Money laundering is a critical issue that poses significant threats to the integrity of the financial system and the economy of any country. In India, the problem is particularly pronounced due to the size and complexity of the economy, which provides ample opportunities for illegal activities to be disguised as legitimate transactions. Money laundering involves the process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to be earned legally. This process typically involves three stages: placement, layering, and integration. The prevention of money laundering in India has become a key focus for regulatory authorities, with stringent laws and mechanisms in place to curb this illegal activity. The Prevention of Money Laundering Act (PMLA), 2002, serves as the cornerstone of the legal framework aimed at combating money laundering in India. This introduction sets the stage for a deeper exploration of the mechanisms, challenges, and strategies associated with preventing money laundering in the country.

Money laundering typically occurs in three stages: placement, layering, and integration. Each stage plays a crucial role in transforming illicit funds into seemingly legitimate assets, making them difficult to trace

Placement

The first stage of money laundering involves the initial introduction of illicit funds into the financial system.

1. Methods of Infiltrating the Financial System

i.Bank Deposits: Large sums of illegal money are often deposited in banks, either in cash or through multiple small deposits (smurfing) to avoid detection by regulatory authorities.

ii.Currency Exchanges: Criminals may convert cash into foreign currencies to obscure the source and make the money harder to trace.