The Prayas ePathshala

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Converting money obtained illegally into money obtained legally is known as money laundering.
Since there is no accounting of black money, the government is not taxed on the money. Thus, money laundering is a means of disguising funds obtained unlawfully.
The American Mafia organisation is credited with coining the phrase “money laundering.”
Mafia organisations are demonstrated to have made enormous sums of money through gambling, extortion, and other means.

How money laundering operates:

Although money laundering appears to be an above-board financial transaction on the surface, it actually involves a three-stage process that conceals the criminality underneath:
The initial phase involves the infusion of criminal funds into the official financial system. We refer to this as “placement”;
In the second stage, injected money is dispersed and stacked over a number of transactions in an attempt to conceal its contaminated source. We refer to this procedure as “layering”;
The third and last stage involves the entry of money into the financial system in a way that aims to erase any initial connection to criminal activity. This allows the money to be used as clean money by the offender or recipient. We refer to this as “Integration.”

PMLA Act:

In 2002, the PMLA was supposedly implemented in order to address the issue of money laundering.
It has undergone multiple revisions, including those in 2005, 2009, and 2012.

The PMLA primarily has three goals:

To prevent and manage money laundering.
to seize and confiscate the goods acquired through money laundering.
to address any additional concerns regarding money laundering in India.
It was passed in response to India’s international pledge to fight money laundering, which included ratifying the Vienna Convention.
International concern over money laundering has grown, and India has made a number of undertakings in this area.

Union of India and Ors. v. Vijay Madanlal Choudhary and Ors. (2022):

The Supreme Court restricted its use to “property gained unlawfully and wrongful as a result of criminal activity related to a scheduled offence.”
According to Section 2(1)(u) of the 2002 Act, “the property must qualify the term of “proceeds of crime.”
The only circumstances that give the Authorised Officer the right to prosecute someone for money-laundering are where there are proceeds of crime, as defined by Section 2(1)(u) of the 2002 Act, and when such funds are connected to any procedure or activity.
“Not even in a case of existence of undisclosed income and irrespective of its volume,” the Court held.
Section 2(1)(u)’s definition of “proceeds of crime” will draw attention.
unless the property was acquired or derived from illegal activities connected to a scheduled offence.
The Court’s declaration of law, as stated in Article 141, applies to all parties “if the offence so reported is a scheduled offence.”
Under Section 2(1)(u) of the 2002 Act, the property retrieved by the Authorised Officer would be considered proceeds of crime.
“The authorities under the 2002 Act cannot step in or initiate any prosecution,” the Court ruled, absent the existence of proceeds of crime.

Judge’s position on ED:

The sequence of events gives a fairly poor, if not negative, impression of how the ED operates.
With extensive authority granted by the strict Act of 2002, the ED must to seem to be operating with the highest integrity, impartiality, and fairness.
The ED did not use its authority. The Court further stated,
It appears that no standard procedure is followed consistently.

Pavana Dibbur v. Enforcement Directorate, 2023:

It covered important PMLA topics, such as:

Section 3: There cannot be a money laundering offence if there are no proceeds of crime
Property must be derived or obtained, either directly or indirectly, by any individual as a result of criminal behaviour related to a scheduled offence in order for it to be considered profits of crime.
Because under Section 3 of the PMLA, the existence of “proceeds of crime” is “sine qua non” for the offence.

Problems with the ED’s role:

The PMLA Act’s Schedule does not apply to the Mines and Minerals (Development and Regulation) Act, 1957, therefore offences related to it are not considered “Scheduled Offences.”
In these States, the ED is investigating claims of illicit sand mining. Sand is a minor mineral that is under state rather than federal jurisdiction.
The Mines Act allows for the penalty and prosecution of any unauthorised mineral exploitation and has other provisions aimed at reducing evasion.
But the State government has that authority.
Based on some first information reports (FIRs) that some people filed, the ED allegedly initiated an enforcement case in Jharkhand against a ruling party MLA and his accomplices.
The police cases were transferred to the CBI by the court’s judgement.
This begs the questions of whether central investigating agencies have been abusing their authority and whether the court system has been abused all along.

The Way Ahead:

The fundamental framework of the Indian Constitution includes federalism, although these activities are gradually weakening it.
If there are no “proceeds of crime” and if miners and minerals are not involved in “scheduled offences,”
Courts shouldn’t permit the CBI and ED to conduct these kinds of investigations.
Increasing regulation of the local virtual digital asset ecosystem might give regulators and regular users the much-needed confidence they need, even as India leads the way in global coordination.
India’s innovation economy will be infused with an animal spirit and will become the leader in virtual digital assets thanks to a progressive regulatory environment.