Money Laundering: A global Concern

In News

• The government informed the Supreme Court that 18,000 crore was confiscated under the Prevention of Money Laundering Act (PMLA) from fugitive businessman Vijay Mallya, Nirav Modi and Mehul Choksi, and returned to banks.

What is Money Laundering?

• It is the process of making large amounts of money generated by criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
• Criminal activities like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud schemes produce large profits.
• Thereby it creates the incentive for money launderers to “legitimize” the ill-gotten gains through money laundering.
• The money generated is called ‘dirty money’ and money laundering is the process of conversion of ‘dirty money’, to make it appear as ‘legitimate’ money.

Issues/ Challenges

• Very small numbers of cases are being taken up for investigation under the PMLA as compared to annual registration of the cases under the Money Laundering Act in the UK (7,900), the U.S. (1,532), China (4,691), Austria (1,036), Hong Kong (1,823), Belgium (1,862) and Russia (2,764).
• Corruption in high offices is a major facilitator of money laundering.
• A United Nations report said that the proceeds of crime being laundered amount to $2.1 trillion, which accounts for 3.67% of the global GDP.
• Three “supra-national or transnational” crimes which have brought together the global community are narcotics, money laundering and terrorism.
• People accused of money laundering run to small nations with no extradition treaty with India where they can buy citizenship.
• The national economy was the ultimate victim of money laundering, which affects all citizens alike.

Consequences

• Money laundering and terrorism financing activity in one country can have serious cross-border and even global adverse effects. 
• Jurisdictions with weak or ineffective controls are especially attractive for money launderers and financiers of terrorism. 
  • These criminals exploit the complexity of the global financial system, the speed at which money can traverse borders, as well as differences between national laws to carry out their concealment objectives.
•  The possible consequences of money laundering, terrorist financing (TF), proliferation financing (the provision of funds or financial services for the acquisition of nuclear, chemical or biological weapons), and related crimes which undermine the integrity and stability of the financial sector and the broader economy.
• These crimes, as well as those underlying crimes that generate money laundering activity, can threaten the stability of a country’s financial sector and a country’s external stability more generally.  
• This, in turn, can affect law and order, good governance, regulatory effectiveness, foreign investments and international capital flows.
• The social costs of money laundering include allowing drug traffickers, smugglers, and other criminals to expand operations and the transfer of economic power from the market, government, and citizens to criminals.
•  In extreme cases, money laundering can lead to a complete takeover of a legitimate government. 

Efforts for Prevention of Money laundering

• The Financial Action Task Force on Money Laundering (FATF), a 39-member inter-governmental body established by the 1989 G7 Summit in Paris, has primary responsibility for developing the worldwide standards for Anti-Money Laundering/Combating the Financing of Terrorism. 
  • It works in close cooperation with other key international organizations, including the IMF, the World Bank, the United Nations, and FATF-style regional bodies (FSRBs)

• The European Union, Council of Europe, Organisation of American States established anti-money laundering standards for their member countries. 
• The Caribbean, Asia, Europe and southern Africa have created regional anti-money laundering task force-like organisations, and similar groupings are planned for western Africa and Latin America in the coming years..

• United Nations Global Program against Money Laundering
  • The 1988 U.N. Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) called upon countries to criminalize money laundering, to ensure that bank secrecy provisions do not impede the process of criminal investigations and to facilitate legislative amendments for investigation, prosecution, and international cooperation. 
  • By working to combat money laundering, the United Nations makes a crucial contribution to the fight against organized crime. 
  • The Global Programme against Money Laundering (GPML) is the key instrument of the United Nations Office of Drug Control and Crime Prevention in this task.

Initiatives of India 

• The Prevention of Money Laundering Act (PMLA), 2002 was enacted in January 2003. 
  • The Act along with the Rules framed under has come into force with effect from 1st July 2005. 
    • It prescribes the obligation of banking companies, financial institutions and intermediaries for verification and maintenance of records of the identity of all its clients and also of all transactions and for furnishing information of such transactions in a prescribed form to the Financial Intelligence Unit-India (FIU-IND). 
    • It envisages the setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties.
    •  It also envisages the setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority and the authorities like Director FIU-IND.
    • It envisages designation of one or more courts of sessions as Special Court or Special Courts to try the offences punishable under PMLA and offences with which the accused may, under the Code of Criminal Procedure 1973, be charged at the same trial. 
    • It allows the Central Government to enter into an agreement with the Government of any country outside India for enforcing the provisions of the PMLA, exchange of information for the prevention of any offence under PMLA or under the corresponding law in force in that country or investigation of cases relating to any offence under PMLA.

Source: TH