By Jalaj Tokas
Published On: November 10, 2021 at 14:30 IST
Introduction
The world economy is painstakingly influenced by money that is illegally acquired and spent for illegitimate purposes. A good fortune is laundered every year, which poses a great threat to the global economy and its security. According to the Office on Drugs and Crime, United Nations, global money laundering transactions account for roughly $800 billion to $2 trillion annually, or some 2% to 5% of global GDP.[i] Due to the surreptitious identity of money-laundering, it becomes difficult to estimate the exact amount of money that gets circulated through the cycle.
Money laundering is an undertaking through which illegally acquired funds are made to appear as legal and legitimate. Illegitimate and unaccounted sources of money and other financial assets are disguised and are often used as a smoke screen for deceptive practices.
Money-laundering not just poses a threat to the financial systems of nations, but it also threatens their integrity and sovereignty. However, it can also be the Achilles heel of various criminal activities, if traced for the right reasons.
To fight such threats, the international community has adopted certain initiatives. It has long been felt that to prevent money-laundering and other connected activities, comprehensive legislation is urgently needed. To achieve this goal, The Prevention of Money-Laundering Bill, 1998 was introduced in the Parliament. The Central Government broadly accepted the recommendations along with some other desired changes before approving it.
The following write-up reviews the functioning and powers of the Appellate Tribunal, which was established under the same Act, and analyses its ability to tackle and address the enigma of money-laundering in the current scenario.
What is Money Laundering?
Money laundering is the illicit undertaking of making large sums of money generated through various criminal activities which are deceptively shown to have come from a legitimate source. The money generated through a criminal activity is considered dirty, while the process involved makes it look clean.
Money Laundering has been termed as the “conversion or transfer of property, which has been derived from or earned through an offense, with the aim of concealing or disguising the illegitimate origin of the property or with the aim of assisting any person involved in evading the legal consequences of his actions”.[ii]
In other words, money-laundering is the rectification and concealment of the origin of illicit criminal proceeds. This process assists the criminal in enjoying unaccounted profits, earned from a financial crime, without jeopardising their origin.
Method of Operation
- The first stage involves the money, generated through crime, getting introduced into the formal financial system. This process is called ‘placement‘.
- In the second stage, the illicit introduced money is layered and spread across numerous transactions with the purpose to clear the adulterated origin of the money. This process is termed as ‘layering‘.
- In the penultimate stage, the laundered money enters the financial system without bearing an original association with the crime, through which it was earned. This is called ‘integration’.
Money laundering tête-à-tête Extraction of Funds
- Mere earning of money or acquiring of any property from committing a crime doesn’t constitute money laundering, though it may amount to illegal extraction of funds.
- The possession and ownership of any property earned by committing a crime, ultimately results in a Scheduled offence, which results in projecting or claiming such money or property as untainted property, amounts to money laundering.
The Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering Act (PMLA), 2002 was approved in 2003. The Act however, came into effect not until 2005.
The Prevention of Money Laundering Act, 2002 was enacted with the purpose of fighting against the criminal offence of the legitimization of the incomes/profits earned through an illegal source. The Prevention of Money Laundering Act, 2002 thus enables the competent authorities to confiscate or seize the property earned from illegally gained proceeds.
Under this Act,
“Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its possession, acquisition, concealment or use or claiming it as untainted property shall be guilty of offence of money-laundering.”[iii]
List of Offences
Some of the Acts and offences, which may attract PMLA, are enumerated below:
- Part A mentions offences which are recognised and covered under various acts like:, The Information Technology Act, The Trademark Act, Narcotics Drugs and Psychotropic Substances Act, The Prevention of Corruption Act, Indian Penal Code Copyright Act among others.
- Part B maintains offences that are enlisted under Part A but are indicative of cases involving offences of ₹ 1 crore or more.
- Part C encompasses with trans-border crimes and enshrines the measures adopted to tackle money laundering across the globe.
It was enacted with the purpose of serving the following objectives:
- Prevent money-laundering.
- Combat and ultimately prevent channelising of money into illicit activities.
- Assist in the lawful confiscation of property derived or earned from laundering money.
- Establish a chain of matters involving the acts of money laundering.
The National Company Law Tribunal in SREI Infrastructure Finance Limited Vs Sterling International Enterprises Limited[iv], held that PMLA’s object is also to recover the property from wrongdoers and compensate the affected parties by confiscation and sale of the assets of the wrongdoer apart from imposing punishment.
