What is Meant By Money Laundering?
Money laundering is defined as the concealing of the identity of illegal proceeds in a manner to make it appear as if it were from legitimate sources. - The IMF estimates that global money laundering accounts for nearly 2 to 5% of the GDP of the world. - It is often referred to as victimless crime, as it is seen as a crime against the world at large and not against an individual or a set of individuals. - The sources of the money laundered can be from arms trafficking, drug trafficking, corruption, tax evasion, smuggling etc. - Some of the forms of money laundering include smurfing, investing in shell companies, payment of black salaries, round tripping, tax amnesties etc.
What Is the Process Generally Followed While Laundering Money?
The process of money laundering usually involves three distinct steps of placement, layering and integration. In the first step, the dirty money is placed into the legitimate financial system. This is followed by layering which involves concealing the sources of money through a series of transfers and bookkeeping tricks. In the final step, the laundered money is withdrawn into a legitimate account to be used for criminal activities.
What is the Impact of Money Laundering?
The impact of money laundering may be broadly classified as economic, social and political impacts, but if one were to look at the impact in detail, the following may be listed – - Money laundering undermines the legitimacy of the financial markets as well as the private sector. It results in economic distortion and instability in the financial system. - There is a loss of revenue to the government sector. - There is increased volatility of exchange rates and interest rates due to unanticipated transfer of funds. - It adversely affects trade and capital flows internationally. - There is increased misallocation of resources and increased criminality. - There is erosion of the trust of domestic citizens into domestic financial institutions.
Global Efforts to Curb Money Laundering
The global community has undertaken umpteen number of steps to combat money laundering. These are as follows – - Creating an obligation to criminalise money laundering from drug trafficking under the Vienna Convention. - Establishing a criminal policy on money laundering under the 1990 Council of Europe Convention. - Issuing a Statement of Principles with international banks by the G10 Basel Committee. - The International Organization of Securities Commissions (IOSCO) ensures that the members take steps to combat money laundering in the futures market. - The FATF, which is a brainchild of G7 countries monitors a countries progress in countering money laundering as per its Forty Recommendations.
