This article has been written by Ravipati Satya Ramakrishna pursuing Certificate Course in Advanced Criminal Litigation & Trial Advocacy and edited by Shashwat Kaushik.

This article has been published by Sneha Mahawar.

Any illegal activity that involves money or financial transactions through financial systems or any other means. To put it simply, any criminal activity that involves using money to engage in illegal activities. The problem of financial fraud is on the rise worldwide. The majority of crimes worldwide are financial crimes because they involve monetary transactions. The rate of financial crimes in Asian and African countries will be higher than that in Western countries. The reason is that many Asian and African countries are economically backward. 

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Asia’s shares account for nearly 59.2% of the world’s population. The majority of these communities are economically backward. The major factor that leads people to engage in illegal activities is employment. For instance, in India, we have nearly 142 crore people, which is 17.76% of the total world population. Approximately 95.4 Lakhs are graduating every year, in this about 42% graduates are unemployed. The graduate unemployment rate in South Asian countries like Afghanistan, Bangladesh, Pakistan, and Sri Lanka is 65%, 47%, 28% and 20%, respectively. These statistics represent unemployed graduates. There are also unskilled workers, semi-skilled workers, and daily wage labourers, which constitute nearly 50% of the population in these countries. Many financial crimes worldwide are caused by this employment. Many workers are migrating to other countries in search of employment. Most of the migration is illegal because countries have strict migration rules. Due to strict migration rules, many unskilled migration workers are illegally migrating and living in unlawful settlements (for example, Rohingyas in India, the Chinese Filipino community from mainland China to the Philippines, the immigration of Nepalese settlers in Bhutan, and Burmese immigrants in Bangladesh). Due to this illegal migration, they have many disadvantages, unlike citizens, so they should depend on agents and brokers who use them for illegal activities. They should depend on smuggling and other types of illegal activities for their survival. Poverty plays another major role in causing many unemployed people to indulge in illegal activities. Many Asian countries have a young population that is below the poverty line. These vulnerable young populations are involved mainly in drug cartels and organised crimes. The United Nations in Asian countries is taking steps to control these financial crimes.

Any crime that involves monetary or financial transactions is a financial crime. The different types of financial crimes are money laundering, smuggling of migrants / migrants trafficking, terrorist funding, cyber crime, Narcotics / drug smuggling, illegally transferring money without any movement of physical or electronic mediation, commonly called as hawala transactions in India, etc. In Dubai, the hawala transaction is legal, provided it is registered with the United Arab Emirates Central Bank, which abides by some regulations by the government.

Money laundering

Money laundering is described by Interpol as “any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.” Money laundering is a major issue in Asian nations. An increase in shell companies evading taxes is a growing concern across the Asian Nations, especially Southeast Asian countries.

For instance, when a businessman or a politician gains money through illegal means or through cash, they immediately open a company in the name of their acquaintances. The main characteristics of a shell company are that, in the majority of cases, the company is established in another country where the laws are feasible and easily transacted (for example, USA, UK, Singapore, etc.). The company exists on paper, but physically, it does not exist. But they are operated by henchmen of people in business or politicians in the mother nation. The unlawful money they gain will be invested in those shell companies either through hawala or foreign investments. In a few days, the money from the shell company will be transferred to the original company accounts of businessmen or politicians in the mother nation. Then, the money will be considered a lawful foreign investment in the eyes of that country. Due to this type of shell company transaction, the fraudulent person  will not disclose the original source from which they got the money. So they can evade tax, their liabilities will increase, and they can showcase themselves with clean hands. These transactions are very high in countries like China and India.

In the 2016 Panama Papers leak, the German newspaper “Süddeutsche Zeitung” revealed information about more than 2 billion shell companies. These shell companies are administered by the law firm Mossack Fonseca in Panama. About 11.5 million documents were leaked regarding these shell companies.

In India, nearly 2000 shell companies were shut down by the Securities and Exchange Board of India (SEBI) after the demonetisation of ₹500 and ₹1000 by the Government of India. Many buildings were seized, which were registered as shell companies across India. 

Countries such as the UK, USA, India, and the European Union have established their respective regulatory bodies to curb illegal transactions through shell organisations. In India, the “Task Force on Shell Companies” was established with a view to systematically curbing illegal financial transactions and will be struck off by the Registrar of Companies under Section 248 of the Companies Act, 2013. The Registrar of Companies has struck off more than 2 lakh shell companies in India. In India, if a director of a company fails to file financial statements or annual returns for three financial years continuously, then the directors are disqualified by the Registrar of Companies under Section 164(2)(a) of the Companies Act, 2013.

The major problem in Asian countries, particularly South Asia, is the growing threat of terrorists and violent extremists. Vision of Humanity’s survey shows that India is ranked 13th in Terrorism impact countries with a score of 7.175. The neighbouring country of India, which borders India to the west, is training terrorists and providing state-funded terror financing to many designated terrorist organisations. The United States has listed the designation State Sponsors of Terrorism; it describes Pakistan as a terrorist safe haven where individual terror groups raise funds, recruit, train and plan attacks around the world. Pakistan’s financial support for terrorist organisations has repeatedly placed Pakistan on the Financial Action Task Force’s (FTAF) grey list.

