CONTENTS OF THE PROJECT
SR.NO TOPIC PAGE NO
A. Introduction 7
a. Situation Analysis & Problem definition
b. literature review
c. Methodology of study
B. Data Analysis 12
C. Conclusion and Recommendation 89
D. Biblography 98
. EXECUTIVE SUMMARY
The money sent by immigrant workers to their families living in their native countries is
termed as a remittance. Remittances are important and stable sources of funds that
help developing countries maintain a favorable balance of payments position.
India, China, Mexico, and Philippines are among the top receivers of remittance flows in
The United States of America, Saudi Arabia, Germany, and Switzerland are the major
sources of remittances. Remittances are carried out through both formal channels and
informal money transfer systems
This report discusses the various channels of cross-border money transfer and gives
brief profiles of the major institutions that provide money transfer services to India. It
also outlines the issues related to informal money transfer systems.
Formal channels include banks and money transfer companies like Western Union (a
subsidiary of First Data Corp.) and MoneyGram. The advent of the Internet and vast
advances in communications technology has spawned the growth of 'new age
remittance services'like money transfer websites and use of remittance cards. Even
banks have embraced technology to set up online money transfer services. These
transfers are fast, easy, and economical.
Convenience and online tracking status are other major benefits. However, these
systems have a higher cost attached to them. This may put these services out of the
reach of low income groups who form a major portion of the immigrant population. E-
mail frauds and fake websites are also a cause for concern.
Informal money transfer systems have been popular among emigrants and expatriates
as they cost less and are perceived to be efficient and reliable. Due to the absence of
proper records, informal channels have become the preferred route for money
laundering and funding of terrorist activities. Thus this report also highlights the various
money laundering techniques adopted .It would be desirable for regulatory authorities to
encourage remittance flows through formal systems by reducing transfer/transaction
costs and facilitating better accessibility. Given the rapid rise in remittance flows,
regulatory authorities need to ensure a balance between facilitation and regulation of
1.SITUATION ANALYSIS AND PROBLEM DEFINITION
The growth in remittances from abroad to india have resulted in the emergence of
various remittance channels .our aim is to understand these channels both formal and
informal and the kind of unethical practices that are carried on which result in
jeopardisig the ethics in money transfer.
With globalization, we have witnessed increasing interdependence among countries in
the social, economic and political spheres. Today, countries experience a greater flow
and exchange of people, goods, services and information across their boundaries.
Educated professionals, students, skilled workers and unskilled workers from
developing countries migrate to developed nations in a quest for better opportunities for
income generation, higher education and a better standard of living. The United Nations
estimated that in 2000, around 175 million people, i.e. approximately three percent of
the global population, lived and worked outside the country of their birth. This was an
increase of 45%, over the 120 million migrants estimated in 1990.
The term global remittances is used for the money that is sent by these
immigrant workers to their native countries, usually to their families. They use both
formal and informal systems of money transfer.
Formal systems comprise of the regular banking channels: checks, drafts, and
wire transfers; and non-banking institutional channels like Western Union or
MoneyGram, which specialize in money transfer services. Advances in information and
communications technology have fuelled the growth of the global cashless economy.
The Internet makes it possible to send money and information through electronic
communication channels. Many online payment websites have emerged as another
option to transfer money. Informal Money Transfer Systems (IMTS) are defined as
systems, mechanisms, or networks of people, other than the formal banking system,
that enable transfer of money across different geographical locations.
3.METHODOLOGY OF STUDY
It is an exploratory research which aims at understanding the various patterns in global
remittances and remittances to India. thus focusing on various channels of remittances
and the various types of remittances like formal channels-wire transfers,electronic
transfers etc and informal channels-hawala system.understanding in depth how each of
these systems operate and also understanding the various services of money transfer
offered by banks and other financial institutions and companies.
The research has also focused on the unethical practices in money transfer commonly
known as money laundering, the process of money laundering, causes and the reasons
for the growth of it.
The study also focused on various types of money laundering practices used by
launderers like Smurfing, structuring, shell companies and nominee corporations etc.
The study at the end draws conclusion on the various measures adopted by the
government of various countries to curb and combat money laundering.it also
suggested measures legislative,financial,organizational etc to restore ethics in money
transfer .thus capturing the very essence of the topic of ethics in money transfer within
the limitations of data and time.
To understand the pattern of remittances in the international market and
understanding the Pattern of Remittances to India.
To understand and learn the various remittance channels-both formal and
To understand the unethical practices carried out like money laundering and the
various harms it causes to the country
To understand the various regulations both at the national level and the
international level which helps in combating money laundering.
To understand the various measures that can be taken by countries to restore
ethics in money transfer
Contents Pg no
I. Global Remittance Flows 14
II. Remittances To India 22
III. Formal Money Transfer Systems 40
Personal checks and cashier checks 40
Foreign Currency Bank Drafts (FCBD) 42
Electronic funds transfer 43
Bank Wire Transfers 44
Other transfer systems 48
IV. Profile of Some Formal Banking/financial Institutions 50
V. Informal Money Transfer Systems (IMTS) 62
VI. Unethical practices (money laundering) 69
Tools and techniques of money laundering 72
Causes of money laundering 80
Impact of money laundering 81
VII.Scams and scandals 84
I.Global Remittance Flows
The money transfer market or the remittance market is extremely large and has been
growing at a steady rate over the last two decades, driven mostly by a combination of
long-term trends relating to immigration flows, disparities among national economies
and technological innovation.
According to the World Bank, in 2008 global remittances reached a record $305 billion.
Most of that flowed into developing countries, where it is often a leading source of
A) Global flow of Remittances
In Haiti, remittances are 20 percent of the gross domestic product.
In Kosovo, remittances are 30 percent of the gross domestic product.
In March 2009, the World Bank revised its estimate of remittance flows to India in
2008 from $30 billion to $45 billion; a few months later, the official number for
2008 was reported as $52 billion
In the economic boom years of the last decade, the amount of remittances to
developing countries grew to several times the size of official development aid.
For many states, remittances are now the largest and least volatile source of
foreign exchange, and for some countries -- such as Lesotho, Moldova,
Tajikistan, and Tonga -- they exceed one-third of national income.
Meanwhile, in many countries such as El Salvador and Nepal they help anchor
the value of the national currency by bringing in the foreign currency required for
financing imports and foreign debt.
More locally, remittances provide funds for education and health expenses as
well as capital for small businesses. In Sri Lanka, for example, the birth weight of
children in remittance-recipient households is higher than that of children in other
Lant Pritchett, an economist at Harvard University, recently estimated that
allowing 3,000 additional Bangladeshi workers into the United States would
generate greater income gains than the annual income contribution of Grameen,
the pioneering microfinance bank, to Bangladesh. Although private remittances
cannot take the place of official aid efforts, this does suggest that an increase in
remittance flows could be an effective way to continue development efforts in the
face of shrinking national budgets.
India has retained its position as the highest recipient of global remittance flow at
$52 million in 2008, the World Bank said in a report
Other than India, China and Mexico, the top 10 recipients of remittances include
the Philippines, Poland, Nigeria, Romania, Egypt, Bangladesh and Vietnam.
Remittance flow to South and East Asia has continued to post strong growth,
largely on the fact that the gulf countries, a major destination for Asian migrants,
have not significantly reduced hiring migrants.
According to the World Bank Migration and Development brief, India with $52
million, China ($40.6 million) and Mexico ($26.3 million) have retained their
positions as the top recipients of migrant remittances among the developing
countries despite the fact that remittances have slowed down in many corridors
since the last quarter of 2008
Growth of remittances to South and East Asia is also because of the switch in
motivation for remittances from consumption to investment: falling asset prices,
rising interest rate differentials and a depreciation of the local currency.
However, the World Bank observed that the outlook for this year looks bleak
because of deterioration in the economic and employment situation in the
migrant - destination countries in the first half of this year.
A lagged response in remittance flow to South and East Asia may arise from the
current slowdown in economic activities in the Gulf Cooperation Council (GCC)
countries. This is especially relevant for Kerala (India), Bangladesh, Sri Lanka
and the Philippines that have migrant workers in construction sectors in Dubai
According to the revised projections by the World Bank, global economic growth
is also expected to be negative, with an expected 2.9 per cent contraction of the
global GDP in 2009.
"In line with this outlook, we expect that remittance flow to developing countries
could decline by 7-10 per cent in 2009, with a possible recovery in 2010 and
2011," the World Bank said.
As per the World Bank Development Prospects Group Lead Economist Dilip
Ratha, "...Even a small decline of 7 or 10 per cent can pose significant hardships
to the people and to governments, especially those facing external financing
gaps."He further said, "Reducing remittance fees and developing innovative tools
to leverage remittances for financial inclusion and capital market access should
be a part of our response to the financial crisis."
So it was cause for alarm in March when the World Bank projected that remittances will
decline by 5 to 8 percent in 2009.
B)Impact Of Crisis on Global Remittances
The hardship — a direct result of U.S. economic weakness — is already felt in many
homes abroad. the remittance from overseas workers, which is a financial lifeline for
many developing countries, is under pressure as a consequence of the downturn in the
global economy. With global GDP expected to contract by 0.9% in 2009 and with
recession hitting the key destinations for migrants especially the United States, the
European Union and the Gulf countries, the flow of remittances is expected to decline
considerably in the year 2009. The developing countries that are popular for the export
of labor have already started facing the inevitable problem of declining remittances with
companies across the globe having started shedding employees.
Historically, remittances have tended to rise in times of financial crisis or natural
disasters because migrants living abroad send more money to help their families back
home. For example, remittance inflows increased to Mexico following its financial crisis
in 1995, to the Philippines and Thailand after the Asian crash in 1997, and to Central
America after Hurricane Mitch in 1998.
The anticipated drop, however, will not be as dramatic as many fear. Despite growing
economic hardship in host countries, many workers are choosing to remain, both
because immigration controls have made reentry more difficult and because income
levels back home are even lower. In order to continue sending remittances, many
migrants are accepting lower compensation, switching jobs, sharing accommodation
with other migrants, and cutting back on living costs -- one meal saved in Dubai or New
York is worth several in Mumbai or Mexico City.
