MONEY LAUNDERING (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     21st November 2023        
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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).