Money laundering is a serious crime involving concealing illegal funds. The Prevention of Money Laundering Act (PMLA) aims to counter this by obligating financial institutions to detect and report suspicious transactions. It has positive impacts like reducing illegal earnings and enhancing the financial system’s integrity. However, concerns exist about its complexity and potential misuse of power. The PMLA’s stages include placement, layering, and integration of illicit funds. Challenges on constitutional grounds have been debated, and roles of financial institutions, law enforcement, and the public are crucial. While effective, ongoing improvements are needed to address evolving money laundering techniques. The PMLA has a positive impact on the economy and public confidence.
Introduction
Money laundering is a serious crime that impacts society because it allows the criminal to make a profit without any fear and can even be detected easily. The principle motive of the act is to erase the illegal point of origin for obtaining money and to clear loopholes in our financial system. This act was recently amended in 2022.
PMLA (Prevention of Money Laundering Act)
This act was introduced by the NDA government to prevent money laundering and enhance the power to seize suspicious property. The said act was enacted in 2002 and came into force on July 1, 2005. The act was twice amended in 2009 and 2012 to improve its effectiveness and strengthen its provisions.
The PMLA is defined as the process of concealing the true nature, source, location, deposition, movement, or ownership of property or the proceeds of crime to avoid the legal consequence of the unlawful activity that gave rise to the property.
The act imposes on financial institutions the following obligations:
- To detect the customer’s intention and keep a record of their customers
- To report if any suspicious transactions are found.
- To comply with the PMLA rules and guidelines
The PMLA has been praised by international organizations such as the FATF (Financial Action Task Force), an international body that sets standards for combating money laundering and terrorism funding. The PMLA has investigated huge defects and caught scams such as the 2G spectrum scam and the coal block allocation scam. The PMLA is effectively criminalizing the accused by properly investigating their transaction.
Amendment in PMLA
- The Prevention of Money Laundering (Amendment) Act, 2005, in which different offenses were included with punishment, also enhanced the investigating power of the enforcing authority.
- The Prevention of Money Laundering (Amendment) Act, 2009, added regulations and provisions that make it an obligation to follow, such as customer due diligence (CDD) and suspicious transaction reporting (STR).
- The Prevention of Money Laundering (Amendment) Act, 2012, added the power to seize property and increased penalties relating to money laundering.
- The Prevention of Money Laundering (Amendment) Act, 2015: In this amendment, the scope of PMLA is enhanced, and non-government organizations and trusts have been included.
- The Prevention of Money Laundering (Amendment) Act, 2023 In this amendment, a new definition of the word ‘group’ is added, which defines that the different entities under common control will be wholly responsible, i.e., a group, for the financial statement.
Implications of PMLA
Positive Implication
The PMLA has helped to reduce illegal ways of earning income, just as the act has helped to improve relations between the government and organizations or institutions.
The PMLA Act also helped the financial system of India by protecting it by convicting criminals and penalizing them in the form of the seizure of their property. The PMLA Act made it more difficult for money launderers to obtain money illegally through the Indian financial system. The PMLA has raised awareness about money laundering in the Indian financial system, which has helped prevent the public from indirectly facilitating money laundering activities
The PMLA Act has also enhanced the due diligence and reasonable care required in Indian financial institutions, which include verification of the identity of customers and sources of funds, which has helped to detect fraud and the origin of illegal money.
The PMLA has increased its report related to the suspicious transaction, which alerts the enforcing authorities (ED) to take further action against the accused. Also, the penalties have been increased relating to the money laundering act, in which the accused can be convicted for up to 7 years and a fine. This has made money laundering more risky for criminals to commit.
Negative Implications
The act has been criticized by the court for its complexity, which grants the executive branch more power than is necessary. This has led to concerns that the power may be abused by authorities.
However, the PMLA has been effectively controlling money laundering in India, but there is still a requirement for more improvement to prevent money laundering because criminals are constantly updating themselves by finding loopholes. The PMLA has imposed a number of rules and guidelines to maintain records of business transactions to find out fraud, but this compliance makes the work costly for the authorities.
Role of Financial Institutions to Prevent Money Laundering: Financial institutions play a vital role in continuing the transaction with legality. They are the main component that finds out the illegality of transactions. The introduction of money laundering starts with this institution carrying money around and integrating it.
Role of law enforcement in money laundering: These enforcing authorities play a vital role in breaking down the chain of money laundering. These authorities investigate the transaction and thus find out the illegality. The enforcing authorities also have the power to prosecute criminals for money laundering offenses. While the authorities are also aware of the public, preventing their activities indirectly helps in money laundering.
Role of the Public to Prevent Money Laundering: The general public also plays a vital role in combating money laundering. Suspicious transactions can be reported to the enforcing authorities by simply informing them, and thus the general public can help enforce the authorities efforts to crack down on launderers and prosecute them.
Stages of the Money Laundering Act
- Placement: At this stage, the money is introduced into the financial system to make it legal or white currency. This process can be carried out in various ways, such as by depositing money in a bank account, investing in real estate, or buying assets such as cars and jewellery. Recently, money has been invested in the production of movies, and this money is converted into income from the box office.
- Layering: At this stage, The money is transported to different accounts so that the bulk money cannot be detected. To avoid obscuring the origin of the income, the process is carried out by making a series of wire transactions, setting up shell companies, or doing complex transactions.
