Mains Practice Questions

Approach

• Start with explaining briefly about money laundering.
• Discuss how emerging technologies and globalization contribute to money laundering
• Elaborate measures to tackle the problem of money laundering both at national and international levels.
• Conclude suitably.

Introduction

Money laundering is defined as the process that disguises illegal profits without compromising the criminals who wish to benefit from the proceeds.

Body

Emerging technologies contribute to money laundering in the following ways

• Structuring deposits, involvement of a lot of channels popularly called as smurfs, to hide from the anti-money laundering reporting.
• Use of cryptocurrencies and alternate finance that are unregulated by governments.
• Large volume of digital transactions at online marketplaces is used to disguise the structured chunks of layered money.

Globalisation contributes to money laundering in following ways

• Placement of money in global financial system creates problems of coordination between multiple jurisdictions.
• Shell companies lie within the sovereign border without active business operations in the guise of legitimate transactions through fake invoices and balance sheets wherein they channel the laundered money into illegitimate businesses.
• Tax haven countries like Cayman Island, Panama etc. have structured their economies around assistance in tax evasion.

Measures at national level

• Prevention of Money Laundering Act (PMLA), 2002 criminalises money laundering as a cognisable, non-bailable offence.
• Financial Intelligence Unit – India (FIU-IND) coordinates efforts of national and international intelligence, investigation and enforcement agencies against money laundering.
• The Black money (undisclosed foreign income and assets) and Imposition of Tax Act, 2015 deals with the menace of the black money existing in the form of undisclosed foreign income and assets.

Measures at international level:

• The Vienna Convention makes it obligatory for signatory states to criminalise the laundering of money from drug trafficking.
• The Financial Action Task Force (FATF) sets standards and promotes effective implementation of legal, regulatory and operational measures against money laundering and terror financing.
• The OECD forum has adopted convention against money laundering. It supports appropriate safeguards, access to tax administration in suspicious transaction based on information received from FIUs.
• The International Organisation of Securities Commissions (IOSCO) takes necessary steps to combat money laundering in securities and futures markets.

Conclusion

Money Laundering is a global menace which require global effort to curb it. Both international and national stakeholders need to come together by strengthening data sharing mechanisms and adopting a multilateral approach to effectively eliminate the problem of money laundering.