Money Laundering and its Prevention

According to the Financial Action Task Force (FATF), money laundering is “the processing of criminal proceeds to disguise their illegal origin in order to legitimize the ill-gotten gains of crime.” In simpler terms, money laundering is the illegal process of concealing the origins of illicitly obtained funds, making them appear legitimate. Criminals carry out a series of financial transactions to obscure the true source of money earned through illegal means such as drug trafficking, corruption, or fraud, with the goal of integrating it into the legal financial system.

As globalization and technology advance, money laundering techniques have become more complex, often involving cross-border transactions and digital platforms. Combating money laundering is essential to preserve the integrity of financial institutions, ensure economic stability, and prevent the use of illicit funds in further criminal or terrorist activities.

Stages of Money Laundering

Money laundering typically occurs in three main stages: Placement, Layering, and Integration. Each stage is designed to obscure the origin of illicit funds and make them appear legitimate.

1. Placement: This is the initial stage where illicit funds are introduced into the financial system. The goal is to distance the money from its criminal origin. It often involves depositing large sums of cash into banks, purchasing assets, or moving money across borders through various means, such as currency exchange or smuggling. 
2. Layering: In this stage, the goal is to obscure the origins of the funds through complex transactions. This involves moving the money through a series of transfers, conversions, or investments to create confusion and make tracing the money difficult. Methods like wire transfers, shell companies, and offshore accounts are commonly used to create multiple layers of transactions.
3. Integration: The final stage involves reintroducing the laundered funds into the economy as legitimate assets. Once the illicit money has been sufficiently obscured, it is integrated into the legal financial system through investments, property purchases, or business ventures, allowing the criminal to enjoy their ill-gotten gains without suspicion.

Methods and Techniques of Money Laundering

Money laundering employs various methods and techniques to disguise the illicit origins of funds. These methods can range from traditional tactics to sophisticated digital strategies. Below are some common techniques used in money laundering:

1. Smurfing: Breaking down large sums of cash into smaller deposits, often involving multiple individuals to avoid detection.
2. Cash Smuggling: Physically transporting large sums of cash across borders to avoid detection by financial institutions or authorities.
3. Shell Companies: Creating fake companies to hide the true ownership and source of illicit funds.
4. Round-tripping: Money is sent to a tax haven, like Mauritius or Singapore, and later returns as foreign investment, obscuring its original source.
5. Hawala: A system for transferring money through informal channels, avoiding traditional banking and regulatory scrutiny.
6. False Invoicing: Creating fake invoices for goods or services to justify large transactions and conceal illicit funds.
7. Cryptocurrency: The use of cryptocurrencies for anonymous transactions, increasing in popularity for money laundering, particularly after events like the 2015 Paris attacks and post-demonetization.
8. P-Notes: A mechanism for foreign investors to avoid revealing their identity, often used to launder money by bypassing regulations.

These methods highlight the creativity and complexity involved in modern money laundering schemes, which often exploit legal loopholes and technological advancements to evade detection.

Black Money

Black Money refers to unreported wealth accumulated through illegal or underreported means, often linked to corruption, smuggling, and crime. It disrupts the economy by avoiding taxes, contributing to income inequality, and undermining economic growth. It also impacts governance by fostering corruption and organized crime, while destabilizing law and order. Efforts like demonetization aim to curb black money, but its persistence remains a significant challenge due to financial system loopholes.

Impact and Effects of Money Laundering

Money laundering has far-reaching social, economic, and political impacts that undermine the stability and integrity of both local and global systems. Its effects extend beyond financial institutions, causing damage to societies, economies, and governance structures.

