By Samanta Rao
Published On: October 26, 2021 at 12:47 IST
Introduction
The world faces a conundrum. In the era of low-level economic systems, an older form of economic activity still dominates globally. Money laundering is a serious problem around the world of economic and financial institution.
The Prevention of Money Laundering Act, 2002 is the one of the economic laws, which control and prevent the conversation of black money into white money. PMLA is an Act of the parliament of India which was enacted by the National Democratic Alliance (NDA) to prevent money laundering and to provide confiscation of property which derived from the money laundering.
The Laws and Regulations were promulgated when enforcing liability to banking companies, financial institutions and mediators to assure customers, keep records and provide accurate information to the Financial Intelligence Unit – India. The PMLA and the Regulations promulgated came into effect on July 1, 2005.
This article attempts to discuss the main legislation or laws of PMLA which prevent money laundering derived from illegal economic activities. It will also outline the concept of FATF in prevention of money laundering , origin and legal background and amendment made to the PMLA.
What is Money Laundering?
Money laundering is a process by which illegal funds, assets, and money are converted into legitimate funds, assets, and money, which involves huge amounts. The mere earning of money in an illegal way or through a crime does not amount to money laundering. It means the conversation of such an amount into an illegitimate amount is called money laundering.
Example: Money laundering is the process of obtaining property through crime and then converting that property into an illegal amount
Why was PMLA introduced?
The PMLA was enacted in 2005 to prevent money laundering and to provide for the confiscation, attachment, and seizure of proceeds from money laundering and related acts and matters, whether directly or indirectly. The main law against money laundering in India is Protection of the Money Laundering Act, 2002 (PMLA).
The PMLA provides for Scheduled offences which are treated as money laundering. In addition, it provides for the Director to inspect the records of banking companies, financial institution or other coordinator and charge fines for non-compliance.
The Act empowers the central government, in consultation with the Reserve Bank of India, to determine the procedure and procedure for keeping records under Section 12. [i] This recognizes the link between currency exchange and the financial system, because the financial market is one of the most vulnerable places where money is invested.
Given the recognition that financial institutions such as banks, insurance companies, stocks Markets, etc. are at risk of such intrusion, financial market protection sought to achieve through the Know Your Customer (KYC) policy, too Customer Due Diligence (CDD) guidelines for the entire financial sector.
The purpose of KYC and CDD guidelines to enable managers to monitor and evaluate their client’s financial co-operation with a view to combating money laundering, in order to create the right risk a test to protect the contaminated money from entering the facility. In this regard, the relevant principles of compliance with various financial institutions have been issued by the directors of various sectors such as Reserve Bank of India, Securities and Exchange Board of India and the Insurance Regulatory Development Authority.
Hence, the main aim PMLA is to prevent and reduce the crime which derived directly or indirectly from illegal activities and to punish those who commit the offence of money laundering with penalty.
The origin and legal background of the PMLA
It has been acknowledged worldwide that the most effective way to fight pollution is to work it out money to seize contaminated money. Previously, there was a file for a global effort to trace and seize such money. India has also passed legislation strict anti-money laundering legislation and put in place effective measures and efficient equipment to fulfil its provisions, both by letter and by spirit. The Following a brief history of the current PMLA.
- UN Convention Against Illegal Traffic on Narcotic Drugs and The Psychotropic Substances, 1988 of which India is a party, needs that to prevent the disbursement of funds for drug and other criminal activities Connected activities and deductions from this Failure.
- The Financial Action Task Force (FATF) which was established in Paris in 1989 again made 40 anti-money laundering recommendations.
- The PML Bill, 1999 was adopted by both Houses of Parliament again we have submitted a Statement as a Prevention of Money- Laundering Act, 2002. PMLA, 2002 received the President’s approval on January 17,2003 became as Act No. 15 of 2003. And began operations Effective July 1, 2005.
