Prevention of Money Laundering

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August 20, 2020

Money laundering is one of the recent white-collared and socio-economic offences that relates to laundering of money. Money laundering comprises of all those processes which encompasses disguising the proceeds raised out of crime and integrating them into the legitimate financial system. Recently, in India, there has been a noticeable increase in litigations related to money laundering. In essence, the introduction of the Prevention of Money Laundering Act (referred to as PMLA hereinafter), 2002, raises concern for a sincere approach to differentiate as to which offences constitute “parent offences” and which are “propagated offences”.

PMLA, 2002 is an Act of the Parliament of India enacted by the Government of India for the sake of prevention of money laundering in India and to provide for confiscation of property made out of the money laundering. However, the PMLA, 2002 and the rules notified thereunder came into force with effect from 1^st July 2005. The Act and Rules notified thereunder provide for imposing obligation on entities including financial institutions, banking companies and intermediaries to examine and verify identity of clients, maintain necessary records and furnish required information in predetermined form to Financial Intelligence Unit-India (FIU-IND).

PMLA, 2002 authorizes certain officers of the Directorate of Enforcement to conduct investigations in cases which involve offence of money laundering and also to attach whatever property is involved in money laundering. PMLA, 2002 envisages establishment of an Adjudicating Authority to hold jurisdiction, power and authority conferred by it especially to confirm attachment or order confiscation of involved properties. It also envisages establishment of an Appellate Tribunal to listen to the appeals against the decision of the Adjudicating Authority and the authorities like Director FIU-IND.

The Central Government of India has established various special courts in a number of States and UTs to carry out the trial of the money laundering offences. The authorities under the Act such as the director, adjudicating authority and the appellate tribunal have been formed to conduct the proceedings related to attachment and confiscation of any property derived out of money laundering.

Stages
There are mainly three stages of money laundering as under:

Placement: This stage of money laundering refers to the movement of cash from its originating source and injecting in circulation;
Layering: It happens when the contravener tries to dissuade the tracks making it tough for the authorities to track the transaction down; and
Integration: At the last stage, when the laundered money actually comes into circulation and becomes the part of economy, primarily through the banking system, it is known as integration.

Statutory Framework
In order to broaden the ambit of the act and to achieve the predetermined purposes, the act expressly provides for bilateral agreements between countries to cooperate and to curb the hazards of money laundering. The purpose of these agreements shall be either enforcement of the provisions of this act or exchange of information which shall further help in preventing the commission of an offence under this act or the prevailing laws in that foreign State.

Certainly, in some cases the Central Government of India may seek or provide an assistance from or to a contracting state for an investigation or advancing an evidence collected during the course of such investigation. The act also expressly provides for reciprocal arrangements for processes or assistance with respect to the accused persons.

Objectives
In order to combat money laundering in India, the PMLA, 2002 has following three main objectives:

Preventing and controlling money laundering ;
Confiscation and seize of the property obtained from the laundered money; and
Dealing with any other issue related with money laundering.

Salient features

Provision of Punishment for money-laundering: The Act expressly states that where a person is found guilty of money-laundering in India he shall be punished with rigorous imprisonment from 3 to 7 years and where the proceeds of guilt involved relate to any offence mentioned under paragraph 2 of Part A of the Schedule (Offences under the Narcotic Drugs and Psychotropic Substance Act, 1985), then the punishment may extend up to 10 years.
Powers of attachment of tainted property: Appropriate authorities can provisionally attach property believed to be “proceeds of crime” for 180 days subject to their appointment by the Government of India. Also, such an order needs to be confirmed by an independent adjudicating authority.
Adjudicating Authority: The Adjudicating Authority is the authority whose appointment is made by the central government of India by way of a notification to exercise jurisdiction, powers and authority stated under the PMLA, 2002. It decides whether the property related or seized is involved in money laundering. Further, the adjudicating authority shall not be bound by any of the procedures specified by the Code of Civil Procedure,1908, but shall be instructed by the principles of natural justice and subject to the other provisions of the PMLA, 2002.
Burden of proof: A person has to prove that alleged proceeds of the offence are in fact lawful property where he is found accused of having committed the offence of money laundering,;
Appellate Tribunal: It is the body appointed by Government of India empowered to hear appeals against the decisions of the adjudicating authority or any other authority under the act. It is worth to note that decisions of the tribunal can further be appealed to High Court (for that jurisdiction) and finally to the Supreme Court.
Special Court: Section 43 of the PMLA, 2002 states that the Central Government shall, for the purpose of trial of offence punishable under Section 4, by notification, assign one or more Courts of Session as the special court(s) for such area(s) or for such case(s) as may be specified in the notification. However, such assignment is made in prior consultation with the Chief Justice of the appropriate High Court.
FIU-IND: Financial Intelligence Unit-India (FIU-IND) was established by the Government of India on 18^thNovember 2004 as the central national agency primarily responsible for obtaining, processing, analyzing and imparting information related to the suspect financial transactions. It is an independent body which directly reports to the Economic Intelligence Council (EIC) governed by the Finance Minister.