Prevention of Money Laundering Act 2002

The Prevention of Money Laundering Act 2002 (PMLA) was enacted by the Parliament of India to prevent money laundering and confiscate property acquired from money laundering. The PMLA came into effect on 1st July 2005. The PMLA was enacted to honour India’s international commitment (the Vienna Convention) to fight money laundering and financing of terrorism.

In the 2005 amendment action could be taken only after the concerned authority had filed a complaint. For example, if the crime had been committed under the Income Tax act 1961 (IT Act ) then The Income Tax authorities had to launch prosecution under the IT Act then only would the PMLA kick in. This would prevent PMLA from being invoked for petty ordinary crimes and catch only the big fish.  Some of these amendments are:  In 2009, cross-border implications were brought in so that if the offense was committed in another country action could be taken as if the offense had been committed in India.  

In 2012 again to prevent misuse an amendment was made so that a trial could not be initiated immediately on cognizance of the offense under PMLA. Again in 2019, the amendment made ensured that if after investigation it was found that there was no offense under PMLA then a closure report had to be filed so the case does not remain open if no evidence is found of a scheduled crime. For example, all cases of tax evasion or fraud may not be covered by money laundering, and the closure report would give finality to the proceedings. At the same time, PMLA was strengthened as the result of any parallel trial enquiry, investigation or enquiry would not affect the case under PMLA. In addition, any subsequent complaint by the authorized authority can be taken into account in the PMLA investigation/trial and additional evidence brought out subsequently could be considered for action under PMLA.

What is Money Laundering?

When money earned from illegal activities is converted into a legitimate source, it is called money laundering; illegal activities include corruption, tax fraud, drug trafficking, theft, gambling, prostitution, insider trading, embezzlement, computer fraud, and bribery. This process legitimises money earned through illegal means. In layman’s terms, money laundering is turning “black money” into “white money”.

How is Money Laundering Done?

The three main steps of money laundering are placement, layering, and integration.

• Placement: The first stage is when the criminally attained money is introduced into the formal financial system. By this the illegal money through various agents and banks is in the form of cash.
• Layering: The second stage involves the money being inserted into the system is layered and dispersed over various transactions; this is done to cloud the tainted money’s origin.
• Integration: For the third stage, the money enters the financial system so that the original connection to the crime is removed and the money can now be used as clean money by the culprits.

Methods of Money Laundering:

The ways to turn black money into clean include bulk cash smuggling, trade-based laundering, cash-intensive businesses, round-tripping, bank capture, gambling, shell companies, and trusts, fictional loans, real estate, hawala, black salaries, and false invoicing.

Objectives of the Prevention of Money Laundering Act (PMLA):

The main objectives of this act are:

• To prevent money laundering.
• To combat the transfer of money from illegal activities and financial crimes into the financial system.
• To help confiscate property earned/ involved in or from money laundering.
• To provide for any other matters connected with or to the act of money laundering.

Offenses Under the Prevention of Money Laundering Act (PMLA):

The offences are listed under the Part A and C of the Schedule of the PMLA. 
Part A Offences: Indian Penal Code, Narcotics Drugs and Psychotropic Substances Act, Wildlife Protection Act, Prevention of Corruption Act, Trademark Act, Antiquities and Art Treasures Act, and Copyright Act and Information Technology Act
Part B Offences: Offences mentioned in Part A valued at Rs 1 crore or higher.
Part C Offences: Offences include trans-border crimes.

Punishments Under the Prevention of Money Laundering Act (PMLA):

• Numerous penalties can be levied on persons found guilty of money laundering. These penalties include freezing or seizing cash, bank accounts, investments and property, records, and/or attachment of property made through criminal activity.
• Money laundering is punishable by rigorous imprisonment with a minimum of 3 years and a maximum of 7 years sentence. If money laundering activities are involved with the Narcotic Drugs and Psychotropic Substances Act, 1985, then the punishment increases to 10 years and a fine.

Authorities of the Prevention of Money Laundering Act (PMLA):

• The PMLA gives the Enforcement Directorate (ED) responsibility for investigating money laundering offenses; this power includes summons, arrests, and raids.
• The Financial Intelligence Unit – India (FIU-IND) is the agency that receives, prepares, examines, and disseminates the information related to suspected monetary transactions. 
• The PMLA applies to individuals, firms, companies, partnership firms, associations of persons or incorporations, agencies, offices or branch offices owned or managed by the persons listed above. 
• Under the PMLA, the burden of proof lies with the accused who has to prove in court that the suspected assets and/or property in question have not been earned through proceeds of crime or illegal activities.

Conclusion:

Changes have been made from time to time to prevent misuse by people to take advantage of loopholes in the law. Also, changes have been made to prevent misuse of PMLA by government authorities. It is a dynamic Act that will keep evolving as a result of changes in society and an increase in awareness of the citizens.