Focus keyword: PMLA

Author: Prabhat Nigam

Evolution of PMLA and its overview

Introduction

Tracking laundering of money has always been difficult for the enforcement
agencies before the year of 2005 when Prevention of Money Laundering Act,
2002 (PMLA) came into force. The PMLA has been introduced to plug the
loopholes which could not be fixed by the previous legislations. The PMLA has
undergone amendments a number of times to broaden its scope and application
and also to make provisions stringent to curb the practice of laundering of money
in the Indian economy.

A number of legislations came before the PMLA with the objective of curtailing
the practice of money laundering. These include the Income Tax Act, 1961, The
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,
1974, The Benami Transactions (Prohibition) Act, 1988, The NDPS Act, 1995 which
were incapable of curbing the offences of money laundering. Therefore, another
legislation in the form of PMLA came into force in 2005 with wider scope and
powers to curb the menace of money laundering. This act has scope all over India
including the Union Territories of Jammu and Kashmir and Ladakh.

Stages of Money Laundering

Generally, the act of money laundering means collecting the black money
obtained from illicit sources and infusing it into the economy in sources such as
real estate, movie industry and convert it into white money by cleaning the
antecedents of the black money. To be precise, following are the three stages in
which the process of money laundering is executed.

 Placement: This is a process where the criminals distance themselves from

the criminal source of black money by converting the illicit money in
smaller liquid funds to be introduced in legitimate financial systems. These
funds are then deposited in the banks without breaching the anti-money
laundering thresholds to avoid getting in the radar of government agencies.
Then fake invoices are created in the name of their criminal associates. At
this stage, though, the funds are still traceable to their original sources.
 Layering: This is a process where the launderers try to remove the
traceability of the funds and extend legitimacy to these funds. This is the
most complex part of the process where with the help of multiple financial
instruments, transactions are made to avoid the anti-money laundering
controls. These funds are then transferred to offshore jurisdictions with
flimsy anti-money laundering controls. The funds move electronically from
one account to other offshore account.
 Integration: In this step the money from the offshore account is infused
into the economy by investing it into legitimate sources of investment such
as movies, casinos, real estate, with a view to hide its source. The money is
again introduced into the legal system for the criminals to use the money
for other reasons again as white money.

The PMLA defines money laundering as an offence where someone directly or

indirectly attempts or actually takes part or knowingly or unknowingly grants
some assistance in any activity which is related to the proceeds of crime. The
offence of money laundering also included within its ambit concealment,
possession, acquisition or claiming proceeds of crime as untainted money.
Authorities Enforcing under PMLA

The Act provides that all the investigations pertaining to the acts of money
laundering shall be done by the Directorate of Enforcement which comes in the
Department of Revenue under Union Ministry of Finance.

The ED is also assisted by the Financial Intelligence Unit (FIU) which is a central
agency responsible for receiving, processing, analysing, and disseminating
information relating to suspected financial transactions. It also helps in
coordinating with multiple national and international intelligence agencies in
pursuing global efforts against money laundering.

An adjudicating authority is a three member body has also been established to for
enforcing the provisions of the act and adjudicate cases where the orders have
been released for the attachment of assets.

Powers of Investigation Body

The investigation officer under the PMLA has been mandated by the PMLA with
wide scope of powers which include the following:

a. Provisional Attachment of Property: The investigation officers has been

entrusted with the powers to provisionally attach the property of a person
if the investigating officer after his verification is of the view that the said
property has been derived directly or indirectly from the proceeds of crime
and is related to any of the offences that have been mentioned in the
Schedules attached to the PMLA.
b. Power to Conduct survey: The Investigation Officers have been given the
power to conduct a survey of the premises
c. Power to Conduct Search: The Investigation Officers can conduct search of
a building, premises, vehicle, vessel, aircraft ad seize or freeze the records
and the concerned property also.
 d. Power to conduct Personal Searches: The Investigation Officer can also
conduct personal search of suspected people.
e. Power to Arrest: If the Investigation Officer feels that a person has
committed an offence of Money Laundering, then it has the power to arrest
a person under section 19 of the PMLA.
f. Power to Summon and Record Statements: The power has been given
under the PMLA to summon and record statements of the concerned
persons.

Proceeds of Crime

The definition of proceeds of crime has been mentioned under section 2(1)(u) of
the PMLA which states that if any property has been derived directly or indirectly
from the criminal activities related to the criminal activities under several acts
mentioned in the schedule.

At the same time this provision has to be read in conjunction with Section 3 of the
PMLA which says that guilt of a person for an offence of money laundering can
only be established if it is found that the said person has performed any activity
relating to the said proceeds of crime.

An amendment of 2015 was made in the PMLA which said that if a property has
been held or situated outside India then the properties of equivalent value
situated in India or abroad shall be taken over.

The amendment of 2019 has further broadened the scope of proceeds of crime to
include not only the offences mentioned under the schedule but also any of the
activities that are related to these scheduled offences.

