Page 88 - DMGT547_INTERNATIONAL_MARKETING

Unit 4: International Legal Environment

bonds, is another possibility. Launderers generally pay for the insurance with cash and then Notes
request early redemption of the policy or make a claim against their property insurance, thus,
obtaining payment in bank money from the insurance company.
Electronic funds transfer continues to be the preferred method for the layering of criminal
proceeds once they enter the legitimate financial system. Frequently, these proceeds are smuggled
out of the country, deposited in another, and then wired back to the country of origin.
The new payment technologies – smart cards, online banking, and electronic cash – could
theoretically increase the opportunities for laundering. If an online financial institution is located
in an area known for high level of banking secrecy and requires little or no proof of identity for
the opening of an account, the money launderer can then move funds from the convenience of
his computer terminal. Certain smart cards and e-cash systems likewise present a risk in that no
upper limit is set on transactions. While most smart card systems do not permit direct card-to-
card transaction, others are being developed that might have this capability of bypassing a
financial intermediary.
In the absence of consistent standards and suitable monitoring by the supervisory authorities,
these new payment technologies could be vulnerable to money laundering operations. As in the
case of high value commodity market, the gold market is causing some concern of the money
laundering possibilities it offers. A number of FATF members have received reports of suspicious
gold transactions. In some transactions these appear to affect attempts to high value added tax
rates (VAT) by making large purchases of gold in countries with low VAT rates and then
exporting the bullion back to the country of origin. The use of gold for purposes of laundering
is often intrinsic to movements of money through parallel banking circuits, an example being
the South Asian havala/hundis system.
This system, based on trust and close business contacts, enables gold to be transferred without
being physically moved. Using this system is more cost effective and less bureaucratic than
moving funds through recognised banking channels. Laundering of this kind, which is
extensively practiced over the sub continent, has spread in many other areas of the world. All
countries must amend their laws to curb this system.

Self Assessment

Fill in the blanks:

7. Electronic funds transfer continues to be the preferred method for the layering of
...................... proceeds once they enter the legitimate financial system.
8. In the absence of consistent ...................... and suitable monitoring by the supervisory
authorities, these new payment technologies could be vulnerable to money laundering
operations.
9. A number of ...................... members have received reports of suspicious gold transactions.

4.5 Foreign Exchange Management Act, 1999 (FEMA)

Foreign exchange means foreign currency and includes all deposits, credits and balances, payable
in any foreign currency and any drafts, traveller’s cheques, letters of credit and bills of exchange,
expressed or drawn in Indian currency but payable in any foreign currency; any instrument
payable, at the option of the drawee or holder thereof or any other party thereto, either in Indian
currency or in foreign currency or partly in one and partly in the other.
Under section 5 of the Negotiable Instruments Act, 1881, a “bill of exchange” is an instrument in
writing containing an unconditional order, signed by the maker, directing a certain person to

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