Emerging technologies and globalization facilitate money laundering through digital channels. Combating it demands international cooperation, strengthened regulatory frameworks, and technological tools. Enhanced financial transparency, cross-border information exchange, and stringent enforcement measures are essential at both national and international levels to curb the complex challenges posed by money laundering.
UPSC Mains General Studies Paper – 3 Mains 2021
UPSC Mains Civil Services IAS Exam Question Paper – 2021
Answer
Approach
- Start with a brief introduction of the keywords “money laundering”.
- 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.
- Conclusion/way forward accordingly.
Answer
Introduction
- Money laundering is defined as the process of disguising the illegal origins of illicit profits while maintaining the anonymity of the individuals involved. The primary objective of money laundering is to make illegally obtained funds appear legitimate, thereby enabling criminals to enjoy the benefits of their unlawful activities without raising suspicion or attracting the attention of law enforcement agencies. For example consider a hypothetical scenario involving cryptocurrency.
Body
Emerging technologies and globalisation contribute to money laundering: Emerging technologies and globalisation have both contributed to the facilitation of money laundering, providing new avenues and challenges for authorities to combat this illicit activity. Here are some key points on how these factors contribute to money laundering :
1. Emerging Technologies:
- Cryptocurrencies: Digital currencies like Bitcoin have gained popularity in recent years, offering a level of anonymity and decentralisation that can be exploited for money laundering. Criminals can convert illicit funds into cryptocurrencies, making it difficult to trace the source and destination of the transactions. For example, ransomware attacks often demand payments in cryptocurrencies to facilitate money laundering.
- Online Payment Systems: The widespread use of online payment platforms, such as PayPal or Venmo, has made it easier for money launderers to move funds quickly across borders and disguise the nature of transactions. They can create fake transactions or use third-party accounts to layer and conceal illicit funds.
- Mobile Banking: Mobile banking applications and digital wallets have increased the speed and convenience of financial transactions, but they have also created opportunities for money laundering. Criminals can exploit mobile banking channels to conduct fraudulent transactions and move illicit funds through multiple accounts.
2. Globalisation:
- Cross-Border Transactions: The ease and speed of cross-border transactions in the globalised economy provide opportunities for money laundering. Criminals can exploit complex international transactions and the involvement of multiple jurisdictions to layer and conceal illicit funds. For instance, they may use shell companies in different countries to move and disguise money through a web of international transactions.
- Offshore Financial Centers: Certain jurisdictions known as tax havens or offshore financial centres offer favourable regulations, low taxes, and strict secrecy laws, making them attractive for money laundering purposes. These centres provide a convenient environment for criminals to establish shell companies and conduct transactions that disguise the true origin and ownership of funds. Examples include countries like the Cayman Islands, Panama, or Switzerland.
- Global Trade Networks: The expansion of global trade networks, including online marketplaces, enables money launderers to disguise illicit funds as legitimate business transactions. They can exploit the large volume of digital transactions to hide structured chunks of layered money. For example, criminals may use e-commerce platforms to create fake invoices and manipulate trade flows to legitimise their illicit funds.
Measures to tackle the problem of money laundering both at national and international levels: Measures to tackle the problem of money laundering are crucial at both national and international levels. Here are some key measures implemented to combat money laundering:
1. National Level Measures:
- The Prevention of Money Laundering Act (PMLA), 2002, criminalises money laundering as a serious offence that is cognizable and non-bailable.
- The Financial Intelligence Unit – India (FIU-IND) acts as a coordinating body, bringing together national and international intelligence, investigation, and enforcement agencies to combat money laundering effectively.
- The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, specifically addresses the issue of undisclosed foreign income and assets, targeting the menace of black money.
2. International Level Measures:
- The Vienna Convention requires signatory states to criminalise money laundering associated with drug trafficking, thereby establishing an international obligation to combat this form of money laundering.
- The Financial Action Task Force (FATF) plays a crucial role in setting global standards and promoting the implementation of legal, regulatory, and operational measures to combat money laundering and terrorist financing.
- The Organization for Economic Cooperation and Development (OECD) has adopted a convention against money laundering, supporting appropriate safeguards and facilitating access to tax administration in suspicious transactions based on information received from Financial Intelligence Units (FIUs).
- The International Organization of Securities Commissions (IOSCO) takes necessary steps to combat money laundering specifically within securities and futures markets, ensuring regulatory measures are in place to prevent illicit activities.
Conclusion
- Money laundering poses a significant global threat that demands a united global effort to combat it effectively. It necessitates the collaboration of international and national stakeholders, who must strengthen data sharing mechanisms and adopt a multilateral approach to tackle the problem head-on. By working together, sharing information and expertise, and implementing coordinated strategies, we can effectively eliminate the scourge of money laundering.
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