Money laundering is a way of masquerading illegal profits without affecting people who are concerned with the benefits accompanying the proceeds. It allows the offender to enjoy the proceeds of profits without disclosing/harming their source. Money laundering can be connected with any crime generating glaring proceeds such as corruption, smuggling of ammunition, prohibited drugs, hawala, trade-based laundering, cash-intensive businesses and so on. In other words, the projection of tainted money as an untainted one results in the act of money laundering. It includes three stages namely ‘placement’, ‘layering’ and ‘integration’.
Henceforth, to fight against this evil, the legislature enacted a statute called PMLA, 2002 with a goal to primarily ‘prevent money laundering and stringently confiscate any property derived from, or involved in, money laundering and for matters linked therewith or incidental thereto. This acronym PMLA refers to the Prevention of Money Laundering Act, 2002 and it was implemented with effect from 1st July 2005. In the act, money laundering has been elaborated as any kind of activity which is linked with the proceeds of crime involving its concealment, acquisition, possession or use and thereby, claiming it as an untainted asset.
The Directorate of Enforcement established under the Department of Revenue, Ministry of Finance is authorized to investigate cases falling under the ambit of this act and the Financial Intelligence Unit is the central national agency responsible for gathering, processing, scrutinizing and rendering information apropos to monetary transactions to concerned enforcement agencies and international FIU’s. However, over the years, certain loopholes have been witnessed in the provisions of the act and it has often been termed as an attempt to aggrandize the power of the state.
OBJECTIVES OF THE PMLA ACT: A PRIMER
The crisis of money laundering had plagued the financial system of not only India but also the myriads of other nations and continued to pose a serious threat to their integrity and sovereignty. To mitigate such threats, the parliament enacted an all-encompassing statute inter alia to combat money laundering and associated activities including confiscation of proceeds of crime, the establishment of agencies, ways to curb it and so on. The PML Act further seeks to confiscate and seize the asset gained from the laundered money, deal with any miscellaneous matter linked to money laundering in India and propose a stringent punishment for the offenders (section 4 of PMLA).
INITIATIVES BY THE INTERNATIONAL COMMUNITY: INSPIRATION FOR INDIA
Some of the initiatives observed by the international community to curb this menace are cogently elaborated as follows-
- The United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, to which India is a party, advocates for the prevention of money laundering.
- The Basel Statement of Principles (instituted in 1989) stipulates the main policies and procedures that the banks need to adhere to in order to help the enforcement agencies smoothly tackle the convoluting crisis of money laundering.
- The Financial Action Task Force renders (established at the summit of seven major industrial nations, held in Paris from 14th to 16th July 1989) the foundational sources for comprehensive legislation to mitigate the dilemma surrounding money laundering.
- The Political Declaration and Global Programme of Action adopted by the United Nations General Assembly by its Resolution no. S-17/ 2 calls upon its member states to evolve punitive strategies to safeguard financial institutions like banks from getting involved in cases dealing with money laundering.
- The United Nations in the special session on countering World Drug Problem Together has made yet another important declaration regarding the dire need to combat money laundering.
India has been thoroughly inspired by such initiatives of the global community and has been resolute in enacting a distinct statute to combat the catastrophe of money laundering within the territory.
ACTIONS THAT CAN BE INITIATED AGAINST A PERSON INVOLVED IN MONEY LAUNDERING UNDER THE PMLA, 2002
The stringent actions that can be commenced against a person involved in the offence of money laundering are as follows-
- Seizure/ freezing of assets, records and subsequent attachment of property obtained with the proceeds of crime.
- The punishment under the kaleidoscopic ambit of the act includes rigorous incarceration for a minimum term of three years which may extend up to seven years. It may also include a fine (without any limit).
LIST OF OFFENCES STATED UNDER THE ACT
Any offence mentioned in Part A and Part C shall attract the provisions of PMLA. Some of these offences (which may fall under the ambit of PMLA) are extrapolated as follows-
- PART A– It includes offences under several acts like the Indian Penal Code, Copyright Act, Wildlife Protection Act, Information Technology Act, Prevention of Corruption Act, Trademark Act and Narcotics, Drugs and Psychotropic Substances Act to name a few.
- PART B– It mentions the offences falling under Part A, however, the value involved in such offences is Rs 1 crore or above.
- PART C– It is concerned with trans-border crimes and reflects the dedication to deal with money laundering across international borders.
CHALLENGES TO THE PMLA: EXPLAINED
The PMLA has undergone multiple amendments (in the years 2015, 2018 and 2019) aimed at plugging the loopholes in its operation. However, certain legal lacunas persist and have been elucidated below-
- The 2019 Amendment substantiated upon the definition of ‘proceeds of crime’ under section 2(1)(u). It was stated that “proceeds of crime include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.” However, the question of whether the requirement of the ‘explanation’ to clarify the stance over the term ‘proceeds of crime’ shall have a retrospective effect or not still seems to be unresolved.
- From the initial list containing 6 statutes, the PMLA now involves ‘scheduled offences’ from 30 other statutes. There is a looming fear that the incorporation of non-serious offences might dilute the very objective of PMLA. Between the years 2012-2018, 1067 cases dealing with PMLA were filed by the ED. As of December 2019, only 13 people have been convicted under PMLA in 9 cases. These statistics reflect the requirement to streamline the application of the statute and ensure more focus on offences of serious nature.
- Under section 50(4) of the PMLA, all proceedings u/s 50(2) and 50(3) are deemed as “judicial proceedings” within the definitions of sections 193 and 228 of the Indian Penal Code. Now, since ED proceedings are “judicial proceedings”, any statement made before ED is admissible as evidence. However, this is not in consonance with the general rule u/s 25 of the Evidence Act, which mentions that confessional statements made to a police officer are not admissible as evidence in the court of law. Section 71 states that PMLA shall have an overriding effect, however, it must be noted that in Tofan Singh judgement, the Supreme court held that special legislation must contain adequate safeguards with respect to the admissibility of confessional statements.
Despite certain hurdles and legal predicaments, PMLA has still been made stringent enough to combat the menace of money laundering arising out of tainted wealth gained through dubious ways. Several agencies like RBI, SEBI, Banks and so on have been taken onboard to disseminate information regarding such illegal activities. The success of PMLA is evident from the fact that the ED has attached assets worth over Rs. 33, 563 crores between April 2015 to October 2018 whereas the figures in the previous 10 years were abysmally low.
Some of the highlighted cases under PMLA include the Sterling biotech bank loan fraud, Augusta Westland and Rafale deals, ICICI bank loan to Videocon Industries, Punjab National Bank case etc. To cull out the gist, apart from enacting laws that punish the laundering of the proceeds of crime, India must legislate rigorous compliance programs for the financial institutions as well, thereby, making money laundering even more difficult. Financial organizations should be ordered to report suspicious transactions, train their employees to navigate suspicious activities and gather substantial information about their clients. This shall help in avoiding a labyrinth of monetary cataclysms for the economy and provide for enhanced flexibility in detecting fraudulent transactions on time.
Author(s) Name: Jasleen Bedi (University School of Law & Legal Studies, GGSIPU)