Money Laundering

Introduction

Money laundering is the illicit practice of making significant sums of money obtained through criminal activity, such as drug trafficking or terrorist financing, appear to have originated from a legitimate source. The proceeds of illicit activities are deemed “dirty”, thus the process “launders” them to make them appear clean. 

• Money laundering is the criminal practice of hiding the source or origin of money obtained illegally by moving it through a series of complex transactions. The major concern of money laundering arises from its connection with criminal activities. 
• The entering of illegal money per se in itself is not the cause of concern; rather, the issue lies in the negative effect this is likely to have on society. 
• Money laundering provides an avenue for the criminals to convert their illegal assets to legal form and thereby use their surplus funds in legal avenues which otherwise would have remained idle or spent in luxurious endeavours. Hence, it will have far-reaching effects—economic, political and social. 

It is a dynamic process that involves: 

• Placement: moving the funds from direct association with the crime, and Illicit funds placed in a financial instrument. 
• Layering: disguising the trail to foil pursuit; Repeated transfers, deposits and withdrawals. 
• Integration: making money available to the criminal, once again, with its occupational and geographic origins hidden from view. Using the funds that were cleaned by the layering to purchase legitimate assets. 

Corruption and organised crimes are the two most important concerns of almost all countries. Money laundering helps camouflage the illegal wealth of corrupt individuals. 

• It helps in the perpetration and structuring of organised crimes. Thus, in places with a lag in control of money laundering, it leads to an increase in corruption and financial fraud.  
• Moreover, such places will act as safe-haven for criminals, leading to a more detrimental effect on their social environment.  
• The Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit in Paris in 1989 to create a coordinated international response to growing concerns about money laundering. 

Negative Impact of Money Laundering: 

• Globally, money laundering is creating lots of trouble as it is leading to many criminal acts like illegal arms sales, prostitution rings, smuggling, drugs trafficking, organised crimes, insider trading and many other crimes, funding terrorist organisations that pose a serious threat to economic growth. 
• It will also have an impact on money demand and will negatively impact the monetary policy leading to the failure of central bank policy.