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GS3 Full-Length Test
Q1. Highlight the mandate and role of the Financial Action Task Force in fighting transnational money laundering and terror financing around the world. 10M
Introduction
The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. Its Secretariat is located at the OECD headquarters in Paris.
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History
- FATF was formed by the 1989 G7 Summit in Paris initially to examine and develop measures to combat money laundering.
- The mandate of the organisation was expanded in 2001 to include terrorist financing following the September 11 terror attacks.
- In April 2012, it added efforts to counter the financing of proliferation of weapons of mass destruction.
Functions and Mandate of the FATF
(P.S. Mandate and Objectives are one and the same)
- a) Identifying and analysing money laundering, terrorist financing, and other threats to the integrity of the financial system, including the methods and trends involved.
- b) Examining the impact of measures designed to combat misuse of the international financial system.
- c) Supporting national, regional and global threat and risk assessments.
- d) Developing and refining the international standards for combating money laundering and the financing of terrorism and proliferation
- e) Assessing and monitoring its Members, through ‘peer reviews’ (‘mutual evaluations’) and follow-up processes to determine the degree of technical compliance, implementation, and effectiveness of systems to combat money laundering and the financing of terrorism and proliferation.
E.g. Countries that are considered to be supporting terror funding and money laundering are put on the FATF grey list: Pakistan, Syria, Turkey, Myanmar, Philippines, South Sudan, Uganda, and Yemen.
- f) Refining the standard assessment methodology and common procedures for conducting mutual evaluations and evaluation follow-up;
- g) Identifying and engaging with high-risk, non-co-operative jurisdictions and those with strategic deficiencies in their national regimes, and co-ordinating action to protect the integrity of the financial system against the threat posed by them.
E.g. Iran and the Democratic People’s Republic of Korea (DPRK) are under High-risk Jurisdiction or Black List
- h) Promoting full and effective implementation of the FATF Recommendations by all countries through the global network of FATF-style regional bodies (FSRBs) and international organisations; g. Asia/Pacific Group on Money Laundering (APG) based in Sydney.
- i) Responding as necessary to significant new and emerging threats and risks to the integrity of the financial system consistent with the needs identified by the international community, including the United Nations Security Council, the G20 and the FATF itself
- j) Assisting jurisdictions in implementing financial provisions of the United Nations Security Council resolutions on terrorism and non-proliferation, assessing the degree of implementation and the effectiveness of these measures in accordance with the FATF mutual evaluation and follow-up process.
- k) Maintaining engagement with other international organisations and bodies, in particular the United Nations, to increase the outreach of the activities and objectives of the FATF;
- l) Engaging and consulting with the private sector and civil society on matters related to the overall work of the FATF, through the annual consultative forum and other methods for maintaining regular contact to foster transparency and dialogue towards more effective implementation of the FATF standards;
- m) Undertaking any new tasks agreed by its Members in the course of its activities and within the framework of this Mandate; and taking on these new tasks only where it has a particular additional contribution to make while avoiding duplication of existing efforts elsewhere.
Conclusion
The FATF sets standards and promotes effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system. Starting with its own members, the FATF monitors countries’ progress in implementing the FATF Recommendations; reviews money laundering and terrorist financing techniques and counter-measures; and, promotes the adoption and implementation of the FATF Recommendations globally.
Q2. Protecting the natural habitat is not just important for nature’s sake but also crucial for safeguarding macroeconomic stability. Substantiate the biodiversity-related risks to economic activity and public finances. 15M
Introduction
Over half of global GDP is at risk from nature loss. Natural capital underpins all economic activities and human well-being; it is the world’s most important asset. However, humanity’s demands on natural capital are unsustainable. The unprecedented and widespread decline of biodiversity is generating significant but largely overlooked risks to the economy, the financial sector, and the well-being of current and future generations.
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Biodiversity-related risks to the economy
The socio-economic case: Biodiversity creates significant economic value in the form of such ecosystem services as food provisioning, pollination, climate regulation, carbon storage, and water and air filtration, which are worth more than $150 trillion annually—about twice the world’s GDP.
Food Security and Other Risks: Biodiversity loss can result in reduced crop yields and fish catches, increased economic losses from flooding and other disasters, and the loss of potential new sources of medicine (as the majority of drugs used for healthcare and disease prevention are derived from biodiversity)
E.g. Irish Potato Famine in 1845 due to mono-cropping of potato led to an estimated loss of one million lives due to mass hunger and starvation
Health Risks: The emergence of infectious diseases such as COVID-19, of which land-use change and wildlife exploitation are key drivers, is just one example of the various risks – and the massive economic and human costs – associated with society’s mismanagement of nature
Livelihood: The agricultural sector employs over 60% of the world’s working poor and, in the Global South, forests are the source of livelihoods for over 1.6 billion people.
