Prevention of Money Laundering Act

Overview :

Enacted in 2002, the Prevention of Money Laundering Act (PMLA) had a specific goal in mind. The massive amount of illicit funds obtained from global drug trafficking constituted a serious risk to the economies of numerous nations. It was widely acknowledged that the black money produced by the lucrative drug trade and incorporated into the legal economy would probably cause global economic instability and jeopardize national sovereignty.

What is Money Laundering?

About:

Money laundering is a complicated procedure used by people and businesses to hide the source of funds that were obtained unlawfully. It includes using a sequence of transactions to make illegal funds seem genuine.

Stages of Money Laundering:

Placement: The first phase of the financial system’s introduction of illicit funds. This may entail making payments into bank accounts, exchanging money, or buying pricey items.

Layering: It is the method of using several intricate financial transactions to isolate the unlawful cash from its source. To hide their source, money is frequently transferred between accounts or across borders.

Integration: The last phase in which money that has been laundered is reintroduced as lawful money into the economy. This may entail making real estate purchases, business investments, or other steps to legitimize the money.
Techniques for Laundering Money:

Structuring: Structuring, sometimes known as “smurfing,” is the practice of dividing large sums of cash into smaller, less noticeable pieces and depositing them into bank accounts.
Trade-based laundering: It is the practice of shifting value across international borders while disguising the source of illegal cash.

Shell Companies: Establishing organizations with no actual economic activity in order to channel illegal monies through transactions that appear genuine.
Real estate: Buying property using money obtained illegally and then selling it to turn the profit into assets that are allowed by law.

PMLA: Historical Background

The enaction of PMLA finds its origin in the various conventions to combat money laundering.
In order to fulfil India’s obligations under these treaties and conventions, the PMLA was passed under Art. 253 of the Indian Constitution.

The Prevention of Money Laundering Act, 2002 (PMLA) is an Act of the Indian Parliament that was passed to stop money laundering and establish procedures for seizing assets obtained through such activities. Its goal is to stop money laundering associated with illicit activities including financing terrorism and drug trafficking.

PMLA’s goals

1. Prevention: To stop money laundering by keeping an eye on financial activities and putting strict safeguards in place.
2. Detection: Using appropriate legal and regulatory procedures, identify and look into cases of money laundering.
3. Confiscation: To discourage criminal activity and sever illicit financial flows, properties obtained through money laundering operations may be seized.
4. International Cooperation: To promote global cooperation in the fight against terrorist financing and money laundering.

Key Elements of the Prevention of Money Laundering Act:

Definition of money laundering in Section 3: Crimes under the PMLA Money laundering is defined in Section 3 of the PMLA as any attempt, help, or involvement in activities related to the profits of crime to portray them as uncontaminated property.

Offences listed in the Schedule of the Act’s Parts A, B, and C:
Part A: This section covers offences related to money laundering under the Indian Penal Code, Prevention of Corruption Act, Narcotics Drugs and Psychotropic Substances Act, Trademark Act, Wildlife Protection Act, Information Technology Act, and Antiquities and Art Treasures Act.

Part B- It Includes money laundering offences which are mentioned in Part A, but are of a value of around Rs 1 crore or more.

Part C- Includes money laundering offences under Trans-border crimes.

Section 4 (Money Laundering Penalties): An individual found guilty of money laundering faces a minimum sentence of three years in jail, with the possibility of an extension to seven years, as well as a fine.

Monitoring Institutions :

1. Enforcement Directorate (ED): The ED is in charge of looking into offences like property attachment and money laundering.
2. Financial Intelligence Unit-India (FIU-IND): This central national organization is in charge of gathering, processing, interpreting, and sharing data about potentially suspicious financial transactions.
3. Other authorities: The authorities listed under the corresponding acts conduct independent investigations into the scheduled offenses. For example, the customs department, SEBI, CBI, local police, or any other investigation agency, depending on the circumstances.

 Additional characteristics :

1. Maintenance of Records: Requires banks, financial institutions, and intermediaries to validate and preserve client identity documents.
2. Transaction reporting: The Financial Intelligence Unit-India (FIU-IND) must receive reports on all financial transactions from these financial institutions. Authorities’ authority under the Act Act-related obligations Establishing Authority
3. Adjudicating authority: The PMLA calls for the establishment of an Adjudicating Authority to carry out the jurisdiction, authority, and power that it bestows.
4. Appellate Tribunal: It also calls for the creation of an Appellate Tribunal to hear appeals against the Adjudicating Authority’s rulings and those of officials such as the Director of the Federal Bureau of Investigation.
   Special Courts To try offenses under the PMLA and other laws, one or more courts of sessions are designated as Special Courts.

 Initiatives taken globally :

 What have been the SC’s observations?

Way Forward :

1. Detailed explanation of “Proceeds of Crime”: To reduce the possibility that the authorities would misuse the term, the PMLA has to include a detailed explanation of “Proceeds of Crime.”
2. Reassessment of Burden of Proof: The PMLA may be amended to grant the accused and the prosecution a more equal share of the burden of proof.
3. Protections Against Officer Overreach: As soon as possible, a separate oversight body should be created to examine and keep an eye on what law enforcement personnel are doing.
4. Review of the Strict Bail Requirements: Strict bail requirements for non-serious and small economic offences need to be eliminated.
5. Improved Independence and Transparency of ED: To improve the transparency of the ED’s operations, steps such as routine reporting and disclosure of cases handled, convictions obtained, and actions taken must be implemented. By taking these steps, the public will be assured that ED is an impartial organization.

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