Social Effects

1. Boosts More Criminal Activity: Money laundering facilitates organized crime, corruption, and terrorism. According to the United Nations Office on Drugs and Crime (UNODC), money laundering accounts for approximately 2-5% of global GDP, which is a significant portion of criminal activity fueling further criminal enterprises.
2. Attracts Youth to Crime: The promise of high financial returns from illicit activities can lead young people, especially those from economically disadvantaged backgrounds, to participate in illegal enterprises. This is evident in regions with high youth unemployment where criminal groups often recruit vulnerable individuals.
3. Declines Morality: Exposure to money laundering and criminal money can normalize illegal activities like drug trafficking and corruption. For instance, Mexico’s 2018 anti-money laundering report highlighted how drug cartels use money laundering to infiltrate legitimate markets and recruit from impoverished communities.
4. Disturbs Social Balance: The ease of availability of drugs and illegal goods destabilizes societies. The global drug trade, estimated at $426 billion annually, is significantly financed through money laundering activities.
5. Damages Reputation of Financial Institutions: Financial institutions involved in money laundering face severe reputational damage. For instance, Deutsche Bank was fined $630 million by US and UK regulators for facilitating money laundering, which affected its market value and credibility.
6. Weakens Democratic Institutions: Money laundering and the illicit flow of funds undermine democratic processes. In Brazil, the Operation Car Wash scandal highlighted how money laundering funded corruption in the political system, weakening democratic institutions.
7. Transfers Economic Power to the Wrong People: Money laundering enables criminals to acquire legitimate assets and exert power over markets. In some developing nations, politically exposed persons (PEPs) and corrupt elites exploit money laundering to siphon public funds, undermining governance.
8. Increases Unemployment: Illicit businesses benefiting from money laundering are often not subject to the same labor regulations, leading to unfair competition with legitimate businesses. In countries like India, small businesses have been hit hard by this issue, leading to higher unemployment rates.

Economic Effects 

1. Decrease in Tax Revenue: Money laundering leads to lower tax revenues due to underreporting of income. The International Monetary Fund (IMF) estimates that the global loss in tax revenue due to money laundering and tax evasion is approximately $500 billion to $600 billion annually.
2. Loss of Revenue for Government: Decreased tax revenue limits government spending on social services, healthcare, and infrastructure. In countries with high levels of money laundering, such as Russia, corruption has led to a $2 trillion capital flight over the last decade, impacting public sector investments.
3. Unpredictability in Economy: Money laundering inflates markets with illicit funds, destabilizing the financial ecosystem. For example, in the Asian financial crisis of 1997, money laundering played a key role in exacerbating economic instability.
4. Threatens Economic Stability: The influx of illicit funds can destabilize national economies. For instance, Cyprus experienced significant instability in its banking sector in the aftermath of Russian money laundering activities in 2012-13, contributing to a severe economic downturn.
5. Discourages Foreign Investment: Foreign investors often avoid countries with high levels of money laundering due to the risk of being linked to illegal activities. China, for instance, saw a drop in foreign direct investment (FDI) following its efforts to crack down on illegal financial practices in the mid-2000s. 
6. Encourages a Tax Evasion Culture: Countries with weak anti-money laundering regulations often see a growth in tax evasion. India’s Goods and Services Tax (GST) has been subject to significant evasion, with a reported ₹50,000 crore in unpaid taxes, much of it facilitated by laundering activities.
7. Exchange and Interest Rate Volatility: Money laundering activities distort the foreign exchange market and influence interest rates. For example, in Venezuela, the influx of illicit money destabilized its currency and contributed to hyperinflation, where the annual inflation rate reached 1,700,000% in 2018.

Political Impact

1. Affects Government Spending: The reduced tax base due to money laundering negatively impacts government spending, especially on development programs. For example, in Nigeria, corruption and illicit financial flows have led to underfunded healthcare and infrastructure systems.
2. Difficulty in Quantifying Economic Effects: Legislators often face challenges in accurately assessing the damage caused by money laundering. In India, the 2019 “black money” report highlighted difficulties in estimating the true scale of illicit financial flows, leading to underreporting of losses.
3. Policy Distortion: Money laundering distorts economic policy due to misallocation of resources. Governments may fail to prioritize sectors that would have the most positive impact on society because they are misled by incorrect financial information.

Framework for Prevention of Money Laundering

The prevention of money laundering involves a comprehensive approach encompassing statutory, institutional, and international frameworks to effectively tackle the problem. These frameworks are crucial in ensuring the integrity of financial systems, preventing illicit financial flows, and promoting global cooperation.

1. Statutory Framework

The statutory framework lays the legal foundation for combating money laundering activities through various laws and regulations.

• Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA): This act is aimed at curbing smuggling activities and violations related to foreign exchange, which are often linked to money laundering.
• Foreign Exchange Management Act (FEMA), 1973: FEMA regulates foreign exchange transactions in India, preventing illegal cross-border transactions that could facilitate money laundering. It also deals with the regulation of foreign exchange and related activities.
• Prevention of Money Laundering Act (PMLA), 2002: This law forms the cornerstone of India’s fight against money laundering. It criminalizes money laundering activities, provides for the attachment of property derived from crime, and sets up the Enforcement Directorate (ED) to enforce these laws. 
• Foreign Contribution Regulation Amendment Act (FCRA) 2020: It strengthens oversight on foreign donations to NGOs, ensuring greater accountability and transparency. It restricts administrative expenses, mandates Aadhaar for registration, and bars public servants from receiving foreign funds. The Act also disallows fund transfers and requires periodic renewal of FCRA registration.

