Prevention of Money Laundering Act (PMLA)

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    In Context

    • There are many criticisms surrounding the Prevention of Money Laundering Act (PMLA). 
      • Recently, the Supreme Court also upheld the core amendments made to the Act in 2002.

    Overall scenario

    • Money laundering has become a matter of international concern and India has undertaken several international commitments in this regard. 
    • The PMLA was introduced in 2002, ostensibly to tackle the problem of money laundering. 
      • It has been subject to several amendments. 
    • Over 240 petitions were filed against the amendments in which the challengers claimed to violate personal liberty, procedures of law and the constitutional mandate.
    • The Supreme Court’s verdict upholds all the controversial provisions of the Prevention of Money Laundering Act (PMLA) that falls short of judicial standards of reviewing legislative action.

    Criticisms of the PMLA

    • Power to Enforcement Directorate (ED):
      • The Act gives the government and the Enforcement Directorate (ED) virtually unbridled powers of summons, arrest, and raids.
      • Despite having powers of investigation, the ED has not been classified as a ‘police agency.
      • Besides, there is a lack of clarity about the ED’s selection of cases to investigate.
    • Bails & the burden of proof:
      • It makes bail nearly impossible while shifting the burden of proof of innocence onto the accused rather than the prosecution.
      • The Court made it clear that the State has a compelling interest in imposing stringent bail conditions for economic offences.
    • Definition of crime:
      • The definition of crime under this Act is criticised for being almost infinitely elastic. 
      • According to critics, the authority has immense latitude to define what counts as the relevant crime. 
    • Process of trials & conviction:
      • Whoever underwent the trials claim that the process in itself is the punishment, where your assets can be seized, till the proceedings are complete.
      • The conviction rate under this law is very low, less than five per cent.
    • Attachment of properties:
      • In theory, the law provides safeguards against attaching properties, but those safeguards are weak and do not allow for even reasonable exceptions that might be necessary for your dignity or continuing with your business or livelihood. 
    • Enactment as a Money Bill:
      • While enacting the law, the subterfuge of a Money Bill was used. So, it is alleged that the parliamentary procedure under which the law was enacted was itself proper.

    About Prevention of Money Laundering Act (PMLA) 2002 

    • About:
      • It was enacted in January 2003 and the Act along with the Rules framed thereunder has come into force with effect from 1st July 2005. 
      • The Parliament enacted the PMLA as a result of international commitment to sternly deal with the menace of money laundering of proceeds of a crime having transnational consequences and on the financial systems of the countries.
    • Objectives:
      • The PML Act seeks to combat money laundering in India and has three main objectives:
        • To prevent and control money laundering
        • To confiscate and seize the property obtained from the laundered money; 
        • To deal with any other issue connected with money laundering in India.
      • The Act also proposes punishment under section 4.
    • Provisions:
      • Definition of money laundering:
        • Sec. 3 of PMLA defines the offence of money laundering as 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 the offence of money-laundering. 
      • Prescribes obligation: 
        • PMLA 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). 
      • Empowerment of officers: 
        • PMLA empowers certain officers of the Directorate of Enforcement to carry out investigations in cases involving offence of money laundering and also to attach the property involved in money laundering. 
        • It empowers the Director of FIU-IND to impose fines on banking companies, financial institutions or intermediaries if they or any of its officers fails to comply with the provisions of the Act as indicated above.
      • Setting up of Authority: 
        • PMLA 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.
      • Special Courts:
        • It envisages the 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. 
      • Agreement for Central Government: 
        • It allows the 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.

    Consequences of Money Laundering

    • Associated Criminal Activities:
      • The possible consequences of money laundering are terrorist financing (TF), proliferation financing (the provision of funds or financial services for the acquisition of nuclear, chemical or biological weapons), and related crimes.
    • Financial insecurity & governance:
      • 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, governance, regulatory effectiveness, foreign investments and international capital flows.
    • Social Costs:
      • 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. 

    Dirty money & Money Laundering

    • Dirty Money:
      • Criminal activities like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud schemes produce large profits.
      • The money generated is called ‘dirty money.
    • Money laundering:
      • Money laundering is the process of conversion of ‘dirty money, to make it appear as ‘legitimate’ money.
      • The money from the criminal activity is considered dirty, and the process “launders” it to make it look clean.
      • Money laundering is a serious financial crime that is employed by white-collar and street-level criminals alike.

    • Steps of Money laundering:
      • Placement surreptitiously injects the “dirty money” into the legitimate financial system.
      • Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
      • In the final step, integration, the now-laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals have in mind for it.

     

    Mains Practise Question 

    [Q] Critically examine the Prevention of Money Laundering Act (PMLA) in effectively curbing the menace of money laundering.