Money Laundering more heinous crime than murder: Supreme Court

In News 

• The Supreme Court said that Money Laundering was a more serious and heinous crime than murder as it affected the entire economy whose growth could be put on hold or derailed because of it.

Background 

• The court is examining the constitutional validity of various provisions of the Prevention of Money Laundering Act (PMLA) for allegedly being violative of basic principles of natural justice and criminal jurisprudence.
  • While hearing a batch of petitions, the court said such a crime affects the integrity and sovereignty of the country and that was the purpose for bringing the Act.
  • The offence of money laundering damages the economy and the financial system of the country.
  • The court said that money laundering is not only used for drug trading but also for terrorist activities and such crimes affect the integrity and sovereignty of the country.
• Petition:
  • The petitioners submitted that the coercive powers provided under the Act, including the power of arrest under Section 19 without a warrant on a mere subjective satisfaction of the officer concerned, is, in fact, to facilitate obtaining of a confessional statement, failing which he may be prosecuted.
  •  it was pointed out that the procedure prescribed in the Act is against the Criminal Procedure Code and Indian Evidence Act.
  • The petitioners have also challenged the validity of Section 45(1) of the Act for putting limitations for granting bail.

What is Money Laundering?

• It refers to the conversion or misrepresentation of money which has been illegally obtained by unlawful sources and methods.
•  The conversion is done in such a way that it appears to have originated from a legitimate source and method. 
• Criminals use a wide variety of money-laundering techniques to make illegally obtained funds appear clean.
  • Online banking and cryptocurrencies have made it easier for criminals to transfer and withdraw money without detection.
• Stages of Money Laundering
  • Placement (i.e. moving the funds from direct association with the crime)
  • Layering (i.e. disguising the trail to foil pursuit)
  • Integration (i.e. making the money available to the criminal from what seem to be legitimate sources)

Image Courtesy:unodc.org

• In reality, money laundering cases may not have all three stages, some stages could be combined, or several stages repeat several times.
  •  For instance, Cash from drug sales is divided into small amounts then they are deposited by “money mules” and afterwards transferred as payment for services to a shell company.
  •  In this case, the placement and layering are done in one stage.
• The estimated amount of money laundered globally in one year is 2 – 5% of global GDP, or $800 billion – $2 trillion in current US dollars.
  •  Due to the clandestine nature of money laundering, it is, however, difficult to estimate the total amount of money that goes through the laundering cycle.
• Use of cryptocurrencies in money laundering
  • Cryptocurrencies have grown to become the currency of choice in a wide range of online illicit activities. 
    • Apart from being the preferred form of payment for buying ransomware tools and services, online exploitative material, drugs, and other illegal goods online, CVCs are increasingly used to layer transactions and obfuscate the origin of money derived from criminal activity.
    •  Criminals use a number of money-laundering techniques involving cryptocurrencies, including “mixers” and “tumblers” that break the connection between an address (or crypto “wallet”) sending cryptocurrency and the address receiving it.

Consequences and Concerns 

• Money laundering and terrorism financing activity in one country can have serious cross-border and even global adverse effects. 
• Jurisdictions with weak or ineffective controls are especially attractive for money launderers and financiers of terrorism. 
  • These criminals exploit the complexity of the global financial system, the speed at which money can traverse borders, as well as differences between national laws to carry out their concealment objectives.
•  The possible consequences of money laundering, terrorist financing (TF), proliferation financing (the provision of funds or financial services for the acquisition of nuclear, chemical or biological weapons), and related crimes which undermine the integrity and stability of the financial sector and the broader economy.
• These crimes, as well as those underlying crimes that generate money laundering activity, can threaten the stability of a country’s financial sector and a country’s external stability more generally.  
• This, in turn, can affect law and order, good governance, regulatory effectiveness, foreign investments and international capital flows.
• The social costs of money laundering include allowing drug traffickers, smugglers, and other criminals to expand operations and the transfer of economic power from the market, government, and citizens to criminals.
•  In extreme cases, money laundering can lead to a complete takeover of a legitimate government. 

Efforts for Prevention of Money laundering

• The Financial Action Task Force on Money Laundering (FATF), a 39-member inter-governmental body established by the 1989 G7 Summit in Paris, has primary responsibility for developing the worldwide standards for Anti-Money Laundering/Combating the Financing of Terrorism. 
  • It works in close cooperation with other key international organizations, including the IMF, the World Bank, the United Nations, and FATF-style regional bodies (FSRBs)

• the European Union, Council of Europe, Organisation of American States established anti-money laundering standards for their member countries. 
• The Caribbean, Asia, Europe and southern Africa have created regional anti-money laundering task force-like organisations, and similar groupings are planned for western Africa and Latin America in the coming years..

• United Nations Global Program against Money Laundering
  • The 1988 U.N. Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) called upon countries to criminalize money laundering, to ensure that bank secrecy provisions do not impede the process of criminal investigations and to facilitate legislative amendments for investigation, prosecution, and international cooperation. 
  • By working to combat money laundering, the United Nations makes a crucial contribution to the fight against organized crime. 
  • The Global Programme against Money Laundering (GPML) is the key instrument of the United Nations Office of Drug Control and Crime Prevention in this task.

Initiatives of India 

• The Prevention of Money Laundering Act (PMLA), 2002 was enacted in January 2003. 
  • The Act along with the Rules framed thereunder has come into force with effect from 1st July 2005. 
    • It prescribes the obligation of banking companies, financial institutions and intermediaries for verification and maintenance of records of the identity of all its clients and also of all transactions and for furnishing information of such transactions in a prescribed form to the Financial Intelligence Unit-India (FIU-IND). 
    • It envisages the setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties.
    •  It also envisages the setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority and the authorities like Director FIU-IND.
    • It envisages designation of one or more courts of sessions as Special Court or Special Courts to try the offences punishable under PMLA and offences with which the accused may, under the Code of Criminal Procedure 1973, be charged at the same trial. 
    • It allows Central Government to enter into an agreement with the Government of any country outside India for enforcing the provisions of the PMLA, exchange of information for the prevention of any offence under PMLA or under the corresponding law in force in that country or investigation of cases relating to any offence under PMLA.

• Enforcement Directorate

• The Directorate of Enforcement (ED) is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
  • It is part of the Department of Revenue and Ministry of Finance.
• The prime objective of the Enforcement Directorate is the enforcement of two key Acts of the Government of India namely, the Foreign Exchange Management Act 1999 (FEMA) and the Prevention of Money Laundering Act 2002 (PMLA).

• The Financial Intelligence Unit (FIU-IND) signed bilateral MoUs with three countries namely Mauritius, Philippines and Brazil as on 30th June, 2008.
  •  The MoUs are to facilitate the exchange of intelligence between the two countries for the purpose of cooperation to gather, develop and analyze information concerning financial transactions suspected of being related to money laundering and terrorist financing.

Way Forward 

•  There is a need for international cooperation in the fight against cross-border money laundering and terror financing. 
• Multilateral fora such as the Financial Action Task Force (FATF), the Eurasian Group on Combating Money Laundering and Financing of Terrorism, and the Asia Pacific Group on Money Laundering (APG) also need to be optimally utilised by the Enforcement Directorate for bilateral exchanges and follow up with counterpart enforcement agencies for better mutual cooperation.
• It is critically important that governments include all relevant voices in developing a national anti-money laundering programme. They should, for example, bring law enforcement and financial regulatory authorities together with the private sector to enable financial institutions to play a role in dealing with the problem. 

Source:TOI