A shift toward stricter immigration and labor policies means that a large number of these
migrants are losing their legal status -- which means they are increasingly forced to rely
on unofficial agents to send money, such as couriers; informal traders; bus drivers;
airline crew; trading companies; and hawalabrokers, who use a paperless remittance
system. This is a reversal of a previous trend that began after 9/11, when many
countries cracked down on informal remittance channels and pushed migrants to use
banks and registered money-transfer operators. With the return to unofficial means,
official data may be understating the true size of global remittance flows by as much as
As the crisis deepens, a lack of jobs will force some workers home. But they will return
with savings that are typically recorded in official statistics as remittance inflows. During
the Persian Gulf War in 1991, for example, a large number of Indian migrants came
back home from the Gulf, driving up the amount of remittances to India. Migrants not
only bring back savings but also business skills. Jordan's economy performed better
than many observers had expected between 1991 and 1993 because of the return of
relatively skilled workers from the Gulf.
Return migration in the current crisis appears to be negligible so far, but if it happens,
the workers coming back home should be provided with help in setting up small
businesses and reintegrating into their communities, instead of being the object of envy
or fear of job competition.
The crisis is also producing "reverse remittances" in the case of migrants who are left
without work or with less work than before, but who choose to remain in their adopted
countries. To fund their living costs, some of these migrants are forced to spend savings
they have previously sent home. This phenomenon is most visible in the United States,
where some workers from the Dominican Republic and Mexico are relying on such
funds to stay put during the economic downturn.
With lower levels of foreign aid and investment likely over the short term, remittances
will have to shoulder an increasing percentage of local development needs.
Unfortunately, the greatest risk to remittance flows does not come from the economic
downturn itself but from protectionist measures taken by many destination countries,
including those in the developing world. Such measures include lower annual quotas,
higher salary and skill requirements, and longer waiting periods for hiring migrant
C)Fluctuations in Currency rates and Global Remittances
In the global downturn, fluctuations in currency rates have led to some surprising
increases in remittance levels -- especially between India and the United States.
Remittances meant for consumption will likely fall as the U.S. dollar appreciates
against the Indian rupee, because the same basket of local goods and services
in India can now be purchased with fewer U.S. dollars. However, the remittances
meant for investment -- or the purchase of goods with long-term payoffs -- will
rise as the depreciation of the rupee produces a "sale effect" for housing and
other assets in India.
Indeed, as the Indian rupee has depreciated more than 25 percent against the
U.S. dollar in recent months, there has been a surge in remittance flows to India.
In March 2009, the World Bank revised its estimate of remittance flows to India in
2008 from $30 billion to $45 billion; a few months later, the official number for
2008 was reported as $52 billion. There are signs that a similar surge in
investment-related remittance flows is happening in Bangladesh, Ethiopia,
Moldova, Nepal, Pakistan, the Philippines, and Tajikistan.
II. Remittances to India
The Reserve Bank of India (RBI) has reported that Indians living abroad transferred
$24.6 billion to India in the fiscal year 2005-2006. India, thus, continues to retain its
position as the leading recipient of remittances in the world. The World Bank estimates
for 2005 put India in the lead at $23.5 billion, with China and Mexico close behind at
$22.4 billion and $21.7 billion, respectively.
Yet India's dominant position in remittance receipts is a relatively recent one. In 1990-
1991, for instance, RBI reported that remittances from overseas Indians were a modest
$2.1 billion. They have risen steadily in the last 15 years, and rather dramatically in the
last 10 years
The figures rose to $12.3 billion in 1996-1997, and then jumped to almost $22 billion in
2003-2004. Between 2000-2001 and 2003-2004, remittances almost doubled. With a
small dip in 2004-2005, the 2005-2006 figures RBI reported suggest that the trend is
here to stay.
Figure 1. Remittances to India in Billions of US Dollars, 1990-1991 to 2005-
Note: *Projected amount for 2005-2006.
Source: Reserve Bank of India. "Balance of Payment Statistics," RBI Bulletin
December 1997, January 1999, January 2000, January 2001, December 2002,
December 2004, January 2005, February 2006, November 2006.
Relative Importance of Remittances
It is generally assumed that in a large economy like India's, the impact of remittances is
negligible. But, compared with some important economic and fiscal indicators, their
relative importance is significant.
Today, remittances represent 3.08 percent of the country's GDP — a sharp rise from
0.7 percent in 1990-1991 (see Table 1). In 2005-2006, remittances were higher than the
US$23.6 billion in revenues from India's software exports, which is particularly
impressive since software exports increased 33 percent that year.
Table 1. Remittances to India as Percent of GDP, 1990-1991
Year Percent GDP
1990-1991 2.1 0.7
1995-1996 8.5 3.22
1999-2000 12.07 2.72
2000-2001 12.85 2.84
2001-2002 15.4 3.29
2002-2003 16.39 3.39
2003-2004 21.61 3.69
2004-2005 20.25 3.03
2005-2006 24.55 (P) 3.08
Note: (P) notes a projection. For the purpose of conversion, it
has been assumed that US$1 = 45 Indian rupees
Sources: Reserve Bank of India: RBI Bulletin December 1997,
December 2004, January 2005, February 2006; "Invisibles in
India's Balance of Payments." RBI Bulletin, November 2006;
Reserve Bank of India: "Handbook of Statistics on the Indian
Impact of Remittances
The impact of remittances is more pronounced in parts of the country that have
experienced higher volumes of emigration. In the southern state of Kerala, for example,
remittances constitute 22 percent of the state domestic product. Experts on Kerala's
economy found that per capita income in Kerala is much higher than the national figure
because of remittances. Including remittances, Kerala's per capita income in 2002-2003
was 60 percent higher than the national figure, and 34 percent higher excluding
Context for Understanding Indian Remittances
According to RBI, remittances include two flows: inward remittances and local
withdrawals from Non-Resident Indian (NRI) deposit accounts. The term NRI popularly
refers to members of the Indian diaspora, including Indian citizens living abroad and
people of Indian origin.
Inward remittances are direct transfers of funds from one person abroad to another in
India, typically through a bank or wire transfer agency. Such transfers are generally
understood to provide family support.
Indian banks created NRI deposit accounts exclusively for NRIs. These deposit
schemes, which the government of India authorized in the 1970s, have been used to
attract foreign capital when the Indian government felt the need to shore up foreign-
To make the accounts attractive, NRI depositors are given the choice of holding
deposits in foreign currency denominations or in Indian rupees. Depositors in foreign
denominations can repatriate their principal and interest in foreign currency when they
choose. Thus, repatriable deposits are treated like a debt.
On the other hand, RBI treats funds that NRIs locally withdraw from rupee-denominated
deposits as remittances; to RBI these transactions cease to be a liability and assume
the form of "unrequited transfers."
The relationship between the two components of the remittance flow is important for
understanding remittances in India today. Although private transfers — "total
remittances" — as a whole have increased by 88 percent since 2000-2001, inward
remittances have only increased by 30 percent (40 percent at its highest since 2000 in
For the last three years, local withdrawals from NRI deposit accounts have exceeded
the amount of inward remittances; the difference was $2.3 billion in 2005-2006 (see
Figure 2). Local withdrawals exceeded inward remittances in 2003-2004 by a ratio of
1.02:1, in 2004-2005 by a ratio of 1.11:1, and in 2005-2006 by ratio of 1.23:1. Thus,
some analysts have argued that India's remittance boom "is largely a massive
Figure 2. Remittances and Local Withdrawals/Redemptions of NRI
Deposits, 1997-1998 to 2005-2006
Note: *Projected amount for 2005-2006.
Source: Reserve Bank of India: "Handbook of Statistics on the Indian
Economy," September 2006; and "Invisibles in India‘s Balance of
Payments," RBI Bulletin, November 2006.
To lend further credence to this argument, commentators point to two recent special
bond schemes aimed at NRIs.
The popular Resurgent India Bonds, launched in 1998, matured in 2003. A sizable
portion of the redeemed bonds were retained in India, instead of being repatriated
abroad in foreign currency. That retained amount was thus recognized as remittances,
resulting in the bulge in 2003-2004.
Similarly, the Millennium India Bonds, issued in 2000, matured at the end of 2005. It is
likely that the redemption of those bonds contributed to the remittance surge in 2005-
Evidence, however, suggests that the importance of these redeemed bonds cannot be
exaggerated. For example, even though the overall amount of private transfers
somewhat decreased in 2004-2005, a year in which no NRI bonds matured, local
withdrawals still exceeded inward remittances by $943 million. Similarly, in 2001-2002,
before the recent bond redemptions, withdrawals exceeded inward remittances by $1.9
Thus it is clear that the increasing relation of withdrawals to inward remittances is a
developing pattern, not simply attributable to the maturing of NRI bonds.
Factors Responsible for Remittance Growth
However significant the ratio between inward remittances and local withdrawals, the fact
remains that remittances to India have witnessed a dramatic increase. A combination of
factors account for this.
India's extensive economic reforms of the early 1990s provide an important context. The
economic liberalization, which began in 1991, has been dubbed by some as "India's
second independence." It gradually ended the state monopoly on a range of industries,
allowed foreign capital in most sectors of the economy, lowered taxes and tariffs, and
rolled back currency controls. These reforms accelerated India's integration into the
world economy and represented a larger change in the Indian mindset.
The Diminishing Role of Unofficial Channels
A significant factor contributing to the remittance surge is simply the increased use of
official channels for remitting money. Prior to 1993, the government of India strictly
regulated the exchange rate of the Indian rupee, creating huge incentives to transfer
money through informal, unregulated hawala networks.
Hawala, a system of money transfer with roots in South Asia, relies less on formal
negotiable instruments and more on trust and extensive use of family and business
networks. The system — which depends on efficient communication between the
members of a network of dealers — not only provides quick transfers of money, it also
generally pays a premium exchange rate.
Hawala networks in India were used because of the advantageous exchange rate as
well as to circumvent tight controls on the transfer and possession of gold, a commodity
highly valued in India. With the liberalization of gold imports, beginning in 1992, the
incentive to employ hawala networks diminished. In 1993, the government established a
market-based exchange rate, further reducing the appeal of hawala networks.
Finally, in the wake of the September 11 attacks, there has been heightened interest in
tracking and regulating Hawala-type networks, reflecting international concern about the
financing of terrorist activity. In the United States, these networks came under the
money transfer regulations at the end of 2001, and the assets of at least one "hawala
conglomerate" have been frozen.
