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Money Laundering

Prevention of Money Laundering Act` 2002 is a vital legislation in India that is intended to tackle crucial issues of money laundering and related financial crimes. Its primary goal is to prevent money laundering and make it easier to seize assets that are obtained through or connected to money laundering. The act came into operation in 2005 after being enacted in 2002 by the National Democratic Alliance government. Its main objective was to put an end to money laundering by making provisions for the seizure of assets obtained via or connected to money laundering and penalizing anyone who violated this rule.

With the Act, India sought to join international initiatives aimed at reducing the amount of money obtained from drug trafficking and utilizing it to support terrorism. In 1988, the Vienna Convention urged nations to enact domestic legislation to tackle the threat of drug trafficking. The goal was to prevent such ill-gotten money from being “laundered” and used for real estate purchases. The Financial Action Task Force was created in 1989 during the G7 Summit to address the problem of money laundering. Subsequently, in 2002, the Palermo Convention called on countries to enact laws that would make the proceeds of crime illegal.

In layman terms, money laundering is the act of concealing financial resources in order for them to be used without revealing the illegal activity that generated them. The money launderer transforms money obtained through illegal activity into what appears to be a valid source through the process of money laundering.

Prevention of Money Laundering Act`2002 states in Section 3 that “whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of the offense of money laundering” The PMLA, 2012 (effective 15.02.2013) broadened the arenas of the definition of the offence of money laundering by eliminating the Act’s former 5 lac rupee fine cap and including therein the illegal actions of concealment, acquisition, possession, and use of the proceeds of crime.

 

Prevention of Money Laundering Act

Prevention of Money Laundering Act`2002 requires that banks, other financial organisations, and middlemen be in charge of confirming and keeping thorough records about the identities of all customers and transactions. The Act has many noteworthy features, such as strict bail requirements, the ability to arrest someone without first providing an Enforcement Case Information Report, the ability to admit statements made by the accused as evidence during an investigation, the inclusion of broad definitions for money laundering and proceeds of crime within the Act, and the non-communication of the grounds of arrest to the accused.

MAJOR AMENDMENTS IN PREVENTION OF MONEY LAUNDERING ACT`2002

Prevention of Money Laundering Act`2002 has gone through a series of significant modifications and altered the dimensions of the act including the amendments in 2005, 2009, 2012, and 2019. The Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023, which were issued by the Department of Revenue under the Ministry of Finance, in March 2023, mark the most recent amendment. The purpose of the amendment was to improve the act’s efficacy, expand its application, and address some procedural issues that the Enforcement Directorate encountered when pursuing PMLA cases.

The major highlights of the amendment of 2023 were:-

  • adoption of strict steps for consumer due diligence
  • application of a risk-based methodology to the identification and evaluation of potential money laundering threats
  • bolstering the systems for tracking and reporting suspicious transactions
  • Extension of the concept of individuals who are politically exposed (PEPs)
  • Improved collaboration and exchange of data between regulatory bodies and reporting organisations
  • introduction of technologically advanced methods for efficient money laundering prevention
  • Provision for fines and legal action in the event that the rules are broken
  • Prioritise the education and training of those working in the anti-money laundering sector.

Prevention of Money Laundering Act`2002 was amended in 2019 and revised, Section 2 (1) (u) (definition of proceeds of crime) and Section 3 (definition of money laundering offence). The purpose of the modification was to eliminate the previous ambiguity and clarify what an offence involving money laundering entails.

The PMLA’s Section 3 addresses provisions pertaining to “money laundering offences.” The amendment added a “Explanation” to Section 3 to make it clear that anyone found to have engaged in any of the following processes or activities related to proceeds of crime—concealing, possessing, acquiring, using, projecting as untainted property, or claiming as untainted property—directly or indirectly, or to have knowingly assisted in any of these ways—will be guilty of the crime of money-laundering.

The act’s definition of “proceeds of crime,” included in section 2 (1) (u), was similarly modified by the amendment. The concept of “proceeds of crime” was amended to encompass property that is acquired, directly or indirectly, through any channel, including criminal activity related to a scheduled offence.

Money Laundering
Money Laundering

PREVENTION OF MONEY LAUNDERING ACT`2002

AUTHORITIES & THEIR POWERS UNDER PMLA`2002

 

Authorities responsible for conducting the investigation.

Examining allegations of money laundering crimes under the PMLA is within the purview of the Enforcement Directorate within the Department of Revenue, Ministry of Finance, Government of India. The Financial Intelligence Unit – India (FIU-IND), housed within the Department of Revenue of the Ministry of Finance, is a separate entity that answers right away to the Economic Intelligence Council (EIC) whose head is the Finance Minister. The primary national organisation in charge of gathering, processing, examining, and sharing data about questionable financial activities is FIU-IND. It is also accountable for:

  • coordinating and bolstering the activities of both domestic and foreign intelligence agencies
  • investigating in order to pursue international efforts to combat money laundering and similar offences.

Agencies mentioned under the respective legislation, such as the local police, CBI, customs departments, SEBI, or any other investigative agency, as applicable, individually investigate the scheduled offences.

  • Adjudicating Authority

The Central Government may designate an adjudicating authority under the PMLA in order to carry out the functions and authority granted by this Act. The bench of an adjudicating authority must be made up of:

  • A chairperson
  • Two additional members, one of whom needs to have prior experience in the fields of accounting, finance, administration, or law.

A person working in the legal profession is eligible to join the adjudicating authority if they:

  • Possesses the necessary credentials to be appointed as a district judge
  • has served as a representative in the Indian Legal Service, having held a Grade I position.

The adjudicating authority’s bench shall convene in New Delhi and at other locations designated by the chairperson and the Central Government.

The individual against whom a complaint of a PMLA money laundering offence has been submitted will get a notice from the adjudicating body. It may send a notice to such a person, requesting that he or she explain how they make money, what assets they possess, and how they obtained the property that has been attached, seized, or frozen by the Director designated under this Act. They may also be asked to explain why the Central Government shouldn’t declare such properties to be involved in money laundering and take them into confiscation.

After reviewing the response from the individual accused of the crime, hearing from the aggrieved party and the Director, and taking into consideration all available information, the adjudicating authority will record a determination regarding whether all or any of the properties mentioned in the complaint are implicated in money laundering.

The accused party will affirm in writing the attachment, seizure, or freezing of the property upon the Adjudicating Authority’s determination that it is involved in money laundering. The person who is qualified to receive such property shall be given access to it.

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