Business and financial organisations: also depend on biodiversity and ecosystems services for the production of goods and services.
E.g. Coral reefs alone generate USD 36 billion per year for the global tourism industry.
Increasing Input Costs: Biodiversity loss can have direct implications on business operations and value chains by increasing input costs
Illicit wildlife trade: is valued at $7-23 billion globally and services consumer demand. Unsustainable wildlife trade can also negatively impact rural livelihoods, cause the loss of culturally valuable species and increase the risk of zoonotic diseases.
Biodiversity-related risks to public finances
Poverty Alleviation: Biodiversity loss undermines the food security, nutrition, and health of the rural poor and increases their vulnerability to external shocks. This will increase the cost of poverty reduction targets by developing nations such as India.
E.g. Loss of housing infrastructures, increased demand for jobs in MNREGA scheme due to loss of livelihood
Loss of Lives and Infrastructure: Physical biodiversity risks arise from material destruction causing direct economic and financial losses for governments, businesses and investors.
E.g. 28% reduction in mangrove cover between 1980 and 2002 in South East Asia to make way for commercial shrimp farming has contributed to a loss of natural protection against tsunamis and cyclones. This was tragically demonstrated during the 2004 South Asian Tsunami
Increased Litigation Burden on Public Exchequer: Many businesses and financial sector’s investments often result in sever and harmful negative externalities leading to loss of biodiversity and related ecosystem services. This is often difficult to quantify and hold the businesses accountable.
E.g. Bond Investors filed securities action against PG&E for misrepresenting efforts to address wildfire risks.
Low Credit Ratings: Loss of biodiversity will downgrade the credit ratings of several countries, including India, increasing their bankruptcy risk, according to a study by British economists.
Sectors most affected: World Bank has predicted that there is a “partial ecosystem collapse” of sectors such as fisheries, tropical timber production and wild pollination.
Worst affected: China and Malaysia would be the worst affected with downgrades of more than six notches.
Interest Burden: The downgrades to four notches for India and other countries means that they will be burdened with billions of dollars in interest. Twelve of the 26 countries analysed (a study by British Economist) will be at the risk of bankruptcy.
Priority action areas for governments.
First, adapting measures of national performance to better reflect natural capital, and mainstreaming biodiversity into strategies, plans, policies, and projects.
National Biodiversity Mission in India is a step in the right direction
Second, better leveraging fiscal policy and economic instruments to support the conservation and sustainable use of biodiversity, including in COVID-19 recovery packages. Biodiversity-related tax revenues, for example, account for just 0.9% of all environmentally related tax revenues.
Third, embedding nature-related dependencies, risks, and impacts into the financial sector.
E.g. The Economics of Ecosystems and Biodiversity (TEEB) is a global initiative focused on “making nature’s values visible”
Fourth, improving biodiversity outcomes linked to trade, including by reforming environmentally harmful and market-distorting government support, which stands at more than USD 800 billion per year.
Conclusion
Biodiversity loss affects economic systems and human society. Humans rely on various plants, animals, and other organisms for food, buiding materials, and medicines, and their availability as commodities is important to many cultures. The loss of biodiversity among these critical natural resources threatens global food and economic security. Simplified, homogenized ecosystems can also represent an aesthetic loss.
ETHICS
Q3. Discuss the influence of rationalisation, alternate moralities, and group mentality on the self-image of a corrupt person. 10M
Introduction
According to the World Bank, Corruption is the abuse of public office for private gain—covers a wide range of behaviour, from bribery to theft of public funds.
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Rationalisation – It is a defense mechanism of attempting to explain or justify unacceptable behaviour or attitude with logical reasons and explanations, even if these are not appropriate.
- Rationalization helps corrupt a person to maintain his self-image in the following way.
- A corrupt person uses this mechanism to hide or deny the true causes of being corrupt or corrupt actions.
- This helps corrupt individuals to give excuses to themselves for not living up to their own ethical standards to maintain their self-image.
- Rationalization helps an individual to convince himself that he didn’t do anything wrong, not really harmful, not his fault and so on.
- For instance – A Civil servant who was involved in corruption by diverting public funds meant for one of the government schemes, can give excuses like this – “I know I shouldn’t have done that, but my boss made me so I didn’t have any choice.” Or, “Others have done worse.” or “If I hadn’t done it, someone else would have.”
- Rationalization is the great enemy of the moral progress of an individual.
- Ultimately, rationalizations dull the sense of responsibility for individual wrongful actions. So, if Individual wishes to truly be ethical, he must carefully and consistently monitor his/her rationalizations.
Alternative Moralities.