The Declining Emphasis on Foreign Currency
The government of India's change in exchange-rate policies was followed by a change
in exchange-control policies. Before 1991, rigid regulations on the conversion of rupees
to foreign currency meant that most NRIs chose to keep their money in repatriable
Liberalization of the exchange regime started in 1992, and the highly criticized Foreign
Exchange Control Act (FERA) was repealed in 2000. FERA imposed a strict control
system on all transactions in foreign exchange, permitting only a limited number of
transactions per year, and fixed the rupee exchange rate. FERA was repealed by the
Foreign Exchange Management Act in 2000, which relaxed controls on foreign-
With the gradual relaxation of exchange controls, NRIs are now less concerned about
being able to convert rupees to foreign currency. Consequently, NRIs' reluctance to
place money into rupee accounts is declining.
The numbers from RBI are quite striking. In March 1991, foreign currency-denominated
deposits formed 72 percent of total NRI deposits; such deposits constituted only 34.7
percent of total outstanding deposits by March 2005. In addition, they are also
withdrawing more money for local use, which may partly explain the recent increase in
the local withdrawal component of the remittance figures.
The Shift in Emigration Patterns
If the migration of Indian workers to the Gulf states was the dominant story of the 1970s
and the 1980s, the migration of information technology (IT) workers, principally to the
United States, has been the trend since the mid-1990s.
Indian migration to the United States doubled in the 1990s, mostly through the use of H-
1B temporary worker visas, which allow those in specialty occupations to work in the
country for up to six years with the possibility of receiving permanent residence. Indian
software engineers became an important element of the US IT boom.
Even in the Gulf countries, the number of Indian professional and managerial workers is
increasing. Thus, the relative number of Indian professional workers going abroad has
This new "class" of high-skilled Indian workers has greater purchasing power as well as
more saving potential than lower-skilled workers. The recency of their migration also
keeps them more connected to India. Plus, the growth of India's homegrown IT services
industry has helped foster strong business connections between India and Indian IT
The change in patterns of emigration has led to a significant shift in the source regions
of remittances to India. According to RBI, North America has replaced the Gulf states as
the most important source for remittances.
RBI estimates that 44 percent of remittances originate in North America, 24 percent in
the Gulf region, and 13 percent in Europe (see Figure 4). In contrast, studies show that
in 1990-1991, 40 percent of the remittances came from Gulf countries and 24 percent
from North America. Indian banking officials believe the shift began in the late-1990s,
with North America solidifying its dominance in 2002-2003.
While not disputing the shift, other experts caution that the sources of remittances are
more diversified than RBI figures recognize. Central banks like RBI tend to attribute
money transfers from intermediary banks to the countries where those banks are
headquartered. As a result, it is possible to overestimate transfers from the United
Figure 3. Source Regions of Remittance Flows to India
Reserve Bank of India. "Invisibles in India's Balance of
Payments." RBI Bulletin, November 2006.
More Options for Money Transfers
The stability of remittances, in some measure, reflects the increasing use of formal
channels for transmitting money to India. Options for transmitting money to India have
also become much more competitive; the field is no longer dominated by traditional
transfer agents like Western Union.
A survey of commercial banks conducted by RBI in 2006 indicates that 53 percent of
remittances were transmitted by electronic wire/Swift, making it the dominant choice of
Although electronic wires are the fastest means of remitting, they can be expensive: 2.5
to 8 percent for amounts less than US$500 (US$6 to US$20 to remit US$250); the cost
drops to 0.7 to 2 percent for transfers between US$500 and US$1000 (US$5 to US$15
to remit US$750).
Yet the RBI study indicates that the average size of remittance transfer to India is
relatively high. Out of the total remittance inflow to India, remittances of $1,100 and
above accounted for 52 percent. And within that high remittance category, 63 percent of
remittances exceeded $2,200. Only 30 percent of remittances were for amounts less
than $500. But the system certainly favors the richer end of the remitting spectrum.
For the tech-savvy with Internet access, Internet-based providers have become another
option for remitting money. The popular Remit2India, a collaboration between the Times
of India and UTI, an Indian bank, led the way in 2001, and others have followed. These
services are more convenient and less expensive than conventional methods. For
example, Remit2India charges US$3 to send up to US$200, while the Bank of India's
online system charges a flat rate of US$8 per transfer.
Western Union is reaching out to the lower end of the customer base. It has established
an unusual partnership with the Indian Post Office in which the post office's network of
150,000 offices — the largest in the world — provides Western Union potential access
to customers in the most remote parts of India.
Lastly, Indian banks, not known for their agility, are now aggressively tapping into the
NRI market. Banks like ICICI, the State Bank of India, and the Andhra Bank allow
customers who maintain a minimum balance free transfers from a branch abroad to a
branch in India. With competition growing at home, Indian banks see the NRI market as
relatively virgin territory with strong potential. NRIs, attracted by these money-transfer
schemes, are then targeted for other bank products, such as mutual funds, mortgages,
and insurance policies.
Perception of the Indian Economy
The most significant factor in the surge in remittances, ultimately, may be the way NRIs
perceive the Indian economy. If the liberalization of the Indian economy in 1991 was a
clear benchmark, its real significance has taken time to crystallize.
Until as recently as 2002-2003, "regular" remittances dominated the flow from NRIs.
With the Indian economy growing at an average rate of 7.5 percent per year since 2002,
NRIs now see India as an "investment destination."
Real estate and equity markets are the principal areas of their interest. These sectors,
restricted to NRIs in the past, are experiencing a boom. Real estate experts believe that
in Delhi, 20 percent of all properties worth over one crore (10 million rupees or about
US$250,000) were bought or funded by NRIs. Even second-generation Indians are
buying property in India.
The new-found interest in the real estate and equity markets is another explanation for
the increase in local withdrawals in RBI's remittance figures. NRIs may have finally
become "investors" rather than "savers."
India has clearly achieved a large sustained level of remittances. Policy initiatives by the
government and banking institutions have achieved two significant results. First, most
remittances flow thorough formal channels. Second, an increasing number of remitters
have moved from being pure "savers" to "investors."
The Indian policy regime has demonstrated its ability to attract NRI capital through NRI
deposit accounts and successive bond issues. The challenge is to channel some of
these flows for socioeconomic development.
If the government and the banking community are strategic, they could offer higher
rates of return on remittance receipts placed in specified assets in the domestic capital
market. Investing in microfinance operations would be a good place to start, given their
success in India.
Similarly, the government could issue bonds targeted for infrastructure development or
for investments in heath and education sectors.
The Indian diaspora has proven responsive to incentives. Offering investment options
that are tied to development goals could be a winning strategy.
III.Formal Money Transfer Systems
A)Personal Checks and Cashier's Checks
If you have a checking account here in the USA, you can simply mail a personal check
to your family at home. You can send your check across the ocean, but it can be a
confusing situation for the person on the receiving end. The check they receive is in
U.S. dollars, so it's up to them to exchange it into their home currency. This can be a
costly prospect. Sending a check is also not the safest route - anyone who ends up
holding the check can attempt to cash or exchange it.
Cashier‘s checks are checks issued by banks. Cashier‘s checks are most often used
when a payee is not certain that a check will clear, or when rapid settlement is
In the USA, a cashier's check is safer than a personal check. When someone gives you
a personal check, you cannot be completely sure that their account holds the funds to
pay that check. A cashier's check is a safe check - in order to get one, you must go
directly to the bank and hand them the amount of cash you want the check to be worth.
The bank types up the check, writing in the receiver's name. For example, if you were
selling something that was worth a significant amount of money, like a car, you may
want to ask the buyer to pay with a cashier's check to be certain that the check is good.
So another option is to send a cashier's check overseas, possibly by Federal Express or
another mail system that would allow you to trace it if the package was lost. But as with
sending a personal check, a cashier's check would be in U.S. Dollars, and the same
Safety and Cashier’s Checks
Traditionally cashier‘s checks have been among the safest checks to accept. This is
because the promise to pay is made by the bank issuing the check – not the person
who uses the check. They are sometimes called bank drafts.
Let‘s contrast a cashier‘s check with a personal check. When you write a personal
check, you‘re supposed to have available funds in your account to cover the check.
However, you may know that the payee won‘t get the check to the bank for a few days,
and that processing will take another few days. Therefore, your account won‘t be
debited for several business days after you write the check. If you don‘t have the funds
available today, you can always hope that they‘ll clear before the check is presented to
your bank for payment (so you write the check anyway). This practice is called floating
Unlike personal checks, cashier‘s checks debit your account when they are issued. This
means, of course, that you can‘t get a cashier‘s check unless you actually have
available funds in the account. Once your account is debited, the bank is responsible for
paying the payee.
Now, if you‘re a merchant who accepts checks from customers, which would you rather
take – a cashier‘s check or a personal check? Of course, your odds of being paid are
better with a legitimate cashier‘s check.
Unfortunately, not all cashier's checks are legitimate. Fakes often show up in scam
B)Foreign Currency Bank Drafts
A foreign currency bank draft is basically a cashier's check in a foreign currency. A Draft
is a foreign currency Bank Cheque drawn on an overseas bank.
You send a draft by requesting to do so at any bank branch. You can either pay the
money up front, like with a cashier's check, or the amount can be drafted directly out of
your account. The bank will request the receiver's name and address. Drafts are mailed,
so the amount of time that this takes depends on the mail system and country of
destination. European countries may be reached in a relatively short amount of time,
while India can take a few weeks.
For the receiver, a draft is quite simple. It's mailed to the receiver like any other check
and can be deposited into his account. With appropriate identification, he also has the
option to cash the draft at any bank. The receiver does not have to have
a bank account to cash the draft, but he will need proper identification.
The cost to send a draft is usually approximately $15. So if time is not an issue, a
foreign currency bank draft is an inexpensive, safe solution
A Draft allows Customers to forward funds to an overseas recipient in a form which:
o is acceptable in most countries
o is in the recipient's currency (therefore does not require conversion)
o does not incur delays in receiving funds (ie. clearance of Australian
All currencies are available on request
C) Electronic funds transfer
There are forms of electronic transfer that are distinct from wire transfer.(covered
next) Electronic Funds Transfer System (EFTS) is one such system. This is the system
you use when you give your bank account number and routing information to someone
you owe money and that party transfers the money from your account. It is also the
system used in some payments made via a bank's online bill payment service. EFTS
transfers differ from wire transfers in important legal ways. An EFTS payment is
essentially an electronic personal check, whereas a wire transfer is more like an
electronic cashier's check.
