1. Introduction

In simple terms reverse money laundering is the process of supporting illegal activities through legally acquired funds. Criminal organisations start legitimate businesses to generate clean and legal funds which can be used to support illegal activities and businesses. These legally acquired funds are mostly used to finance illegal activities like terrorism, bribery and tax evasion.

Reverse money laundering as the name suggests is the complete and exact opposite of money laundering. It is not limited to criminal organisations and may even be attempted by legitimate/ legal business entities or persons however once executed, needless to say the innocent law abiding citizen would also become a criminal, playing the role of aiding a criminal organisation or may even become a big player in the world of crime, more specifically in financial crime.

2. Terrorist Financing

Reverse money laundering and terrorist financing are closely interlinked. Terrorist groups in order to sustain need an uninterrupted flow of funds. These funds are either obtained through other criminal organisations involved in extracting money through illegal means, through criminal organisations who through illegally acquired funds are generating clean money through so called legitimate businesses or through persons who are are actually running legitimate businesses through legally acquired funds but are otherwise involved in financing terrorism to give colour to their own purposes. The benefit in the later two instances is that the risk of getting caught is less because the money received would be clean money, needless to say the last instance would be undoubtedly the safest. There would neither be any money trail nor any suspicion would be raised in the minds of any investigating agencies as the money would be coming from a completely legitimate source while in the former instance because the money would be generated from illegal activities the investigating agencies would already be alert and if they are able to track and catch the person who has obtained the money initially from an illegal source, the job of finding where that money is further headed to if not being used by the person committing the initial crime would in all likelihood be a cakewalk.

3. Bribery

At times money generated through legal means is used to advance bribes. Since the money that is given is clean money it is difficult to track and detect the illegal transactions that one is performing with it unless the person who is taking the bribe gets caught due to possessing assets disproportionate to his/ her income. The irony is that once the person taking the bribe gets the money, the money becomes tainted and even though the money was earned and advanced by clean sources but to now utilise it by the person taking the bribe, it will have to be laundered.

4. Tax Evasion

Some small businesses like car washes, barber shops etc accept money both through online payments and cash. In the situation about to be explained it is presumed that payments made in cash are acquired through legitimate sources, probably like withdrawal of the amount from the account of a person which contains his clean monthly salary through an automated teller machine (ATM). Lets suppose A goes to a car wash to get his car washed, however due to the inability of the shop to accept an online transaction due to weak signal connectivity or a damaged swiping machine or Quick Response code commonly known as QR code he has to make the payment in cash. The shop expresses their inability to accept an online payment and thus A goes to a nearby ATM machine and gets cash. In exchange for the car wash services he pays cash at the counter. Now, this cash is clean and legitimate, and also received for a service which is lawful but because it is received in cash, the car wash shop owner may chose not to pay tax on it. By doing so he will be able to pay less tax and the money saved would directly go in his pocket. Since it would be clean money earned in exchange of a lawful service its detection would also be quite complex. Money in the aforesaid situation was clean money received for a lawful service but utilised by committing an illegal act of evading tax.

5. Solution

As correctly stated by Stefan D Cassella (author and lawyer based in the United States of America) in his thesis “It is just as important to use the tools of money laundering enforcement, including the confiscation of assets, to interrupt schemes that have yet to reach fruition as it is to recover the proceeds of crime that have already occurred” however such wide powers if given to investigating agencies may result in extreme high handedness and violation of ones fundamental rights as enshrined in the Constitution of India.

6. Authors Comments

There are a lot of terms that exist in the legal world but are not defined in the various bare acts of different laws. One such term is reverse money laundering. Even though if we think we may come to the conclusion that according to the definition as explained on various websites and by legal professionals that reverse money laundering is a term but the irony is that such a term is not explained or defined in any bare acts of Indian laws. Other terms which are commonly used in the legal profession and by lay men who are otherwise associated with the legal profession but are not defined in any of the bare acts are FIR, bail, crime etc, however these terms do exist and have been explained by various legal luminaries in books, commentaries and through legal blogs like these. Reverse money laundering, whether the term exists or not or is defined or not is an interesting topic as at times the cycle of money laundering starts with reverse money laundering. The instances given to explain the concept of bribery and tax evasion through reverse money laundering is apt to explain how at times money laundering starts with reverse money laundering. Given the way reverse money laundering occurs we may come to the conclusion that reverse money laundering is actually nothing but abetting a crime but given the complexity it might deserve more importance in future amendments to bring the concept within the purview of Prevention of Money Laundering Act, 2002.