Internal Security GS Paper III by R.P.Singh

Model Answer

Question #1. How does money laundering impact the economy of a nation? Discuss the key reforms ushered in the anti-money laundering legislations in India.

Approach

• Introduce money laundering briefly.
• Discuss the negative effects of it on economy.
• Mention about the various Money laundering legislations, guidelines and agencies involved in its deterrence.
• In conclusion write the way forward

Hints:

Money laundering is the illegal process of making large amounts of black money appear to have come from a legitimate source. Illegal arms sales, smuggling, and the activities of organised crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimise” the ill-gotten gains through money laundering.

Impact of money laundering on economy

• Reduction in Tax Revenue-Money laundering reduces tax revenue because activity taking place in the underground economy is undeclared. This reduction shrinks States tax base and ultimately limits its ability to spend on welfare schemes.
• Competitive advantage- Those corporates indulging in Money launderings have an unfair competitive advantage over those operating legitimately and paying taxes. This reduces overall ethical and moral atmosphere of corporate world.
• Effect on Money Demand-unaccounted transaction of money to and fro from the country, significantly increases, consumption of luxury goods, and affects exports, imports, foreign payments deficit, inflation, and bank rates. These instabilities in demand for money caused by black money will naturally affect the monetary policy negatively.
• Declined growth and investment- the price instability caused by black money in the financial system will affect the credibility of the economy in the external environment. Entrepreneurs will not invest in the country because the legal money escaping from the country through leakages thereby resulting in loss of growth and investment.
• Income distribution- accumulation of unaccounted money leads to concentration of wealth. This increases inequality and inequity for the economically poor.

Key reforms in Anti Money Laundering Regulations in India.

1. Prevention of Money Laundering Act 2002 –
   1. Came in effect in 2005 with twin objective to prevent money laundering and to provide for confiscation of property derived from, or involved in money laundering, and to ensure curbing of the tendency of committing scheduled offences.
   2. The Government vide Finance Act 2019 amended Sections 3, 17, 12AA and added Section 44 thus increasing definition of money laundering as per FATF, search and seizure powers, Adhar based verification and duty of adjudicating authority to file closure reports respectively.
2. Benami Transactions (Prohibition) Amendment Act, 2016-new law, amended the Benami Transactions Act, 1988.The amendment act also strengthened the parent Act in terms of legal and administrative procedure. Properties held benami are liable for confiscation by government without compensation.
3. RBI KYC norms-he RBI Directions for the implantation of KYC have been given by the RBI and are materially applicable to banking organizations and NBFCs managed by the RBI. The vital reason for these instructions is the counteraction of individuals or business organizations to abuse the banks and NBFCs from being utilized for money laundering or other unlawful demonstrations, for example, terrorist financing activities. 
4. SEBI Anti Money Laundering Guidelines-The SEBI Anti Money Laundering Guidelines have been given by the SEBI and are applicable to SEBI-registered intermediaries. These rules put an obligation on such registered parties to institute policies and strategies to aid the battle against eradicating money laundering.
5. Role of Enforcement Directorate(ED)-ED has the power to investigate offenses in relation to money laundering. They are enabled with powers to proceed with the attachment and confiscation of property, assets if the same is obtained out of the proceeds of crime and even seek foreign co-operation in this regard.

Conclusion:

Thus, the Indian system has sufficient laws and administrative machinery to deal with money laundering, but there is need for larger vigilance, transparency, surveillance and scrutiny of financial transaction, land records and sale of luxury items.

Question #2. What do you understand by the terms ‘Dark Web 'and ‘Dark Net’? Can the challenges being thrown by the Dark Web be mitigated in the existing Law or is there a need to bring new regulations?

Approach:

• Briefly explain ‘Dark Web’ and ‘Dark Net’ (30 Words)
• Explain the Challenge areas put forth by Dark Web (20 words)
• Can the challenges of Dark Web be mitigated by the existing Law or is there a need to bring new regulations (80 words)
• Conclusion (20 words)

Hint:

The dark web refers to sites that are not indexed and only accessible via specialized web browsers.

What makes Dark Web make an anonymous haven?

• No webpage indexing by surface web search engines. Google and other popular search tools cannot discover or display results for pages within the dark web.
• “Virtual traffic tunnels” via a randomized network infrastructure.
• Inaccessible by traditional browsers due to its unique registry operator.

There is no difference between Dark Web and Dark Net.

The Challenge areas put forth by Dark Web

Malicious software

The dark web doesn’t carry social contracts that traditional website providers follow to protect users on the rest of the web. As such, users can find themselves regularly exposed to some types of malwares like:

• Keyloggers
• Botnet malware
• Ransomware
• Phishing malware

Scams

• Some illegal services like the professional “hitmen” may be scams designed to profit from willing customers. There are reports that dark web offers many illegal services, from paid assassinations to trafficking for sex and weapons.
• Some of these are well-known, established threats that circulate in this nook of the web. However, others may be taking advantage of the dark web’s reputation to trick users out of large sums of money.
• Some users on the dark web may attempt phishing scams to steal your identity or personal information for extortion.

Dark Web in Indian Context

• Often there is a misconception that the dark web can be used only for criminal activities. That is true, but partially.
• The dark web has many advantages as well. People use the dark web to read books, gain information, have private chats that they do not want other people to have access to, and even for legitimate purposes by the activists, journalists, and other government agencies to trace the crime.
• But the question arises: if illegal activities like drug trafficking, child pornography takes place, then why isn’t this banned, and why is it considered legal in India to access the website?
• Accessing the dark web is legal in India. The Indian government does not recognize it as an illegal activity, because it is just another part of the internet that you are surfing, through TOR, Freenet, etc.
• Also, Indian Constitution gives us the Right to access the Internet under Article 21. The court essentially included that this right is the basic infrastructure of freedom of speech and expression.

Can the challenges of Dark Web be mitigated by the existing Law?

• Dark Web poses specific challenges for law enforcement agencies. India does not have stringent laws to govern cyberspace in India.
• With a lot of loopholes prevailing in the laws of our country, the dark web brings in specific unique challenges.
• There are only six sections in the Information Technology Act, 2000, relating to cybercrimes in India.
• Child pornography is a serious crime punishable under Section 67(B) of the Information Technology Act, 2000 and Section 14 and 15 of POCSO Act, 2012. These are the sections that exclusively deal with the crimes of pornography related to children.
• Section 372 and 373 of the Indian Penal Code deals with the buying and selling of girls for prostitution. We have seen such kinds of illegal activities taking place. They directly or indirectly come under the ambit of human trafficking. Human trafficking is illegal.
• Under Section 24 of the Narcotics Drugs and Psychotropic Substances Act, 1985, whosoever engages in dealing with narcotic drugs outside India is liable to be punished under this Act. If a person engages in external dealing in drugs on the dark web, then that would certainly be punishable even if the dark web is not illegal but the activity that you commit is illegal.

Conclusion

India lacks stringent laws. Also, while some of them exist, the problem remains in the enforcement. A comprehensive legislative policy needs to be adopted. Because this is the only way to keep track of illegal activities, while it is not certainly easy to control the activities of citizens, India can control the access to the dark web by its citizens. India should implement such a system where these freely available VPNs are banned. The government should create an authority under Chapter-VI of the Information Technology Act, 2000 where the government may create a mandatory charge for VPN registration.