03 May 2024 – The Indian Express

Issues associated with the PMLA Act 2002

What does Money Laundering mean?

• Money laundering is a complicated process that people and businesses use to hide where money they got illegally came from. Through a number of transactions, it is possible to make illegal money look like real money.

 The steps of laundering money:

• Placement: The first step in the process of bringing illegal money into the banking system. This can include putting money into bank accounts, exchanging money, or buying things that are useful.
• Layering is the process of using a number of complicated financial transactions to keep the illegal money from going back to where it came from. Often, this means moving money between accounts or across countries to hide where it came from.
• Integration is the last step, in which the money that was laundered is put back into the system as real money. This can be done by buying real estate, investing in businesses, or finding some other way to make the money seem legitimate.
• Different ways to launder money:
• Smurfing is the act of dividing large amounts of cash into smaller, less noticeable amounts that are then put into bank accounts.
• Trade-Based Laundering is the act of moving money across borders through trade deals while hiding where the money came from.
• Shell companies are made up of companies that don’t do any real business so that illegal money can be moved through deals that look like they are legal.
• The act of buying property with illegal money and then selling it to turn the value into legal assets.
• The Prevention of Money Laundering Act, 2002 (PMLA) is an Indian law that was passed by the Parliament to stop people from laundering money and to take back property that was used to launder money.
• Its goal is to stop people from laundering money for illegal activities like drug trafficking, smuggling, and funding for terrorists.

 Important Parts of the PMLA:

• Offences and Penalties: The PMLA spells out what money laundering is and how it can be punished. It includes harsh jail sentences and heavy fines for criminals.
• Attaching and taking away property: The Act lets property that is used to hide money be attached and taken away. It calls for the creation of an Adjudicating Authority to keep an eye on these processes.
• Reporting Requirements: The PMLA requires some groups, like banks and other financial companies, to keep records of transactions and tell the Financial Intelligence Unit (FIU) about any transactions that seem fishy.
• Designated Authority and Appellate Tribunal: The Act sets up a Designated Authority to help with the investigation and punishment of crimes involving money laundering. It also sets up an Appellate Tribunal that will hear arguments against decisions made by the Adjudicating Authority.

 The goals of PMLA are:

• Prevention: To stop people from moving money by putting in place strict rules and keeping an eye on financial transactions.
• Finding: To find and look into cases of money laundering using the right legal and government tools for action and oversight.
• Confiscation: Taking back property that was obtained through money laundering is meant to discourage criminals and stop the flow of illegal money.
• International Cooperation: To make it easier for countries to work together to stop money laundering and funding for terrorism.

 Changes to the PMLA 2002 in 2023:

• To be clear about the definition of “Proceeds of Crime,” “Proceeds of Crime” does not only include property obtained from a scheduled offence, but also any other property obtained through any criminal action related to or similar to the scheduled offence.
• Redefining Money Laundering: Money laundering wasn’t a crime in and of itself; it depends on another crime, which was called the predicate offence or scheduled offence. The change is meant to make money laundering a separate crime.

What made the adoption of the PMLA, 2002 necessary? 

Drug trade is growing around the world:

• The UN paid close attention to this and held the UN Convention against Illegal Traffic in Narcotic Drugs and Psychotropic Substances in 1988. All countries were told they needed to move right away to stop drug crime money laundering and other related activities.

Putting together the Financial Action Task Force:

• In 1989, seven of the world’s biggest industrialised countries got together in Paris and formed the Financial Action Task Force (FATF) to look into the problem of money laundering and suggest ways to stop it.
• After that, in 1990, the UN General Assembly (UNGA) passed a resolution called the Political Declaration and Global Programme of Action. This resolution asked all UNGA member countries to pass laws that would stop drug money from being laundered.

Adopted by the Indian Parliament:

• In line with this decision from the UN General Assembly, the Indian government used the FATF’s suggestions to make a law that stops people from laundering money for drugs.
• Since drug trade happens across borders, the UN held a special session in 1998 with the theme “Countering the World Drug Problem Together.” They also made a statement about how important it is to stop money laundering right away.
• So, in 2002, the Indian Parliament passed the Prevention of Money Laundering Act. But it became law in 2005.

 What the Narasimham Committee said should be done:

• The Reserve Bank of India (RBI) asked the Narasimham Committee on Banking Sector Reforms to look into money laundering issues in the Indian financial system in 1998. The committee’s report stressed how important it was to do so. These suggestions sparked action by the government.

 Adhering to the rules of previous legislation:

• The law’s main goal is to stop people from moving drug money. So, the Act of 2002 included some crimes from the Indian Penal Code (IPC) and the Narcotic Drugs and Psychotropic Substances Act, 1985.
• The FATF proposals and UN resolutions are all about stopping money from being used to launder drugs. But the PMLA of India changed over time as it was changed by different provisions.
• The PMLA was made by India’s Parliament using Article 253, which gives it the power to make laws that carry out foreign agreements.
• It says in this article that any law Parliament makes to carry out a foreign body’s decision will only cover that decision’s subject.
• This is made clear in Item 13 of the Union list in the Seventh Schedule of the Constitution.

