Three NGOs linked to Congress under Home Ministry scanner

#GS#3 #Security #Economy


What is the issue?

The Ministry of Home Affairs (MHA) has constituted an inter­-ministerial committee to probe alleged violation of various legal provisions like money laundering Act and the FCRA by three NGOs — the Rajiv Gandhi Foundation (RGF), the Rajiv Gandhi Charitable Trust (RGCT) and the Indira Gandhi Memorial Trust (IGMT). 


What is Money Laundering?

  • Money laundering is concealing or disguising the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources. It is the process of making large amounts of money generated by criminal activity, such as drug trafficking or terrorist funding, but appears to have come from a legitimate source.
  • Criminal activities like illegal arms sales, smuggling, drug trafficking, and prostitution rings, insider trading, bribery, and computer fraud schemes produce large profits.
  • Thereby it creates the incentive for money launderer to "legitimize" the ill-gotten gains through money laundering.


How does Money Laundering work?

  • It's carried out through three steps: 
  • Placement: Illegal money is infused into the financial system.
  • Layering: Conceals the source of money through complex transactions and bookkeeping tricks.
  • Integration: Laundered money is withdrawn from the legitimate account to be used for criminal activities.


Types of Money Laundering: 

  • Bulk Cash Smuggling
  • Trade-based Laundering
  • Shell companies
  • Tax amnesties
  • Casino scheme
  • Cash intensive business 
  • Smurfing scheme
  • Foreign investment/round-tripping. 
  • Transaction laundering
  • Black salaries


Effects of Money Laundering

Economic Impact:

  • The legitimacy of the private sector is adversely affected.
  • Exchange rates and interest rates become volatile due to unexpected transfers of funds
  • The integrity of financial markets is questioned.
  • Control of economic policy goes haywire.
  • Economic distortion and instability
  • Revenue loss for the government.
  • Rise of economic prices. 
  • Affects trade and international capital flows


Social Impacts:

  • Activities such as drug trafficking, smuggling, corruption, and other criminal activities increases
  • Adversely affects Human development 
  • Misallocation of resources
  • Trust of local citizens in their domestic financial institutions is destroyed


Political Impacts:

  • Instability on the political front
  • Criminalization of politics
  • Political distrust


India's efforts in Preventing Money Laundering:

Prevention of Money-Laundering Act, 2002 (PMLA)

Enforcement Directorate (ED) (law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India)

Financial Intelligence Unit-IND 

Narcotic Drugs and Psychotropic Substances Act, 1985

Criminal Law Amendment Ordinance 

The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 

Membership in FATF 


Global efforts to combat Money Laundering: 

  • The Financial Action Task Force (monitors members’ progress in applying measures to counter Money Laundering)
  • The Vienna Convention
  • The 1990 Council of Europe Convention 
  • G-10’s Basel Committee statement of principles
  • The International Organization of Securities Commissions (IOSCO) 


Way Forward

  • Combining advanced Anti-Money Laundering mechanisms like big data and artificial intelligence we can address the evolving threats of money laundering with ease. 
  • Teamwork and data sharing mechanisms is required among all stakeholders to effectively eliminate money laundering.


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