- Integration: This is the stage where money is again introduced into the financial system as legitimate income.
- Example: The black money is first invested in the production of movies, then the money is again used to purchase tickets for the same movie to show that movie is being hit at the box office.
Challenges on Constitutional Grounds
- The burden of proof: In this act, the burden of proof is shifted on the accused; thus, it was challenged that this violates the presumption of innocence, which is guaranteed under Article 20(3) of the Indian Constitution.
- Enforcement Directorate: The ED is the enforcing agency for PMLA. The authority has been questioned on the ground that the ED has wide investigating powers, including the power to seize property, the power to issue a summons, the power to conduct searches, and many more.
- Seizure of property: The PMLA allows the ED to seize or confiscate property where suspicion of money laundering occurs and thus violates the right to property, which is mentioned under Article 300A of the Indian constitution.
Challenges Faced by Enforcing Authorities
Some problems arise while conducting their work, and issues arise in their investigation, such as
- Lack of awareness: The lack of awareness about money laundering among financial institutions and intermediaries makes it difficult for them to comply with anti-money laundering regulations. This can inadvertently help money launderers.
- Lack of resources: The enforcing authorities are under-resourced, which makes it difficult to investigate and prosecute criminals in money laundering offences. The proper resources are still required to find out about money laundering and curtail it effectively.
- Political interference: There has been an allegation of political interference in the investigation of enforcing authorities, and more power shall be given to authorities to curtail political interference.
Nevertheless, the Prevention of Money Laundering Act is a valuable piece of legislation that helps prevent and control money laundering cases. The act is effectively working and bringing the criminal to justice.
Restriction on ED by imposing a limit
The apex court has upheld the validity of the Prevention of Money Laundering Act in many cases. The court also directed some limits and restrained the power of enforcing authority delegated under PMLA, which it ordered to follow, such as:
- The ED must provide a copy of the enforcement case information report (ECIR) to the accused within the limit of 10 days before the arrest to allow him to understand the charges charged against him and to give him reasonable time to prepare for their defence.
- The ED shall allow the accused to be heard so that the accused’s interests are protected. The property of the accused cannot be seized without his consent.
- The reason must be disclosed by the ED, stating for what reason the person was arrested. The ED shall ensure that the accused is aware of the charges during the arrest.
- The ED cannot refuse bail to the accused and cannot curtail the rights of the accused, except if there is a chance that the accused can abscond or interfere in the investigation or if there is sufficient ground for arrest.
- The bail conditions must be reasonable and fair. Due diligence shall be taken by the enforcing authority while granting bail, which includes that the person shall not abscond and that whenever called, he shall be present.
Other Guidelines
- The apex court has ruled that the ED shall not use PMLA to target political opponents or harass innocent people.
- The court also stated that the PMLA must be used in cases where there is sufficient or reasonable ground for doubt about money laundering. Where the investigation or inquiry is for genuine reasons.
Impact of PMLA in Indian society
The act has helped the Indian economy by finding money laundering acts, investigating the crime, and prosecuting them. The PMLA has enhanced awareness of money laundering offences in the public domain, which has significantly impacted Indian society.
Crime: The offences relating to money laundering have also affected other crimes such as drug trafficking, terrorism, and organized crime. It has been more difficult for criminals to find loopholes to carry out money laundering.
Public confidence in the Indian financial system: The effect of the amendment has resulted in increased public confidence in the Indian financial system, which has helped businesses operate without fear.
The latest trend in Money Laundering
Money laundering is an evolving crime that is constantly changing to take advantage of loopholes that arose in new technology and new patterns in business, which make it difficult to track and penalize the money launderers. These difficulties can be minimized by enhancing customer due diligence (CDD), suspicious transaction reporting (STR), international cooperation, and the use of technology. In addition to these, it is also important to educate the public about money laundering offenses and strengthen the legal framework for combating money laundering. By taking these steps, we can make it more difficult for criminals to launder their money and help protect the financial system from being used for criminal purposes.
Conclusion
The Prevention of Money Laundering Act is a valuable piece of legislation that helps to prevent and control money laundering. The PMLA had a positive impact on the Indian economy by making it more difficult to commit money laundering crimes. The act also protects the public from the harmful effects of money laundering, such as corruption, terrorism, and organized crime. However, there are some challenges in PMLA enforcement that will be curtailed. The PMLA has a positive impact on the Indian economy and affects the public greatly. This act makes it more difficult for criminals to carry out their crimes. The Prevention of Money Laundering Act has huge power to criminalize politicians and prevent corruption.
Reference
- Prevention of the Money Laundering Act, 2002 and its constitutional validity – iPleaders
- Explained | What has the Supreme Court said on PMLA’s validity? – The Hindu
- Constitutional Validity Of Prevention Of Money Laundering Act, 2002 (legalserviceindia.com)
- PMLA validity: Key provisions Supreme Court will rule on (barandbench.com)
- Explained: The Supreme Court verdict on PMLA, and why petitioners have sought a review | Explained News, The Indian Express
- Controversial Rule of Jail under the Prevention of Money Laundering Act, 2002 | SCC Blog (scconline.com)
- Recent developments in the Prevention of Money Laundering Act, 2002 – iPleaders