D) Wire Transfers
A wire transfer is considered to be a process where in money is transferred from one
bank account to some other bank account. This transfer is done entirely by the bank.
The actual funds are not touched or seen either by the person who sends it or the one
receiving it. Originally,wire transfer was a product of the telegraph companies, which
made it possible to wire a money order from one office to another.
Later, wiring money between banks became possible. The term giro is used in place of
wire transfer in many other European countries. Outside of North America, wire
transfers are sometimes referred to as a Telegraphic Transfer (TT).
A wire transfer is an electronic payment system, which authorizes your bank to wire
funds from your account to another bank's account. This form of payment ensures
maximum security because it is guaranteed that the funds would be paid much before
the goods are shipped. This method of payment is normally needed when a large order
has been placed by a particular customer. It is also preferred when the order has to be
shipped to a different country.
The fastest and safest way to send money overseas is by wire transfer. You can send a
transfer at any bank branch, again by drafting your account or paying cash up front. In
general, the receiver needs to have a bank account in the foreign country. You'll need to
know the person's name, account number, bank name and where the bank is located.
Bank wire transfers often the most expedient method for transferring funds between
bank accounts. A bank wire transfer is effected as follows:
1. The person wishing to do a transfer (or someone they have appointed and
empowered financially to act on their behalf) approaches a bank and gives the
bank the order to transfer a certain amount of money. IBAN(International Bank
Account Number ) and BIC(Bank Identifier Code) are given as well so the bank
knows where the money needs to be sent to.
2. The sending bank transmits a message, via a secure system (such
as SWIFT or Fedwire), to the receiving bank, requesting that it effect payment
according to the instructions given.
3. The message also includes settlement instructions. The actual transfer is not
instantaneous: funds may take several hours or even days to move from the
sender's account to the receiver's account.
4. Either the banks involved must hold a reciprocal account with each other, or the
payment must be sent to a bank with such an account, a correspondent bank, for
further benefit to the ultimate recipient.
Banks collect payment for the service from the sender as well as from the recipient. The
sending bank typically collects a fee separate from the funds being transferred, while
the receiving bank and intermediate banks through which the transfer travels deduct
fees from the money being transferred so that the recipient receives less than when the
3)Systems (networks)for transmitting messages in wire transfers.
a)SWIFT System(international transfer)
Maximun number of the international transfers are executed using the SWIFT System
(Society for Worldwide Interbank Financial Telecommunication). SWIFT was initiated by
seven banks all across the globe in 1974. SWIFT has a wold wide network to facilitate
the transfer of financial messages. With the help of these messages data can be
exchanged by the banks for transfer of funds between different financial institutions.
SWIFT also acts as a United Nations sanctioned International Standards Body for
creating and maintaining the financial messaging standards. Each institution of finance
is given an 8 character Bank Identifier Code or a SWIFT Code. As an example, the
SWIFT code for the primary office of the Deutsche Bank is DEUTDEFF: DEUT identifies
Deutsche Bank, DE is the country code for Germany and FF is the code for Frankfurt.
SWIFT has become the industry standard for syntax in financial messages. Messages
formatted to SWIFT standards can be read by, and processed by, many well known
financial processing systems, whether or not the message actually traveled over the
SWIFT network. SWIFT cooperates with international organizations for defining
standards for message format and content.
High-speed electronic communications network linking the Federal Reserve Board of
Governors, the 12 Federal Reserve Banks and 24 branches, the U.S. Treasury
Department, and other federal agencies. The Federal Reserve Wire Network, more
commonly known as Fed Wire, is used by the Reserve Banks and the Treasury for high-
value time-sensitive payments, such as funds transfers between reserve banks,
purchases or sales of Fed Funds transfers between correspondent banks, and sales of
book entry U.S. Government securities
Fedwire is the primary United States network for large-value or time-critical domestic
and international payments, and it is designed to be highly resilient and redundant. The
average daily value of transfers over the Fedwire Funds Service in 2007 was
approximately $2.7 trillion, and the daily average number of payments was about
4) Other Methods of Wire transfer(non banking channels)
i)Retail money transfers
a)Western Union and MoneyGram
Western Union and MoneyGram are two companies that send international money
transfers. Western Union services 170 countries; MoneyGram services 120. You pay up
front via cash or credit card, and the transfer is sent in the local foreign currency. Your
options include sending the transfer at an actual storefront or, in Western Union's case,
using their online service. As with other wire transfers, you'll need to know the receiver's
name and location. The receiver can pick up the transfer at another Western Union or
MoneyGram location with appropriate identification.
Transfers normally take just a few days, but can vary based on the country. The price
can also fluctuate depending on location, but it's usually approximately $15 for the first
$100, and $7 per additional $100. MoneyGram bills itself as "always costing less than
Western Union." Each company offers additional services - some at a cost, and some
free of charge - like direct delivery or a phone call to tell the receiver that the transfer
has come through. Check their Web sites for further details.
These companies are convenient because neither you nor the receiver needs to have a
bank account, and Western Union's online service is easy to use. This route can,
however, be more expensive than using a bank.
1) GLOBAL FX
GLOBAL FX Inc. is a company specialized in money transfer to Central and South
America that operates with the latest technology offering its clients a complete secure
and fast service
2) Send Money Home
The price comparison site Send Money Home allows consumers access to a
range of alternative products and rates available when transferring money worldwide. It
provides impartial advice and help for those looking to send money overseas.
3) Online wire transfers
a). iKobo :-
It is an online payment processor that also supports credit cards. iKobo can
also be used to send money person-to-person, by means of a prepaid credit
card mailed to the recipient. iKobo money transfers are funded by an electronic
debit from the sender's bank account or credit card.
The recipient of the money transfer is issued a reloadable debit card that can be
used to withdraw funds from ATMs or make purchases
d)Banks and various companies like western union and money gram also
provide online services of wire transfer of money
IV)PROFILES OF BANKS AND COMPANIES OFFERING MONEY REMITTANCE
SERVICES (IN THE INDIAN CONTEXT)
SBI Instant Transfer
As the name suggests this facility allows the customer to transfer the money
immediately. It can be done in 18 countries around the world. The money can be
transferred to your or your beneficiary‘s account which is maintained with SBI in India
at any of the 12000 Core Banking Branches of SBI or Associate Banks. The money
can also be transferred to 43000 NEFT enabled branches of other banks in India.
Online Remittance (SBI Express Remit)
This facility allows you to transfer money right from your homes! The user need not go
to a bank or deliver cheque or give any telephonic instruction. The service can be
utilized from UK or US at any time of the day.
Speed Remittance (SBI Express)
This service allows the NRIs in Bahrain, Kuwait, Oman, Qatar, and UAE to send
remittance to India through either Exchange Houses, banks or through SBI branches.
The recipient receives the money through:
1. Direct credit to his account if the account is maintained in any of the 12,000
SBI branches. This takes place within a day.
2. If the account is held in any of the 43,000 NEFT enabled branches of other
banks in India the credit takes place by the end of the next working day.
3. If the recipient does not have an account, the money is sent via draft.
SWIFT Transfer through SBI
This is the facility for sending wire transfers. Remittances can be sent using SBI‘s
foreign branches or a huge network of 600 correspondent banks around the globe.
The beneficiary receives the remittance directly if he has an account in a SWIFT linked
branch. Otherwise the NRI will have to choose a SWIFT linked branch located close to
the beneficiary's home town. The bank then handles the SWIFT transaction and
transfers the funds to the beneficiary's account.
Cashier's Cheque / International Money Order
Sending remittance through a cashier's cheque or by aninternational money
order works the same way as sending money by a cheque drawn on a foreign bank
Foreign Currency Drafts
When an NRI sends a remittance as a demand draft, it can be deposited in a branch in
India, where the NRI or the recipient has as account. The draft is then sent to the
branch where it is payable. After collection, the proceeds are deposited in the account.
Incase the remittance amount has to be converted to Indian Rupees; the exchange
rates prevailing on the date of exchange are applied. The collection charges will be as
applicable from time to time
Foreign Currency Cheques
The NRI can send a cheque drawn on a foreign bank in a foreign currency and deposit
it in his account with a branch in India. The cheques will be sent to the particular
country for collection. On receipt of the funds the amount is credited in the NRI‘s
account. The collection period is different for different countries, as it depends on the
local clearing regulations and location of the bank on whom the cheque is drawn.
Collection charges are recovered as applicable from time to time. Incase the cheque
is in foreign currency and the credit has to be offered in Indian rupees, the exchange
rates prevalent on the date of exchange will be applicable.
SBI Services for Frequent Transfers
When you have to send remittances to India regularly, like on a monthly basis, the
bank can be given a one-time standing instruction on Form SI. Based on the mode of
payment the user will have to attach one or more of the remittance application forms to
To facilitate quick payment to the beneficiary, it is recommended that receipient has an
account with a branch of State Bank of India which has facility for receiving wire
2) ICICI Bank:-
It provides money transfer services under different names of e - Transfer, Cheque
Transfer, Power Transfer, Net Express and Card Transfer. Each of these services
vary according to the procedure to be followed and the transfer period. These services
are designed according to convenience of different group of customers. There are also
similarities in some of the features of various services. The table given below explains
some of the common features of different services.
e-Transfer - With e-Transfer, debit in your local bank account in USA and withdraw
from a bank account in over 30 banks in India as a DD.
Cheque Transfer - Money transfer with this methods is faster compared to that of
traditional mailing mode to India. You have to post a printed form from ICICI website
along with cheque to a local P.O. Box. Money will be transferred within 1-7 days on the
receipts of cheque by the bank. All the advantages of online money transfer is available
with this method such as online tracking, free money transfer to ICICI Bank
account, best exchange rates etc.
Power Transfer - Money transfer is possible with this method with in 48-96 hrs. This is
a wire transfer facility with options for multiple currency debit.
Net Express - You can transfer money to India from your internet bank account. This
facility is available in U.K., Singapore, France and Germany.
Card Transfer - In this methods you can debit using your Credit Card. (Master Card).
Money is transferred within 3 working days. This mode also has the advantage of using
the credit period. A benefit offered by the card issuer.
