It is true that money is the major reason for people to engage in any type of criminal activity. This scenario was same centuries ago, years ago and even today it is same. In this article, I will be dealing with money laundering, a method in which criminals disguise the origins of their illegal wealth, so as to protect their assets and also for the reason to avoid any suspicion of the law enforcement agencies.  This also helps them for preventing the trail of incriminating evidence left behind such activity. 

Money laundering is an offence which is not only dangerous to the society, to the economy of the country, but also to the safety and security of the nation. It is widely known fact that terrorists and related organisations depends upon money in order to sustain themselves and to carry out their terrorist acts. Major difference between money laundering by terrorists and the local people disguising their money is that the terrorists focus on not disguising the origin of their money but hiding its destination, that is, for the purpose for which it has been gathered. Such organisations employ similar methods as those used by other local offenders of money laundering to hide their money.

Therefore, it becomes highly pertinent to prevent and detect the acts of money laundering so as to identify the criminals involved and the under covered terrorists’ acts. This can only be prevented and detected when we have a fully active and capable intelligence and investigative agencies for disrupting the target of such terrorist groups.

Because they deal with other people’s money, financial institutions rely on a reputation for probity and integrity. A financial institution found to have assisted in laundering money will be shunned by legitimate enterprises. An international financial centre that is used for money-laundering can become an ideal financial haven. It has become usual practice of developing countries to attract such ‘dirty, filthy money’. It is done in anticipation of growth which they seldom realize is of temporary nature. A nation’s economy and growth dependent on such unlawful practices is hard to cross a certain extent. Perks as a consequence to such malpractices is to attract the kind of solid long-term foreign direct investment that is based on stable conditions and good governance, and that can help them sustain development and promote long-term growth. 

Money-laundering can ultimately destroy a nation’s economy as it changes the demand for cash, making interest and exchange rates more volatile. Not only this, money laundering also leads to inflation in such a nation where criminal and terrorists are involved in this business. Shell companies and trust, real-estate, fictional loans, round-tripping, bulk cash smuggling, fake invoicing are certain examples of money laundering. 

Most disturbing of all, money-laundering fuels corruption and organized crime. Corrupt public officials need to be able to launder bribes, kick-backs, public funds and, on occasion, even development loans from international financial institutions. Organized criminal groups need to be able to launder the proceeds of drug trafficking and commodity smuggling. Terrorist groups use money-laundering channels to get cash to buy arms. The social consequences of allowing these groups to launder money can be disastrous. Taking the proceeds of crimes from corrupt public officials, traffickers and organized crime groups is one of the best ways to stop criminals in their tracks.

Yet the good part is that the authorities at national and international level have become more aware and vigilant with respect to the acts of money laundering. The United Nations and other international organizations are committed to helping them in any way they can.

Prevention of Money Laundering Act in India

The prevention of Money Laundering Act, 2002 is the principal law governing money laundering in India. The aforesaid Act constitutes of 76 Sections. 

The prevention of Money laundering Act, 2002 was enacted with an objective to fight against the criminal offence where in people try to legalize the income or profits from an illegal source. This act enables, empowers the government or the public authorities to confiscate and to seize the property that is earned from the illegally gained proceeds.

  A person is said to be guilty of the offence of money laundering then he or she attempts to indulge, or assist any person who is actually involved in any process thereof, or is a party to the activity connected with the proceeds of crime whether directly or in directly for the purpose of supplying illegal arms, drug trafficking, prostitution and other such acts which generates huge amount of money. Such people reject or claims it as untainted property.

The major objective of this Act is not only to prevent money laundering but also to prevent channelizing of money into illegal activities and economic crimes.  Another objective of this act is to provide for the confiscation of property which is derived from the money laundering. It also aims to provide for matters which are connected and incidental to the Acts of money laundering.

  The act of money laundering operates at 3 stages namely placement, layering and integration. They are discussed as below: 

Placement takes place when the money is obtained through crime it is then introduced into the formal financial system. 

