Money Laundering in India, by Advocate Prashant Tyagi

Meaning

Money Laundering is a method of legitimizing the illegally earned money so as to avoid being caught while carrying on illegal activities and avoid taxes.

Introduction

In India the Prevention of Money Laundering Act, 2002 came into force on 1st July 2005. Section 3 of Prevention of Money Laundering Act, 2002 says Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering. It was amended in 2009. The Act provides for rigorous imprisonment for a term of not less than 3 years and fine. The banks are required to keep a record of all the transactions for 10 years and furnish the information to the director appointed by center within prescribed time. Under Section 56 of the Act the Centre can enter into an agreement with foreign county for exchange of information to prevent such act under the provisions of this act or corresponding law in force in that country.

Stages of Money Laundering

1. Placement- the person places a sum of money in the bank in the form of cash. This is the riskiest stage as banks are required to report high value transactions. The money is usually broken in smaller amounts and then placed in banks.

2. Layering- at this stage the money is transferred into various overseas anonymous bank accounts in countries where banks have secrecy codes. This money is then invested in purchase of valuable things like diamonds, ship, etc.

3. Integration- the illegal money appears legal and can be used by the launderer. Its very difficult to catch hold of money laundering at this stage. The investment done in layering stage can now be sold and the money having received appears to have been acquired by legal means.

Constitutional validity of certain provisions of the PMLA,2002
In the case of B. Rama Raju v. UOI & Ors. ([2011]164CompCas149(AP)) constitutional validity of Section 2(1)(u),5,8 and 23 were challenged. The court looked into the object of the act. The property in possession of any person other than the one who has been charged with for committing the offence can also be attached and confiscated. With respect to the retrospective penalization the court held that the Parliament has the power to allow confiscation of property acquired by illegal means prior to the enactment of this act. With respect to the presumption enjoined by section 23 of the Prevention of Money Laundering Act, 2002 (PMLA,2002) the court held that Section 23 enjoins a rule of evidence and rebuttable presumption considered essential and integral to effectuation of purposes of Act in legislative wisdom. Its a rebuttable and an irrebuttable presumption. Hence validity of the provisions was upheld.

Who can appoint Special Public Prosecutor?
Section 46 of the act clearly says that a Central Government can appoint special public prosecutor for any case or group of cases. In the case of Center for PIL & Ors. Vs. UOI & Ors. (2011(3)GLT(SC)17, 2011(4)SCALE583) which is 2G spectrum case the court had to deal with the issue of appointment of special public prosecutor to conduct proceedings on behalf of CBI( Central Bureau of Investigation ) and ED( Enforcement Directorate). The Honourable Supreme Court while dealing with the matter of appointment of Special Public Prosecutor held that Special Public Prosecutor cannot be treated as a Government employee and maybe a lawyer on government panel but is independent of government control. The provision of Section 46 of PMLA,2002 has to be read with Section 24 of Code of Civil Procedure,1973. Further it was also said that any objection with respect to the appointment of Special Public Prosecutor is to be dealt with by the Supreme Court.

Who can investigate?
As per section 44 of PMLA, 2002 the investigation under the PML Act is within the jurisdiction and domain of the Enforcement Directorate. If the matter requires a systematic, scientific and analysed investigation by an expert investigating agency, like the Central Bureau of Investigation the Central Government should exercise the powers under Section 45(1A) of the PMLA, 2002 for transferring investigation from the Enforcement Directorate to the CBI. This was said by Supreme Court in the case of Binod Kumar Vs. State of Jharkhand and Ors. ((2011)3SCC(Cri)217)

The problem with money laundering is that it involves high class people. The agencies are required to be attentive and catch hold of offenders at placement stage. Though under sec. 24 accused has the burden to prove that the property is untainted it is manageable to prove innocence at integration stage but arduous at placement stage. In most of the cases person is caught at the time of tax assessment. By this time the whole process of laundering gets completed and becomes very laborious to prove the offence. The act was passed almost a decade ago but still there have been very few convictions with respect to such illegal activity which is acting like a termite in our economy.

Prashant Tyagi (Intern)

LEXIS & COMPANY

18/06/2021

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