After the September 11 attacks on the United States, where around 2,750 people were killed, all nations worldwide have been actively working to eradicate terrorist financing. There have been 12,002 terrorist incidents in India since 1970 until 2018, of which nearly 19,866 have died and 30,544 have been injured. India is the country with the highest number of terrorist attacks compared to other countries. Mafia, which is involved in organised crimes, is also a threat to most Asian countries, aside from terrorist attacks. Examples of countries affected by organised crimes are Hong Kong, Macau, Taiwan, Malaysia, Singapore, Vietnam, Laos, etc. The main source of these Organised-crimes is illegal funding, which was raised by these radical groups from drugs, human trafficking, prostitution, and the illegal supply of weapons.

Asian countries are facing a significant problem with smuggling migrants. Migration being one of the main reasons for smuggling is indicated by the United Nations Office on Drugs and Crime report. People around the world continuously move around the globe. The reasons may be employment, poverty, internal disputes, wars, or religious reasons (ex. Israel-Palestine; Rohingya from Myanmar, etc.). Most of the migration will be illegal because it is difficult to access legal channels for everyone. Migrant workers will seek assistance from middlemen, agents, or brokers who trafficked them through illegal channels during this phase. The lack of identity among migrants will result in a high disadvantage for those who migrate through illegal channels. This results in their vulnerability being exploited by brokers or agents.

Formal labour migration channels and refugee resettlement programmes have been established by several Southeast Asian countries, as reported by UNODC. The disadvantage of this process is that it is time-consuming and requires funding. Despite the establishment of formal labour migration channels, their disadvantages led to the facilitation of illegal migration. Illegal migrants are more likely to be abused because they are not protected by any land laws.

Transnational narcotics crime is becoming more of a concern globally on a daily basis. The production of opium in Afghanistan is the largest worldwide. The Balkan route to Iran is estimated to have a total of USD 28 billion per year in the trafficking of opium. According to the UNODC report, it was distributed in Turkey and South Eastern Europe from Iran. Drug trafficking has had an impact on the neighbouring countries of Afghanistan. The market for drugs in South-west Asia is the largest. In South-west Asia, most people who inject drugs are infected with HIV, according to a survey conducted by the United Nations Office on Drugs and Crime. Regulating financial flows, creating strict regulations, and enacting customs laws are just some of the initiatives the United Nations has taken to combat drug trafficking.

EGMONT Group

Egmont Group is an organisation that has 170 Financial Intelligence Units (FIUs) across the world. The main purpose of this group was to fight against terrorist funding. The structure of this group consists of heads of financial intelligence units from various nations, followed by the Egmont Committee, and is further categorised by regional groups and working groups. The main aim of the Egmont Group is to exchange information between all the members of FIUs, form a support and compliance team that makes policies and procedures for combating terror financing, and provide technical assistance and training to the local bodies through the FIU group secretariat and the Egmont Centre for FIU Excellence and Leadership.

The United Nations Office on Drugs and Crime

India has become a part of the global fight against money laundering and terrorist financing by enacting the Prevention of Money Laundering Act, 2002.

The Financial Action Task Force (FATF)

The Financial Action Task Force is a policymaking intergovernmental organisation founded in 1989. This intergovernmental organisation will develop policies regarding money laundering and terrorist financing. In 2000, a blacklist was introduced by this financial regulatory body. FATF has established certain rules that, if a company or nation fails to comply with them, they will be placed on the grey list. If it presents a serious and high-risk situation, it will be placed on the black list. If any country or individual body is placed on either the grey or black list, it means that other countries will not cooperate with that country. No financial aid will be provided. Every year, financial developments and regulation letters are published by 39 member bodies.

International Monetary Fund (IMF)

The International Monetary Fund is a financial institution that is financed by 190 member countries. A financial regulatory body is responsible for supporting the economic stability of a country. When the country is experiencing a deep financial crisis, the IMF provides funds to the nation, which can be used to reduce poverty and boost economic growth.

Financial crime is a significant problem that is affecting nations worldwide. Poverty and unemployment are the main causes of financial crimes. Governments should take systematic steps to control financial crimes instead of suppressing them forcefully. The most vulnerable groups are the ones who commit financial crimes, which are mainly committed by poor and unemployed youth. The government should prioritise hiring and providing basic necessities for migrants and unemployed youngsters. International organisations have been established to control crimes throughout the world. United Nations organisations must create international laws to combat migrant trafficking. The purpose of regulations is to make life easier for migrants. Laws that protect migrant workers and provide them with basic necessities should be put in place. The basic root cause of illegal money flow should be investigated by governments and strict laws should be put in place to control it. It is necessary to closely monitor the shell organisations and blacklist the individuals responsible for the crime for any future business.


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