Scheduled Offences

Proceedings related to the offence of money laundering under PMLA can be

initiated against an accused if his/her acts are related to the offences mentioned
under schedule attached to the Act. Before the amendment of 2015 only six
legislations were present in the schedule. These included offences related to
Indian Penal Code, 1860, Narcotic Drugs and Psychotropic Substance Act, 1985,
Arms Act, 1959, Immoral Traffic (Prevention) Act, 1956, Wildlife Protection Act,
1972, The Prevention of Corruption Act, 1988.

Following the amendment of 2015, offences relating 28 legislations were added to

the Act right from grave offences in legislations like Black Money (Undisclosed
Foreign Income and Assets) and Imposition of Tax Act, 2015 were included. Some
offences related to Company Law have also been included. However, certain
smaller offences have been made part of the scheme such as offences related to
copyright infringement under section 63 of Copyright Act, 1957 and applying false
trademarks under Trademarks Act, 1999.

Bail under PMLA

The Act initially provided twin conditions to grant bail to an accused who has
been arrested by the ED under section 19 of the PMLA. One of the conditions
include that the Public Prosecutor must be given an opportunity to oppose the
bail and the secondary condition is that the court must be satisfied that there
exist reasonable grounds to believe that the accused has not committed the
offence for which he/she has been charged and there exist no possibility that the
accused may commit the offence for which he has been charged once he is out on
bail.

Before the amendments made in 2018 in the PMLA, the pre-conditions for bail
were applicable for the offences mentioned under Schedule A of the PMLA
carrying punishment of imprisonment for a minimum period of three years and
above.

The apex court in the landmark judgment of Nikesh Tarachand v Union of India
(2018) held unconstitutional the provision of twin conditions of bail mentioned
under section 45 of the PMLA.
So amendments were made in the year 2018 in response the Nikesh Tarachand
judgment and the phrase “punishable for a term of imprisonment of more than
three years under Part A of the schedule” with the words “under this Act” in order
to maintain the applicability of the bail conditions for the offences mentioned
under the PMLA and not just for Scheduled offences.

Conclusion

In order to curb the menace of economic offences which have deep rooted
impact on the security of the country, the PMLA was introduced to prevent one of
the most important aspect of economic offences which is the offence of money
laundering.

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The Prevention of Money Laundering Act, 2002 brought about a fundamental

change in the Indian legal system. This Act has extensive penal clauses with
prescribed punishment for contravention of the provisions of the Act relating
to terror financing and various other offences. The other important feature of
the Act is that it has several confiscation and penalty provisions. However,
everything cannot be done through any act of Parliament; looking into the
provisions of Indian Penal Code, 1860 ('IPC') would also be a prudent decision
so as to provide for all acts which fall under the purview of money laundering,
but which may not fall within the definition given under this Act.

Though the provision of PMLA require bank and financial institution to report
certain transactions, this act has dampened down the chances of a person to
dispose his black money.

This movement of money is not a problem exclusive to India. It is a problem

globally. The core question for the policy makers was whether cash warranted
greater scrutiny than other assets that can be used for money laundering such
as securities and precious metals or whether the Criminal Law Amendment Act
(which has large reporting requirements) is sufficient. The custodial powers
with the financial institutions under PMLA were seen as useful in preventing
money laundering. Also, the Act contains wide provisions requiring
maintenance of records which are the main tool against money laundering
activities. PMLA contains a predicate offence offense which means that it
would prima facie apply to all persons in India dealing in assets whether by
way of business or otherwise. Since being drafted in 2002, the Act has been
amended several times and has been challenged before some high courts;
however so far, its provisions continue to prevail.

The idea of money laundering is a new phenomenon in India. Being adopted

by India in the year 2002 through the PMLA Act, it becomes an important
feature for eradication of money laundering. The International Financial Action
Task Force (IFCATF) has recently included India to its member countries. It has
been categorized among

The Act is, in essence, a legislation against all activities connected with the
process of money transfer. In this backdrop, there arises an inevitable need to
go deeper into the sections of 'money laundering;' however, before we do
that, it would be prudent to understand the rationale behind such a
legislation.

Rules are constructed to keep money laundering at a safe distance. This

prevents unauthorized people’s access to it and also stops the capability of
money laundering to grow.

Money laundering is an illegal activity in which the proceeds of a crime are

transformed and disguised to appear as if they have been earned from
legitimate activity. While the act commonly refers to financial transactions, it
can also be described as techniques used by criminals to introduce illicit
money into the conventional economy. (The term is also applied to legal
activities, such as tax avoidance.) In India, one of the major sources of black
money is corruption, which takes place at all stages of public procurement
processes. Thus, a key concern for PMLA law makers is that an individual or
business may be concealing bribery or embezzlement, and therefore colluding
with organized crime.

Money-laundering is undeniably a major concern in the context of terrorist

financing. However, the PMLA can be used to address other forms of crime as
well. Indeed, money-laundering is not specific to terrorism. Dr. Volcker
observed that the term 'money-laundering' is "often carelessly used broadly to
include crimes that: concerned monetary instruments outside the financial
system (such as drug trafficking and smuggling)".