Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. UPSC 2021, 10 Marks

Q9. चर्चा कीजिए कि किस प्रकार उभरती प्रौद्योगिकियाँ और वैश्वीकरण मनी लॉन्ड्रिंग में योगदान करते हैं । राष्ट्रीय और अन्तर्राष्ट्रीय दोनों स्तरों पर मनी लॉन्ड्रिंग की समस्या से निपटने के लिए किए जाने वाले उपायों को विस्तार से समझाइए । (150 शब्दों में उत्तर दीजिए)
Q9. Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. (Answer in 150 words) 10

Answer:

The goal of many criminal acts is to gather profits. Money laundering is the process in which the criminal proceeds are disguised of their illegal origin. It often relates to more stringent crimes like  

Illegal arms sales, smuggling, drug trafficking and prostitution rings, can generate huge amounts of proceeds. 

It “legitimises” the ill-gotten gains through money laundering.

According to the IMF, Global Money Laundering lies between 2 to 5% of the World GDP.

Processes involved in Money Laundering are placement, layering and integration. That successfully places the “dirty money” into the legitimate financial system. Layering conceals the source of the money. The money further integrates and is withdrawn from the legitimate account to be used for criminal activities.

How emerging technologies and globalisation contribute to money laundering

The idea lies in faster transmission and the concealing of the source of the money that is drawn from the illegitimate source. And thus technology and the idea of the global world that integrates all the good and bad points together.

  • Shell companies: lie in the sovereign border without active business operations in the guise of  legitimate transactions through fake invoices and balance sheets wherein they do nothing but appease the laundered money into illegitimate businesses. 
  • Structuring Deposits: cash is broken into smaller deposits of money and a lot of channels are involved in exchange popularly called as the smurfs to hide from the anti-money laundering reporting. 
  • Third-Party Cheques: Counter cheques or banker’s drafts are utilized and cleared via various third-party accounts. The nexus with the source money is difficult to establish although it is legitimised in a lot of countries. 
  • Smuggling cash in bulk : physically done using the jurisdiction of other countries requiring bank secrecy or less rigorous money laundering enforcement. This too finds an escapist mode using several technological tools. 
  • Credit Cards having a number of uses and often used across international borders. 
  • Changing forms of laundered money through Hawala transactions as it is illegal in India and since it is not routed through banks, the government agencies and the RBI cannot regulate them.
  • The new pain in head is the growing nuisance globally of the Cryptocurrency with absolute anonymity and facilitating terror financing. The Financial Action Task Force in Paris reported in 2015 that some terrorist websites encouraged sympathisers to donate in bitcoins.

The use of technology and going beyond borders becomes an easy way to provide funds for terrorists and other illegal activities. Therefore things need proper regulation in order to ensure that the interest of the economy and the security of the country is protected.

Thus steps and coordination both at the National and the International level must be taken. 

Steps Taken by Government of India to Prevent Money Laundering

  • Criminal Law Amendment Ordinance (XXXVIII of 1944): that covers the proceeds of only certain crimes such corruption, breach of trust and cheating and not all under the Indian Penal Code.
  • Narcotic Drugs and Psychotropic Substances Act, 1985 imposed by the government seems to take action against the property derived from, or used in illegal traffic in narcotic drugs.
  • The Prevention of Money-Laundering Act, 2002 (PMLA) is the backbone and reveals the aim of the government to provide a legal framework and take efforts to combat Money Laundering. The act applies to all financial institutions, banks (Including RBI), mutual funds, insurance companies, and their financial intermediaries. It provides for provisional attachment and confiscation of property of the person involved in such illegitimate activities.
  • The government has also established bodies and authority to deal with this situation like the Financial Intelligence Unit, Economic Intelligence Council (EIC) headed by the Finance Minister and Enforcement Directorate (ED) ensues the enforcement of the economic laws and fighting economic crime in India.

 

Global efforts to combat Money Laundering

  • The Vienna Convention: It creates an obligation to criminalize the money laundering from drug trafficking.
  • G-10’s Basel Committee statement of principles. 
  • The International Organization of Securities Commissions (IOSCO): take necessary steps to  combat Money Laundering in securities and futures markets.
  • Financial Action Task Force has been set up by the governments of the G-7 countries at their 1989.
  • International bodies like the IMF, United Nations office on Drugs and Crime takes proactive steps to comply with international standards and thwart terrorist financing.

Way Forward

The evolving threats through the evils of money laundering can be effectively supported by emerging technologies, big data and artificial intelligence. 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. Money laundering plays a role in multiplying the   criminal activities as it gives economic power to criminals. There needs to be Continuous up-gradation and dissemination of information is necessary. 

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