Paper: GS – III, Subject: Internal Security, Topic: Money Laundering and Prevention, Issue: Prevention of Money Laundering.
Context:
A report submitted by the Finance Minister in the Rajya Sabha revealed that the Enforcement Directorate (ED) has taken up 5,892 cases under the Prevention of Money Laundering Act (PMLA) 2002 since 2015.
- However, only 15 convictions have been ordered by special courts. While the government claims that investigations have been initiated in most cases, the low conviction rate raises concern about the effectiveness of the PMLA in curbing money laundering.
- The increasing number of cases suggests that the government has not been able to adequately check such financial crimes.
Key Takeaways:
What is a Laundromat?
- The term “laundromat” originates from the use of laundromats by organized crime syndicates in the U.S. as a cover for their illegal activities.
- A laundromat is a financial vehicle that can be set up by banks, financial service companies, or even individuals.
- It can be used to launder proceeds of crime, hide ownership of assets, embezzle funds, evade taxes, and move money offshore.
What is 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.
| About Prevention of Money Laundering Act (PMLA): It is an Act to prevent money laundering and to provide for the confiscation of property derived from or involved in money laundering. The Act was formulated for the following objectives: Prevent money-laundering. Combat/prevent channelising of money into illegal activities and economic crimes. Provide for the confiscation of property derived from, or involved/used in, money laundering. Provide for matters connected and incidental to the acts of money laundering. The Enforcement Directorate (ED) in the Department of Revenue, Ministry of Finance, is responsible for investigating the offences of money laundering under the PMLA.Financial Intelligence Unit – India (FIU-IND) under the Department of Revenue is the central national agency responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions. The scheduled offences are separately investigated by agencies mentioned under respective acts, for example, the local police, CBI, customs departments, SEBI, or any other investigative agency, as the case may be. |
The Supreme Court, in P. Chidambaram versus Enforcement Directorate (2019), held that hiding the illegal source of money affects the financial system, sovereignty, and integrity of the nation.
- Money laundering can expand the money supply, potentially destabilizing monetary policy and impacting inflation.
- It can also negatively affect trading, according to the Financial Action Task Force (FATF).
Money Laundering Law and Challenges:
Conclusion:
By strengthening implementation, preventing misuse of the law, following FATF recommendations, and effectively using the DTAA, India can enhance its efforts to combat money laundering and protect its financial system and national security.
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