MONEY LAUNDERING (Syllabus: GS Paper 3 – Economy)

Context: The Supreme Court recently emphasized that technology and Artificial Intelligence (AI) have played a pivotal role in facilitating economic offenses like money laundering, posing a genuine threat to the country's financial system.

Money Laundering

• Definition: Money laundering is the process of hiding the source of money obtained from illegal sources and converting it to a clean source, for the purpose of avoiding prosecution, conviction, and confiscation of the criminal funds.
• As per FATF: The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act.
• Money laundering is the processing of these criminal proceeds to disguise their illegal origin. 
• This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source.

Impact of Money Laundering

• Distortion of Economic Sectors: Money laundering disrupts fair competition and market integrity by injecting illicit funds into legitimate businesses.
• Undermining Financial Stability: Money laundering weakens the financial system, increasing the risk of crises and compromising the credibility of banks.
• Undermining the Rule of Law: Money laundering undermines the rule of law by allowing criminals to benefit from their illegal activities, eroding trust in legal systems.
• Corruption and Capture of Institutions: Money laundering infiltrates and corrupts institutions, compromising their integrity and effectiveness.

Prevention of Money Laundering Act (PMLA)

• Aim: To prevent money-laundering and to provide for confiscation of property derived from or involved in money laundering.
• The Department of Revenue within the Ministry of Finance oversees the investigation of money laundering offenses under the PMLA through the Enforcement Directorate (ED).