UPSC Courses

DNA banner


  • 12 May, 2021

  • 15 Min Read

Money Laundering UPSC

Money Laundering

What is Money Laundering?

  • Money Laundering refers to converting illegal earned money into legitimate money.
  • The government does not get any tax on the money because there is no accounting of the black money.
  • So Money Laundering is a way to hide the illegally acquired money.
  • The term "money laundering" originated from the Mafia group in the United States of America. Mafia groups have made huge amounts of extortion, gambling, etc. and this money is shown as legal money.
  • In India, "money laundering" is popularly known as Hawala transactions.
  • According to the IMF, global Money Laundering is estimated between 2 to 5% of World GDP.

Components of Money Laundering:

It involves three steps: placement, layering and integration.

  • Placement puts the "dirty money" into the legitimate financial system.
  • Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
  • In the case of integration, the now-laundered money is withdrawn from the legitimate account to be used for criminal activities.
  • Some examples of Money laundering are Smurfing, Shell companies, Round tripping, Gambling, etc.

Impacts of money Laundering:

  • Economic Impact:
  1. Undermines integrity of financial markets.
  2. Loss of control of economic policy
  3. Economic distortion and instability
  4. Loss of revenue
  • Social Impacts:
  1. Increased criminality
  2. Decreases human development
  3. Misallocation of resources
  4. Affects trust of local citizens in their domestic financial institutions.
  • Political Impacts:
  1. Initiates political distrust and instability
  2. Criminalisation of politics

The Legal Framework in India to deal with Money laundering:

In India, the specific legislation dealing with money laundering is the Prevention of Money-Laundering Act((PMLA), 2002

  • It forms the core of the legal framework put in place by India to combat Money Laundering.
  • The provisions of this act are applicable to all financial institutions, banks(Including RBI), mutual funds, insurance companies, and their financial intermediaries.
  • The law was enacted to combat money laundering in India and has three main objectives :
  1. To prevent and control money laundering.
  2. To provide for confiscation and seizure of property obtained from laundered money.
  3. To deal with any other issue connected with money-laundering in India.
  • Under the PMLA Act, the Enforcement Directorate is empowered to conduct a Money Laundering investigation.
  • Apart from the provisions of PMLA, there are other specialised provisions such as RBI/SEBI/IRDA anti-money laundering regulations.

PMLA (Amendment) Act, 2012

  • Adds the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary etc.
  • PMLA, 2002 levied a fine up to Rs 5 lakh, but the amendment act has removed this upper limit of Rs. 5 lakh.
  • It has provided for provisional attachment and confiscation of property of any person involved in such activities.

Other methods to control Money Laundering:

  • Narcotic Drugs and Psychotropic Substances Act, 1985: It provides for the penalty of property derived from, or used in illegal traffic in narcotic drugs.
  • Financial Intelligence Unit-IND: It is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
  • Enforcement Directorate (ED):
  1. It is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
  2. One of the main functions of ED is to Investigate offences of money laundering under the provisions of Prevention of Money Laundering Act, 2002(PMLA).
  3. It can take actions like confiscation of property if the same is determined to be proceeds of crime derived from a Scheduled Offence under PMLA, and to prosecute the persons involved in the offence of money laundering.
  • India is a full-fledged member of the FATF and follows the guidelines of the same.

Source: Aspire IAS Notes

What is Mission Indradhanush ?

Mission Indradhanush was launched in 2014 under the Ministry of Health and Family Welfare.  1. Between 2009 - 2013, only 1% coverage per year has increased. We have to make it to 5%. 2. Objectives of Mission Indradhanush: We have the aim of full coverage by 2020. Cover all those children who are either unvaccinated or are part

Mediation Bill 2021 - Detailed Overview

A Bill that could alter the Mediation landscape The background behind Mediation Bill:         In General, Disputes Became part and parcel of  Day-to-Day Life. Someone or the Other belonging to family or else not a part of the family would be fighting for something. These Disputes may be for Smaller or B

Military exercises of India

List of all Military Exercises of India 2021 Military Exercises of India with Neighbours Sampriti: India & Bangladesh Mitra Shakti: India & Sri Lanka Surya Kiran: India & Nepal Hand in Hand Exercise: India & China Ekuverin: India & Maldives Military Exercises of India with Other countries Maitree Exer

Consumer Protection Rules, 2021

Consumer Protection (Jurisdiction of the District Commission, the State Commission and the National Commission) Rules, 2021 1) Pecuniary Jurisdiction The Consumer Protection Act, 2019 The Consumer Protection Act, 2019 promulgates a three-tier quasi-judicial mechanism for redressal of consumer disputes namely district commissions, state

Swachh Bharat Mission (Urban) 2.0

The Swachh Bharat Mission - Urban (SBM-U), launched on 2nd October 2014 aims at making urban India free from open defecation and achieving 100% scientific management of municipal solid waste in 4,041 statutory towns in the country. The objectives of the mission are mentioned below: Elimination of open defecation Eradication of Manual S

Students Achievement

Search By Date

Newsletter Subscription
SMS Alerts