- Social norms, both implicit and explicit, guide individual behaviour. For instance, if in a society corruption is common and everyone is Indulging in corruption in one or another way, this further motivates a corrupt person to involve in corruption activities and to maintain his self-image.
- But if a society is ethical, where corruption is treated as a highly unethical practice. When corruption activities of an individual come into the light of a society, then it can ruin his self-image in the society.
- Morals of Law and Order – Effective implementation of morals of law and order can change the attitude of a corrupt person to save his self-image, as he threatened to face punishments if he is further involved in corruption.
Group mentality.
- Group mentality can affect individuals both positively and negatively.
- For instance – If a Corrupt person joins corrupt administration it ‘positively influences him to indulge in unethical practices to maintain his self-image.
- Individual behaviour can undergo different types of changes. Socially desirable behaviour is driven by Individuals’ concern to maintain a good reputation, which leads to successful social interactions.
- For instance – Ethical work culture in a company or administration can negatively affect the self-image of a corrupt person, as he is not able to find a place to maintain his credibility.
Conclusion
Thus Rationalization, group mentality, and alternative moralities have both positive and negative effects on corrupt persons. Ultimately it’s up to that individual to influence in either way to maintain his self-image.
Case studies: 20M
Q4. After years of petitions from the citizens of the region, the state government approved to upgrade the state highway connecting Shivpur to the state capital. The new Highway would be a four-way lane highway of 150Km. The project has been undertaken through the PPP route by forming a Shivpur tollways private limited company.
There are many modifications in the contract after the formation of the toll company. The last 50 Km of the highway has been modified from four-lane to two lanes and the service road in that phase has been merged into the main highway, leaving no option for people from local villages other than paying toll tax. Through RTI, activists have come to know that the government has agreed to such modifications in return for the construction of two new bridges over the river crossings. Many activists have flagged that these bridges were unnecessary as the old bridges would still serve the purpose. Despite protests and court cases, the highway has finally opened. Within a month, the major part of the highway and bridges has been damaged due to rains. The toll is being collected without any repairs. There is huge discontent and protest over the allegation of corruption against the toll authority. There seems to be nexus between the toll authority and local politician. As he is a popular face of the ruling political party in the state, the protests have been controlled by force.
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- If you are a District Magistrate who has been ordered to control the protests what will be your course of action to manage the situation?
- dentify the various dimensions of the crisis involved in the issue. Based on your understanding, suggest measures to deal with corruption and inefficiencies in the system.
Introduction
The case study highlights the misuse of power by a politician, the Inefficiency of the government in the allocation of contracts, and inefficient work by the private company by minimizing their investment and maximizing revenue.
Body
- The course of action to manage the protest.
- I will try to persuade the people to stop the protest. Because if protest turns into violence, it can rise law and order issues in the state.
- I will assure people that the reasons for damage to the road will be found out and politicians and companies will be investigated for corruption allegations.
- Rather than protest, I suggest they use legal and peaceful means like social media debates, and filing cases in the High court in achieving justice.
- I will clearly explain the benefits of using these peaceful measures and the disadvantages of protests.
- If people were not listening to my words, I will call leaders of protest to convince the people in stopping protests.
- Even if the protest is not stopped and if it turns violent, lastly I will use force to control the protest.
- The crisis involved in the case study.
- Corruption – Nexus between local politicians and toll companies in the allocation of a contract to build a highway.
- Misuse of power – Rather than communicate with protesters and provide them with justice by investigating corruption charges against politicians and companies, the state is employing force to handle the protest.
- Improper utilization of public funds – State government compromised in building quality and durable roads and also diverted funds from necessary highway projects to unnecessary bridge projects.
- Lack of clear analysis by the state government in approving the modification proposed by a private agency.
- The state didn’t take concern of local villagers in modifying the 4-lane highway into a 2-lane highway, as payment of toll will add burden on poor villagers.
- Inefficient work by the toll company – For their private gain and to have higher revenue, they have modified the plan and used poor quality materials in building the road, which has been damaged within a month.
- Partiality – Politician misutilized his power in providing contracts to Shivpur tollways private limited company for his private gain.
Measures to deal with corruption and inefficiencies in the system.
- The state high court or state government has to order an impartial, transparent investigation against local politicians and private toll companies.
- If they are found guilty, they have to be punished accordingly for their corrupt actions.
- Toll companies also have to pay the price by rebuilding the damaged road at their own cost and modifying the last 50km by turning 2 lane highway into a 4lane highway and providing space for a service road which will be utilized by local villagers.
- High empowered committee review by the state before approval of the modification proposed by the private company.
- Public opinions before implementing any plans to avoid the same instances in the future.
- The transparent mechanism in allocating contracts to private agencies.