2. Institutional Framework

Various institutions and agencies play a pivotal role in the enforcement of laws and monitoring financial transactions to prevent money laundering.

• Enforcement Directorate (ED) for PMLA: The ED is responsible for investigating and enforcing provisions of the PMLA. It can attach properties derived from crime, prosecute offenders, and enforce monetary penalties.
• Financial Intelligence Unit (FIU): The FIU is responsible for analyzing suspicious financial transactions and disseminating intelligence to enforcement agencies, financial institutions, and regulators.
• Combating Financing of Terrorism (CFT) Cell: This specialized cell focuses on identifying and preventing the flow of funds that are intended for financing terrorism, which often overlaps with money laundering activities.
• Fake Currency Cell: This cell addresses the issue of counterfeit currency that is often used to launder illicit funds. It works to track and eliminate fake currency circulation.

3. International Coordination

Given the global nature of money laundering, international cooperation is critical in curbing cross-border illicit financial flows.

• India’s Signatory to Key International Conventions:
  • International Convention for the Suppression of Financing of Terrorism (1999): India is a signatory to this convention that seeks to prevent the financing of terrorism, which often involves money laundering activities.
  • UN Convention Against Transnational Organized Crime (2000): This convention provides a framework for international cooperation to combat organized crime, including money laundering.
  • UN Convention Against Corruption (2003): This convention focuses on preventing corruption and illicit financial flows, which are often linked to money laundering activities. 
  • UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988): This convention aims to control illicit trafficking in drugs and substances, which is a major source of illegal funds requiring laundering.
• Financial Action Task Force (FATF): FATF is an international body that sets global standards for combating money laundering and terrorism financing. FATF recommendations are widely adopted by countries to strengthen their financial systems and prevent money laundering.
• Organisation for Economic Co-operation and Development (OECD):
  • Automatic Exchange of Financial Information: The OECD facilitates the automatic exchange of financial information between countries to track illicit financial activities and combat money laundering.
  • Base Erosion and Profit Shifting (BEPS) Initiative: This OECD initiative seeks to prevent tax evasion and illicit money transfers by multinational corporations, which often contribute to money laundering.
• United Nations Global Program Against Money Laundering (GPML): The UN’s GPML provides technical assistance and capacity-building support to countries in their fight against money laundering and terrorism financing.
• Basel Committee on Banking Regulations and Supervisory Practices: This international committee formulates banking regulations, including guidelines for preventing money laundering within the banking sector. The Basel Committee works to enhance banking practices to detect and prevent illicit financial transactions.

A comprehensive and multi-dimensional approach, involving strong statutory, institutional, and international frameworks, is critical for the prevention of money laundering. These efforts, alongside effective enforcement and global cooperation, are essential to safeguarding financial integrity, promoting accountability, and mitigating the adverse impacts of illicit financial activities.

Demonetization 2016

On November 8, 2016, the Indian government, led by Prime Minister Narendra Modi, announced the demonetization of ₹500 and ₹1,000 currency notes, which accounted for approximately 86% of the total currency in circulation. The objective was to tackle black money, counterfeit currency, and corruption by pushing for a digital and cashless economy. Key Objectives Curb Black Money: By invalidating high-denomination notes, the government aimed to bring unaccounted wealth into the formal economy. Counterfeit Currency: It sought to eliminate fake currency used for financing illegal activities, including terrorism. Promote Digital Payments: Encouraging electronic transactions and reducing the dependence on cash. Impacts Short-Term Chaos: The sudden withdrawal of currency led to long queues at banks, cash shortages, and disruptions in daily life. Increased Tax Compliance: More money moved into the banking system, leading to higher tax collection and documentation of income. Mixed Results: While some black money was returned to banks, experts argue that demonetization failed to eliminate black money entirely due to the use of loopholes like cash deposits in other people’s accounts and a reliance on alternative forms of illicit wealth storage. Demonetization remains a controversial decision, with mixed opinions on its effectiveness in tackling black money and corruption.

Treating Money Laundering as a Separate Offense

The Central government is considering making money laundering a separate criminal offense, to be investigated by the Enforcement Directorate independently, regardless of ongoing investigations by other agencies. This would streamline the investigation process and bring India’s legal framework in line with international standards.

