PREVENTION OF MONEY LAUNDERING ACT, 2002


PREFACE

Prevention of Money Laundering Act, 2002 was enacted to fight against the criminal offence of legalizing the income/profits from an illegal source. The Prevention of Money Laundering Act, 2002 enables the Government or the public authority to confiscate the property earned from the illegally gained proceeds.

INTRODUCTION 

Any person who directly or indirectly:

  • Attempts to indulge.
  • Assists the person who is involved in any process.
  • Is a party to the activity connected with the proceeds of crime.

As the supply of illegal arms, drug trafficking, and prostitution, which can generate huge amounts of money and project or claim it as untainted property; shall be guilty of the offence of Money Laundering. The Act was formulated for the following objectives:


1. Prevent money- laundering

2. Combat/prevent channelising of money into illegal activities and economic crimes.

3. Provide for the confiscation of property derived from, or involved/used in, money laundering.

4. Provide for matters connected and incidental to the acts of money laundering. Mere earning of money or obtaining any property by committing a crime does not amount to money laundering, though it may amount to syphoning of funds.

5. Obtaining or deriving any property by committing a crime which amounts to a Scheduled offence, and then projecting or claiming such money or property as untainted property amounts to money laundering.


PMLA OBJECTIVES

Ø Preventing money laundering.

Ø Combating the channelising of money into illegal activities and economic crimes.

Ø Providing for the confiscation of property derived from or involved in money laundering.

Ø Providing for any other matters connected with or incidental to the act of money laundering.


WHAT IS MONEY LAUNDERING?


Ø Money laundering 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.

Ø Criminal activities like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud schemes produce large profits.

Ø Thereby it creates the incentive for money launderers to "legitimise" the ill-gotten gains through money laundering.

Ø 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.


Process of Money Laundering:

Ø Placement: The first stage is when the crime money is injected into the formal financial system.

Ø Layering: In the second stage, money injected into the system is layered and spread over various transactions to obfuscate the tainted origin of the money.

Ø Integration: In the third and the final stage, money enters the financial system in such a way that the original association with the crime is sought to be wiped out and the money can then be used by the offender as clean money.



COMMON FORMS OF MONEY LAUNDERING


Hawala, bulk cash smuggling, fictional loans, cash-intensive businesses, round-tripping, trade-based laundering, Shell companies and trusts, real estate, gambling, and fake invoicing are some of the common methods of money laundering.


LIST OF OFFENCES


Under PMLA, the commission of any offence, as mentioned in Part A and Part C of the Schedule of PMLA will attract the provisions of PMLA. Some of the Acts and offences, which may attract PMLA, are enumerated below:

Part A - enlists offences under various acts such as: the Indian Penal Code, Narcotics Drugs and Psychotropic Substances Act, Prevention of Corruption Act, Antiquities and Art Treasures Act, Copyright Act, Trademark Act, Wildlife Protection Act, and Information Technology Act.

Part B -specifies offences that are Part A offences, but the value involved in such offences is Rs 1 crore or more.

Part C -deals with trans-border crimes and reflects the dedication to tackling money laundering across global boundaries.


AUTHORITIES ENTRUSTED FOR INVESTIGATION


The Enforcement Directorate in the Department of Revenue, Ministry of Finance, and the Government of India are responsible for investigating the offences of money laundering under the PMLA. Financial Intelligence Unit – India (FIU-IND) under the Department of Revenue, Ministry of Finance is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister. FIU-IND is the central national agency responsible for receiving, processing, analysing, and disseminating the information relating to suspect financial transactions. It is also responsible for:

1. Coordinating and strengthening the efforts of national and international intelligence,

2. Investigations for pursuing the global efforts against money laundering and related crimes.


The scheduled offences are separately investigated by agencies mentioned under respective acts, for example, the local police, CBI, customs departments, SEBI, or any other investigative agency, as the case may be.


PENALTIES UNDER PMLA

Various actions can be initiated against persons found to be guilty of money laundering, such as:

  • Freezing or seizing of property and records, and/or attachment of property obtained through crime proceeds.
  • Money laundering is punishable with:
    • Rigorous imprisonment for a minimum of 3 years and a maximum of 7 years.
    • Fine.

If the crime of money laundering is involved with the Narcotic Drugs and Psychotropic Substances Act, 1985, the punishment can go up to 10 years, along with a fine.


CONCLUSION


Over the past decades, several anti-money laundering policies have been adopted to overcome laundering. Financial institutions and governments are constantly looking for new approaches to fight against money launderers.

Banks and financial institutions play a pivotal role in the world of financial crime. They must be properly trained on how to identify and handle money laundering. Almost every bank employee receives training in anti-money laundering, and all financial institutions and banks are legally required to report any suspicious activity.

With the help of technology such as special compliance platforms, companies are now able to easily research their customers and ensure that they are not doing business with criminals.


REFERENCE:

https://www.drishtiias.com/daily-updates/daily-news-analysis/misuse-of-prevention-of-money-laundering-act

https://cleartax.in/s/prevention-of-money-laundering-act-2002

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