly or indirectly from any unlawful activity or from the proceeds of any unlawful activity, knowing or having reason to believe that such property is derived or realised, directly or indirectly from any unlawful activity or the proceeds of any unlawful activity, shall be guilty of the offence of “money laundering”. The public is aware of the recent sensational disclosure of such an illegal money transaction, where a retired banker working for a private company has admitted before the Presidential Commission that nearly Rs.100 million had been brought in cash in five thousand rupee notes, and deposited in the safe by an individual who is designated as the chairman of the company and from this expenditure has been made to pay the rental and to purchase a penthouse for the spouse of a minister of the government. The retired banker has also admitted that there was no record of the money deposited by the chairman of this company and the expenditure made from this deposited amount. He was not aware of the origin of the money except that the chairman brought the money and deposited it in the safe.
According to section 35 sub- section C under the Bribery Act and, sub-section E under the Exchange Control Act, and the Prevention of Money Laundering Act, the chairman of this company who is reported to have deposited this large sum of money, could be investigated by the “Financial Intelligence Unit (FIU)” established under the Prevention of Money Laundering Act.
During the course of the evidence given by the ex- banker of this company, the prosecution counsel had hinted that this could amount to “money laundering”. In addition to the chairman, other persons involved too could also be investigated under the Bribery Act for not declaring assets. The Department of Inland Revenue too can initiate investigations into the financial standing of the chairman of this company and probe further whether this company has paid income tax or whether he had declared this large amount of money in any of his income tax declarations. It will also be interesting to investigate to ascertain how the chairman was able to bring such a large amount of money in five thousand rupee notes and whether these large sums of money are forged currency notes. Notwithstanding the personalities involved, the FCID or the CID should commence immediate investigations into the availability of such a large sum of money in the possession of the chairman of this company whose name a witness had disclosed as one Lakshmi Kanthan. “Money is the root of all evil.”
(The writer is a retired Deputy Inspector General (DIG) of Police.)