Prevention of Money Laundering Act, 2002: An Overview

By | June 14, 2022
Prevention of Money Laundering Act, 2002: An Overview

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The Article Prevention of Money Laundering Act, 2002: An Overview is a descriptive analysis of the enactment of the Prevention of Money Laundering Act, 2002. It was in response to the US resolution.  The author even covers extraordinary features of the Prevention of Money Laundering Act of 2002. The Prevention of Money Laundering Act provides restrictions that make it difficult to commit illegal money laundering.

Money laundering in the internet age is commonly known as e-money laundering. The above-mentioned Act also imposes certain restrictions so that money could not be obtained in an illegal manner. The Author talks about both international and national levels where the punishment is not too high and even those are not strictly followed.

Introduction: Money Laundering Act 

Cross-border money laundering poses a threat to the political and economic stability of a nation. Because of this, money laundering occurs frequently in international contexts with less stringent regulations. This makes it easier to conceal the fact that the money was obtained through unlawful means. In 2002, the Indian Parliament passed the Prevention of Money Laundering Act in response to a US resolution. However, the Act has not yet been fully implemented.

As the term implies, money laundering is the concealment or elimination of the illicit origin of funds. Money laundering occurs when an unlawfully obtained financial asset is passed through a reputable firm or foreign bank so that no one can tell when it returns that it was gained illegally.

It involves removing any traces of criminal activity, such as extortion, drug trafficking, gun sales, and organised crime, from a person’s bank account. Typically, this is accomplished in three phases. The first thing a thief does with stolen funds is deposited them into a bank account (Placement). This money is then spent in numerous ways, making it nearly impossible to determine where it originated or who its original owner was (Layering). Finally, the illicit funds are deposited into the financial system in a way that makes it difficult to determine their origin. The offender and his or her accomplices may then use the funds as “clean money” (integration).

About Prevention of Money Laundering Act, 2002

The impact of transnational money laundering on a country’s economy and governance is significant. Because of this, money laundering occurs frequently in international contexts with less stringent regulations. This makes it easier to conceal the fact that the money was obtained through unlawful means. Criminals in one location can carry out their schemes using funds from another. Prior to the 1980s, when money laundering became a far more serious offence, felony offences were rarely punished.

In the 1980s, the amount of money that was laundered increased significantly due to the introduction of drug money into the US banking system. Therefore, the United States Government enacted a series of laws and regulations to prevent drug money from entering the financial system. After then, additional international measures were implemented to criminalize money laundering. The General Assembly of the United Nations adopted a resolution on the Political Declaration and Global Program of Action in 1990. This aided regulations and programmes designed to prevent money laundering. The Indian Parliament passed the Anti-Money Laundering Act to implement the resolution.

The Ministry of Finance established an interdepartmental group in 1996. This group drafted a report proposing comprehensive legislation on the subject. In 1998, the 12th Lok Sabha passed a bill to prevent money laundering as a result. This measure is now under review by the Finance Committee. Before introducing the committee’s revised Bill, it was necessary to dissolve the 12th Lok Sabha. After the Thirteenth Lok Sabha enacted a bill that incorporated ideas from the Standing Committee, the chairman of the Rajya Sabha sent it to a Select Committee for examination and approval. The Prevention of Money Laundering Act has not yet taken effect as of July 1, 2005, although the Select Committee had already issued its findings in 2000.

Extraordinary features of PML Act of 2002

Section 3 of the Act states that money laundering is a felony, while Section 4 of the Act describes the penalties for the crimes mentioned in paragraph 2 of Part A of Section 3 Part A. Under the relevant sections of this Act, both the Director of FIU-IND and the Director of Enforcement (Enforcement) have concurrent and exclusive authority to carry out the Act’s functions.[1]

Under the terms of this Act, other departments are required to assist the Enforcement Authorities

Section 54 of the Act states that the customs and central excise departments, officers appointed under Section 5 of the Narcotic Drugs and Psychotropic Substances Act, 1985, the Income Tax Authority and officers of the Stock Exchange, RBI enforcement officers under FEMA and FERA, and other related departments are authorised and required to assist with the implementation of the Act. Officers who assist with PML Act investigations are not only permitted but also required to do so. PML Act enforcers may request their assistance during investigations.

