Answer:

Introduction:

Money laundering, the process of making illegally-gained proceeds appear legal, poses a serious threat to India’s economic sovereignty, undermining the integrity of the financial system and hampering economic development. As per the United Nations Office on Drugs and Crime, it is estimated that the amount of money laundered globally in one year is 2–5% of global GDP, or $800 billion – $2 trillion in current US dollars. Although India-specific data is difficult to accurately measure due to the clandestine nature of these transactions, the magnitude of the problem can be inferred from global statistics.

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Significance of Money Laundering for India

• Economic Impact:
  • Money laundering can distort market mechanisms, increase volatility, and create economic instability.
  • For instance, as per a study by the International Monetary Fund, substantial money laundering activities in an economy can discourage foreign investors and increase economic volatility.
  • Threat to National Security:
  • Laundered money often funds illegal activities like terrorism, drug trafficking, and other organized crimes that pose a significant threat to national security.
  • For instance, it was reported in 2020 that funds laundered through Hawala transactions were used to finance the 26/11 Mumbai terror attacks.
• Governance and Corruption:
  • Money laundering can reinforce corruption, erode governance, and weaken democratic institutions.
  • According to Transparency International’s Corruption Perceptions Index 2022, India ranks 85 out of 180 countries, indicating a high level of corruption that can be perpetuated by money laundering activities.
• Social Impact:
  • The accumulation of wealth through money laundering can increase social inequality and further marginalize vulnerable sections of society.
  • As per a 2019 report by Oxfam, the top 10% of the Indian population holds 77% of the total national wealth, a disparity that can be exacerbated by money laundering activities.

Steps Required to Control Money Laundering

• Strengthening Regulatory Framework: Implement strong Anti-Money Laundering (AML) laws, like the Prevention of Money Laundering Act (PMLA), and ensure their effective enforcement.
• Enhancing Surveillance and Intelligence: Improve surveillance systems, and bolster the capabilities of organizations like the Enforcement Directorate (ED) and Financial Intelligence Unit (FIU-IND).
• International Cooperation: Enhance cooperation with international bodies like Financial Action Task Force (FATF) and share intelligence with other nations to prevent cross-border money laundering.
• Promoting Financial Transparency: Encourage the use of formal banking channels, implement Know Your Customer (KYC) norms effectively, and promote digital transactions to increase transparency and traceability.

Conclusion:

While money laundering poses a serious threat to India’s economic sovereignty, a combination of robust legislation, efficient surveillance, international cooperation, and financial transparency can go a long way in curbing this menace.

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