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29 Mar 2025
GS Paper 3
Internal Security
Day 19: What is Money Laundering? How has it emerged as one of the biggest threats to the internal security of India? (Answer in 125 words)
Approach
- Briefly, introduce Money laundering (ML).
- Discuss the impact of ML on the internal security of India.
- Highlight the initiative of the government.
- Conclude with the way forward.
Introduction
As per the INTERPOL, Money laundering is concealing or disguising the origins of illegally obtained proceeds so that they appear to have originated from legitimate sources. Eventually, it is the process of making illegitimate money into legitimate money. It involves three processes Placement, Layering, and Integration.
- Placement: It puts the “dirty money” into the legitimate financial system.
- Layering: It conceals the source of the money through a series of transactions and bookkeeping tricks.
- Integration: In the case of integration, the laundered money is withdrawn from the legitimate account to be used for criminal activities.
Body
Money laundering is frequently a component of other, much more serious, crimes such as drug trafficking, robbery, or extortion. The impact of money laundering has the biggest threat to the internal security of India which are as follows:
- Social Impacts: Money laundering increases criminality and has a negative impact on human development. Misallocation of resources affects the trust of local citizens in their domestic financial institutions and declines the moral and social position of the society by exposing it to activities such as drug trafficking, smuggling, corruption, and other criminal activities.
- Economic Impacts: Committing the crime of money laundering transfers economic power from the right people to the wrong people such as criminals and terrorists. It undermines the legitimacy of the private sector and the integrity of financial markets, which ultimately leads to security threats to privatization efforts.
- Economic crime such as tax evasion results in loss of government revenue, thus affecting the potential of the government to spend on schemes related to internal security.
- Political Impacts: Money laundering initiates political distrust and instability in the political system. It strengthens the criminalization of politics, which means criminals participate in the politics of the government.
- In a petition filed in February 2023, it was claimed that there has been an increase of 44% in the number of Members of Parliament with declared criminal cases since 2009.
The government has come up with many initiatives to tackle the problem of money laundering which are as follows:
- Prevention of Money-Laundering Act, 2002: It is applicable to all financial institutions (banks, mutual funds, insurance companies, and their financial intermediaries).
- Narcotic Drugs and Psychotropic Substances Act, 1985: It provides for the penalty of property derived from or used in the illegal traffic of narcotic drugs.
- Financial Intelligence Unit - India (FIU-IND): It is the national agency responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions.
Conclusion
Thus, the evolving threats of money laundering supported by emerging technologies need to be addressed with equally advanced Anti-Money Laundering mechanisms like big data and artificial intelligence. Both international and domestic stakeholders need to come together by strengthening data-sharing mechanisms amongst themselves to effectively eliminate the problem of money laundering.
