Delving In to Money Laundering and the Prevention of Money Laundering Act, 2002 (PMLA)

The Prevention of Money Laundering Act, 2002 (PMLA) serves as the central pillar of India’s legal system for combating money laundering. Money laundering is the process through which criminals disguise the illegal origins of money, and poses a significant threat to financial stability and national security. It has become a major concern all across the globe, the roots of these economical crimes are deeper than we actually think. The act allows authorities to confiscate property obtained through illegal means. Simply put, money laundering is the act of turning illegal gains into seemingly legitimate funds.

What is Money Laundering Under Prevention of Money Laundering Act

Money laundering is a process which is used by criminals all across the globe. Under this process the criminal tries to hide the illegal money trail, which they may have acquired through illegal activities, such as drug trafficking, illegal arms and weapon selling. The black money is disguised as legal money to eventually be portrayed as white money. In order to launder black money into white money it gets through various channels or phases of conversions before becoming a legally acceptable institution, like a bank. Usually it is done in three phases

Placement: In this phase, the large amount of black money is converted into a small portion of cash before being introduced to the financial system.

Layering: In this phase the act of disguising the origin begins as the money goes through various complex transactions. Like investment in shell companies, investment in tax haven countries, offshore accounts etc.

Integration: In this phase the black money gets drafted back into the financial system as a white money. This could be done through real estate purchases, or luxury goods.

Money laundering is done to disguise the sources, changing the form, or moving the funds to a place where they are less likely to attract attention

The Role of the PMLA In Combating Money Laundering 

The PMLA was enacted in 2002, in India aligning its goal with international efforts to combat money laundering. This Act serves two primary purposes:

Prevention of Money Laundering: The legal framework established by PMLA helps in detecting and preventing money laundering activities. This includes customer due diligence (CDD) requirements for financial institutions, reporting obligations for suspicious transactions, and powers for investigation agencies to track and seize suspicious funds.

Confiscation: The Act empowers authorities to confiscate property derived from or involved in money laundering. This acts as a powerful deterrent and deprives criminals of their ill-gotten gains.

The PMLA is a dynamic legislation, amended several times to keep pace with evolving money laundering techniques.

Offense of Money Laundering

According to the PMLA Act, anyone who is directly or indirectly engaged in, assisting with knowledge of, or being involved in any act related to illegally obtained money is a crime. This includes hiding, possessing, acquiring, using, or claiming such money as legitimate..

For example

A person will be considered to commit money laundering if they are directly or indirectly involved in any of the following activities connected with proceeds of crime: 

(a) concealment; or

(b) possession; or

(c) acquisition; or

(d) use; or

(e) projecting as untainted property; or

(f) claiming as untainted property,

in any manner whatsoever;

(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.

Proceeds of Crime:

As per the Financial Intelligence Unit the proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offense or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad.

List of Offences

Under the Prevention of Money Laundering Act, 2002, the commission of any offense, as mentioned in Part A and Part C of the Schedule of PMLA will be subject to the provisions of PMLA. Some of the Acts and offenses, which may attract PMLA, are listed below

Part A: The  Part A of this act covers offenses under various acts such as: Indian Penal Code, Narcotics Drugs and Psychotropic Substances Act, Prevention of Corruption Act, Antiquities and Art Treasures Act, Copyright Act, Trademark Act, Wildlife Protection Act, and Information Technology Act.

Part B Offense: Part B includes the offense listed under part A, however, the specific value of these offenses  are more than 1 crore 

Part C Offense: Part C addresses money laundering through international cooperation, money laundering across global boundaries.

Punishment Under Money Laundering Act:

The Prevention of Money Laundering Act, 2002 (PMLA) outlines punishment against the economical crime like money laundering. The punishment under the PMLA act varies depending on the situation and severity of the offense.

Any person who is directly or indirectly involved in the act of money laundering is eligible for punishment under this act. The following action can be taken against the accused

Imprisonment: The act has a provision of rigorous imprisonment with a minimum term of 3 years and maximum up to 7 years.

Confiscation: The authorities are allowed to confiscate and seize the property gained through illegal transactions. 

Financial Penalty: Under the act there is provision for financial penalty as per the decision of the adjudicating authorities.

The Impact of the PMLA

The PMLA Act has played a significant role in India’s fight against money laundering by providing provision of punishment and accountability. It has made some major impact like

Enhanced Transparency: The transparency has increased due to customer due diligence (CDD) requirements and reporting obligations have increased transparency within the financial system, making it harder for criminals to hide their activities.

Improved International  Cooperation: India’s adherence to international anti-money laundering standards fosters collaboration with other countries in investigations and asset recovery.

Deterrence Effect: The potential for severe penalties and property confiscation acts as a strong deterrent against money laundering activities.

However, challenges remain. The complex nature of money laundering schemes requires continuous vigilance and adaptation of investigative techniques. Effective implementation of the PMLA relies on robust cooperation between financial institutions, law enforcement agencies, and regulatory bodies.

Conclusion:

The Prevention of Money Laundering act has provided a powerful tool to the investigating and adjudicating authorities. By providing power to investigating agencies like ED it has opened the way of swift action. The Act has led to a significant rise in suspicious transaction reporting filed by reporting entities, making it easier to identify potential money laundering activities. The reporting requirements for financial institutions and KYC norms make it more difficult for criminals to place and layer illicit funds. The threat of asset seizure and criminal prosecution discourages individuals and organizations from engaging in money laundering. The act helps safeguard India’s financial system and promotes economic stability.

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