 What are the different worries about the PMLA, 2002?

• There have been arguments about what the phrase “proceeds of crime” means in the context of the PMLA. There are those who say the term is too broad and could include legal financial transactions, which could lead to abuse.
• The law about laundering money is based on the “crime proceeds” that are washed away. People who are directly involved in the crime and the making of the crime proceeds are also guilty under this rule. So are people who have nothing to do with the crime but are involved in some way later on in the laundering process.
• There are a lot of crimes in the PMLA schedule that have nothing to do with its original goal, which was to stop people from moving drug money. This is the worst thing about the law.
• The UN decision that India used to pass its law on money laundering only talked about the crime of laundering drug money. People thought this was the worst kind of economic crime because it could upset the world economy and put countries’ security at risk.

 Accused Must Show Proof:

• Many people who disagree with the PMLA say that the accused person has an unfairly high standard of proof. Changing the standard of proof can sometimes make it harder to make sure everyone gets a fair trial.
• Some people say that the law might give the government too much power, which could lead to abuse and authority. Finding the right mix between giving police more power and protecting people’s rights is not easy.
• People in India who are accused of money laundering crimes can be given strict bail terms under the PMLA.
• People are thought to be innocent until proven guilty, which is a basic concept of Anglo-Saxon law. This idea is turned on its head by PMLA.
• A person who is charged will not be granted bail by any court in the hierarchy because section 45 of the PMLA says that a judge can only grant bail if he is sure that the person is innocent.
• Putting someone in jail without giving them written notice of the reason for the arrest:
• It is thought that depending only on spoken communication for arrest is against Article 22(1) of the Constitution and Section 19(1) of the 2002 PMLA. For a long time, cops in the Enforcement Directorate have been acting in ways that are against these rules.

 What suggestions should be used to change the PMLA, 2002?

 Improvements to the meaning of “Proceeds of Crime”

• Put forward a clearer meaning of “Proceeds of Crime” in the PMLA to avoid any confusion that might affect the way money is handled.
• Get help writing a clear, complete definition that meets international standards from law experts, financial institutions, and other important parties.

 Review of the Burden of Proof:

• Look at the accused’s burden of proof, especially when it comes to relying on comments from other accused or people.
• Look into making sure that the person accused has to prove their case in a way that is fair and protects the basic rights that the Constitution guarantees.
• Think about making changes that would make it more fair for both the prosecutors and the accused to have to prove their case.

Protections Against Police Overreach:

• Add more checks and balances to stop police officers from going too far, especially when dealing with political opponents.
• Set up clear rules and instructions for how to investigate in order to protect people’s rights and privacy, as well as to make sure that assets are taken away legally and that due process is followed.
• Set up an independent system to check and keep an eye on what police officers are doing in cases of money laundering.

 Review of the strict bail rules:

• Do a full review of the strict bail conditions, especially those under Section 45 of the PMLA, to see if they are necessary and how they affect people who are being charged.
• Think about making bail procedures for money laundering cases the same as those for other financial crimes. This would get rid of any concerns about unfairness or undue burden.
• Look into other ways to speed up the bail process without putting the accuracy of investigations at risk.

 Review and changes to the PMLA on a regular basis:

• Set up a regular way to check on the PMLA’s usefulness and efficiency, taking into account new problems and changing international standards.
• Legal experts, lawmakers, and representatives from financial institutions should all be encouraged to talk about and consider possible changes to the PMLA in parliament.

 Better independence and openness of ED:

• Make the Enforcement Directorate (ED) more independent by making sure that politics don’t affect what it does.
• Introduce steps to make the ED’s work more open, such as regular reporting and public disclosure of cases handled, convictions obtained, and moves taken.

 Education and awareness of the public:

• Run public awareness efforts to teach people about the PMLA’s purpose, how it works, and what it means.
• Help people understand their rights and the laws that protect them, which will make it easier for people and police to work together.

 Consultative Method:

• Adopt a consultative and open approach to policymaking, asking law experts, civil society groups, financial institutions, and the public for their thoughts.
• Hold open discussions and consultations to address concerns and get different points of view on the suggested changes. Set up ways to keep an eye on and evaluate how the changes are being carried out all the time.
• Take an active role in international forums to stay up to date on global norms and help shape efforts to stop money laundering around the world.
• The way courts handle bail in PMLA cases right now seems too complicated. In the Gudikanti Narasimhulu case in 1978, Justice V.R. Krishna Iyer stressed how important personal freedom was. He said that denying bail is a major judicial duty under Article 21 that needs careful thought about how it will affect the person and society. But over time, changes to the law made it cover more crimes than just drug money laundering, which raised questions about what it was meant to do in the first place. The changes to the PMLA show how hard it is to stop money laundering while also making sure justice and fairness are done.