- The PMLA was amended by the PML (Amendment) Laws of 2005 (No. 20 of 2005), 2009 (No. 21 of 2009) And 2012 (No. 2 of 2013) to introduce the concept of ‘compliance This is to link the provisions of Indian law with the laws of another Countries. The broader concept of ‘reporting business’ was also present involving a banking company, financial institution, a consultant or person conducting a designated business or profession.
Role of Financial Action Task Force (FATF) in Prevention of Money Laundering
The FATF is a government-affiliated organization established to fight money laundering as well Terrorist financing. Forty Recommendations and Nine Special Recommendations for FATF provides a complete set of anti-money laundering measures that include the justice and law enforcement system, the financial system and its administration, and international cooperation.
The current 40 recommendations, require states among other things, in order to Use appropriate international conventions, criminalize money laundering and facilitate crime The authorities seized the proceeds from the bankruptcy, using the customer to pay Diligence (e.g., ownership verification), record keeping and suspicious transaction reporting.
The needs of financial institutions and designated non-financial institutions as well Technology, establishing a financial intelligence unit to receive and disseminate performance reports, and to co-operate internationally in financial investigations and prosecutions.
Section – 3 Offence of money laundering under PMLA
Section 3 of the Prevention of Money Laundering Act, 2002 talks about the offence of money laundering as follows:
“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]
The essential ingredients of committing offence of money laundering are:
- There must be a crime that has been committed.
- There must be gain from the crime committed.
- There must be a transaction in relation to the proceeds of profits.
- There is involvement in any activity related to the secrecy of contaminated money.
Punishment of money laundering under PMLA
Section 4 of the Prevention of Money Laundering Act, 2002 defines the
Punishment for money laundering as follows:
“Whoever commits the offence of money laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees: Provided that where the proceeds of crime involved in money laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words “which may extend to seven years”, the words “which may extend to ten years” had been substituted.”[ii]
Amendments made to PMLA
The PMLA was amended in 2011 to bring it into line with the provisions of the Financial Action Task Force (FATF). The Anti-Money Laundering Act (Amendment) 2011 amended the law of a description of the deduction to include cheating, concealment, acquisition, acquisition and the use of proceeds of crime.
The amendment provision of fines, which could be imposed in excess of five lakhs, was also abolished because it was considered an unequal amount. the difficulty of the money laundering case. The amendment also called for the imposition of sanctions on existing law enforcement officials responsible for money laundering. Some important consolidation proposals have been presented KYC and reporting obligations, as well as record keeping obligations, including: Know Your Customer (KYC) obligations to include a “profitable owner” during KYC’s reporting businesses.
Conclusion
Today money laundering is one of the biggest problems in the economic cycle. Money laundering is usually a process in which money funds, and illegal money are converted into legal currency. In other words, money laundering is a process in which black money are converted into white money.
In the past, money laundering was used only for financial transactions related to organized crime, today its meaning is often extended by government regulations, including any financial transactions that make property or value as a result of illegal activity. However, money laundering techniques became more sophisticated.
Beside an advancement in technology has added to the cause of money laundering. There are established control process for prevention of money laundering. The Financial Action Task Force (FATF) has successfully established co-ordination, regulations, laws and international guidelines. The prevention of money laundering Act, 2002 was also successfully established with the key provisions for those who commit a crime and shall be punished within the meaning of this Act.
ABOUT THE AUTHOR
This article is written by Samanta Rao, a student studying in final year pursuing BBA LL. B from Centre for Legal Studies-Gitarattan International Business School, GGSIPU, New Delhi. The author is an ambitious, confident and hard-working law aspirant. She is very passionate about her work and takes initiative to accomplish her goals. She is highly innovative with a keen interest in writing case briefs.
Edited by: Aashima Kakkar, Associate Editor, Law Insider
References
- Chapter 36 – Financial Security against Money Laundering: A Survey – Science Direct
- Money Laundering – CFI
[i] The Prevention of Money Laundering Act, 2002, s. 3
[ii] The Prevention of Money Laundering Act, 2002, s. 4