Published On: September 28, 2021 at 17:50 IST
Introduction
Many years ago, money was earned and utilized by the people only for satisfying their needs and limited wants. But today, money has become the cause of all problems. Many people have started earning money through various illegal means.
Recently, the Enforcement Directorate (ED) has been investigating the former Home Minister of Maharashtra Anil Deshmukh, and his family in a money laundering case.
In the past Deepak Kochhar, husband of former ICICI Bank CEO and MD Chanda Kochhar was arrested in connection with the ICICI Bank-Videocon money laundering case. Many people from time to time have been arrested for money laundering under Prevention of Money Laundering.
Money laundering has become a global issue today. Money earned through illegal means is a major cause of worry for the Government.
Many people are generating illegal/black money and converting them into white or legitimate money. For a long time, various steps have been taken and laws have been enacted to curb this illegal practice.
Thus, this article explains the meaning of money laundering and the process of searches conducted under the Prevention of Money Laundering Act, 2002.
What is Money Laundering?
The term money laundering has been originated in the United States. The drug lords and gangsters of the 1950s used to show the illegally earned money into legitimate by purchasing legitimate businesses for mixing their illicit earnings with legitimate earnings.
Money laundering is a process whereby a large amount of illegal money is generated through criminal activity. It may be through drug trafficking, casinos or gambling avenues, real estate transactions, terrorist funding, etc.
The proceeds of such activities are concealed so that they may appear to have come from legitimate sources thus making the “dirty” money look “clean”.
The Financial Action Task Force on Money Laundering (FATF) defines money laundering as “the processing of criminal proceeds to disguise their illegal origin” in order to “legitimize the ill-gotten gains of crime.”
Today, money laundering also includes financial transactions that generate an asset or value as a result of an illegal act, which involves actions like tax evasion or false accounting.
What is the Prevention of Money Laundering Act, 2002?
Due to the increasing instances of money laundering, various legislations were enacted by the Government. One such Act is the Prevention of Money Laundering Act, 2002 which was enacted to prevent money laundering and to confiscate the property derived from or involved in money laundering.
Mainly, it was enacted to fight against the criminal offense of legalizing the income earned from illegal sources. This Act enables the Government or the public authority to confiscate the property earned from illegal means.
Section 3 of the Act defines the offense of money laundering as, “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 concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money laundering.” [i]
How are searches conducted under the Prevention of Money Laundering Act, 2002?
Money laundering is a huge financial crime. A systematic process is to be followed for conducting the search. The Enforcement Directorate, the law enforcement agency is appointed to curb money laundering.
The Enforcement Directorate is entrusted with the power of enforcing the Prevention of Money Laundering Act, 2002. The Enforcement Directorate has the power to conduct searches, seizures, surveys, arrests and the prosecution, etc. against the offender. Following is the process for conducting searches under the Act.
- Power to survey (Section 16)
The Act empowers the Enforcement Directorate/the authority to enter the place of a person who commits money laundering within the limits of the area assigned to him.
The proprietor, employee, or other person shall provide records for inspection and furnish necessary information as required by the inspecting authority.
After completing the survey, it is the duty of the authority to immediately forward a copy of the reasons so recorded along with the material in possession to the Adjudicating Authority in a sealed envelope in the manner prescribed. The Adjudicating Authority has to maintain the material possessed and the reasons recorded for certain period of time.
Further, the authority has to:
- Place marks of identification on the records inspected by him and make or cause to be made extracts or copies therefrom,
- Make an inventory of any property checked or verified by him, and
- Record the statement of any person present in the place which may be useful for, or relevant to, any proceeding under this act.
- Power of search and seizure (Section 17)
The Director or the officer not below the rank of Deputy Director has the power to conduct the search and seizure. He after having sufficient information or having reasons recorded in writing which makes him believe that any person:
- Has committed any act constituting money laundering, or
- Is in the possession of proceeds of crime relating to money laundering, or
- Is in possession of any records relating to money laundering, or
- Is in possession of any property related to crime.
Has the power to conduct search or seizure. He may authorize any officer subordinate to him to:
- Enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;
- Break open the lock of any door, box, locker, safe, almirah, or other receptacles for exercising the powers mentioned above where the keys thereof are not available;
- Seize any record or property found as a result of such search;
- Place marks of identification on such record or make or cause to be made extracts or copies therefrom;
- Make a note or an inventory of such record or property;
- Examine on the oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this act.
If in case, it is not practicable to seize any record or property, then the officer has the power to freeze such property. Such frozen property shall not be transferred or dealt without the prior permission of such an officer.
Further, the officer after completing the search and seizure or issuance of freezing order has to forward a copy of the reason recorded to the Adjudicating Authority.
If the authority is satisfied that any evidence is likely to be concealed or tampered with, he has the power to search and enter the building or place where such evidence is located and seize that evidence.
Lastly, the authority who has seized any property or record will have to file an application, requesting for the retention of or for the continuation of the order of freezing such records or properties, before the Adjudicating Authority within a period of thirty days.
