Prevention of Money Laundering Act, 2002
A Comprehensive Overview
- Introduction and Significance The Prevention of Money Laundering Act, 2002 is a crucial piece of legislation in India aimed at combating money laundering and related financial crimes. Its importance lies in its targeted approach to preventing the concealment of illegally obtained funds.
- Legislative Timeline
- Enacted: 2002 by the National Democratic Alliance government
- Implemented: 2005
- Primary Objectives
- Prevent money laundering activities
- Facilitate seizure of assets linked to money laundering
- Impose penalties on violators
- Key Provisions
- Asset seizure mechanisms
- Punitive measures for offenders
- Framework for identifying and tracking laundered money
- International Context 5.1 Vienna Convention (1988) – Urged domestic legislation against drug trafficking – Aimed to prevent laundering of drug money 5.2 Financial Action Task Force (1989) – Established during G7 Summit – Focused on addressing global money laundering issues 5.3 Palermo Convention (2002) – Called for criminalization of proceeds from illegal activities
- India’s Global Alignment
- Joining international efforts against money laundering
- Targeting funds from drug trafficking and terrorism
- Understanding Money Laundering
- Definition: Concealing origins of illegally obtained money
- Process: Transforming illegal funds into seemingly legitimate assets
- Impact: Enabling use of illicit money without detection
- Significance in Indian Financial Regulation
- Strengthening the financial system against illicit activities
- Enhancing India’s standing in global anti-money laundering efforts
Prevention of Money Laundering Act`2002 states in Section 3 that “whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is involved 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 shall be guilty of the offense of money laundering” The PMLA, 2012 (effective 15.02.2013) broadened the arenas of the definition of the offence of money laundering by eliminating the Act’s former 5 lac rupee fine cap and including therein the illegal actions of concealment, acquisition, possession, and use of the proceeds of crime.
Prevention of Money Laundering Act`2002 requires that banks, other financial organisations, and middlemen be in charge of confirming and keeping thorough records about the identities of all customers and transactions. The Act has many noteworthy features, such as strict bail requirements, the ability to arrest someone without first providing an Enforcement Case Information Report, the ability to admit statements made by the accused as evidence during an investigation, the inclusion of broad definitions for money laundering and proceeds of crime within the Act, and the non-communication of the grounds of arrest to the accused.
Key Highlights of the 2023 Amendment
Prevention of Money Laundering Act`2002 has gone through a series of significant modifications and altered the dimensions of the act including the amendments in 2005, 2009, 2012, and 2019. The Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023, which were issued by the Department of Revenue under the Ministry of Finance, in March 2023, mark the most recent amendment. The purpose of the amendment was to improve the act’s efficacy, expand its application, and address some procedural issues that the Enforcement Directorate encountered when pursuing PMLA cases.
The major highlights of the amendment of 2023 were:-
- adoption of strict steps for consumer due diligence
- application of a risk-based methodology to the identification and evaluation of potential money laundering threats
- bolstering the systems for tracking and reporting suspicious transactions
- Extension of the concept of individuals who are politically exposed (PEPs)
- Improved collaboration and exchange of data between regulatory bodies and reporting organisations
- introduction of technologically advanced methods for efficient money laundering prevention
- Provision for fines and legal action in the event that the rules are broken
- Prioritise the education and training of those working in the anti-money laundering sector.
Prevention of Money Laundering Act`2002 was amended in 2019 and revised, Section 2 (1) (u) (definition of proceeds of crime) and Section 3 (definition of money laundering offence). The purpose of the modification was to eliminate the previous ambiguity and clarify what an offence involving money laundering entails.
The PMLA’s Section 3 addresses provisions pertaining to “money laundering offences.” The amendment added a “Explanation” to Section 3 to make it clear that anyone found to have engaged in any of the following processes or activities related to proceeds of crime-concealing, possessing, acquiring, using, projecting as untainted property, or claiming as untainted property-directly or indirectly, or to have knowingly assisted in any of these ways-will be guilty of the crime of money-laundering.
The act’s definition of “proceeds of crime,” included in section 2 (1) (u), was similarly modified by the amendment. The concept of “proceeds of crime” was amended to encompass property that is acquired, directly or indirectly, through any channel, including criminal activity related to a scheduled offence.
Authorities & their powers under PMLA`2002
Role of Enforcement Directorate under the PMLA
The Enforcement Directorate (ED), operating within the Department of Revenue, Ministry of Finance, Government of India, is tasked with examining allegations of money laundering crimes under the Prevention of Money Laundering Act (PMLA).
Financial Intelligence Unit – India (FIU-IND)
The Financial Intelligence Unit – India (FIU-IND) is an independent entity also situated within the Department of Revenue. It reports directly to the Economic Intelligence Council (EIC), chaired by the Finance Minister. FIU-IND serves as the primary national organization responsible for:
- Gathering, processing, analyzing, and sharing data concerning questionable financial activities.
- Coordinating efforts and enhancing collaboration between domestic and international intelligence agencies.
- Investigating to support global initiatives against money laundering and related offenses.
Other agencies, including local police, CBI, customs departments, and SEBI, also independently investigate scheduled offenses as per their respective legislation.
Adjudicating Authority under the PMLA
To carry out its functions, the Central Government may designate an Adjudicating Authority under the PMLA. The bench must comprise:
- A chairperson.
- Two additional members, one of whom should have experience in accounting, finance, administration, or law.
- A legal professional qualified to serve as a district judge or someone from the Indian Legal Service in Grade I position.
The Adjudicating Authority’s bench will convene in New Delhi and other locations designated by the chairperson and the Central Government.
Process of Adjudication
Upon receiving a complaint regarding a PMLA money laundering offense, the Adjudicating Authority will notify the individual accused. The notice will request the accused to explain:
- How they acquired their income.
- Details about their assets.
- The origin of any property that has been attached, seized, or frozen by the designated Director.
The accused will also be asked to justify why the Central Government should not declare the properties involved in money laundering and proceed with confiscation.
Determination and Access to Property
After reviewing the accused’s response and hearing from the aggrieved party and the Director, the Adjudicating Authority will make a determination on whether the properties mentioned in the complaint are implicated in money laundering.
If the Authority determines that the property is involved in money laundering, the accused party must confirm in writing the attachment, seizure, or freezing of the property. Subsequently, the person entitled to the property will be granted access to it.
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