Money Laundering: A glimpse of Prevention of Money Laundering Act

Introduction

Money is indeed the major reason for people to engage in any type of criminal activity. This scenario was the same centuries ago, years ago and even today it is the same. In this article, I will be dealing with money laundering, a method in which criminals disguise the origins of their illegal wealth, to protect their assets, and also for reasons to avoid any suspicion of the law enforcement agencies.  This also helps them for preventing the trail of incriminating evidence left behind such activity.

Money laundering is an offense that is not only dangerous to society, to the economy of the country, but also the safety and security of the nation. It is a widely known fact that terrorists and related organizations depend upon money to sustain themselves and to carry out their terrorist acts. A major difference between the money laundering by terrorists and the local people disguising their money is that the terrorists focus on not disguising the origin of their money but hiding its destination, that is, for the purpose for which it has been gathered. Such organizations employ similar methods as those used by other local offenders of money laundering to hide their money.

Therefore it becomes highly pertinent to prevent and detect the acts of money laundering to identify the criminals involved and the under-covered terrorists’ acts. This can only be prevented and detected when we have fully active and capable intelligence and investigative agencies for disrupting the target of such terrorist groups.

Because they deal with other people’s money, financial institutions rely on a reputation for probity and integrity. A financial institution found to have assisted in laundering money will be shunned by legitimate enterprises. An international financial center that is used for money laundering can become an ideal financial haven. It has become the usual practice of developing countries to attract such ‘dirty, filthy money. It is done in anticipation of growth which they seldom realize is of temporary nature. A nation’s economy and growth dependent on such unlawful practices is hard to cross to a certain extent. Perks as a consequence of such malpractices is to attract the kind of solid long-term foreign direct investment that is based on stable conditions and good governance, and that can help them sustain development and promote long-term growth.

Money laundering can ultimately destroy a nation’s economy as it changes the demand for cash, making interest and exchange rates more volatile. Not only this, but money laundering also leads to inflation in such a nation where criminals and terrorists are involved in this ‘business. Shell companies and trust, real-estate, fictional loans, round-tripping, bulk cash smuggling, fake invoicing are certain examples of money laundering.

Most disturbing of all, money laundering fuels corruption and organized crime. Corrupt public officials need to be able to launder bribes, kickbacks, public funds, and, on occasion, even development loans from international financial institutions. Organized criminal groups need to be able to launder the proceeds of drug trafficking and commodity smuggling. Terrorist groups use money-laundering channels to get cash to buy arms. The social consequences of allowing these groups to launder money can be disastrous. Taking the proceeds of crimes from corrupt public officials, traffickers and organized crime groups are some of the best ways to stop criminals in their tracks.

In recent years, the international community has become more aware of the dangers that money-laundering poses in all these areas, and many Governments and jurisdictions have committed themselves to take action. The United Nations and other international organizations are committed to helping them in any way they can.

Criminals are now taking advantage of the globalization of the world economy by transferring funds quickly across international borders.

Prevention of Money Laundering Act in India

The prevention of the Money Laundering Act is the principal law governing money laundering in India. The aforesaid Act constitutes of 76 Sections

The prevention of Money laundering act 2002 was enacted to fight against the criminal offense where people try to legalize the income or profits from an illegal source. this act enables, empowers the government or the public authorities to confiscate and to seize the property that is earned from the illegally gained proceeds.

A person is said to be guilty of the offense of money laundering then he or she attempts to indulge, or assist any person who is actually involved in any process there  Of, or is a party to the activity connected with the proceeds of crime whether directly or indirectly to supply illegal arms, drug trafficking, prostitution and other such acts which generates a huge amount of money. Such people reject or claim it as untainted property.

The major objective of this Act is not only to prevent money laundering but also to prevent channelizing money into illegal activities and economic crimes.  Another objective of this act is to provide for the confiscation of property which is derived from money laundering. It also aims to provide for matters which are connected and incidental to the Acts of money laundering.

The act of money laundering operates at 3 stages namely placement, layering, and integration. Placement takes place when the money is obtained through crime it is then introduced into the formal financial system. When such money is spread over various transactions to clear the origin of that illegal money is called layering.  Integration is the stage wherein the money that entered the financial system is set to be cleared from its original association with the crime and so that the money can be used by the offender or person receiving it,  receives as clean money.