Me-NRI, NRI-Direct - Those are specially designed online money transfer
services offered to Gulf NRIs. ICICI Bank in alliance with Me-Bank in UAE (Me-NRI)
and with Commercial Bank in Qatar (NRI-Direct) offers specialized money transfer
services to residents ofUAE & Qatar respectively.
Remittance Card : In 2007 ICICI Bank introduced standalone card based transfer
system. NRIs can charge these card at thier own ease using bank accounts and credit
cards. Beneficiary can use the card over ICICI bank affiliated ATMs to withdraw
amounts upto 50000 at a time. The card is re-usable and faster than other methods.
Money transfer period of these services vary as follows
e-Transfer - within 5-7 working days
Cheque Transfer - 1-7working days
Power Transfer - 48-96hrs.
Card Transfer - 3working days
Branch Remittance - Money transfer to India can be made through ICICI Bank
overseas branches located in Canada, Britain and U. K.. Instant money transfer can
be done through these branches for the customers and non customers of ICICI Bank at
ICICI - Well Fargo Services - ICICI Bank and Wells Frago USA offer this money
transfer service after an alliance agreement. Money can be sent to India from a Well
Frago Branch or ATM centre in USA. Transfer occurs in 24hrs.
Insta Transfer - This service is made available in Gulf Countries by ICICI Bank. Your
ICICI bank account can be credited instantly approaching the partnering exchange
houses or banks.
Speed Transfer - This is a fast money transfer service with turnaround time of 24 hrs.
through partner exchange banks in different countries.
Demand Draft - An instant DD across the counter in INR available at the partner
exchange banks of ICICI Bank which is payable in different locations of ICICI bank.
Home Point - This service is available only in Canada. You can transfer within 2hrs
from any of the partner banks in Canada.
Cheques - Foreign Currency Cheques can be deposited in ICICI Bank and credit is
usually available with in 8 days.
Wire Transfer - Here you can remit money from your local bank to any ICICI bank
account by giving them wire transfer instructions. Money usually transferred within 24-
POSB in Singapore - This facility is offered by ICICI Bank association with DBS Bank
Singapore. You can directly give money transfer instructions at any of the POSB
centers in Singapore.
3)HDFC Bank Money Transfer Services
Various types of fund transfers are offered by HDFC Bank.
India Link - Money transfer made possible from Middle East through partner exchange
houses of HDFC Bank. In 24 hrs money is credited in HDFC account of the
beneficiary or DD issued within 3 days.
Cheque Lock Box - This service is offered by HDFC Bank in US and UK. Local
cheques can be sent to the local mail box which in turn credited into beneficiary‘s HDFC
account in India with local currency cheque.
Quick Remit - This facility available for sending money from US, UK and Singapore.
This is an online money transfer mode, the money can be credited into
recipient‘s HDFC bank account across India.
Telegraphic Transfer - Money from any part of the world can be sent to
beneficiary‘s HDFC Bank account with TT or wire transfer.
Traditional transfer of cheque, DD etc. are also available with HDFC bank
4)Wells Fargo Money Transfer Services
Wells Fargo is another company facilitating international money transfer to India.
Money can be sent with limit of $3000 per day foamWells Fargo International remittance
account to the beneficiary and the money can be accessed as fund in Rupees through
any ICICI Branch or ATM. One special feature of Wells Fargo Money transfer is the
insurance coverage for the money by FDIC until remitted to beneficiary bank. The
transfer fee for transferring $3000 per day is $5 for those customers who signed up
for Well Fargo Gold package.
5)Citibank Money Transfer Services
For sending money to India, a Rupee checking account can be opened
with Citibank. A number of facilities including cheque books, ATM cards for the family
members, money transfers, internet banking and DD sent via courier or nominal
cheques are offered for the account holder. Citibank offers variety of other services to
help you sending money to india.
Citibank Global Transfers - Allows you to send money from one Citibank account to
another in 24hrs. The amount that can be sent over this system depends on the type
of account the sender has. The maximum sending limit is between $3000 - $10000
varying according to type of accounts.
Inter Institution Transfers - These services are carried out with partner financial firms
around the globe. This system is designed for bg business companies to transfer money
from abraod. Usual turaround time is about 3 days.
Internetional Wire Transfer - Here you can send money to anyone around the globe
using electroninc wire transfer methods. Citibank charges $30/ for every wire transfer
sent. Usually the recipent will get the money in 48hrs.
6) Remit2India Services
Remit 2 India.com offers online money transfer services to India. In USA this facility is
provided through automated clearing housesand in UK through customer initiated
payments. Remit 2 India offer complete web based money transfer service where
money is deposited in receiver‘s bank account across 54 banks including 1800 SBI
branches or a DD is delivered at the receiver‘s door step if the receiver has no
account. You can send upto $5000 using this service.
Fast Track Transfer - This service is offered in UK through money brokers and an over
snight remittance in to the specified bank account is possible. You can send up
Cheque Transfer - The steps to be followed with this mode of money transfer is
to book a remittance online and mail cheque for the remittance amount along with
remittance booking from to the local cheque collection boxes. Once the money is
cleared and transferred to Remit 2 India account, the money is delivered to the
designated address or bank account.
Wire Transfer - Money from the existing bank account can be transferred to India using
this facility. After completing the transactions handover remittance booking from to your
bank for transferring the money to remit 2 india.com accounts. with n 48 hrs. the money
transfer to India is completed.
Fixed Amount Remittance - With this method, at the time of booking the amount to be
sent to the beneficiary can be fixed up to $5000 and can be sent via complete online
PayPal Transfer - This facility is offered for sending money from USA to India through
PayPal network. Up to $5000 can be transferred using this facility.
The table given below explains some of the common features of various services.
7) Xoom Money Transfer
Xoom Corporation is a San Francisco, USA based company provide secure and easy
money transfer facility to India. The sender should have a bank account or credit/debit
card and internet access. The recipient need not have either of these facilities. When
the money is sent to India through Xoom, it is made available for recipient to pick up or
deposited in a bank account
This service is entirely web based, where sender can use his credit card / debit card for
remitting the amount though their website. After remitting you are asked to provide the
details of recipient.
xoom Corporation is an online-to-offline international money transfer service. They
offer a secure, fast, and inexpensive means of sending money to India
8)Western Union Services
Western Union Money transfer is reliable, fast and easy. Money can be sent through
agent locations around the globe. You can collect from around 12500 partner collection
centers around India.You can even send money by just calling Western Union. A
customer service representative assists the caller in order to send the money.
Western Union Services can be carried out by funding from a bank account, Credit
card or a Debit card. With over thousands of collection centers, this has become the
preffered company by which NRIs send money to India.
On 1st November 2007, PayPal introduced EFT (Electronic Fund Transfer) and fund
transfer through cards to Indian customers. This means in 4-7 days time, Indian
customers can withdraw funds to their bank accounts or to verified credit cards. Earlier it
required 35-45 days to withdraw by cheque.
V) INFORMAL MONEY TRANSFER SYSTEM
Hawala (also known as hundi) is an informal value transfer system based on the
performance and honour of a huge network of money brokers, which are primarily
located in the Middle East, North Africa, the Horn of Africa, and South Asia.
It is an alternative or parallel remittance system. It exists and operates outside of, or
parallel to 'traditional' banking or financial channels. It was developed in India, before
the introduction of western banking practices, and is currently a major remittance
system used around the world. It is but one of several such systems; another well
known example is the 'chop', 'chit' or 'flying money' system indigenous to China, and
also, used around the world. These systems are often referred to as 'underground
banking'; this term is not always correct, as they often operate in the open with
complete legitimacy, and these services are often heavily and effectively advertised.
The components of hawala that distinguish it from other remittance systems are trust
and the extensive use of connections such as family relationships or regional
affiliations. Unlike traditional banking or even the 'chop' system, hawala makes minimal
(often no) use of any sort of negotiable instrument. Transfers of money take place
based on communications between members of a network of hawaladars, or hawala
Why would anyone bother with Hawala?
When compared to a 'traditional' means of remitting money, such as obtaining a
check or ordering a wire transfer, hawala seems cumbersome and risky. In this
section, we will examine the motivations for using the hawala system.
The primary reason is cost effectiveness. As was shown in this example, Some of the
reasons for this cost effectiveness, namely low overhead, exchange rate speculation
and integration with existing business activities, will be discussed in the next section
of this paper.
The second reason is efficiency. A hawala remittance takes place in, at most, one or
two days. This can be contrasted with the week or so required for an international
wire transfer involving at least one correspondent bank (as well as delays due to
holidays, weekends and time differences) or about the same amount of time required
to send a bank draft from North America to South Asia via a courier service (surface
mail is not a reliable option where the contents are valuable, and it can also take
several weeks to arrive).
The third reason is reliability. Complex international transactions, which might involve
the client's local bank, its correspondent bank, the main office of a foreign bank and a
branch office of the recipient's foreign bank, have the potential to be problematic. In at
least once instance reported to the authors, money for a large commercial transaction
(money being sent from the United States to South Asia) was lost 'in transit' for
several weeks while trying to conduct such a transaction. When the bank located the
money, it was returned to the customer. He enlisted the services of a local hawaladar,
who was able to complete the transaction in less than a day.
The fourth reason is the lack of bureaucracy. Abdul is living and working in the United
States on an expired student visa; he does not have a social security number (and
since he deals almost exclusively in cash, he really does not need one). It would be
difficult, if not impossible for him to open a bank account as he does not have
adequate identification. In addition, he does not completely trust banks and would
prefer not to use them if at all possible. Iqbal and Yasmeen do not operate in a
'bureaucratic' framework, making them a preferable alternative to the bank.
The fifth reason is the lack of a paper trail. Even though Abdul earned the money that
he sent to Mohammad legally, he would prefer to remain anonymous (this is a much
more important consideration in illicit hawala transactions). Since it is rare for
hawaladars to keep records of individual transactions, it is unlikely that Abdul's
remittance will ever be identified as part of the business dealings between Yasmeen,
Ghulam and their associates.
The sixth reason is tax evasion. In South Asia, the 'black' or parallel economy is 30%-
50% of the 'white' or documented economy. Money remitted through official channels
might invite scrutiny from tax authorities ,it provides a scrutiny-free remittance
Why does hawala work?