Actions that can be Initiated under Money Laundering
- The property and its subsequent records and attachments, earned through laundered money, can be seized.
- Any person who commits the offence of money laundering shall be punished with –
- Rigorous imprisonment for a minimum term of three years and this may extend up to seven years.
- Fine (without any limit).
The Appellate Tribunal
Section 25 of the Prevention of Money-laundering Act, 2002, allows the Central Government to establish an Appellate Tribunal at New Delhi.
Appellate Tribunal for PMLA began functioning from the premises of Appellate Tribunal for Forfeited Property (ATFP) and heard appeals against the orders passed by Adjudicating Authority beginning from the year 2009.
- Appeals to the Appellate Tribunal
- Any aggrieved, including the Director, can prefer to file an appeal to the Appellate Tribunal. This shall be extended to any aggrieved Reporting Entity as well.
- It clearly states that an appeal shall be filed within a stipulated period of 45 days beginning from the date on which a copy of the order is received.
- The appeal filed shall be resolved as soon as possible or at maximum it should be disposed within six months by the Appellate Tribunal.
In Gautam Khaitan Vs Union of India[v], The Delhi High Court held that the decision of the adjudicating authority can be set on by way of an appeal before the Appellate Tribunal. It further weighed on the provisions of PMLA which explicitly indicate that the legislature did not intend to provide for a hearing and notice at the stage of provisional attachment.
- Composition of Appellate Tribunal
According to the provisions laid down, the Tribunal shall consist of a Chairperson along with two other Members. Wherein, the post of Chairman and other Members of the Tribunal under PMLA can additionally be held by the Chairman and one Member of the ATFP.
- Qualifications for Appointment
- A person who has been a Judge of the Supreme Court or of a High Court can be appointed as the Chairperson of the Tribunal.
- A person who has been a Member of the Indian Legal Service for at least three years; or has been the Commissioner of Income Tax, or has been Joint Secretary in the Indian Economic Service for at least three years; or has been Joint Secretary in Indian Customs and Central Excise Service: or has been in the practice of accountancy as a. chartered accountant or as a registered accountant under any law for the time being in force.
- Section 28(4) of the PMLA states that, “A member of any other Tribunal, including a Chairperson, can be appointed as a Member of the Appellate Tribunal under the PMLA Act.”
- Terms and Conditions of Service
- All members should hold office for five years.
- No member’s, including the Chairperson’s, salary and other terms and conditions of service can be varied after appointment.
- Vacancies and Removal
- The Central Government shall appoint a person, if any vacancy arises in the office of the Chairperson or any other Member, in accordance with the provisions of the Act.
- The Chairperson or any other Member can resign from their office by notifying in writing to the Central Government. However, under the provisions of the act, the person has to continue to hold office until the expiry of 3 months from the date of the receipt of such notice or until a person duly appointed enters upon his office.
- The Chairperson or any other Member cannot be removed from their office, except by an order made by the Central Government. Such order can be made on grounds of proved misbehaviour or incapacity.
- The senior-most Member, shall act as the Chairperson, in case of his predecessor’s death or resignation, until the date on which a new Chairperson, appointed in accordance with the provisions of this Act.
- Staff of Appellate Tribunal
- The Central Government will assist in hiring/providing employees to the Appellate Tribunal accordingly.
- All members and employees of the Appellate Tribunal are deemed to be public servants.
- All members and employees of the Appellate Tribunal will perform their duties under the general supervision of the Chairperson.
- Procedure and powers of Appellate Tribunal
- The Tribunal must be in accordance with the principle of natural justice and must be allowed to regulate its own procedure.
- The Appellate Tribunal will have the same powers as of a civil court while trying a suit.
- All proceedings before the Appellate Tribunal shall be deemed to be judicial proceedings and the Appellate Tribunal shall be deemed to be a civil court.
- No other civil court has jurisdiction to try a case under the Appellate Tribunal’s ambit.
- Power of Chairman
- The Chairperson may, by notification, make provisions as to the distribution of the business of the Appellate Tribunal amongst the Benches and also provide for the matters which may be dealt with by each Bench.
- The Chairperson can transfer any case pending before the Tribunal to any other Bench.