The commission of the offenses which would attract the provisions of the Prevention of Money-laundering Act is mentioned in part 2 and Part 3 of the schedule of the Act.  The offenses under various Acts that are included under Part A are Narcotics Drugs and Psychotropic Substances Act, Indian Penal Code, Copyright Act, Information technology act, trademarks act, wildlife protection act, prevention of corruption act, antiquities, and art treasures act. The offenses in which the value involved is ₹1 Crore or more are specified in Part B of the Act.  The dedication to tackling money laundering across global boundaries is reflected under Part C which also deals with transporter crimes.

Two authorities are entrusted for investigation of the crimes under the Prevention of Money Laundering  Act. The first authority is the Enforcement Directorate and the second authority is Financial Intelligence Unit-India. Both these authorities work under the Department of Revenue, Ministry of Finance, Government of Indi.

The Financial Intelligence Unit India is an independent body that directly reports to the Economic Intelligence Council. The Economic Intelligence council is headed by the finance minister the financial intelligence unit also performs certain duties like coordinating and strengthening the efforts of national and international intelligence, investigations for pursuing the global efforts against money laundering and related crimes the enforcement Directorate is responsible for investigating the offenses of money laundering under the PMLA whereas the financial intelligence unit is this central national agency and it is responsible for receiving processing analyzing and disseminating the information relating to suspect financial transaction.

Financial Intelligence Unit – India (FIU-IND) is another authority that founds mention in the Prevention of Money Laundering Act. It is an independent body that is responsible directly to the Economic Intelligence Council which is headed by the Finance Minister. This authority was established by the Government of India. It was set up as a central national agency. The Financial Intelligence Unit is responsible for receiving, processing, analyzing, and disseminating the information that is related to the financial relations which are suspected in dealing with money laundering. Not only this, but this central agency also coordinates and strengthens the efforts of national and international intelligence and other investigating agencies and enforcement agencies to strengthen the global efforts against money laundering.

ED (Enforcement Directorate)

The Directorate of Enforcement was established in the year 1956 with its Headquarters in New Delhi. It is responsible for enforcement of the Foreign Exchange Management Act, 1999 (FEMA) and certain provisions under the Prevention of Money Laundering Act. Work relating to investigation and prosecution of cases under the PML has been entrusted to Enforcement Directorate. The Directorate is under the administrative control of the Department of Revenue for operational purposes; the policy aspects of the FEMA, its legislation, and its amendments are within the purview of the Department of Economic Affairs. Policy issues about PML Act, however, are the responsibility of the Department of Revenue. Before FEMA became effective (1 June 2000), the Directorate enforced regulations under the Foreign Exchange Regulation Act, 1973.

 

Functions of the Enforcement Directorate as provided by the Prevention of Money-laundering Act include:

  • To collect, develop and disseminate intelligence relating to violations of FEMA, 1999, the intelligence inputs are received from various sources such as Central and State Intelligence agencies, complaints, etc.
  • To investigate suspected violations of the provisions of the FEMA, 1999 relating to activities such as “hawala” foreign exchange racketeering, non-realization of export proceeds, non-repatriation of foreign exchange, and other forms of violations under FEMA, 1999.
  • To adjudicate cases of violations of the erstwhile FERA, 1973 and FEMA, 1999.
  • To realize penalties imposed on the conclusion of adjudication proceedings.
  • To handle adjudication, appeals, and prosecution cases under the erstwhile FERA, 1973
  • To process and recommend cases for preventive detention under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA)
  • To undertake survey, search, seizure, arrest, prosecution action, etc. against offender of PMLA offense.
  • To provide and seek mutual legal assistance to/from contracting states in respect of attachment/confiscation of proceeds of crime as well as in respect of transfer of accused persons under PMLA.

Amendment of 2019

Taking into consideration the rising number of financial crimes and other white-collar crimes, the amendment of 2019 is an attempt to make the current provisions of the Act stricter. This Amendment also aims at making this Act more effective in targeting and detecting any sort of suspicious transactions. A total of eight clauses have been amended by the Amendment Act of 2019.

The ambiguity that exists in the provisions of the Prevention of Money Laundering Act majorly includes what is meant by the ‘proceeds of crime’. This vagueness in the concept of ‘proceeds of crime’ affects the ability of the Directorate of Enforcement in investigating not only the money trail but also the trial of cases dealing with money laundering. It can be said that the Government, by enlarging the scope of the definition of ‘proceeds of crime’, has made those laws stricter that are related to money laundering.

