Date: 18 November, 2020
by Upamanyu Ganguly, ILS Law College
Money Laundering is the process of making monetary proceeds from illegal activities look like it was procured through legitimate sources, converting or washing dirty money to look like clean money. Generally, there are three steps to launder money, which are-
Placement, which involves the proceeds of crime to be placed into a formal financial system;
Layering, where the dirty money is spread over the system to mask, or essentially, layer the origin of such money, and;
Integration, where the money enters the economy without any trace of the original source of the money.
Money laundering is primarily a case intensive process, essentially, all the activities relating to money laundering will be done in cash in order to prevent authorities to trace the origin of the money.
PREVENTION OF MONEY LAUNDERING ACT, 2002
The Prevention of Money Laundering Act (PMLA) was enacted in 2002 with the view to curtail the offence of money laundering. Some of the main features include the following
Section 3 of PMLA defines the offence of money laundering as an act where a person directly or indirectly indulges in any act where the proceeds of crime are acquired or concealed by him and is involved in representation of such proceeds as untainted property.
The punishment for money laundering is a minimum of three years, extending to seven years of rigorous imprisonment and fine.
PMLA makes it an obligation for banks and financial institutions to maintain records of transactions and report any transactions that are problematic. The PMLA ensures that such institutions are not sued for reporting such transactions.
In case a person has smuggled money or obtained any property offshores, authorities have the power to seize his domestic assets that amount to the same value as the proceeds of crime in such cases.
Under the Act, the authorities are Director, Deputy Director, Assistant director and any officer appointed for the purpose of the Act. The powers of the director are the same as of a Civil Court under the Code of Civil Procedure, 1908 in terms of summons, production of documents and evidence.
Money laundering helps organisations to use the money obtained through criminal activities and operations, such as sale of drugs and other banned substances, prostitution rings, illegal sale of arms and the likes, and creates an impediment for authorities to put a stop to such activities. To curb money laundering-
The PMLA provides a wide array of powers to concerned authorities, albeit, one can say that the powers given, and the scope of such powers can be used arbitrarily and do more harm than good
Property in the ownership of a third party, who may have no knowledge of the property being a proceed of crime, such property can be seized by the concerned authority, under section 5(1) of the PMLA
The Finance Act, 2015 amendment Act, widens the scope of proceeds of crime to enable more prosecutions to take place regarding money laundering
Financial institutions are supposed to consistently report any questionable transactions to the enforcement authorities, the Director appointed under the Act has the power to call upon banks and institutions to give access to the information necessary for the enforcement of the provisions of the Act.
Institutions are also supposed to maintain records of clients and customers for a period of five years after the end of a business relationship.