The Supreme Court is looking into allegations of the metamorphosis of the Prevention of Money Laundering Act (PMLA), brought to sniff out drug money, into a potent weapon to raid rivals and deny rights.

What is meant by money laundering?

• Money laundering is the process of making significant amounts of money obtained through criminal activities, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
• Large profits are made by illegal arms sales, drug trafficking, smuggling and prostitution rings, insider trading, bribery, and computer fraud schemes.
• As a result, it provides an incentive for money launderers to “legitimize” their ill-gotten gains through money laundering.
• The money generated is referred to as ‘dirty money,’ and money laundering is the act of converting ‘dirty money’ into ‘legitimate’ money.

Money Laundering Procedure:

It is a 3-stage process. They are:

• Placement: The first stage involves the injection of crime money into the formal financial system.
• Layering is the second stage, money injected into the system is layered and spread over various transactions in order to conceal the money’s tainted origin.
• Integration: In the third and final stage, money enters the financial system in such a way that the initial association with the crime is sought to be erased, and the money can then be utilized as clean money by the offender.

Some of the most Common Money Laundering Methods:

• Bulk cash smuggling, cash-intensive businesses, round-tripping,trade-based laundering, shell companies and trusts, bank capture, gambling, real estate, black salaries, fictional loans, hawala, and false invoicing

Prevention of Money Laundering Act (PMLA)

• PMLA, 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money laundering and to provide for confiscation of property derived from money laundering.
• It was enacted in response to India’s global commitment (including the Vienna Convention) to combat the menace of money laundering.
• PMLA and the Rules notified there under came into force with effect from July 1, 2005.
• The act was amended in the year 2005, 2009 and 2012.

Objectives of PMLA

The PMLA seeks to combat money laundering in India and has three main objectives:

1. To prevent and control money laundering.
2. To confiscate and seize the property obtained from the laundered money; and
3. To deal with any other issue connected with money laundering in India.

Key definitions

• Payment System: A system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them. It includes the systems enabling credit card, debit card, smart card, money transfer or similar operations.
• Money-laundering: Whosoever directly or indirectly attempts to indulge or assist other person or actually involved in any activity connected with the proceeds of crime and projecting it as untainted property.
• Attachment: Prohibition of transfer, conversion, disposition or movement of property by an appropriate legal order.
• Proceeds of crime: Any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence.

Salient features

• Punishment and Jail term: The Act prescribes that any person found guilty of money laundering shall be punishable with rigorous imprisonment from three years to seven years. The maximum punishment may extend to 10 years instead of 7 years.
• Powers of attachment of tainted property: The Director or officer above the rank of Deputy Director with the authority of the Director, can provisionally attach property believed to be “proceeds of crime”.
• Adjudicating Authority: It is the authority appointed by the central government which decides whether any of the property attached or seized is involved in money laundering.
• Presumption in inter-connected transactions: Where money laundering involves two or more inter-connected transactions. It is presumed that the remaining transactions form part of such inter-connected transactions.
• Burden of proof: A person, who is accused of having committed the offense of money laundering, has to prove that alleged proceeds of crime are in fact lawful property.
• Appellate Tribunal: It is given the power to hear appeals against the orders of the Adjudicating Authority and any other authority under the Act. Its orders are not final and can be challenged.
• Establishment of Special Court: To ensure speedy trial.

Issues with PMLA

• Misuse of central agencies: PMLA is being pulled into the investigation of even ordinary crimes by the Enforcement Directorate.
• Seizing of assets: Assets of genuine victims have been attached. The ED could just walk into anybody’s house.
• Politically motivated raids: In all this, the fundamental purpose of PMLA to investigate the conversion of “illegitimate money into legitimate money” was lost.
• Opacity of charges: Petitioners pointed out that even the Enforcement Case Information Report (ECIR) – an equivalent of the FIR – is considered an “internal document” and not given to the accused.
• Vagueness over evidences: The accused is called upon to make statements that are treated as admissible in evidence.
• Harassment: The ED begins to summon accused persons and seeks details of all their financial transactions and of their family members.
• Against individual liberty: The initiation of an investigation by the ED has consequences that have the potential of curtailing the liberty of an individual.

Way ahead

• It is unlikely that corruption can be substantially reduced without modifying the way government agencies operate.
• The fight against corruption is intimately linked with the reform of the investigations.
• Therefore the adjudicating authorities must work in cooperation and ensure the highest standards of transparency and fairness.

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