In brief, hawala 'works' - or competes effectively with other remittance mechanisms -
because of its cost effectiveness. A secondary consideration is that hawala is often
related or even integral to existing business dealings.
One reason for hawala's cost effectiveness is low overhead.Some hawaladars
operate with even less, using a table in a tea shop as an office and having little more
than a cellular phone and notebook as overhead expenses.
The second reason is exchange rate speculation. In India, for example, the Foreign
Exchange Regulation Act (FERA), 8(2) (8) states that '(e)xcept with the previous
general or special percussion of the Reserve Bank, no person, whether an authorised
dealer or a moneychanger or otherwise, shall enter into any transaction which
provides for the conversion of Indian currency into foreign currency or foreign
currency into Indian currency at rates of exchange other than the rates for time being
authorised by the Reserve Bank'. Since hawala dealers do not, in many if not most
cases comply with such regulations, their transactions may be illegal (a more detailed
discussion of the legality of hawala follows).
Depending on one's perspective (and possibly jurisdiction), hawaladars are either
engaging in foreign exchange speculation or black market currency dealing. In any
case, they exploit naturally occurring fluctuations in the demand for different
currencies. This enables them to turn a profit from hawala transactions (which, in
addition to being remittances, almost always have a foreign exchange component),
and they are also able to offer their customers rates that are better than those offered
by banks (most banks will only transact at authorized rates of exchange).
The rates cited in this paper (35 Rs/$ for Iqbal, 37 Rs/$ for Yasmeen and the official
rate of 31 Rs/$ as cited by the bank) reflect a difference of 12-19% over the official
rate. These may actually be a little high. A U.S. hawaladar (9) involved in the
laundering of drug proceeds as well as legitimate remittances told one of the authors
of this paper that he could still make a profit on an exchange rate margin as small as
2%, making him much more competitive than a bank.
In addition, since many hawaladars are also involved in businesses where money
transfers are necessary, providing remittance services fits well into these businesses'
existing activities. Monies from remittances and business transfers are processed
through the same bank accounts, and few, if any, additional operational costs are
incurred by a business that offers hawala remittance services.
Finally, an important component of hawala is trust. Hawala dealers are almost always
honest in their dealings with customers and fellow hawaladars. Breaches of trust are
extremely rare. It is worth noting that one of the meanings attached to the word
hawala is 'trust'!
Is Hawala legal?
Since hawala is a remittance system, this question really addresses regulations
governing remittance services and the circumstances of the remittance. The
assumption here, of course, is that these remittances are like Abdul's, and 'legitimate';
the illicit use of hawala in money laundering is discussed in the next section of this
Even though hawala is illegal from a regulatory standpoint in some U.S. jurisdictions,
hawaladars advertise their services widely in a variety of media (ethnic newspapers
have been the traditional place to find them, now some are using the Internet).
Enforcement of these regulations is difficult with respect to hawala. The
advertisements are often printed in foreign languages, and wording like 'sweet rupee
deals' does not necessarily suggest remittance services. Moreover, businesses do
not conduct remittances as their primary activity.
In South Asia, the situation is more complicated. Many South Asian nations (such as
India and Pakistan) have laws that prohibit speculation in the local currency, prohibit
foreign exchange transactions at anything other than the official rate of exchange,
and impose strict licensing requirements on money remitters and foreign exchange
dealers. In addition, there are regulations governing inbound and outbound
remittances. It is, however, possible to state 'hawala is illegal in India and Pakistan'
with nearly complete accuracy.
The important point for our purposes is that the existence of these regulations is
another reason hawala is still used. Many people in these countries have money that
they would like to move to another country due to concerns about stability, to pay for
education or medical treatment. Hawala provides a ready means of doing this, and its
use as a facilitator of 'capital flight' on both large and small scales is very common.
The existence of these laws also explains, in part, the prevalence of invoice
manipulation as part of hawala schemes.
Another aspect of these regulations is the use of the United Arab Emirates,
specifically Dubai, for hawala transactions. There are two main reasons for this. The
first is the large population of expatriate workers from India and Pakistan; they use
hawala to send money home. The second is Dubai's large gold market, which is the
source of much of the gold sent (licitly and illicitly) to India and Pakistan. Dubai, unlike
many other South Asian nations, allows essentially unregulated financial dealings.
Because of this, many South Asian businessmen maintain offices in Dubai, and
money is often wired there to circumvent regulations elsewhere. In addition, Dubai
offers a neutral meeting place for Indian and Pakistani businessmen, as tension
between these countries makes travel between them difficult if not impossible.
. The efficiency and cost effectiveness of hawala make it an attractive means of
remitting money under almost any regulatory regime.
VI)Unethical practices in money transfer
There are various practices followed in money transfer which are unethical which is
especially associated with the informal value transfer system-hawala..these
transactions aim to disguise the source or origin of the money.this is very common in
hawala transactions.this practice of conversion of black money into white money is
commonly known as money laundering .
A) PROCESS OF MONEY LAUNDERING
Money Laundering is not a single act but is in fact a process that is accomplished in
three basic steps as enumerated below:
1. Placement: "Placement" refers to the physical disposal of bulk cash proceeds
derived from illegal activity. This is the first step of the money-laundering
process and the ultimate aim of this phase is to remove the cash from the location
of acquisition so as to avoid detection from the authorities. This is achieved by
investing criminal money into the legal financial system by opening up a bank
account in the name of unknown individuals or organizations and depositing the
money in that account.
2. Layering: "Layering" refers to the separation of illicit proceeds from their source
by creating complex layers of financial transactions. Layering conceals the audittrail
and provides anonymity. This is achieved by moving money to offshore
bank accounts in the name of shell companies, purchasing high value
commodities like diamonds30 and transferring the same to different jurisdictions.
Now, Electronic Funds Transfer (EFT) has become boon for such layering
exercise. Different techniques like correspondent baking, loan at low or no
interest rates, money exchange offices, back-to-back loans, fictitious sales and
purchases, trust offices, and recently the Special Purpose Vehicles (SVPs) are
utilized for the purpose of laundering the money.
3. Integration: "Integration" refers to the reinjection of the laundered proceeds back
into the economy in such a way that they re-enter the financial system as normal
business funds. The launderers normally accomplish this by setting up unknown
institutions in nations where secrecy is guaranteed. New forms of business give a
platform for integration exercise. Now a person can start a business with just a
webpage and convert his illegal money to legal by showing profits from the
webpage32. There are other ways like capital market investments, real estate
acquisition, the catering industry, the gold market, and the diamond market.
Money laundering can be digramatically presented as follows.
B)TECHNIQUES OF MONEY LAUNDERING
Up to this point, no distinction has been made between hawala transactions where the
source of the money is legitimate and where the source, and intent, of the
transactions is illegitimate. Following Indian and Pakistani usage, the term 'white
hawala' is used to refer to legitimate transactions. The term 'black hawala' refers to
illegitimate transactions, specifically hawala money laundering .
This distinction is valuable for money laundering enforcement. Many 'white' hawala
transactions are essentially remittances, and, while illegal under Indian and Pakistani
law, are not illegal in other jurisdictions. `Black' hawala transactions, however, are
almost always associated with some serious offense (e.g. narcotics trafficking, fraud),
that is illegal in most jurisdictions.
Money laundering consists of three phases: placement, layering and integration. Since
hawala is a remittance system, it can be used at any phase.
In placement, money derived from criminal activities is introduced into the financial
system. In many money laundering schemes, the biggest 'problem' here is handling
cash. Some jurisdictions, such as the United States, require reporting by financial
institutions of cash transactions over a certain amount (in the U.S. it is US$ 10,000)
and attempting to circumvent such reporting requirements by making smaller
transactions is an offense.
Hawala can provide an effective means of placement.
In the layering stage, the money launderer manipulates the illicit funds to make them
appear as though they were derived from a legitimate source. A component of many
layering schemes has been seen to be the transfer of money from one account to
another. Even though this is done as carefully as possible, when it is done through the
'traditional' banking system it presents two problems to the money launderer. First,
there is the possibility that a transaction could be considered to be suspicious and
reported as such. Related to this is the paper trail created by these transactions. If any
portion of the laundering network is examined, the related paper trails could lead a
diligent investigator directly to the source of the criminal proceeds and unravel the
money laundering network.
Hawala transfers leave a sparse or confusing paper trail if any. Even when invoice
manipulation is used, the mixture of legal goods and illegal money, confusion about
`valid' prices and a possibly complex international shipping network create a trail much
more complicated than a simple wire transfer.
It has been found that even 'basic' hawala transfers can be difficult to trace and tie to
the original, criminal source of money. There is no reason, however, why hawala
transfers could not be 'layered' to make following the money even more difficult. This
could be done by using hawala brokers in several countries, and by distributing the
transfers over time.
In the final stage of money laundering, integration, the launderer invests in other
assets, uses the funds to enjoy his ill-gotten gains or to continue to invest in additional
illegal activities. The same characteristics of hawala that make it a potential tool for the
layering of money also make it ideal for the integration of money. This is when money
seems to become legitimate, and, as we have seen, hawala techniques are capable of
transforming money into almost any form, offering many possibilities for establishing
an appearance of legitimacy.
Given hawala's close ties to business activities, there is no reason why money cannot
be 'reinvested' in a legitimate (or legitimate appearing) business..
Other techniques of money laundering:-
Structured payments also called ―smurfing.‖ Large payments are split and
transferred always in smaller sums that lie under the legal threshold value required
for checking on suspicion of money laundering. Such payments are conducted
through several channels (phones, online-banking, chip cards with electronic purse
function, mobile payment systems) to complicate the detection of structured
b) Smuggling and use of cash couriers
c) Shell corporations
It is a company which serves as a vehicle for business transactions without itself
having any significant assets or operations. Shell corporations are not in
themselves illegal and they may have legitimate business purposes. However, they
are a main component of the underground economy, especially those based in tax
havens. Hence, shell corporations can function as ideal camouflage for illicit money
mainly in the layering phase of the money laundering process.