1. Financial Action Task Force (FATF) and SIT on Black Money Recommendations – Both FATF and the Special Investigation Team (SIT) on black money have recommended making money laundering a separate offense to improve enforcement and coordination.
2. International Practices – Countries like the U.K. treat money laundering as a stand-alone crime, enabling authorities to investigate it independently based on circumstantial evidence. This approach focuses on proving that the proceeds have a criminal origin rather than waiting for the outcomes of multiple probes.
3. Definition of “Proceeds of Crime” – Currently, investigations into money laundering are intertwined with probes of related crimes due to the dependency on the definition of “proceeds of crime,” which is linked to predicate offenses listed under the Prevention of Money Laundering Act (PMLA). Treating it as a separate offense will ease this overlap.
4. Speeding Up Investigations – A separate classification will likely speed up investigations by providing a clear focus and legal framework for money laundering cases.
5. Money Laundering as a Multiplier of Criminal Activities – Money laundering acts as a multiplier by granting economic power to criminals, facilitating the continuation and expansion of illegal activities.
6. Link Between Money Laundering and Organized Crime – Fighting money laundering without addressing organized crime is ineffective, as it only deals with one aspect of the criminal ecosystem. Tackling both simultaneously will have a more significant impact on reducing crime overall.

Hawala Trading

Hawala is an informal system of transferring money without using traditional banking channels. It operates on trust and is largely unregulated, making it an attractive option for people involved in illegal activities. 

Reasons why individuals prefer Hawala?

1. Low Commission Rate – Hawala operates with a significantly lower commission rate compared to traditional financial institutions, making it an attractive option for those looking to minimize transaction costs.
2. No Requirement of ID Proof – Unlike formal banking systems that require identification and documentation, Hawala does not require any proof of identity, making it appealing for anonymous transactions.
3. Reliable & Efficient System of Remittance – Hawala is known for its speed and reliability, especially for cross-border transactions, which makes it a popular choice for remittances.
4. No Physical Movement of Cash – Hawala transactions do not involve the physical movement of cash, allowing funds to be transferred easily and discretely without detection.
5. Better Exchange Rates – Hawala often offers better exchange rates than those provided by official channels, making it an attractive option for foreign currency exchange.
6. Simple and Hassle-Free Process – The process of sending money through Hawala is relatively simple and does not require complicated documentation, making it quicker and more accessible.
7. Easy Way to Transfer Unaccounted Income – Hawala is frequently used to transfer unaccounted money without triggering tax obligations, making it an appealing choice for those involved in tax evasion.
8. Circulation of Black Money and Financing of Criminal Activities – Hawala is often used to circulate black money and finance illegal activities such as terrorism, drug trafficking, and money laundering, which further perpetuates organized crime.

Fake Currency

Fake currency refers to counterfeit money created illegally to imitate legitimate currency, often used to fund criminal activities like terrorism and organized crime. Counterfeit Methods: Advanced printing and digital methods used to replicate genuine currency features. Economic Impact: Increases inflation, erodes public trust, and destabilizes financial systems. Terrorism Funding: Fake currency is often linked to financing illegal activities. Preventive Measures: Use of advanced security features, public awareness, and legal frameworks. Banking Sector Risks: Financial institutions are at risk of accepting counterfeit money, leading to losses. Legal Provisions: Laws like Section 489 of the Indian Penal Code criminalize counterfeiting and impose penalties. Combating fake currency requires advanced technology, public education, and strict enforcement to protect economies.

Financial Action Task Force (FATF)

 The Financial Action Task Force (FATF) is an international body established to develop and promote policies aimed at combating money laundering, terrorist financing, and other threats to the international financial system. FATF sets global standards and fosters effective implementation of legal, regulatory, and operational measures for addressing these risks. It plays a pivotal role in promoting financial transparency and strengthening global cooperation to mitigate illicit financial activities.

Functions of FATF 

1. Sets international standards to combat money laundering, terrorist financing, and proliferation financing.
2. Conducts peer reviews (mutual evaluations) of member countries’ anti-money laundering and counter-terrorism financing frameworks.
3. Identifies high-risk and non-cooperative jurisdictions (like the Grey List and Black List).
4. Issues guidelines, best practices, and typologies to strengthen global financial systems.
5. Monitors evolving threats and promotes implementation of legal, regulatory, and operational measures globally.

