Prevention of Money Laundering Act 2002

Recently, the Supreme Court denied a political leader's request to vacate his arrest by the Enforcement Directorate (ED) on money laundering accusations.

What is money laundering?

• Money laundering is the process of making significant sums of money obtained through criminal activities, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
• Large gains are made by illegal arms sales, smuggling, drug trafficking and prostitution gangs, insider trading, bribery, and computer fraud schemes.
• As a result, money launderers have an incentive to "legitimise" their ill-gotten gains through money laundering.
• The money created is referred to as 'dirty money,' and money laundering is the act of converting 'dirty money' into 'legal' money.

Stages:

• Placement: The first stage involves the injection of illicit money into the formal financial system.
• Layering: In the second stage, money injected into the system is layered and dispersed over different transactions in order to conceal the money's tainted origin.
• Integration: In the third and final stage, money enters the financial system in such a way that the initial association with the crime is attempted to be erased, and the money can then be utilised as clean money by the offender.

What is Prevention of Money Laundering Act (PMLA)2002?

The PMLA was implemented in response to India's international commitment (Vienna Convention) to combat money laundering.

• It is a criminal statute that was enacted to prohibit money laundering and to provide for the confiscation of property derived from or implicated in money laundering and associated problems.
• It is at the heart of India's legal structure to prevent money laundering.

Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of the United Nations:

The United Nations General Assembly accepted :

• the 1988 Basle Statement of Principles,
• 1989 Forty Recommendations of the Financial Action Task Force on Money Laundering,
• and 1990 Political Declaration and Global Program of Action.

• About:

Recent Changes:

• Clarification of the Proceeds of Crime Position: Proceeds of Crime encompass not just the property generated from the scheduled offence, but also any other property acquired or earned while engaging in any criminal conduct related to or similar to the scheduled offence.
• Redefining Money Laundering: Money laundering was not a separate crime, but rather a consequence of another, known as the predicate offence or scheduled offence.
• The amendment tries to make money laundering a separate offence.
• According to Section 3 of the PMLA, a person is accused of money laundering if he or she is directly or indirectly involved in the proceeds of a crime.
  • Concealment
  • Possession\sAcquisition
  • Using or portraying as pure property
  • claiming to be uncontaminated property
• Continuing Nature of Offense: As this crime is of a continuing nature, the individual will be considered to be involved in the offence of money laundering until the time that person receives the fruits of money laundering activities.

About the Enforcement Directorate

• The ED, or Directorate of Enforcement, is a multidisciplinary institution tasked with investigating economic crimes and infractions of foreign exchange legislation.
• This Directorate was established on May 1, 1956, when a 'Enforcement Unit' was established in the Department of Economic Affairs to handle violations of the Foreign Exchange Regulation Act, 1947 (FERA '47).
• With the start of the economic liberalisation process, the regulatory law FERA, 1973, was repealed, and the Foreign Exchange Management Act, 1999 (FEMA) took its place.
• With an increase in the number of cases involving economic offenders seeking refuge in foreign nations, the government recently passed the Fugitive Economic Offenders Act, 2018 (FEOA), and the ED is tasked with enforcing it.

Functions under various Acts:

• The PMLA, 2002: The ED has been tasked with enforcing the terms of the PMLA by conducting investigations to trace assets obtained from criminal proceeds, provisionally attaching the property, and ensuring the prosecution of criminals and seizure of property by the Special Court.
• The FEMA, 1999: ED has been tasked with conducting investigations into alleged violations of foreign exchange laws and regulations, as well as adjudicating and penalising individuals found to have violated the law.
• The FEOA (Fugitive Economic Offenders Act), 2018, is a statute that requires the Directorate to attach the properties of fugitive economic offenders who have fled India warranting arrest and confiscate their property for the Central Government.

• COFEPOSA sponsoring agency:

The Directorate is authorised to support cases of preventive detention for FEMA violations under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act of 1974 (COFEPOSA).

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