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Money Laundering

Money laundering is the illicit practice of disguising huge sums of money obtained through illegal or criminal activities, such as drug trafficking or terrorist financing, as legitimate. The proceeds of illicit conduct are deemed unclean, and the process "launders" them to make them appear clean.

Laundering money normally consists of three steps: placement, layering, and integration. Placement sneakily introduces "bad money" into the lawful financial system. Through a sequence of transactions and bookkeeping procedures, layering conceals the source of the money. The now-laundered money is withdrawn from the legitimate account, integration, to be used for whatever reasons the criminals have in mind for it.

Digitalisation of Money Laundering and its Implications:

Anonymity is on the rise:

The Internet has given a new twist to an old crime. The rise of online banking institutions, anonymous online payment systems, and peer-to-peer (P2P) transfers via mobile phones has made it even more difficult to detect unlawful money transfers. Furthermore, the use of proxy servers and anonymizing software makes the third component of money laundering, integration, nearly impossible to detect—money can be sent or withdrawn with no or little trace of an Internet protocol (IP) address.

Conveniently illegal:

Money can also be laundered through online auctions and sales, gambling websites, and virtual gaming sites, where ill-gotten gains are changed into game currency before being converted back into real, useable, and untraceable "clean" money.

Nexus of organised crime:

Cryptocurrencies, such as Bitcoin, are the newest frontier in money laundering. While not completely anonymous, they are increasingly being utilised in extortion schemes, the drug trade, and other illicit activities due to their anonymity in comparison to more traditional forms of cash.

Inefficient laws in place, need an upgrade:

Because most AML regulations are still based on detecting dirty money as it flows via traditional financial institutions and channels, they have been slow to catch up to these forms of cybercrime.

What role do cryptocurrencies play in money laundering?

In a June 2021 report, the United States Financial Crimes Enforcement Network (FinCEN) observed that convertible virtual currencies (CVCs)—another word for cryptocurrencies—have developed to become the money of choice in a wide range of online illegal operations. CVCs are increasingly being used to layer transactions and obscure the origin of money earned from criminal activities, in addition to being the favoured form of payment for purchasing ransomware tools and services, online exploitative content, drugs, and other illegal commodities online. Criminals use a variety of cryptocurrency money-laundering strategies, including "mixers" and "tumblers," which sever the connection between an address (or crypto "wallet") sending cryptocurrency and the address receiving it.

Government of India's Efforts to Prevent Money Laundering

Ordinance Amending the Criminal Law (XXXVIII of 1944): It only applies to the proceeds of particular crimes, such as corruption, breach of trust, and cheating, and not to all offences under the Indian Penal Code.

The Smugglers and Foreign Exchange Manipulators (Property Forfeiture) Act of 1976: Includes the penalties for illegally acquired properties of smugglers and currency manipulators, as well as topics related with and ancillary thereto.

The Narcotic Substances and Psychotropic Substances Act of 1985 establishes a penalty for property derived from or used in the illegal trafficking of narcotic drugs.

Money Laundering Prevention Act of 2002 (PMLA)

It is at the heart of India's legal structure to prevent money laundering.

This act's requirements apply to all financial institutions, including banks (including the RBI), mutual funds, insurance companies, and their financial intermediaries.

The PMLA (Amendment) Act of 2012 adds the idea of a "reporting entity," which would include a bank, financial institution, middleman, and so on.

The PMLA, 2002 imposed a fine of up to Rs 5 lakh, however the amending act eliminated this cap. It has provided for the interim attachment and seizure of any person engaging in such actions' property.

The Financial Intelligence Unit-IND is an independent organisation that reports directly to the Economic Intelligence Council (EIC), which is chaired by the Finance Minister.

ED (Enforcement Directorate):

It is a law enforcement and economic intelligence organisation in India that is in charge of implementing economic laws and combating economic crime.

One of the primary functions of the ED is to investigate money laundering offences under the terms of the Prevention of Money Laundering Act of 2002. (PMLA).

It has the authority to seize property if it is considered to be the profits of crime obtained from a Scheduled Offense under the PMLA, as well as to prosecute anyone implicated in the money laundering offence.

India is a full member of the FATF and adheres to its regulations.

Global Anti-Money Laundering Efforts

The Vienna Convention: It requires signatory parties to prosecute money laundering and drug trafficking.

The Council of Europe Convention of 1990: This convention creates a consistent criminal policy on money laundering.

Basel Committee Principles Statement of the G-10: It published a "statement of principles" by which member countries' international banks are supposed to abide.

The International Organization of Securities Commissions (IOSCO) is a global organisation of securities commissions. It encourages its members to take the appropriate precautions to combat money laundering in the securities and futures markets.

The Financial Action Task Force was established by the governments of the G-7 countries at their 1989 Economic Summit. It tracks members' progress in implementing anti-money laundering measures. FATF issues the well-known Forty Recommendations.

The International Monetary Fund (IMF) has encouraged its 189 member countries to comply with international norms to combat terrorist financing.

The United Nations Office on Drugs and Crime: It works to detect and prevent money laundering.

The Road Ahead

The advent of globalisation has accelerated the speed at which information today travels across borders. There has been a dramatic increase in the complexity of the money laundering problem. Anti-Money Laundering methods like big data and artificial intelligence are needed to combat the new threats of money laundering backed by rising technology. In order to effectively remove the problem of money laundering, both foreign and domestic parties must work together and develop data exchange methods.

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