When such money is spread over various transactions with an objective so as to clear the origin of that illegal money is called layering.  

Integration is the stage where in the money that entered the financial system is set to be cleared from its original association with the crime and so that the money can be used by the offender or person receiving it, receives as clean money.

The commission of the offences which would attract the provisions of Prevention of Money laundering Act are mentioned in part 2 and Part 3 of the schedule of the Act.  The offences under various Acts that are included under Part A are Narcotics Drugs and Psychotropic Substances Act, Indian Penal Code, Copyright Act, Information technology act, trademarks act, wildlife protection act, prevention of corruption act, antiquities and art treasures act. The offences in which the value involved is ₹1 Crore or more are specified in Part B of the Act.  The dedication to tackle money laundering across global boundaries is reflected under Part C which also deals with the transporter crimes.

There are two authorities that are entrusted for investigation of the crimes under the Prevention of Money Laundering Act. The first authority is the Enforcement Directorate and the second authority is Financial Intelligence Unit-India. Both these authorities work under the Department of Revenue, Ministry of Finance, Government of Indi. 

The Financial Intelligence Unit India is an independent body which directly reports do the Economic Intelligence Council. The Economic Intelligence  council is headed by the finance minister the financial intelligence unit also performs certain duties like coordinating and strengthening the efforts of national and international intelligence, investigations for pursuing the global efforts against money laundering and related crimes the enforcement Directorate is responsible for investigating the offences of money laundering under the PMLA whereas the financial intelligence unit is this central national agency and it is responsible for receiving processing analysing and disseminating the information relating to suspect financial transaction.

Financial Intelligence Unit – India (FIU-IND) is another authority that founds mention in the Prevention of Money Laundering Act. It is an independent body that is responsible directly to the Economic Intelligence Council which is headed by the Finance Minister. This authority was established by the Government of India. It was set up a central national agency. The Financial Intelligence unit is responsible for receiving, processing, analysing and disseminating the information that is related to the financial relations which are suspected in dealing with money laundering. Not only this, this central agency also coordinates and strengthens the efforts of national and international intelligence and other investigating agencies and enforcement agencies for the purpose of strengthening the global efforts against money laundering. 

Enforcement Directorate (ED)

The Directorate of Enforcement was established in the year 1956 with its Headquarters at New Delhi. It is responsible for enforcement of the Foreign Exchange Management Act, 1999 (FEMA) and certain provisions under the Prevention of Money Laundering Act. Work relating to investigation and prosecution of cases under the PML has been entrusted to Enforcement Directorate. The Directorate is under the administrative control of Department of Revenue for operational purposes; the policy aspects of the FEMA, its legislation and its amendments are within the purview of the Department of Economic Affairs. Policy issues pertaining to PML Act, however, are the responsibility of the Department of Revenue. Before FEMA became effective (1 June 2000), the Directorate enforced regulations under the Foreign Exchange Regulation Act, 1973.

Functions of the Enforcement Directorate as provided by the Prevention of Money laundering Act (PMLA) includes:

  • To collect, develop and disseminate intelligence relating to violations of FEMA, 1999, the intelligence inputs are received from various sources such as Central and State Intelligence agencies, complaints etc.
  • To investigate suspected violations of the provisions of the FEMA, 1999 relating to activities such as “hawala” foreign exchange racketeering, non-realization of export proceeds, non-repatriation of foreign exchange and other forms of violations under FEMA, 1999.
  • To adjudicate cases of violations of the erstwhile FERA, 1973 and FEMA, 1999.
  • To realize penalties imposed on conclusion of adjudication proceedings.
  • To handle adjudication, appeals and prosecution cases under the erstwhile FERA, 1973.
  • To process and recommend cases for preventive detention under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA).
  • To undertake survey, search, seizure, arrest, prosecution action etc. against offender of PMLA offence.
  • To provide and seek mutual legal assistance to/from contracting states in respect of attachment/confiscation of proceeds of crime as well as in respect of transfer of accused persons under PMLA. 