In Director of Enforcement v. Deepak Mahajan1 AIR 1994 SC 1775, the Supreme Court ruled that Section 151 of the Customs Act, which has a comparable clause, does not provide police officers with the same authority as customs officers. Instead, it grants police officers permission and mandates that they assist customs officers in exercising their authority. The PML Act should employ similar reasoning.[2]

E-Money Laundering

The term “e-money laundering” has been applied to money laundering in the Internet age. Money laundering has never been easier than it is now since an increasing number of people use the electronic currency. Internet banking enables the transfer of funds from one bank account to another or from one country to another. It is simpler to transfer funds from one location to another and from one account to another, regardless of location. It is simpler to escape police detection by investing in legal or illicit firms.

The Restrictions of the Act

The Prevention of Money Laundering Act provides restrictions that make it difficult to commit illegal money laundering, especially by Government officials. 1999’s Bill became 2002’s Act. The 2005 Amendment Act was needed to put it into effect. The Bill was unpopular.

Some money laundering offences are vague or have multiple meanings. Due to its wide range of crimes, this Act does not include many linked or unrelated crimes. Money launderers may keep transactions under $30 million to avoid the Act. A $30 million transaction is deemed money laundering.

The Indian Penal Code now includes robbery, dacoity, terrorism, organised crime, and drug trafficking. Money laundering offences lack some IPC elements, even if the language can’t properly describe them. This frees money launderers.

The law isn’t always followed. State or federal investigators have been debated. Money laundering is a state-level crime, but the Act stipulates that only the feds can investigate it. Few people understand this, making implementation tough.

The statute doesn’t name an investigative or prosecutorial body. Charges may also prompt searches. Various groups interfere with and impede the legal process.

Directors and judges rarely have vexatious prosecutorial authority to seize assets and records.

This law is weak. Casinos, real estate agents, jewellers, and precious stone dealers are subject to FATF and other international anti-money-laundering legislation. The Indian Act covers banks, financial institutions, and securities-related operations.

Hawala hinders anti-money laundering and anti-terrorism efforts. Hawala banking is called “underground banking” since it skirts bank and financial rules. PML does not restrict illegal banking.

What happens if someone is convicted under this law but not in criminal court? The Act is silent. The Act doesn’t say whether criminal courts must follow Special Court findings. Money laundering cases can be compared to disciplinary hearings, even if the verdict is final and cannot be appealed to the Criminal Court. Article 32 writ petitions (where the order is intra vires) cannot be contested in civil court.

The Act also investigates money laundering. The 1988 Anti-Corruption Act is similar. PML Act sections 7, 8, and 9 define corruption and its remedies. Unfair remuneration relative to the law is another sign of corruption. Money laundering conceals the unlawful source of funds. No attempt is made to conceal or legalise illegally obtained funds under the Prevention of Corruption Act.

International laws, conventions, and regulations aren’t usually followed properly. Because of its faults, this law has punished so few people that its usefulness is questioned.[3]

Conclusion

In India, as in many other nations throughout the world, there are regulations against money laundering. Those who launder money and profit from it might be sent to prison. The expansive definition of money laundering reduces the likelihood that any case will be dismissed.

The PML Act establishes administrative tribunals and special courts. It also governs the prosecution of money laundering crimes. Thus, despite significant efforts to ensure that anti-money laundering regulations are followed appropriately, money laundering continues to increase globally. Law enforcement must investigate more frequently and with greater caution. As was previously said, banks and other financial institutions should take measures to make it easier to determine who a client is, where their funds come from, and whether a transaction is problematic.

Additionally, the spirit of this rule must be observed. Money laundering is a well-organized international crime syndicate. Modern financial institutions and international trade are also altering it. Therefore, it is difficult for law enforcement to obtain information from numerous states. The Swiss banking system is one of many that does not verify the origin of money. If there were a powerful multinational organisation with uniform international laws, the money launderer could not escape.


References

[1] Prevention of Money Laundering Act, 2002, Available Here 

[2] CA Dilip M Shah, Introduction & Overview of Prevention of Money Laundering Act, Available Here 

[3] Prevention of Money Laundering Act, 2002, Available Here


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Author: Vartika Kulshrestha

Content Writer and Research Intern

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