Summary

Security Class 07

INTRODUCTION (05:05 PM)

MONEY LAUNDERING (05:23 PM)

Social Effects:

Money laundering will both feed into and exacerbate inequalities.
Money laundering has negative consequences for social solidarity i.e. avenues for money laundering create an incentive for illicit activities.
Moral bankruptcy: Sustained Money laundering (ML) may lead to a general tolerance amongst the members of the society so long as illicit activities do not directly impact them.

Political Effects:

Money laundering is one of the many abetters of the criminalisation of Politics.

Ways to deal with money Laundering (Anto Money laundering Measures) (AML)

Legal Measures:

Prevention of Money Laundering Act (PMLA, 2002) :

Definition of Money Laundering (ML):
It defines ML as " whoever directly or indirectly attempts to indulge in /assist / is a party to any process or activity connected with the proceeds of a crime and projecting it as untainted property shall be guilty of the offence of ML."

Implementation authority:

The Enforcement Directorate (ED) in the Department of Revenue, Ministry of Finance, is responsible for investigating the offences of money laundering under the PMLA.

Power: Search, Seizure and Arrest:

The powers of search, seizure and arrest have been granted to the implementing Authority which in this case is ED.
Seizure/freezing of property and records and attachment of property obtained with the proceeds of crime.
Furthermore there are provisions concerning attachment of property involved in ML, adjudication by an adjudicating authority and Confiscation.

Punishment:

Any person who commits the offence of money laundering shall be punishable with –
Rigorous imprisonment for a minimum term of three years and this may extend up to seven years.
Fine (5 lakh.).

Other legal measures:

Institutional Mesures:

Compliance measures:

Disclosure norms under KYC requirements.
Banks also need to follow chapter 4 of PMLA i.e. essentially about setting up reporting mechanisms for certain entities to report suspicious transactions to the concerned authorities.

FINANCIAL ACTION TASK FORCE (FATF) (06:50 PM)

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog.
It was Established in 1989 by the G7 countries to examine and develop measures to combat Money laundering (ML).
In 2001, the FATF expanded its mandate to also combat terror financing.

Functions of the FATF:

It researches how money is laundered and terrorism is funded.
Since the methods used to launder the proceeds of criminal activities and to finance illicit activities keep constantly evolving, the FATF researches these evolving methods and assists countries in their anti-ML/CFT measures.
The FATF also promotes global standards to mitigate the risk involved with ML and Terror Financing.
The FATF has provided a set of recommendations (40) which include a framework of laws regulations and operational measures to ensure the national authorities can take effective action to detect and disrupt financial flows involving crime and terrorism and punish the guilty.
FATF recommendations are also called FATF standards.
The FATF also assess whether countries are taking effective action with AML and CFT measures.
This assessment is based on peer reviews i.e. members from different countries assess another country.
The FATF also continually identifies jurisdictions with significant weaknesses in their AML/CFT regimes and works to address those weaknesses.
The FATF issues a public warning about the risks emanating from these jurisdictions through its 23 documents issued thrice every year.

First is a blacklist/high-risk jurisdictions subject to a call for action.

These are those countries/ jurisdictions with serious deficiencies to counter ML, terrorist financing and financing of proliferation.
For the countries identified as high-risk countries, the FATF calls on all its members to apply enhanced due diligence.

Grey List/ Jurisdiction under increased monitoring:

These are such countries which are actively working with the FATF to address their strategic deficiencies in terms of countering ML, terrorist financing and financing for proliferation.

Other global efforts to tackle ML include:

CHALLENGES CONCERNING CURBING MONEY LAUNDERING (07:24 PM)

Complications on account of newer technologies:

The emergence of new forms of exchange of value for example Crypto NFT etc create challenges on account of a lack of understanding of these technologies and the accelerated evolution of these technologies owing to which authorities are always playing a catch-up game.

Increased digitalisation:

Increased digitalisation especially in the last few decades has created 2 new avenues that are leveraged by money launderers: the first relates to an exponential rise in the volume of online transactions, which can be used in layering operations,
The second relates to the development of modern means of communication which offer new modes of anonymous communication and hence better coordination of Money launderers.

The multiplicity of law enforcement authorities and investigating agencies:

Leads to problems of coordination.
These agencies often do not find any convergence against them and are pitted against criminals who are highly organised and also often operating in a borderless world.
The transnational nature of money laundering itself creates practical problems like intelligence sharing powers of search seizure arrest etc.
Certain countries have based their economies on the idea of assisting and even encouragement to ML.
By having weak taxation laws, easy registration of companies, a high degree of confidentiality related to banking transactions and even non-assistance in AML efforts.
The vested interest of politicians bureaucrats and businessmen also hurts AML efforts in terms of the degree of stringency required and offered. Example Panama Papers.

(TOPIC FOR THE NEXT CLASS: ORGANISED CRIMES AND ITS LINKAGES WITH TERRORISM)