Objectives of the Prevention of Money Laundering Act,2002

PMLA is the specific legislation encompassing detailed structure and procedure of anti-money laundering rules. With an aim to nip the evil in the bud, the said Act has been enacted which duly identifies and defines the offence of money laundering and its concerned activities, provides- procedure, punishment, powers of adjudicating authority and Court designated, remedy& rights available to the accused.

Every year huge amount of money is generated from illegal sources or criminal activities such as tax evasion, false accounting practices, illegal arms sales, smuggling, or drug trafficking. The funds so acquired are tainted and so brought into the usual financial system to make it clean, more usable and legitimate.

‘Money laundering’ is the name given to the process by which illegally obtained funds are given the appearance of having been legitimately obtained.[1]

Legal definition

The offence of money laundering is defined under Section 3 of the Prevention of Money Laundering Act, 2002 (hereinafter “PMLA”) which can be read, in the form of its essential ingredients, as:

Whosoever directly or indirectly

• attempts to indulge;
• knowingly assists;
• knowingly is a party; or
• is actually involved in any process or activity connected with-

proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money laundering.

The expression “proceeds of crime” is integral to chalk out the offence of money laundering. Section 2(u) of PMLA provides for the meaning of the aforesaid expression as follows:

Any property derived or obtained, directly or indirectly, by any person, as a result of criminal activity relating to the scheduled offence, or the value of such property, or the property equivalent in value held within the country in the circumstances where laundered property i.e. proceeds of crime is taken or held outside the country.

It can be observed that the said expression must hold a wider interpretation for the term “property” used in it has been given a wide definition in the PMLA.[2]

In Mahanivesh Oils & Food Pvt. Ltd. v. Directorate of Enforcement[3], the Hon’ble High Court of Delhi observed that money laundering involves three stages, which are as follows:-

“The first stage is Placement, where the criminals place the proceeds of crime into the normal financial system.

The second stage is Layering, where money introduced into the normal financial system is layered or spread into various transactions within the financial system so that any link with the origin of wealth is lost.

And, third stage is Integration, where the benefit or proceeds of crime are available with the criminals as untainted money.”

Some of the widely used forms of money laundering and related organized crime are structuring deposits, shell companies, third-party cheques, bulk cash smuggling, gambling, false accounting, embezzlement, insider trading or bribery.

Scheme and purpose of the Act PMLA contains 75 sections and a Schedule. The sections are divided amongst 10 chapters. The Schedule of the Act is divided in three parts; Part A, B and C, each of which lays down offences, also called predicate offence, whose proceeds are referred as proceeds of crime. It comprises of the offences under Indian Penal Code, Narcotic Drugs and Psychotropic Substances, Arms Act, the Immoral Traffic Act, the Explosives Act, the Prevention of Corruption Act & Wild Life (Protection) Act etc.

Pre-enactment of the legislation, the laws addressing the issues of money laundering were scattered and inadequate to meet the existing crisis. The need of the hour was to come up with a definite, clear and specific bill to tackle the concerned issue which readily was becoming bigger and bigger threat to national economy. Thus, lawmakers introduced Prevention of Money Laundering Bill to prevent this prime offence and activities incidental thereto, which was passed by the Parliament on 17th January, 2003 and the PMLA came into force with effect from 1st July, 2005.

The Act was devised to prevent and control money laundering in India. It was formulated such as to confiscate (seize under authority) the property obtained from illegal sources and to deal with any issue in the ambit and scope of money laundering like activity.

It has been amended from time to time to cater to purpose of the legislation and broaden its scope to reach every corner which remained unaddressed hitherto. Vide Amendment Act of 2009 which came into force on 01.06.2009, and further the Amendment Act of 2012, which came into force on 15.02.2013, the scope has been further enhanced.[4]

Punishment under PMLA: Section 4 of the Act prescribes the punishment for the aforesaid offence. It maintains that whoever commits the offence of money laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years extendable up to 7 years and shall also be liable to fine. The term can also extend up to 10 years if the proceeds of crime involved in money laundering relates to any offence specified under Paragraph 2 of Part A of the Schedule.

Section 43 empowers the Central Government to constitute special courts for the trial offences under Section 4. According to the section 45, the said offence is non-bailable.

It must be borne in mind that power of adjudication authority which is also appointed by the Central Government (under Section 6, PMLA) is limited to carry out the investigation on whether the property attached provisionally by authorities under the Act is on reasonable grounds or not. Hence, overlap of powers between the executive and the judiciary is avoided.

India is also a signatory to numerous international conventions, principally working to devise anti-money laundering regulations in order to deal with menace of money laundering and obviate such danger at global level. For instance, International Convention for the Suppression of the Financing of Terrorism (1999) and UN Convention against Corruption (2003).

In conclusion, Criminal activities like money laundering are not restricted to borders of a single nation. Activities like these, if go unchecked; tend to affect economic health and financial security of the country and its people. This menace seeks to infiltrate risks into society, politics and indeed government at grassroots’ level and can prove to be disastrous for developing and developed nation which is why it is essential to curb this global threat with more strict implementation and increasing awareness within the country and worldwide.

Richa is 2nd year law student at University Of Delhi.

[1] “Introduction to Money Laundering” Australian Transaction Reports and Analysis Centre Australian Centre available at http://www.ag.gov.au/cca.

[2] See Explanation to s. 2(1)(v), PMLA.

[3] AIR 2016 Delhi 54.

[4] Section 1(3), Prevention of Money Laundering (Amendment) Act, 2012