- If Members differ in opinion on any point, the Chairperson can either hear the point himself or refer the case for hearing to any third Member of the Appellate Tribunal.
The Supreme Court in Union Of India And Another Vs Paras Laminates (P) Ltd[vi] held that the bench of two members acted within their authority in stating the ambit of law and therefore held that the President acted fairly within his power in constituting a larger bench to judge the points in question. It also held that a two member bench cannot quash the decision of another bench, posing the same legal question, of the same tribunal.
- Right to seek assistance from authorised employees
- An aggrieved, while appearing before the Tribunal, can either appear in person or can even seek help from any authorised person to present his case.
- The Central Government can allow one or more authorised person to act as presenting officers.
- Appeal to High Court
- An aggrieved person may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law or fact arising out of such order: provided that the High Court allow it to be filed.
Measures to Counter Money-Laundering
Money laundering and criminal activities form a vicious cycle which disturbs the moral fabric of the society in every way possible. The urge to substantiate illicit and unaccounted profits spawn money laundering, which in return provides the necessary financial boost for these illegitimate activities to survive and fill pockets of the culprits involved. These activities don’t just drive the process of money laundering but they thrive on it.
It is perhaps because of the interlinked nature of the global economy that money laundering still remains an international cause of concern. Hence, global efforts are required in tackling this problem is of utmost importance.
- Enhance the spread of information between the financial crime investigators and global financial crime units.
- A serious implementation of the anti-money laundering regulations should take place. This includes the elements of- Criminalization of money laundering; confiscation of criminal proceeds; and obligations of a certain range of business operators—especially financial services institutions—to take preventive measures.
- With the exponential growth in financial transaction volumes it has become mandatory for financial services institutions to strengthen their anti-money laundering efforts through advanced technologies in order to alert and raise an alarm over any suspicious activities.
- The enforcement agencies should take more regular and strict steps towards investigations and enquiries. Besides, banks and other financial institutions should take steps for more transparency in the identity of the customer, source of the money and the dubious transactions.
This law should be implemented in spirit also. Money laundering has a complex international cartel and it is a sophisticated crime. It is also evolving with new financial systems and cross border trade.
- Finally, raising awareness- both within the government and the private business sector–and then subsequently providing the necessary legal or regulatory tools to the authorities charged with combating the problem can come handy.
Conclusion
In today’s times, money laundering activities assert a substantially negative macroeconomic impact on global economy, particularly on developing nations with frail anti-money laundering regulations. Once illegitimately earned money enters into an economy, it has the ability to destabilize the economic system while it attempts to indirectly promote social and legal evils in the society.
Thus, several anti-money laundering units around the world have paced up their efforts to combat money laundering in recent decades, with regulations that require financial institutions to put systems in place to detect and report suspicious activity as the amount of money involved in it is substantial.
Like other international communities, India has also formulated measures to counter the problem of money laundering through its extensive legislation on the matter. An amply vast definition to money laundering has been given so that there is less chance of any case skipping conviction.
Over the past few decades, several anti-money laundering policies have been adopted to overcome laundering. Therefore, in the fight against the money launderers, financial institutions and governments have stepped up their efforts in searching for new approaches in the concerned field.
ABOUT THE AUTHOR
Jalaj Tokas is a second Year Law student pursuing B.A.LLB from University School of Law and Legal Studies, GGSIPU, New Delhi. He is a life-long learner is self driven towards his ambitions. He strongly believes that expectations are premeditated disappointments and strives not just to be successful but more importantly to be of value.
Edited by: Aashima Kakkar, Associate Editor, Law Insider
References
- The Ladder Up the Investigation Process in money laundering matters.
- Critical Analysis of Prevention of Money Laundering Act.
- Prevention of Money Laundering Act, 2002-Appellate Jurisdiction.
[i] United Nations Office on Drugs and Crime, “Money laundering”, (last visited on October 26, 2021).
[ii] The UN Vienna Convention, 1988, art. 3.1.
[iii] The Prevention of Money-Laundering Act, 2002 (15 of 2003), s. 3.
[iv] SREI Infrastructure Finance Limited Vs Sterling International Enterprises Limited, 2019 SCC OnLine NCLT 6880.
[v] Gautam Khaitan Vs Union of India, 2015 SCC OnLine Del 7071.
[vi] Supreme Court in Union Of India And Another Vs Paras Laminates (P) Ltd1991 AIR 696.