Money-laundering and its prevention

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Money Laundering

  • As name suggest, is process of clearing the money by putting it into complex transactions thereby hiding source of fund.
  • It is not independent crime, it depends upon other crime. It is lifeline of organization engaged in criminal activity. They are financial networks that fund terrorism.
  • it has devastating economic, security & social consequences.
  • it increases government cost of law enforcement and breed corruption.
  • it misleads resource allocation
  • Organization engaged in laundering subsidize their product and services, legitimate firms find difficult to compete.
  • KYC , record keeping, Reporting of suspicious transaction(STR) are generally undertaken by banking /FI systems to detect Money Laundering.

Process of Money Laundering

1. Placement : physical disposal of cash, aim to remove the cash from location, avoid detection, investing into legal financial systems.
2. Layering : complex layer of transactions to remove source
3. Integration: reinjection of laundered money in economy, re-enter from financial institutes like normal business money.

Prevention of Money Laundering Act 2002

  • India is among 6 countries monitored by Interpol for laundering of money.
  • India is vulnerable to money laundering activities - generate money from drugs, arms, human trafficking, corruption, income tax evasion
  • India is member of FATF (financial action task force)
  • India has amended its act to fall inline with International standard
  • India has also established financial intelligence unit (FIU-IND)
  • India is also member of Egmont Group, the most powerful association of financial intelligence units around the world HQ at Toronto, Canada.
  • social impact - economic power in hands of criminal organization.

New Challenges

  • Money in form of electronic money - bit coins
  • traditional banking , open security market

suggestion

  • Government should bring Financial Intelligence Unit-India, Financial Action Task Force Cell, Enforcement Directorate and foreign tax division under a unified command for better control and coordination.

Questions

  • Is money laundering a major threat to present day Indian Economy. Discuss the possible steps that can be taken to control it.