- Power to search persons (Section 18)
The authority who is authorized by the Central Government has the power to search the person or such persons.
If any person is found to be in possession, ownership, control of records of proceeds of crime, then he will be searched and his records or property will be seized by the authority.
After the search and seizure, the authority has to submit the copy of reasons recorded and material in possession to the Adjudicating Authority in a sealed envelope in a prescribed manner. The Adjudicating Authority should maintain such material and order for the time prescribed.
The authority has the right to search a person. But if the need is felt, then the authority may take that person to the nearest Gazetted Officer, superior in rank to him, or a Magistrate within twenty-four hours.
However, it is to be noted that the authority cannot detain the person for more than twenty-four hours prior to taking him before the Gazetted Officer, superior in rank to him, or the Magistrate.
After taking such person to the Gazetted Officer or Magistrate, if he feels that there are no reasonable grounds for a search of the person, he may discharge such person or direct the search to be made again.
The authority while making the search should call upon the two or more persons to attend and witness the search, and the search shall be made in the presence of such persons. He has to prepare a list of records or property seized in the course of the search and obtain the signatures of the witnesses on the list.
It is to be noted that a female is to be searched by female authority only.
It is the duty of the authority to record the statement of the person searched in respect of the records or proceeds of crime found or seized in the course of the search.
The authority has the right to seize any record or property. However, after thirty days of such seizure, he should file an application requesting for retention of such record or property, before the Adjudicating Authority.
- Power to arrest (Section 19)
The Director, Deputy Director, Assistant Director, or any other officer authorized by the Central Government has the power to arrest the offender. However, the Director should have the material in his possession or have records in writing.
If such a person is found guilty of punishment under this Act, then the Director may arrest such person and inform him of the grounds of such arrest.
After the arrest of such a person, a copy of the order along with the material in possession should be sent to Adjudicating Authority in a sealed envelope. The Adjudicating Authority should maintain such material and order for the time prescribed.
The arrested person should be taken to a Special Court or Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction within twenty-four hours. Further, the period of twenty-four hours should exclude the time necessary for the journey from the place of arrest to the Court.
- Retention of Property (Section 20)
Retention means the ability to keep or continue having something. The Act states that if any property has been seized or frozen and if such property is required to be retained for the purposes of adjudication, such property may, if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day on which such property was seized or frozen.
The authority has to pass an order for retention or freezing the property for adjudication. Further, he has to send a copy of the same along with the material in possession to the Adjudicating Authority in a sealed envelope. The Adjudicating Authority should maintain such material and order for the time prescribed.
After the completion of 180 days, the seized or frozen property should be returned to such person unless the Adjudicating Authority permits retention or continuation of freezing of such property beyond the said period.
The Adjudicating Authority should make sure that the property retained more than the specified period is prima facie involved in money laundering. The property is required for the purposes of adjudication.
The property other than the property involved in money laundering shall be given to people entitled to receive it.
- Retention of records (Section 21)
In this case, also, the Investigating Officer or any other officer authorized by the Director, if he believes that any records are to be retained for the enquiry, then such records be seized, retained, or frozen for a period not exceeding one hundred and eighty days from the day they were seized or frozen.
Further, after the completion of those one hundred and eighty days, the records shall be returned to the person from whom such records were seized or whose records were ordered to be frozen. But, if the Adjudicating Authority permits retention or continuation of freezing of such records, they will be retained beyond the said period.
If the Adjudicating Authority wants to retain or freeze the records beyond the said limit, he has to satisfy that the records are required for the purposes of adjudication.
- Presumption as to records or property in certain cases. (Section 22)
When the search is conducted and the person is found to be in the possession of records or any property, then it shall be deemed that they belong to him and are true.
- Presumption in inter-connected transactions (Section 23)
When one or more transactions are proved to be involved in money laundering then inter-connected transactions related to it will be considered as a part of it for the trial of offense.
- Burden of Proof (Section 24)
The burden of proof is generally on the person accused under the offense of money laundering. He has to prove that the property attached and proceeded against or confiscated is not earned through illegal means. If it is not proved, the Authority or Court shall presume that such proceeds of crime are involved in money laundering.
Thus, in this way the searches are conducted under the Prevention of Money Laundering Act, 2002.
Conclusion
Money laundering is like a parallel economy that deprives most of the governments. It is also a major cause of worry for the Government. The problem of money laundering is massive. Various steps and laws have been made to curb the menace of money laundering, but the number of crimes is increasing. It is posing a big threat to the financial system. If this continues for a long period of time, our sound economy will be destabilized and perish.
References
- Insight on Prevention of Money Laundering Act, 2002
- A Study on Prevention of Money Laundering by ICAI
- Money Laundering
- ED arrests former ICICI Bank CEO Chanda Kocchar’s Husband in Money Laundering Case
- Anil Deshmukh Probe
[i] Prevention of Money Laundering Act, Sec 3