Model Answer

Money laundering is the process of disguising proceeds generated from criminal activities and making them appear to originate from legitimate sources.

Process of Money Laundering

1. Placement introduces illegally obtained money into the financial system. e.g: Depositing illicit cash through multiple bank accounts.
2. Layering conceals its origin through complex financial transactions. e.g: Transfers through shell companies or multiple accounts.
3. Integration reintroduces laundered money into the legitimate economy. e.g: Investment in businesses or property.

Why Money Laundering is a Concern

1. It enables organised crime, corruption and drug trafficking.
2. It undermines the integrity of financial institutions.
3. It facilitates movement and concealment of proceeds of crime.

Measures Taken by India

1. Prevention of Money Laundering Act, 2002 criminalises money laundering and enables attachment and confiscation of proceeds of crime.
2. Enforcement Directorate investigates offences under PMLA.
3. Financial Intelligence Unit-India analyses suspicious financial transactions.
4. KYC and reporting requirements strengthen monitoring by financial institutions.
5. International cooperation supports tracking of cross-border illicit financial flows.

Combating money laundering requires effective financial intelligence, strong enforcement and international cooperation to prevent criminal proceeds from entering the legitimate economy.