Amendment of 2019

Taking into consideration the rising number of financial crimes and other white-collar crimes, the amendment of 2019 is an attempt to make the current provisions of the Act stricter. This Amendment also aims at making this Act more effective in targeting and detecting any sort of suspicious transactions. A total of eight clauses have been amended by the Amendment Act of 2019.

Ambiguity that exists in the provisions of Prevention of Money Laundering Act majorly includes as to what is meant by the ‘proceeds of crime’. This vagueness in the concept of ‘proceeds of crime’ affects the ability of the Directorate of Enforcement in investigating not only the money trail but also the trial of cases dealing with money laundering. It can be said that the Government, by enlarging the scope of the definition of ‘proceeds of crime’, has made those laws stricter that are related to money laundering. 

The extended scope of the definition now includes the created assets and properties that are derived from any criminal act which need not necessarily be an offence under the Prevention of Money Laundering Act.

The scope now includes properties and assets created, derived, or obtained through any criminal activity related to the scheduled offence, even if it is not under the PMLA. This is aside from the existing definition, which covers any direct or indirect attempts to indulge or knowingly assist or knowingly participate or actual involvement in any process or activity connected with the proceeds of crime, including its concealment, possession, acquisition or use and projecting or claiming it as untainted property. A property will be considered as tainted if it relates to any offence on the basis of which a PMLA case has been initiated.

Furthermore, the 2019 Act offers clarification to Section 3 of the PMLA to the extent that a person shall be held guilty of the offence of money-laundering if he is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly was a party or was actually involved in any one or more of the processes or activities included in Section 3. The 2019 Act clarifies that it would be incorrect to interpret money laundering as a one-time, instantaneous offence that ceases with the concealment or possession or acquisition or use or projection of the proceeds of crime as untainted property or claiming it as untainted. A person shall now be considered guilty of the offence of money laundering for as long as the said person is enjoying the “proceeds of crime” – thus, making the offence of money laundering a continuous offence.

The legislative intent here appears to be to prosecute and attach all proceeds of crime, however remotely related. A key proposed change in the definition of “proceeds of crime” would allow the ED to proceed against assets of equivalent value located even outside the country.

It was stated by the Minister of Finance in the Lok Sabha that a proviso would be inserted. This proviso will ensure that even if the hearings of a case is going on in a particular court and at the same time, proceedings taking place in some other court, then these two different proceedings cannot be clubbed so as to be treated as one.

Another proviso was added to Section 44(1) for the purpose of providing closure of such cases in which no offence related to money laundering is found. The appropriate authority is required to submit a closure report. The closure rep

Furthermore, a new proviso to Section 44 (1) has been inserted, which provides for closure of investigation in cases where no offence of money-laundering is made out. It requires filing of complaint under Section 44 (1) (b), and the relevant authority to submit a closure report before the Special Court under the PMLA.

With respect to attachments, changes have been made to Clause 1 of Section 5. This Amendment pertains to the exclusion of the period of stay from a 180 days limit by the Court. This exclusion was sought to for the provisional attachment orders’ validity. The problem faced by the Enforcement Directorate was that a waiver had to be seeked. An additional period of 30 days added in case of delay in communication of judicial orders. 

Now the Enforcement Directorate is given 90 days more to file charge sheets as per section 8(3) as compared to zero days given earlier. This 90-day time is given to ED once it has confirmed the attachment orders given by the adjudicating authority. 

Therefore, it can be said that the attempt of bringing the 2019 Amendment is a strategy to bridge the gaps between the existing provisions of the Prevention of Money Laundering Act and what they ought to be. Though clarification over the practical implementation is expected especially when it is related to the property attachment. Still, it cannot be denied that it is an endeavour in the direction of attaining the capability to control and detect any such crimes related to money laundering. 

Author:: Jigna Mehta (Alumni of KES Shri Jayantilal H. Patel Law College)


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