Shell corporations in offshore countries are well suited for the integration phase
ofmoney laundering. After the money has been moved to an offshore center (e.g.,
bystructured payments through several bank accounts, charities or by transfer of
virtual gold currencies), it can return to the owner already in a legal form. A known
method is the loan-back scheme. The placed money is transferred in form of a
loan, e.g., from a shell corporation or an offshore bank to the domestic company
(furthermore, no taxation on the loan or laundered money is due). The loan is paid
back with laundered money and officially appears as an origin of the money to the
borrower (money launderer). In reality, often in the money laundering case, the
borrower as well as the credit grantor is the same physical person who conceals his
real identity using companies (shell corporations), nominees, etc.
d)Use of front companies
These companies are used to place and layer illicit proceeds and cash rich business
can be an effective front company.jewellery stores,restaurants hotels bars,night clubs
casinos,retailoutlets,parking lots,import export companies.the business of front
companies is used to comingle illicit money with legitimate proceeds.thus layering and
integrating illicit proceeds.some companies are exempted from currency transaction
reporting requirement like liquor companies .criminals use these companies to launder
In addition to the techniques of money laundering it's also worth to mention the
merchandise laundering, being a process similar to money laundering. In this case the
merchandise is cleaned, that is it's sold and purchased out of the banking system,
adding the most possible masking "layers" as long as the merchandise respectively
money becomes fully clean.
The use of gold purchase for criminal purposes is one of the most effective
mechanisms to clean illegal money. Its outstanding role is due to the fact that it can be
used in many different ways, can be changed in several ways, and can materialize,
respectively. promote all separate phases of money laundering. Whether in form of bar,
fragments or jewellery, this precious metal is easy to buy, can be got through
geographical borders and can be resold, i.e. money can be relatively easily legalised.
The barter trade system of commercial products such as agricultural commodities,
other non-ferrous metals and precious stones offers also opportunities the revenues to
be "legalised" this way, especially when all this is made in the legal export-import guise
between different countries.
The dirty revenues from drugs laundered in the African barter trade are also to mention
here, getting greater and greater role in the money laundering transactions of the world.
f)Secret banking systems
The more and more strict regulation of banking system leads to that the laundries are
forced to find new possible channels outside of the banking system. As stronger the
regulation the more demand for new alternatives. It has to be promptly noted that this
change is highly touching the legal operating companies of business life too as from
now on these are the potential targets for money laundering. The targeted companies
are menaced, exploited or their control is overtaken simply by force. Any kind of
products can be interesting for the criminals which can be purchased for cash in
adequate volume and then can be easily sold.
The laundries also make often use of many forms of the parallel or underground
banking systems. These non official, secret banking systems were developed by
criminal groups mainly due to political chaos and distrust in banks. The organised
(family, tribal) contact is typical for their operation. The purpose during their use is to
avoid the financial regulations in force in the different countries in order to bring out the
dirty and/or clean money from the country, respectively to settle the goods purchased
abroad (capital flight). The system can only work properly when the countries concerned
have commercial contacts which each other and the operations can be balanced with
Insurance is another mode used in different ways by money launderers. In this regard,
International Association of Insurance Supervisors has issued guidance paper on Anti-
Money laundering and Combating the financing of terrorism. Accordingly, insurer should
assess the customer prior to establishment of a business relationship. It has clearly
specified factors to be considered while issuing the policy and how to investigate. Some
of the important factors are –
♦ Type and background of customer and/or beneficial owner
♦ The customer‘s and/or beneficial owner‘s geographical base
♦ The geographical sphere of the activities of the customer and/or beneficial owner
i)banking industry and money laundering
use of wire transfers
use of conduit accounts
use of correspondent accounts
E-Banking/Cyber Banking Many banks have started providing their banking services on
net by taking advantage of the global reach of the Internet and World Wide Web.Cyber
banking is vulnerable to money laundering because it facilitates fast movement of funds
across the globe within a short span of time and anonymity of user.
It is through multiple cash deposits or withdrawals at amounts below than ceiling
amount. Both structuring and smurfing are similar types of suspicious activity, which
mayresult in money laundering.
C)CAUSES FOR INCREASE IN MONEY LAUNDERING
There are various causes for increase in Money Laundering and the few of them can be
enlisted as follows which is popularly known as ‗Features of an Ideal Financial Haven‘:
• No deals for sharing tax information with other countries –
• Availability of instant corporations
• Corporate Secrecy Laws – as the corporate law of certain countries enables
launderers to hide behind shell companies.
• Excellent Electronic Communication
• Tight Bank Secrecy Laws
• A Government that is Relatively Invulnerable to Outside Pressures
• A high degree of Economic Dependence on the Financial Services Sector
• A Geographical Location that Facilitates Business Travel to and from rich
• Increase in sophistication and employment of professional people for doing the
D)HARMFUL EFFECTS OF MONEY LAUNDERING:
Money Laundering threatens national governments and international relations between
them through corruption of officials and legal systems. It undermines free enterprise and
threatens financial stability by crowding out the private sector, because legitimate
businesses cannot compete with the lower prices for goods and services that
businessesusing laundered funds can offer53. There are few specific challenges which
is posed by Money-laundering activities throughout the world.
A.)Terrorism – Terrorism is an evil which affects each and everybody. Now and
then we can find terrorist attacks being made by terrorists. These attacks definitely
cannot be done without the help of money54. Money Laundering serves as an important
mode of terrorism financing. Terrorists have shown adaptability and opportunism in
meeting their funding requirements. Terrorist organizations raise funding from legitimate
sources, including the abuse of charitable entities or legitimate businesses or
selffinancing by the terrorists themselves. Terrorists also derive funding from a variety of
criminal activities ranging in scale and sophistication from low-level crime to organised
fraud or narcotics smuggling, or from state sponsors and activities in failed states and
other safe havens. Terrorists use a wide variety of methods to move money within and
between organisations, including the financial sector, the physical movement of cash by
couriers, and the movement of goods through the trade system. Charities and
alternative remittance systems have also been used to disguise terrorist movement of
B.)Threat to Banking System – Across the world, banks have become a major target
of Money Laundering operations and financial crime because they provide a variety of
services and instruments that can be used to conceal the source of money. With their
polished, articulate and disarming behaviour, Money Launderers attempt to make
lower their guard so as to achieve their objective. Though norms for record keeping,
reporting, account opening and transaction monitoring are being introduced by central
banks across the globe for checking the incidence of Money Laundering and the
employees of banks are also being trained to recognise suspicious transactions, the
dilemma of the banker in the context of Money Laundering is to sift the transactions
representing legitimate business and banking activity from the irregular / suspicious
transactions. Launderers generally use this channel in two stages to disguise the origin
ofthe funds first, when they place their ill gotten money into financial system to legitimize
the funds and introduce these funds in the financial system and second, once these
funds have entered the banking system, through a series of transactions, they distance
the funds from illegal source. The banks and financial institutions through whom the ‗dirt
money‘is laundered become unwitting victims of this crime.
C) Threat to Economic and Political Stability – the infiltration and sometimes
saturation of dirty money into legitimate financial sectors and national accounts can
threaten economic and political stability. An IMF working paper concludes that money
laundering impacts financial behaviour and macro-economic performance in a variety of
ways including policy mistakes due to measurement errors in national account statistics;
volatility in exchange and interest rates due to unanticipated cross border transfer of
funds; the threat of monetary instability due to unsound asset structures; effects on tax
collection and public expenditure allocation due to misreporting of income and many
more such ways
VII.) SCAMS AND SCANDALS IN MONEY LAUNDERING (INDIAN CONTEXT)
The Hawala scandal(97-98)
The Hawala scandal or hawala scam was an Indian political scandal involving
payments allegedly received by politicians through hawala brokers, the Jain brothers. It
was a US$18 million bribery scandal that implicated some of the country's leading
politicians. There were also alleged connections with payments being channelled
to Hizbul Mujahideen militants in Kashmir.
Those accused included L. K. Advani, Madhav Rao Scindia, Arjun Singh, V. C.
Shukla, P. Shiv Shankar, Moti Lal Vora, Ajit Panja, Sharad Yadav, Balram
Jakhar and Madan Lal Khurana. Many were acquitted in 1997 and 1998, partly because
the hawala records (including diaries) were judged in court to be inadequate as the
main evidence. The failure of this prosecution by the Central Bureau of
Investigation was widely criticized
The recent satyam scam
The six bank accounts and fictitious firms that the company‘s disgraced
chairman and prime accused B Ramalinga Raju had floated in London had
served their purpose and were liquidated long before the scam came to light in
The six companies and bank accounts which were operated from London were
started in 1999 and closed down just before the listing of Satyam‘s American
Depository Rights on New York Stock Exchange in May 2001. These accounts
and fictitious firms were clearly part of Raju‘s modus operandi to divert Satyam
scam money.thus Raju used them to launder money
Indian newspapers frequently report the money laundering scams perpetrated by
the Political leaders and some of the prominent stars are the chief ministers of
UP, Punjab and Kerala. UP chief minister ms. Mayawati as per the Indian
Express reports used some innovative techniques to launder the money by
avoiding the tax in legitimate manner. She accepted the donations from persons
who were road side heroes. When CBI raided these guys were found in no
position to donate huge sums for political motives.
Other Indian star in the laundering Business is Ketan Parekh.It is believed that he
shifted the proceeds of money received from the BoI pay order scam to various
tax heavens and ultimately in the Swiss Banks.These transactions are believd to
be just the tip of the iceberg.
There are various phishing scams and email money laundering scams which
have happened in the past.like the Hati earthquake money laundering scam
Email asks the recipient to work as a representative for a Haiti Earthquake
disaster aid organization by collecting and processing donated funds. This email
claims to be from "Help Haiti Foundation International", an aid organization that is
supposedly providing food, drugs, clothing and treatment to victims of the
devastating earthquake that rocked Haiti in January 2010. The message asks if
the recipient would like to participate in this aid effort by becoming an agency
representative who would be responsible for the collection and processing of
monetary donations. Supposedly, the role of this representative is to collect
donations and payments in various forms, process them into cash, and then send
the cash back to the "organization" as per instructions. The message claims that
the representative will receive a commission of 15% of each payment processed
as compensation for his or her help.
However, the message is not from a legitimate aid organization. The supposed
job outlined in the email is in fact a criminal scheme designed to trick
unsuspecting recipients into receiving and processing stolen or fraudulently
obtained funds. If a recipient falls for the ruse and takes the "job" offered in the
scam email, he or she will begin receiving cheques and money orders, ostensibly
as donations from members of the public for use by the aid agency in Haiti. He or
she will be instructed to cash these cheques and money orders directly or
deposit them in his or her bank account for processing. More "donations" may be
transferred from other accounts and deposited directly into the "representative's"
bank account for processing. He or she will be instructed to deduct 15% from
each of these transactions and then send the proceeds as cash via an
International money transfer service to the agent of the aid organization.
