The globalization of financial markets, dismantling of controls, capital mobility and technological advancement have exposed banks to the risk of criminal misuse for laundering of illegal proceeds. In a deregulated environment, with more operational freedom devolving on banks, the risk of being unwittingly used as intermediaries for the transfer or deposit of funds derived from criminal activity is accentuated.

Money laundering is a way through which the properties obtained or acquired by criminal activity are moved or concealed to obscure their links with the crime. To be precise, the drive against money laundering picked up momentum after September 11, 2001. There is an overwhelming view that the activities that are detrimental to the public interest, either terrorist or illegal, are funded from the proceedings of illegal activities. Sound Know Your Customer (KYC) policies and procedures are, therefore, critical for protecting the safety and soundness of banks. The inadequacy of KYC standards can subject banks to serious customer and counterparty risks, resulting in substantial financial costs to banks.

Countries around the world are now beginning to realize the catastrophic impact of money-laundering if it is left unchecked. The new trend in the organized crime world is threatening to erode the integrity of every nation's financial system, the safety and security of people, state and other democratic institutions. Fighting against it will not only result in the reduction of financial crimes but will also deprive these elusive, well-financed and technologically adept criminals and terrorists of committing other crimes. Illegal money is generated through illegal activities. To be more specific, it is the money that is the proceeds of crime like smuggling, drug trafficking, arms running, tax evasion, terrorism, slush funds maintained by big corporations (for example, bribery, payment to political parties), human trafficking, organized crime, for instance, kidnapping, extortion, gambling, adulteration, corruption, contract killing, etc. Organized crime groups generate huge money by engaging themselves in those activities across the world. Money laundering has become a global menace, threatening the stability. The economy generated by black money is so powerful that it can wipe out all the debts of the Government and could put the country on the forefront of the international business. Illegal money is estimated to be around 2 to 5% of global GDP. Money laundering is considered to be a major offence both at the national and international levels. Money laundering is a process to make illegitimate money appear legitimate. It involves cleansing of dirty money engaging in series of financial transactions.

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