PREVENTION OF MONEY LAUNDERING ACT (PMLA) – POLITY 

News: PMLA rules mean for NGOs & 'PEPs'


What's in the news?

The Finance Ministry on March 7 has issued a notification placing all transactions involving virtual digital assets under the purview of the Prevention of Money Laundering Act (PMLA).


Key takeaways:

About the notification:

It laid out the nature of transactions to be covered under PMLA. These are as follows.

Exchange between virtual digital assets and fiat currencies.

Exchange between one or more forms of virtual digital assets.

Transfer of virtual digital assets.

Safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets.

Participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.


Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (FIU-IND).


Importance of the notification:

The measure is expected to aid investigative agencies in carrying out action against crypto firms. 

The Enforcement Directorate and Income Tax Department have either probed or are probing several cases against companies running cryptocurrency exchanges and transactions. 

ED, for instance, froze the bank balances of the popular WazirX exchange last year.


What are Virtual Assets?

Virtual digital assets were defined as any code or number or token generated through cryptographic means with the promise or representation of having inherent value.

Example:

Crypto currency

Non fungible tokens

Decentralised finance.

In the Budget for 2022-23, the government had brought a 30% tax on income from transactions in such assets. 

Also, to bring such assets under the tax net, she introduced a 1% TDS (tax deducted at source) on transactions in such asset classes above a certain threshold. 

Gifts in crypto and digital assets were also taxed.

A July 2021 online report by BrokerChooser.com, for instance, had estimated India as being the country with the highest number of ‘crypto owners’, at 10.07 crore.


Coordinated Response:

The Intergovernmental Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, has been continuously flagging the potential that virtual digital assets have for criminal misuse considering the speed and anonymity with which they can be traded worldwide.

India, which holds the presidency of the G-20, has been repeatedly stressing the need for a globally coordinated regulatory response to deal with crypto assets.


About Money Laundering:

Money laundering is the illegal act of obtaining large sums of money from illegal sources that appear to be legitimate.

Three process:

Placement: The introduction of criminal revenues into the legitimate financial system marks the beginning of the process.

Layering: The second stage involves hiding the source of the money by relocating it through a series of intricate bank transfers or other financial maneuvers.

Integration: The third and final stage is integration, in which the proceeds are reinjected into the economy and are no longer detectable by the authorities.


Prevention of Money Laundering Act:

The Prevention of Money Laundering Act of 2002 was enacted to combat the criminal offence of legalizing income/profits obtained illegally. 

The Prevention of Money Laundering Act of 2002 empowers the government or a public authority to seize property derived from illegally obtained proceeds.


Objectives:

To prevent and control money laundering.

To confiscate and seize the property obtained from the laundered money.

To deal with any other issue connected with money laundering in India.


Important Provisions of the Act:

1. Adjudicating Authority:

The Adjudicating Authority is the authority appointed by the central government of India via notification to exercise the jurisdiction, powers, and authority set forth in the prevention of money laundering act 2002.

2. Punishment:

The Act expressly states that if a person is found guilty of money laundering in India, he will be sentenced to rigorous imprisonment ranging from 3 to 7 years.

If the proceeds of guilt are related to any of the offences listed in paragraph 2 of Part A of the Schedule (Offences under the Narcotic Drugs and Psychotropic Substance Act, 1985), the sentence will be increased to 10 years.

3. Burden of proof:

When a person is found guilty of money laundering, he must prove that the alleged proceeds of the crime are in fact lawful property.

4. Appellate Tribunal:

It is the body appointed by the Government of India to hear appeals from decisions of the adjudicating authority or any other authority established under the Act.

It is worth noting that tribunal decisions can be appealed to the High Court (for that jurisdiction) and then to the Supreme Court.

5. Special Courts:

It envisages the designation of one or more courts of sessions as Special Court or Special Courts to try the offences punishable under PMLA and offences with which the accused may, under the Code of Criminal Procedure 1973, be charged at the same trial.


Financial Intelligence Unit – India:

The Government of India established the Financial Intelligence Unit-India (FIU-IND) on November 18, 2004, as the central national agency primarily responsible for obtaining, processing, analyzing, and disseminating information related to suspect financial transactions. 

It is an independent body that reports directly to the Finance Minister-led Economic Intelligence Council (EIC).


Agreement for Central Government: 

It allows the Central Government to enter into an agreement with the Government of any country outside India for enforcing the provisions of the PMLA, exchange of information for the prevention of any offence under PMLA or under the corresponding law in force in that country or investigation of cases relating to any offence under PMLA.


Authority to Implementation the Act:

The Money Laundering Act of 2002 empowers certain officers of the Directorate of Enforcement to conduct investigations in cases involving money laundering offences and to seize any property involved in money laundering.


Scheduled offences:

Any offence listed in Parts A, B, and C of PMLA is a Scheduled offence according to the PMLA. Some of these offences (which may be covered by the PMLA) are extrapolated as follows:

PART A – It includes offences under various acts, such as

Indian Penal Code

Narcotics Drugs & Psychotropic Substances Act

Prevention of Corruption Act

Antiquities & Art Treasures Act

Copyright Act

Trademark Act

Wildlife Protection Act

Information Technology Act

PART B – It mentions the Part A offenses, but the value involved in such offenses is Rs 1 crore or more.

PART C – It addresses transnational crimes and reflects the commitment to combating money laundering across international borders.



PMLA Act Amendment in 2019:

Clarification about the Position of Proceeds of Crime: Proceeds of the Crime not only includes the property derived from scheduled offence but would also include any other property derived or obtained indulging into any criminal activity relate-able or similar to the scheduled offence.

Money Laundering Redefined: Money Laundering was not an independent crime rather depended on another crime, known as the predicate offence or scheduled offence.

The amendment seeks to treat money laundering as a stand-alone crime.

Under Section 3 of PMLA, the person shall be accused of money laundering if in any manner that person is directly or indirectly involved in the proceeds of the crime.

Concealment

Possession

Acquisition

Use or projecting as untainted property

Claiming as untainted property


Criticisms of PMLA:

1. Definition of crime:

The definition of crime under this Act is criticized for being almost infinitely elastic. 

According to critics, the authority has immense latitude to define what counts as the relevant crime.

2. Enactment as a Money Bill:

While enacting the law, the subterfuge of a Money Bill was used. 

So, it is alleged that the parliamentary procedure under which the law was enacted was itself proper.

3. Power to Enforcement Directorate (ED):

The Act gives the government and the Enforcement Directorate (ED) virtually unbridled powers of summons, arrest, and raids.

Despite having powers of investigation, the ED has not been classified as a ‘police agency.

Besides, there is a lack of clarity about the ED’s selection of cases to investigate.

4. Bails & the Burden of Proof:

It makes bail nearly impossible while shifting the burden of proof of innocence onto the accused rather than the prosecution.

The Court made it clear that the State has a compelling interest in imposing stringent bail conditions for economic offences.

5. Low Conviction Rate: 

Everyone who has gone through a trial claims that the trial itself is punishment, and that any assets you have can be seized while the case is pending. 

The conviction rate under this law is very low, less than 5%.