MONEY LAUNDERING (Syllabus: GS Paper 3 – Internal Security)

Context: Recently, Delhi high court asked Enforcement Directorate to respond to a plea of former Delhi Minister Related to money laundering case.

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.
• Stages of money laundering: Placement – layering – integration.
• 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.

oMoney laundering is the processing of these criminal proceeds to disguise their illegal origin. 

oThis 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.

Prevention of Money Laundering Act (PMLA)

• Aim: To prevent money-laundering
• 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).