Money laundering involves disguising the origins of illegally obtained funds by funneling them through a complex series of transfers or commercial transactions. Meanwhile, globalization refers to the increasing interconnectivity of the world through heightened trade and cultural exchange.
Connections between globalization and money laundering:
- The expansion of global trade, the growth of the global financial system, the reduction of barriers to international travel, and the rise of transnational organized crime have collectively provided the opportunity, means, and source for converting illicit proceeds into seemingly legitimate funds.
- The secretive nature of money laundering makes it challenging to determine the origin of funds, particularly as “dirty money” becomes deeply embedded within the international banking system.
- Various developments in the international financial system, such as the presence of black markets denominated in major currencies, the trend towards financial deregulation, the advancement of the Euro market, and the proliferation of financial havens, have made it increasingly difficult to locate, freeze, and confiscate unlawfully acquired income and assets.
These challenges have prompted several efforts at both the international and national levels to combat money laundering:
International efforts include:
- The Vienna Convention, which fosters international cooperation in investigations and enables member states to extradite individuals involved in money laundering.
- The Financial Action Task Force (FATF), which assists in the fight against terrorism by tracing terrorist funding and successfully investigating and prosecuting money laundering and terrorist financing offenses.
- The Basel Committee’s Statement of Principles, which seeks to prevent individuals engaged in money laundering from accessing the banking system by enforcing four key principles: customer identification, compliance with laws, cooperation with law enforcement agencies, and adherence to the statement.
National efforts include:
- The Prevention of Money Laundering Act, 2002, and its associated rules, which impose obligations on banking institutions and financial entities, aiming to prevent and control money laundering and enable the confiscation and seizure of assets acquired through illicit means.
- The establishment of a Financial Intelligence Unit, responsible for receiving, analyzing, and disseminating financial information in accordance with the country’s anti-money laundering laws, to support both national and international authorities in their anti-money laundering endeavours.
- The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which addresses undisclosed foreign income and assets by outlining the procedures for dealing with such assets.
- The Benami Transactions (Prohibition) Amendment Bill, 2015, which expands the definition of benami transactions and specifies penalties for individuals involved in such transactions.
- Anti-money laundering/counter financing of terrorism guidelines for general insurers, 2013, which require insurance companies to establish and implement policies, procedures, internal controls, and audits as part of their anti-money laundering and counter-financing of terrorism programs. Insurers are also required to maintain transaction records as per these guidelines.
Money laundering has become a significant challenge, necessitating international prioritization for its prevention. Additional measures such as enhancing financial literacy,
promoting know-your-customer (KYC) norms, and encouraging cashless digital transactions are steps in the right direction to combat money laundering.