Q. Money laundering poses a serious threat to India's National Security. Comment. What steps need to be undertaken to control this menace? (Answer in 150 words).

07 Oct, 2022 GS III Daily Answer Writing 2022-23 ( Upgrade)
Modal Answer

Money Laundering refers to a process by which “illegally” obtained money is given the appearance of having originated from a legitimate source. 

Evolving threats of money laundering (5-7% of Global GDP laundered annually: IMF), supported by the emerging technologies, has posed several threats to National security

Money laundering as a threat to national security: 

  • Threat to Govt’s Fiscal capacity: Rise of parallel economy leading to underestimation of GDP, reduced tax collections and Welfare initiatives of government.
  • Threat to Economic security: impacts financial stability of legitimate businesses, Diversion of productive resources to sterile investments (real estate, gold) etc
  • Threat to Financial sector: Infiltration by Organized crime syndicates, eroding depositors & creditors confidence as frauds result in trust & reputational risk.
  • Threat to political security: Illegal money employed for political manipulation (money power in election + crony capitalism) è impacts the democratic fabric.
  • Thret to Social fabric: ‘criminalisation of society’, retarded human development, redistribution of income from honest to dishonest è social tensions & conflicts.
  • Threat to National security: Financing of criminal, separatist or terrorist activities eg. Mumbai train bombings (funds from Pakistan via Hawala).
  • Propagating agenda: used to fund NGOs to propagate an agenda. E.g. ED’s asset attachment of Amnesty in money laundering case. 

Steps taken by the government: 

  • Executive actions: Constitution of SIT on Black Money, Linking bank accounts with Aadhar and PAN
  • Legislative measures: Prevention of Money Laundering Act 2002, Benami Transactions Amendment Act, 2016, Foreign Exchange Management Act, 2000 etc.
  • Institutions: Economic Intelligence Council; Financial Intelligence Unit; Enforcement Directorate; NIA etc
  • International collaboration: Vienna Convention, FATF, G-20, etc

Way Forward: 

  • Prevention of black money generation, as once generated, money is quickly laundered away to become untraceable.
  • Strict enforcement of related laws: stringent anti corruption laws,PMLA act, etc. Adequate funds, functionaries, powers & training to enforcement agencies.
  • Robust surveillance system to curb round tripping through shell companies and clamp down on tax havens.
  • Leveraging Tech advantage: Employing advanced Anti-Money Laundering mechanisms like big data, AI, blockchain & strengthening India’s ‘cyber capacities’.
  • Periodic updation of laws to catch up with global taxation reforms, especially with increased use of cryptocurrency.
  • Improve tax administration & processes: Simplification of tax system, coordination & intelligence sharing among enforcement agencies etc.
  • Collaboration with other countries for eg. OECD ‘GloBE’ Rules, Tax information Exchange agreement etc. 

Political willingness, together with expansion in the investigative bandwidth of the institutions and seamless international collaboration must be combined to fight the scourge of Money laundering in India.

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