[Model Answer QP2021 GS3]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.
Money laundering is the illegal 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. The money from the criminal activity is considered dirty, and the process “launders” it to make it look clean. Rapid developments in financial information, technology and communication allow money to move anywhere in the world with speed and ease. This makes the task of combating money-laundering more urgent than ever.
Emerging technologies contributing to money laundering:
1. The rise of online banking institutions, anonymous online payment services, and peer-to-peer (P2P) transfers with mobile phones have made detecting the illegal transfer of money even more difficult.
2. The use of proxy servers and anonymizing software makes the third component of money laundering, integration, almost impossible to detect—money can be transferred or withdrawn with little or no trace of an Internet protocol (IP) address.
3. The newest frontier of money laundering involves cryptocurrencies, such as Bitcoin. While not totally anonymous, they are increasingly being used in blackmail schemes, the drug trade, and other criminal activities due to their relative anonymity compared with more conventional forms of currency.
4. Money also can be laundered through online auctions and sales, gambling websites, and virtual gaming sites, where ill-gotten money is converted into gaming currency, then back into real, usable, and untraceable “clean” money.
5. Hacking and Identity Theft: Transactions done through untraceable identities.
6. 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.
6. DarkWeb: Further facilitates money laundering.
Globalization contributing to money laundering:
Tax haven countries: Panama, Cayman islands etc
Problems of coordination: between multiple jurisdictions.
Identification of Origin: The deeper “dirty money” gets into the international banking system, the more difficult it is to identify its origin.
Dollarization: These are the “dollarization” (i.e. the use of the United States dollar in transactions) of black markets, the general trend towards financial deregulation, the progress of the Euromarket and the proliferation of financial secrecy havens.
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.
Narcotic Drugs and Psychotropic Substances Act, 1985
provides for the penalty of property derived from smuggling or illegal traffic in narcotic drugs.
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 to prevent money laundering in India
Measures at international level:
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 Vienna Convention
Makes it obligatory for signatory states to criminalise the laundering of money from drug trafficking.
OECD forum
Has adopted convention against money laundering. It supports appropriate safeguards, access to tax administration in suspicious transactions 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.
Measures to prevent money laundering at international level
CONCLUSION:
Money laundering is a serious financial crime that is employed by white-collar and street-level criminals alike. Most financial companies today have anti-money-laundering (AML) policies in place to detect and prevent this activity.
