For the cleanup of filthy money, the phrase money laundering came into play. It masks up or masks unlawful earnings to make them appear legal. Worldwide, money launderers use money laundering to hide the linked illegal activities, such as drug/arms, terrorism, and extortion. In the United States of America, with the mafia party, the words ‘money laundering’ arose. Mafia groups have made huge sums of extortion, gambling, etc, and it is demonstrated that money is lawful.
PMLA stands for The Prevention of Money Laundering Act 2002, it was enacted by the Government to limit black money and prevent such acts of money laundering. The Indian government described money laundering as the cover-up of the sources of money unlawfully collected, usually through transfers through foreign banks or legitimate enterprises.
Money laundering is widespread, including casino schemes, cash business schemes, smurfing schemes, and external investments and return scams. Many of them are involved in a comprehensive money laundering operation since the money is transferred to prevent discovery.
A Brief Account On Money Laundering
Money laundering began in the USA with the Mafia groups, which produced huge sums of extorting, playing games and portrayed the money that they earned as legal money.
The phrase Hawalah transactions, money laundering, would have come to your attention in India. Money laundering is a cunning strategy performed in a way that authorities cannot detect to know the true source of riches by washers who spent their money.
Money laundering may be done in many ways, but the most frequent of them is to set up false corporations known as shell companies. This corporation functions as real, although the presence of a company is not actual, and these companies make no investments. You can find them on paper but not in fact.
The money launderer receives financing for such false businesses, and also receive a government exemption from this procedure, which accumulates huge amounts of black money.
Let us understand the different stages of Money Laundering
There are three main stages of the money laundering process:
- Placement: Criminals are placing illicit proceeds in the legitimate financial system;
- Layering: In this stage, the money entered into the financial system is laid down or distributed among several transactions in the financial system. It helps to eliminate any connection to the source of income.
- Integration: here, crime earnings are untouched cash for the offenders.
The intent of the Prevention of Money Laundering Act, 2002
In 2002 it was implemented but modified three times. The President endorsed the latest 2012 amendment and the law went into effect in 2013. The purpose of the Money Laundering Act was to combat the evils of money laundering in India, with its principal objective:
- Prevention and regulation money laundering in India;
- Seize and recover the property acquired from money laundering;
- To combat the evils of money laundering in India and eliminate the roots of it from the system.
The PML act 2002 was adopted by the Reserve Bank, the Securities Exchange Board of India and the Insurance Regulatory and Development Authority. Financial institutions including banks, mutual funds and insurance companies have thus been submitted to the requirements of this Law as a sophisticated and manipulative matter of money laundering.
Prevention of Money Laundering Act Post 2002
There were some legislations dealing with the problem before the PMLA 2002 was adopted. Some of the following are:
- The Benami transaction (prohibition) act, 1988;
- Indian Penal Code & Code of Criminal Procedure;
- Prevention of Illicit Narcotic Drug Trafficking & Psychotropic Substances Act, 1988.
- The Benami transactions law, 1988.
Banks in India were unwilling to alter their tight bank secrecy rules, making money easier for launderers. The money laundering problem took a drastic turn with Hawala’s old subterranean banking structure. The situation has worsened substantially.
The Money Laundering prevention Bill was drafted with a view to eliminating money laundering. Additionally, agreements were also made with countries to help each other in the investigation of the cases related to money laundering.
India signed bilateral agreements with the intention to fight drug trafficking and money laundering. In order to reach the aims of the Vienna Convention and FATF Recommendations, Between 1995 India inked a drug-related money laundering agreement with Egypt in Egypt and India. According to the agreement, the exchange of operational intelligence and identification, freezing and seizure of properties in connection with money laundering are included.
The Indian government concluded a comprehensive accord with Pakistan in 1997 as well. The nations have agreed to introduce many cooperation steps to combat the drug trade and money laundering. Both governments committed to establishing channels for collaborative financial research and exchanges of information.
Amendments in the Prevention of Money Laundering Act
The Union Government has recently announced a notification to the Directorate of Execution (DE) on various amendments to the Money Laundering Prevention Act (PMLA) which would further empower the DE to deal with money laundering cases.