But, in reality, none of the funds received are actually donations. Instead, they
are the proceeds of criminal activities such as robberies, phishing fraud and
counterfeiting. The cheques and money orders are likely to be stolen or fake.
Money transferred into the "representative's" account is likely to come from bank
or credit card accounts that have been hijacked in phishing scams or other types
Conclusions and Recommendations
Unethical practices in money transfer i.eMoney laundering aiding terrorism are global
problems that not only threaten security, but also compromise the stability,
transparency, and efficiency of financial systems, thus undermining economic
prosperity..Hence various efforts have been taken in the past at the global level and at
the national level to combat such unethical practices.Various new initiative have also
been taken by the Indian government which would aid in controlling such activities.
However there is a dire need to constantly keep updating the reforms and measures in
In this age of digital technology,to crack a code or to decode a system is a simple play
for launderers hence there is a need to take various steps in controlling and combating
money laundering and to ensure that the ethics in money transfer are maintained at
various levels.various steps as follows should be undertaken to ensure which are as
I. Legislation(compliance with laws)
Various international initiatives have been taken to combat money laundering
i)Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) is an inter-governmental body whose purpose
is the development and promotion of policies, both at national and international levels,
to combat money laundering and terrorist financing. The Task Force is therefore a
"policy-making body" which works to generate the necessary political will to bring about
national legislative and regulatory reforms in these areas.
The FATF monitors members' progress in implementing necessary measures, reviews
money laundering and terrorist financing techniques and counter-measures, and
promotes the adoption and implementation of appropriate measures globally. In
performing these activities, the FATF collaborates with other international bodies
involved in combating money laundering and the financing of terrorism.
ii) The Basel Committee on Banking Supervision
It is an institution created by the central bank Governors of the Group of Ten nations . It
was created in 1974 and meets regularly four times a year. Some of Committee's
members are Argentina, Australia, Belgium, Brazil, Canada, , Hongkong
SAR, India, Indonesia etc)
The Basel Committee formulates broad supervisory standards and guidelines and
recommends statements of best practice in banking supervision (see bank
regulation or Basel II Accord, for example) in the expectation that member authorities
and other nations' authorities will take steps to implement them through their own
national systems, whether in statutory form or otherwise.
In dec1988,it issued a statement of principles outlining basic policies and procedures
which should be in –place in member countries to combat money laundering through
banking system national and international
iii)International organization of securities commissions-(oct 1992)
iv)Financial intelligence units and Egmont group
v)Mutual legal assistancetreaties(MLATs)
various laws enacted in India to combat money laundering and unethical practices are
i)The Prevention of Money-Laundering Act, 2002 came into effect on 1 July 2005.
Section 3 of the Act makes the offense of money-laundering cover those persons or
entities who directly or indirectly attempt to indulge or knowingly assist or knowingly are
party or are actually involved in any process or activity connected with the proceeds of
crime and projecting it as untainted property, such person or entity shall be guilty of
offense of money-laundering.
Section 4 of the Act prescribes punishment for money-laundering with rigorous
imprisonment for a term which shall not be less than three years but which may extend
to seven years and shall also be liable to fine which may extend to five lakh rupees and
for the offences mentioned [elsewhere] the punishment shall be up to ten years.
Section 12 (1) prescribes the obligations on banks, financial institutions and
intermediaries (a) to maintain records detailing the nature and value of transactions
which may be prescribed, whether such transactions comprise of a single transaction or
a series of transactions integrally connected to each other, and where such series of
transactions take place within a month; (b) to furnish information of transactions referred
to in clause (a) to the Director within such time as may be prescribed and to (c) verify
and maintain the records of the identity of all its clients,
Various other laws are as follows
• The Conservation of Foreign Exchange and Prevention of Smuggling Activities
• The Income Tax Act, 1961
• The Benami Transactions (Prohibition) Act, 1988
• The Indian Penal Code and Code of Criminal Procedure, 1973
• The Narcotic Drugs and Psychotropic Substances Act, 1985
• The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances
II. Financial measures(BANKING)
a) Establish Effective Customer Due Diligence Systems and Monitoring
Comprehensive customer due diligence programs are banks‘ most effective weapons
against being used unwittingly to launder money or to support terrorist financing.
Knowing customers, including depositors and other users of bank services, requiring
appropriate identification, and being alert to unusual or suspicious transactions can help
deter and detect money laundering and terrorist financing schemes. Effective due
diligence systems are also fundamental to help ensure compliance with suspicious
activity reporting regulations.
The first defence against money laundering is the requirement on financial
intermediaries to know their customers— often termed KYC know your customer
requirements. Knowing one's customers, financial intermediaries will often be able to
identify unusual or suspicious behavior, including false identities, unusual transactions,
changing behaviour, or other indicators of laundering. But for institutions with millions of
customers and thousands of customer-contact employees, traditional ways of knowing
their customers must be supplemented by technology. Companies such as Lexis Nexis
and WorldCompliance provide software and databases to help perform these
processes. Bank and corporate security directors can also play an important role in
fighting money laundering.
b)Identifying Irregular / Suspicious Transactions
Number of cash deposits into same account
Substantial increase in turnover in a dormant A/c
Receipt or payment of large cash sums with no obvious purpose or relationship
to Account holder / his business
Reluctance to provide normal information when opening an Account or providing
minimal or fictitious information
Deposit of third party cheques
Sudden increase in cash deposit in a/c from abroad
c)Anti Money Laundering Regime in India
The Reserve Bank of India's extensive Anti-Money Laundering (AML) guidelines
have become effective from March 2006. The AML norms such as "Know Your
Customer" emphasize that banks must keep a record of their customers'
backgrounds in order to reduce and control the risk of money laundering
b) BILATERAL AND MULTILATERAL COOPERATION
The FATF organization publishes at certain time intervals a list of the not-cooperating
countries and territories, which act as a shelter for many criminal networks. The list of
the not-cooperating countries is an important indication for the supervisory authorities
investigating possible involvement of suspected persons in criminal activities.
An activity like money laundering is a global concern and co operation of nations is a
must to combat it.
c) ORGANISATIONAL METHODS
The organizational measures include different methods for testing (checking all
transactions that exceed a threshold value) or some calculation methods as for example
the net value (worth) measuring the difference between assets and liabilities of a
suspected person (its increase has to be a result of legal income), supervision
systems(e.g., Suspicious Activity Reports filed by financial institutions in the U.S. and
EU),and early warning systems of potential fraud risks according to the risk
management methodology. Record keeping of transaction and customer data at the
systemproviders also belongs to the organizational measures and solutions
IV)TECHNOLOGICAL SOLUTIONS(To avoid cyberlaundering)
The technical solutions represent the most interesting and, at the same time, efficient
part of the solution approaches regarding authentication of users or traceability of
transactions, for example. Many technical solutions that could limit money laundering
have already been developed:
Digital signatures and certificates based on the Public Key Infrastructure
This is a hierarchical certification technology based on asymmetrical cryptography
for authentication, confidentiality and integrity of data, as well as for non-repudiation
of electronic transactions. The generation of key pairs and the confidential distribution of
public keys with certificates are also important for combating money laundering
conducted by means of different electronic payment systems due to the fact that it
secures practically a world-wide authentication of the transaction participants
Special cryptographic protocols such as for example the off-line payment
protocol of Chaum, Fiat and Naor, developed on the basis of the ―blind sig-
nature‖ for an anonymous off-line payment procedure. In contrast to the on-
line payment procedures, where the verification processes and payments
should be processed between the merchants and banks in real time, the elec-
tronic checks and coins are collected in off-line payment protocols by the
merchant first and then are submitted in aggregated form at the bank of the
merchant in the end of a given period. A fraudulent case (e.g., double spend-
ing) enhances enormously the probability of disclosure of customer identity.
THUS THESE ARE SOME OF THE PRACTICES ADOPTED AND MEASURES THAT
SHOULD BE TAKEN BY BANKS,FINANCIAL
INSTITUTES,GOVERNMENT,ORGANISATIONS, WEBSITES ETC WHICH MAY
HELP IN COMBATING MONEY LAUNDERING AND MAINTAINING THE ETHICS IN
NAME OF THE BOOK AUTHORS NAME
Money laundering –combating the ARYA ASHOK KUMAR
menace in global and Indian context
Money laundering-A concise guide for DOUG HOPTON
Combating Money Laundering and the WORLD BANK AND IMF
Financing of Terrorism: A
Comprehensive Training Guide
Global Money Transfer (Remittance) Market: An Analysis
Description: The money transfer market or the remittance market is extremely large and
has been growing at a
steady rate over the last two decades, driven mostly by a combination of long-term
to immigration flows, disparities among national economies and technological
But the remittance from overseas workers, which is a financial lifeline for many
countries, is under pressure as a consequence of the downturn in the global economy.
GDP expected to contract by 0.9% in 2009 and with recession hitting the key
migrants especially the United States, the European Union and the Gulf countries, the
remittances is expected to decline considerably in the year 2009. The developing
countries that are
popular for the export of labor have already started facing the inevitable problem of
remittances with companies across the globe having started shedding employees.
And with declining volumes of global remittances, the formal and most popular channel
transfers i.e. MTOs or Money Transfer Organizations are facing a decline in their
margins. But the
factors that are supporting the growth of revenues of MTOs are the shifting remittance
informal and illegal channels like the hawala system to the formal channels (as a result
regulations on the backdrop of terrorist activities).
Another factor that is working in favor of most formal money transfer channels is the
networks of MTOs and the growing base of banks, especially in the remote regions of
developing countries. Technology is also playing a key role with mobile money transfers
huge popularity. Mobile money transfers are not cannibalizing the traditional money
markets as this channel is increasingly being used for transferring smaller amounts of
hence also leverage by the MTOs.
The formal money transfer industry is highly fragmented with MTOs like Western Union,
MoneyGram and Ria (Euronet) controlling a very small share of the total money transfer
the smaller and local players hold majority of the share but does not have enough
for further investments or market their products and develop their brands, the global
leverage this opportunity and get a foothold in the regional markets.