Misuse of Prevention of Money Laundering Act

In Context 

• The Supreme Court is looking into holding back-to-back hearings on petitions complaining of the alleged subversion of the Prevention of Money Laundering Act (PMLA).

Major Issues highlighted 

• PMLA was a comprehensive penal statute to counter the threat of money laundering, specifically stemming from trade in narcotics. 
  • Currently, the offences in the schedule of the Act are extremely overbroad, and in several cases, have absolutely no relation to either narcotics or organised crime.
• The Directorate of Enforcement(ED) is empowered to issue summons, record statements, make arrests, and search and seize property. Despite having powers of investigation, the ED has not been classified as a ‘police agency’.
• Critics challenged the powers of these specialized investigation agencies that deal with economic offenses. The Act takes away the presumption of innocence usually afforded to accused persons under criminal law.
• To be granted bail, the accused must prove prima facie that they were not guilty, and satisfy the Court that they will not commit any further offense.
• The offenses mentioned in the Act are extremely overbroad, and in several cases, have absolutely no relation to either narcotics or organized crime.
• Besides, there is a lack of clarity about the ED’s selection of cases to investigate.

• The lack of clarity about ED’s selection of cases to investigate. 
  • The initiation of an investigation by the ED has consequences which have the potential of curtailing the liberty of an individual.

About Prevention of Money Laundering Act (PMLA)2002 

• 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. 
• Provisions:
  • Definition of money laundering
    • Sec. 3 of PMLA defines 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 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 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 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 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.

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; and
  • To deal with any other issue connected with money laundering in India.
  • The Act also proposes punishment under sec.4.

What is Money Laundering?

• It is the process of making large amounts of money generated by criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
• Criminal activities like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud schemes produce large profits.
• Thereby it creates the incentive for money launderers to “legitimize” the ill-gotten gains through money laundering.
• The money generated is called ‘dirty money’ and money laundering is the process of conversion of ‘dirty money’, to make it appear as ‘legitimate’ money.

Source:TH