×

UPSC Courses

DNA banner

DAILY NEWS ANALYSIS

  • 12 May, 2021

  • 15 Min Read

Money Laundering UPSC

Money Laundering

What is Money Laundering?

  • Money Laundering refers to converting illegal earned money into legitimate money.
  • The government does not get any tax on the money because there is no accounting of the black money.
  • So Money Laundering is a way to hide illegally acquired money.
  • The term "money laundering" originated from the Mafia group in the United States of America. Mafia groups have made huge amounts of extortion, gambling, etc. and this money is shown as legal money.
  • In India, "money laundering" is popularly known as Hawala transactions.
  • According to the IMF, global Money Laundering is estimated between 2 to 5% of World GDP.

Components of Money Laundering:

It involves three steps: placement, layering and integration.

  • Placement puts the "dirty money" into the legitimate financial system.
  • Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
  • In the case of integration, the now-laundered money is withdrawn from the legitimate account to be used for criminal activities.
  • Some examples of Money laundering are Smurfing, Shell companies, Round tripping, Gambling, etc.

Impacts of money Laundering:

  • Economic Impact:
  1. Undermines integrity of financial markets.
  2. Loss of control of economic policy
  3. Economic distortion and instability
  4. Loss of revenue
  • Social Impacts:
  1. Increased criminality
  2. Decreases human development
  3. Misallocation of resources
  4. Affects trust of local citizens in their domestic financial institutions.
  • Political Impacts:
  1. Initiates political distrust and instability
  2. Criminalisation of politics

The Legal Framework in India to deal with Money laundering:

In India, the specific legislation dealing with money laundering is the Prevention of Money-Laundering Act((PMLA), 2002

  • It forms the core of the legal framework put in place by India to combat Money Laundering.
  • The provisions of this act are applicable to all financial institutions, banks(Including RBI), mutual funds, insurance companies, and their financial intermediaries.
  • The law was enacted to combat money laundering in India and has three main objectives :
  1. To prevent and control money laundering.
  2. To provide for confiscation and seizure of property obtained from laundered money.
  3. To deal with any other issue connected with money-laundering in India.
  • Under the PMLA Act, the Enforcement Directorate is empowered to conduct a Money Laundering investigation.
  • Apart from the provisions of PMLA, there are other specialised provisions such as RBI/SEBI/IRDA anti-money laundering regulations.

PMLA (Amendment) Act, 2012

  • Adds the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary etc.
  • PMLA, 2002 levied a fine up to Rs 5 lakh, but the amendment act has removed this upper limit of Rs. 5 lakh.
  • It has provided for provisional attachment and confiscation of property of any person involved in such activities.

Other methods to control Money Laundering:

  • Narcotic Drugs and Psychotropic Substances Act, 1985: It provides for the penalty of property derived from, or used in illegal traffic in narcotic drugs.
  • Financial Intelligence Unit-IND: It is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
  • Enforcement Directorate (ED):
  1. It is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
  2. One of the main functions of ED is to Investigate offences of money laundering under the provisions of Prevention of Money Laundering Act, 2002(PMLA).
  3. It can take actions like confiscation of property if the same is determined to be proceeds of crime derived from a Scheduled Offence under PMLA, and to prosecute the persons involved in the offence of money laundering.
  • India is a full-fledged member of the FATF and follows the guidelines of the same.

Source: Aspire IAS Notes


Pradhan Mantri Suryodaya Yojana

Recently, Prime Minister announced Pradhan Mantri Suryodaya Yojana under which 1 crore households will get rooftop solar power systems. India’s Status of Current Solar Capacity India currently stands at 4th place globally in solar power capacity. As per Ministry of New an

Foreign Contribution Regulation Act (FCRA)- NGO 

The Foreign Contribution Regulation Act, 2010 (FCRA) registration of two prominent non-governmental organisations (NGOs) — Centre for Policy Research (CPR) and World Vision India (WVI) have been cancelled this month. What is FCRA? Key provisions of FCRA, 2010 Key aspects Description

Voice clone-AI

Voice clone fraud has been on the rise in India. AI voice cloning – It is the process of creating a synthetic replica of a person’s voice through machine learning and speech synthesis technology.It is called as voice deepfakesor audio deepfakes. Objective – To achieve a high level of na

Science communication- how to promote

Steps taken by India to promote Science Communication Publications and Information Directorate (PID) - An organisation under Council of Science and Industrial Research (CSIR) established in 1951 for publishing and disseminating scientific information in India. National science magazines- The PI

Universal Basic Income (UBI)- Analysis

Universal Basic Income (UBI) can strengthen welfare architecture and unlock the nation’s latent demographic potential. UBI - It is an income support mechanism typically intended to reach all or a very large portion of the population regardless of their earnings or employment status. Objective- To provide enough to co

Toppers

Search By Date

Newsletter Subscription
SMS Alerts

Important Links

UPSC GS Mains Crash Course - RAW Prelims Answer Key 2024