FATF List	Description	Examples (as of 2024)
Grey List	Jurisdictions under Increased Monitoring (strategic deficiencies in AML/CFT, cooperating with FATF)	Myanmar, South Africa, Nigeria, Syria
Black List	High-Risk Jurisdictions subject to a Call for Action (serious deficiencies, non-cooperative)	North Korea, Iran

Why FATF is Effective?

The Financial Action Task Force (FATF) has proven to be an effective body in combating money laundering and terrorist financing due to several key features:

1. Consensus-Based Model of Decision Making – FATF operates through a consensus-based approach, ensuring that all member countries collaborate in formulating policies and recommendations.
2. Policy of “Naming and Shaming” with Focus on Correction – FATF uses the strategy of publicly naming countries that fail to comply with its standards, putting pressure on them to make corrections while encouraging transparency.
3. Listing Countries Based on Compliance – Countries are listed based on their adherence to transparent anti-money laundering guidelines, which promotes global cooperation in addressing financial crimes.
4. Actions Based on Professional Analysis – FATF’s decisions are based on objective professional analysis rather than influenced by geopolitical considerations, ensuring impartiality.
5. Gains Credibility by Affecting Economic Well-Being – By making its recommendations effective, FATF has the power to harm a country’s economic interests (e.g., credit rating, trade relations, loans from the IMF and World Bank), which motivates compliance.
6. Scrutinizes Both Laws and Implementation – FATF not only assesses the legal frameworks of member countries but also evaluates the actual implementation of anti-money laundering laws and policies.

FATF’s Recommendations

FATF provides comprehensive recommendations that guide countries in developing effective measures to combat money laundering and terrorist financing. These include:

1. Policy
   • Establish a robust anti-money laundering policy in line with international conventions such as the Vienna Convention and Palermo Convention.
2. Institution
   • Designate an authority responsible for implementing anti-money laundering policies.
   • Designate law enforcement agencies dedicated to investigating money laundering and terrorist financing.
   • Establish a Financial Intelligence Unit (FIU) to analyze suspicious transactions.
   • Implement measures to confiscate property obtained from proceeds of crime.
3. Financial Institutions 
   • Remove financial secrecy laws that impede the fight against money laundering.
   • Prohibit financial institutions from maintaining anonymous accounts.
   • Require financial institutions to retain records of all transactions for transparency.
   • Ensure that money transfer service providers are properly licensed or registered.
   • Monitor wire transfers and ensure financial institutions report suspicious transactions to FIUs.
   • Ensure that foreign branches of financial institutions adhere to these measures.
4. International Cooperation
   • Become a party to key global conventions related to money laundering and terrorism financing.
   • Provide mutual legal assistance to other countries in investigating financial crimes.
   • Effectively execute extradition requests for individuals involved in money laundering and terrorism financing.
   • Identify and address risks posed by new technologies in the financial sector.

Challenges in Preventing Money Laundering

The fight against money laundering is faced with several challenges, stemming from complex criminal networks, the evolving landscape of technology, and regulatory gaps. These obstacles make it difficult to combat the flow of illicit funds effectively.

1. Enforcement Agencies – Dependence on other agencies (CBI, Income Tax Department) due to the link with other crimes like smuggling, trafficking, and illegal arms trade, coupled with enforcement agencies not keeping up with the rapid pace of technological advancements and lack of coordination between agencies dealing with money laundering, cyber-crimes, terrorist activities, and economic offenses.
2. KYC (Know Your Customer) – KYC norms are ineffective in stopping Hawala transactions prevalent in the parallel economy, and increasing competition among banks leads to the relaxation of KYC requirements to attract more customers.
3. Widespread Smuggling – Cross-border smuggling, particularly along the Bangladesh and Nepal borders, facilitates the movement of illicit money across borders, making detection difficult.
4. Tax Haven Countries – Financial secrecy laws and the anonymity offered by tax haven countries hinder the identification of illicit funds and their movement.
5. Complex Financial Products – The use of complex financial products and services such as shell companies, offshore accounts, and cryptocurrency make it challenging to trace the origin of laundered funds.
6. Technological Advancements – The rapid evolution of technologies such as blockchain and cryptocurrencies complicates the detection of money laundering activities.
7. Lack of Awareness – Insufficient awareness about the nuances of money laundering among financial institutions and enforcement agencies results in inadequate vigilance and enforcement.
8. Weak International Cooperation – Despite global efforts, discrepancies in laws and the lack of effective international cooperation hinder the timely exchange of information and coordinated actions against money laundering.

