What Is Money Laundering & Its Effects On Indian Markets

Money Laundering is the process involved with converting money acquired from illegal sources in such a way that it appears to have been received from permissible sources. In a simple sense, it is the process involved with converting black money into white money. Money Laundering is commonly known as the concept of concealing, relocating the money earned from illegitimate sources, or seeking to retain the profits conducted from a crime. Money Laundering is a threat to the economic, social as well as political stability of an economy. Money laundering is seen to have a drastically negative impact on developing or underdeveloped countries as they have comparatively weaker financial systems and controls. The money laundering process involves 3 steps which are

i) Placement

Through this step the money acquired from illegitimate sources is pushed into legitimate financial systems of the country.

ii) Layering

Once the money is placed into the legal financial systems of the country, it is then layered up using various bookkeeping tricks to make it look like legitimate money.

iii) Integration

Money is then taken out of the legitimate account to carry on illegal activities.

The financial institutions of a country play a very crucial role in the economic development of the country. Money laundering processes make use of the legitimate financial institutions of the country which cripples their functioning in a way. The clutches of Money Laundering have a negative effect on the Indian markets. It undermines the legitimacy of the private sector and the integrity of the financial institution of India. Money laundering leads to unanticipated transfer of funds which causes huge volatility in both the exchange rates as well as interest rates. Money Laundering creates a culture of tax evasion as they easily manipulate their incomes to exempt from paying taxes. Money laundering also leads to serious financial crises and weakens the financial predictability of the economy.

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