The extended scope of the definition now includes the created assets and properties that are derived from any criminal act which need not necessarily be an offense under the Prevention of Money Laundering Act.

The scope now includes properties and assets created, derived, or obtained through any criminal activity related to the scheduled offense, even if it is not under the PMLA. This is aside from the existing definition, which covers any direct or indirect attempts to indulge or knowingly assist or knowingly participate or actual involvement in any process or activity connected with the proceeds of crime, including its concealment, possession, acquisition or use and projecting or claiming it as untainted property. A property will be considered tainted if it relates to any offense based on which a PMLA case has been initiated.

Furthermore, the 2019 Act offers clarification to Section 3 of the PMLA to the extent that a person shall be held guilty of the offense of money-laundering if he is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly was a party or was actually involved in any one or more of the processes or activities included in Section 3. The 2019 Act clarifies that it would be incorrect to interpret money laundering as a one-time, instantaneous offense that ceases with the concealment or possession or acquisition or use or projection of the proceeds of crime as untainted property or claiming it as untainted. A person shall now be considered guilty of the offense of money laundering for as long as the said person is enjoying the “proceeds of crime” – thus, making the offense of money laundering a continuous offense.

The legislative intent here appears to be to prosecute and attach all proceeds of crime, however remotely related. A key proposed change in the definition of “proceeds of crime” would allow the ED to proceed against assets of equivalent value located even outside the country.

The 2019 Act deletes the proviso contained in Sections 17 (1) and 18 (1) and empowers the ED to undertake search actions even in the absence of a report under Section 157 of the Code of Criminal Procedure, 1973 (CrPC). The 2019 Act broadens the existing powers of the ED under the PMLA provisions – by bringing Sections 17 and 18 at par with Section 19 – where there is no pre-condition to forward a report under Section 157 of CrPC or to seek warrants from the Court for making an arrest. An arrest can be made for an offense under the PMLA even in the absence of a First Information Report (FIR).

The legislative attempt here is to remove the ED’s difficulties in an investigation by removing the necessity to follow the provisions of Chapter XII CrPC, which could be perceived as cumbersome. However, this may be highly susceptible to misuse and likely to face a legal challenge for legislative overreach despite the inbuilt safeguards in the PMLA. The amendments are to effectively clarify that the officers of the ED do not require the powers of the police under the CrPC for investigation and that the prevailing misconception that Chapter XII of the CrPC applies is inconsistent with the object and intent of Section 65 of the PMLA.

It was stated by the Minister of Finance in the Lok Sabha that a proviso would be inserted. This proviso will ensure that even if the hearings of a case are going on in a particular court and at the same time, proceedings taking place in some other court, then these two different proceedings cannot be clubbed to be treated as one.

Furthermore, a new proviso to Section 44 (1) has been inserted, which provides for closure of investigation in cases where no offense of money-laundering is made out. It requires the filing of a complaint under Section 44 (1) (b), and the relevant authority to submit a closure report before the Special Court under the PMLA.

Concerning attachments, changes have been made to Clause 1 of Section 5. This Amendment pertains to the exclusion of the period of stay from a 180 days limit by the Court. This exclusion was sought to

The Government has also brought changes to Section 5(1) to exclude the period of stay granted by a Court from the 180-day limit for the validity of provisional attachment orders and also to provide a further period of not more than 30 days to take care of delays in communication of judicial orders. Earlier, the ED had to seek a waiver.

The proposed Section 8(3) of the Act gives 90 more days to the ED to file charge sheets, after confirmation of attachment orders by the adjudicating authority. The existing provision does not allow even a single day after the orders are confirmed. The 2019 Act also includes a crucial amendment that empowers the Special Court to restore confiscated assets to the rightful claimants even during the trial. The amended Section 8(8) now allows the Special Court, if it deems fit, to consider the claims for restoration of such properties also during the trial. Earlier, the assets could be restored only after completion of the trial.

Therefore it can be said that the attempt of bringing the 2019 Amendment is a strategy to bridge the gaps between the existing provisions of the Prevention of Money Laundering Act and what they ought to be. Though clarification over the practical implementation is expected especially when it is related to the property attachment. Still, it cannot be denied that it is an endeavor in the direction of attaining the capability to control and detect any such crimes related to money laundering.

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