We have enlisted some of the latest provisions in the Prevention of Money Laundering Act
- The amendment intended to make money laundering a stand-alone crime.
- Money laundering wasn’t a separate crime till now.
- Rather, the proceeds of which have become the subject of a crime of money laundering dependent on another crime called a predicate offence.
- It extends the scope of ‘crime profits’ to include those properties which, in the context of any criminal action that relates to the scheduled offence, may be directly or indirectly derived or gained.
- The most important changes are to remove the requirements from Section 17 (Search and Seizure) in sub-section (1) and Section 18. (Search of Persons).
- These rules required that other authorities be allowed to test offences specified in the schedule of the PMLA be required to file an FIR or charge sheet.
- Section 45 is accompanied by a clarification that all PMLA crimes are recognisable and unreleasable.
- ED is empowered, subject to certain criteria, to arrest an accused without a warrant.
- Another major improvement is the concealment, independently and in full in accordance with this Act, of the proceeds of the offence, ownership, acquisition, use, projecting or claiming as unrelated property.
- Section 72 will now authorise the Centre, for consultation on anti-money laundering and anti-terror financing efforts, to establish interdepartmental and inter-agentic coordination committees for collaboration in operational and policy areas.
In accordance with the Finance Act 2019, the PMLA 2002 was modified. One of the amendments to the PMLA notion of criminal profits. It not only includes property received from or generated from scheduled offences, but also property derived or obtained directly or indirectly because of criminal activities in connection with a scheduled offence.
If intentionally, an individual is found to be involved in the disguise, own, procure or use of property connected to criminal proceeds, he or she intends to participate in the purposefully or actively, then he or she is the party to or is found to be engaged in money laundering violation.
Crime revenue scope
The Directorate of Enforcement feels it provides a great deal of ambiguity in investigating and prosecuting cases of financial laundering in this area. This is why an explanation was included by the Finance Act 2019 in the aforementioned section.
Financial Act 2019 explanation– Crime gains comprise not only property generated or gained from the offence on schedule but also property derived or received, directly or indirectly, as a result of any unlawful conduct in connection with the offence planned.
Therefore, Article 2(1)(u) extends the scope and allows for the inclusion of profits arising from criminal conduct connected to planned offences. The word ‘illegal’ is not defined in the Law hence sufficient to provide proof that the property was obtained via criminal conduct by the authorities responsible for implementing the act.
PMLA OVER IBC
The Act doesn’t quite address the question of the linkage between the Money Laundering Act and IBC. The connection of PMLA property is often at odds with IBC CIRP and is demeaning the goal of CIRP.
While deciding on ED appeals, Delhi HC stated that when properties received as proceeds of crime are attached to the PMLA, they are above IBC. It also stated the coexistence of PMLA, RDBA, SARFAESI ACT, and IBC with PMLA.
On the other side, NCLT invoked the Insolvency and Bankruptcy Code simultaneously with the Money Laundering Act, in the matter of Rotomac Global Pvt. Ltd., and none of the legislation had an overriding impact on the other.
Further clarification in the actual application of the PMLA may be necessary, in particular in relation to the issue of property attachments.
The Key Take-Aways
- Like many other nations, India has also developed comprehensive regulations to deal with the problem of money laundering.
- Important changes in the section Crime and Punishment. They were trying to fill the gaps in this issue.
- Chapter 45 – Ancient wine, New Flask: Unless the public prosecutor chosen by the government has a chance to object to his bail, section 45 of the PMLA Act allows no individual to be granted bail for any offence under the Act.
- It has provided for the seizure of crime proceeds and also provides for criminal proceedings against individuals involved in money laundering.
- Financial companies should disclose unusual transactions since they can help law enforcement authorities discover money laundering instances.
More clarification is expected on the practical implementation and participation of the PMLA, in particular the property attachment clause. The Act of 2019 expands its laws and aims not to play the specter quietly but to push regulators to monitor financial crimes, to detect them, and to prevent them by flaunting questionable activities and clients. However, a more complex system requires more active engagement in order to minimise money laundering.