In recent years, and particularly ever since the terrorist events that occurred on September 11, 2001, efforts being made all over the world to combat money laundering and the funding of terrorism have taken on a greater significance. Laundering of funds and the funding of terrorist organisations are both worldwide concerns that not only pose a threat to security but also put financial institutions at risk in terms of their stability, transparency, and efficiency, which in turn undermines economic growth and development. Laundering illicit funds is a challenging issue on a global scale because it allows criminals to conceal, rebrand, and legalise the money they have obtained via illegal means.
According to estimates provided by the International Monetary Fund (IMF), money laundering contributes between $590 billion and $1.5 trillion to the global economy each year. This amounts to around two to five percent of the global gross domestic product.
The illicit practise of making substantial sums of money that have been obtained via illegal conduct, such as the sale of illegal drugs or the sponsorship of terrorist organisations, appear to have originated from a legitimate source is referred to as money laundering. Because the money obtained via the illegal activity is thought to be “dirty,” the procedure “launders” it so that it seems to be “clean.”
It is possible for money laundering and the funding of terrorism to have disastrous economic and social effects for countries, particularly those countries that are still in the process of creating their financial systems or those that are still developing. Financial institutions that accept illegal funds cannot rely on those funds as a stable deposit base because large sums of money that have been laundered are likely to be transferred to other financial markets as part of the laundering process. This poses a threat to the institution’s liquidity and solvency because it reduces the amount of money available to the institution.
The practise of disguising the actual owners of unlawfully obtained monies is referred to as “money laundering,” and the phrase itself defines this process. This procedure provides illicit money the appearance of legitimacy by “washing” them via a variety of organisations “so that they may be utilised without their being any suspicion of the unlawful action that created them.” ” Each stage of the process of money laundering, commonly referred to as a “washing cycle,” eliminates a “layer of the taint or illegal staining that was on those monies.”
Generally speaking, there are three stages to the process of money laundering, and they are known as the placement, layering, and integration of money. When monies obtained through illegal activity are first brought into contact with a legitimate financial institution, this action marks the beginning of the first step known as “placement.” During the second step, known as layering, monies are moved to and from a number of different financial institutions in an effort to make it more difficult for authorities to track the origin of those funds back to the spot where they were initially deposited. In the last step, known as the integration phase, the so-called “dirty” monies are channelled into lawful commercial operations in order to give them a veneer of legitimacy.
In addition to passing laws that make it illegal to launder the proceeds of crime, India must also enact stringent compliance programmes for the financial industry that make it more difficult to launder money. These programmes should make it more difficult for criminals to get their hands on clean money. Because of the increased likelihood that law enforcement officials may uncover money laundering schemes as a result of such reporting requirements, financial institutions must be obliged to disclose any suspicious transactions that they come across. In addition, workers of financial institutions should receive training to learn how to identify potentially questionable activities. The placement step in the process of laundering money is the most susceptible to being uncovered by authorities. As a result, if bank workers are able to recognise the features of transactions that include money laundering, they will discover a greater number of transactions. Training of this kind could make it possible for law enforcement officials to capture and convict an even higher proportion of those involved in money laundering.
In addition, India’s financial institutions should impose identification requirements on its consumers in a manner analogous to the “know your customer” regulations. It should be mandatory for financial institutions to collect extensive client information in order to verify that their customers are engaging in lawful commercial activity. A system like this one would make it much simpler for financial institutions to identify potentially questionable activities.
The establishment of a stringent regulatory framework for financial institutions would necessitate that financial organisation give up their policies of maintaining the secrecy of their customers’ information. The right to financial privacy in India has to have some of its protections reduced if the country is going to pass comprehensive laws to combat money laundering. If financial institutions are going to be able to comply with stringent government regulation, they need to be able to do so without worrying that they may be sued for breach of contract or defamation in the future.
In conclusion, it is necessary for India to negotiate new Mutual Legal Assistance Treaties with other nations. MLATs are crucial to foreign judicial aid. They are an addition to the already existing international accords and will make it possible for law enforcement personnel to get material in a format that can be admitted into Indian courts. In addition, the use of MLATs would make it possible for India to adapt its anti-money laundering programme to the particular challenges that the government is confronted with. If India wants to put a stop to the worsening of its drug issue, the country will have to adopt a more combative approach on the laundering of illicit funds.
- Sarıgül, Haşmet. (2012). Money Laundering and Abuse of the Financial System.
- Legal Services India, http://www.legalservicesindia.com/article/436/Money-Laundering.html
- Dr. Rajeswari, B., A study on money laundering in India, DOI: https://doi.org/10.24941/ijcr.42092.08.2021
- Esoimeme, Ehi, The Pandora Papers: How Anti-Money Laundering Procedures and Controls Should Have Flagged $300 Million Earlier (December 5, 2021). Available at SSRN: https://ssrn.com/abstract=3978080 or http://dx.doi.org/10.2139/ssrn.3978080
- Vasanth Rajasekaran and Harshvardhan Korada, India: The Rise Of Money Laundering In Banking Sector In India: How Unsafe Is The Public Money?, https://www.mondaq.com/india/money-laundering/1169784/the-rise-of-money-laundering-in-banking-sector-in-india-how-unsafe-is-the-public-money
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