Case Studies of Money Laundering

Real-world cases reveal how money laundering exploits global financial systems and highlight the critical need for stronger regulation and vigilance. Below are three major examples: Danske Bank Scandal (2018) – Around €200 billion was laundered through Danske Bank’s Estonian branch using shell companies and fake invoices, mainly originating from Russia. Lax internal controls and poor oversight allowed the transactions to continue for years, exposing the weaknesses of cross-border banking compliance. Panama Papers Leak (2016) – Over 11 million documents from Mossack Fonseca revealed how elites worldwide used offshore entities to hide wealth and launder money. It implicated politicians, celebrities, and business figures, showing the central role of tax havens and shell companies in global money laundering networks. 1MDB Scandal (2015) – Billions were siphoned from Malaysia’s sovereign wealth fund through fake deals and offshore accounts, funding luxury purchases and Hollywood films. The scandal involved global banks and led to international probes, underscoring the need for strict oversight of sovereign funds and large financial transactions.

Way Forward to Combat Money Laundering

To effectively combat money laundering, a multi-faceted approach involving legal, institutional, and international cooperation is necessary. Strengthening laws, enhancing coordination among agencies, and fostering global collaboration will be critical in addressing the challenges posed by money laundering.

1. Legal
   • More stringent laws for combating money laundering should be enacted and strictly enforced.
   • Ensuring proper coordination between the Centre and States, with decentralized laws, is essential to streamline enforcement.
   • Laws should be aligned with international conventions such as the UN conventions to ensure global compliance.
   • A balance must be struck between financial confidentiality and the need to prevent money-laundering havens.
2. Institutional
   • Agencies dealing with related crimes (such as smuggling, drug trafficking, etc.) need to coordinate effectively for a more integrated approach.
   • A special cell dedicated to combating money laundering should be established, with participation from bodies like RBI and SEBI.
   • Continuous upgradation of technology and systems is necessary, along with regular dissemination of information to relevant agencies.
3. IEC (Information, Education, and Communication)
   • Public awareness campaigns and education programs are essential to ensure better law enforcement and compliance with anti-money laundering efforts.
   • Private sector entities need to be sensitized to the risks of money laundering and their role in its prevention.
4. International
   • Harmonizing anti-money laundering laws across different countries will help in dealing with cross-border crimes more effectively.
   • Strengthening intergovernmental groups to facilitate better information sharing and coordination in combating money laundering on a global scale is crucial.

A firm commitment to these strategies will help build a transparent, accountable, and resilient global financial system.

Conclusion

Money laundering poses a serious threat to the global financial system by facilitating criminal activities such as terrorism, drug trafficking, and corruption. With evolving methods that exploit technology and regulatory loopholes, it undermines economic stability, governance, and public trust in institutions.

Combating money laundering demands a coordinated global response involving stronger regulations, advanced technologies, and public-private collaboration. By enhancing transparency, ensuring strict enforcement, and promoting international cooperation, we can significantly reduce illicit financial flows and build a more secure and accountable financial ecosystem.

What is money laundering, and why is it a concern for global economies?

Money laundering is the illegal process of disguising the origin of money obtained through criminal activities such as drug trafficking or corruption. It’s a concern because it undermines financial systems, fuels organized crime, and leads to loss of tax revenue, economic instability, and weakened governance.

What are the three key stages of money laundering?

The three main stages are: Placement (introducing illicit money into the financial system), Layering (concealing its origin through complex transactions), and Integration (reintroducing the now ‘cleaned’ money into the economy through investments or businesses).

What laws in India combat money laundering?

Key laws include the Prevention of Money Laundering Act (PMLA), 2002, Foreign Exchange Management Act (FEMA), 1973, and COFEPOSA Act, 1974. These laws empower authorities like the Enforcement Directorate to investigate, attach properties, and prosecute offenders.

What role does the Financial Action Task Force (FATF) play in controlling money laundering?

FATF sets international standards to combat money laundering and terrorist financing. It monitors compliance, identifies high-risk jurisdictions (Grey and Black Lists), and pressures countries to strengthen anti-money laundering frameworks through peer reviews and global cooperation.

How does Hawala contribute to money laundering?

Hawala is an informal, unregulated money transfer system that bypasses traditional banking. It’s widely used for laundering black money due to its anonymity, low cost, and speed. It allows transfer of unaccounted income and funds illegal activities like terrorism and drug trafficking