PMLA

Initiatives to Prevent Money Laundering in India

Money laundering is a common issue globally. In recent times, money laundering and terror financing have forced several governments and regulators globally towards focusing on stopping the illegitimate flow of funds. However, tackling this problem still remains a primary challenge for nations and financial institutions all over the world. The legalization of crime revenues has numerous damaging and negative outcomes. Financial crimes lead to the deterioration of administrative order and economic stability. Numerous initiatives have been taken by the Indian Government in the past to prevent money laundering with the objective of the prevention of financial crimes along with ensuring the maintenance of the administrative and economic stability of the nation.

Anti-money laundering (AML) in India can be best understood as a set of regulations, laws or procedures particularly designed for the prevention of any activity of generating money via illegal ways and methods. The Prevention of Money Laundering Act, 2002 (PMLA)¹, along with the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (Rules), are the main laws that are enforced for the prohibition of money laundering. There are specialised authorities dealing with the money laundering problems, such as the Reserve Bank of India/ Securities and Exchange Board of India (SEBI)/ Insurance Regulatory and Development Authority of India, that prescribe guidelines on anti-money laundering standards following PMLA and Rules.

Initiatives to Prevent Money Laundering in India

The initiatives to prevent money laundering in India are discussed below –

• The Financial Action Task Force on Money Laundering (FATF)

It is an intergovernmental body introduced by the G-7 Summit in Paris in 1989 which has the responsibility of setting global standards on anti-money laundering and tackling the financing of terrorism, money laundering according to this organisation is the processing of criminal proceeds for the concealment of their illegitimate origin to legitimize the illegal gains of crime.

• The Prevention of Money Laundering Act, 2002

The Prevention of Money Laundering Bill was first introduced in the Lok Sabha in the year 1998, passed in 2003, and came into force in 2005. There have been several amendments, with the last one being in 2019. Administration and enforcement authorities are chosen under PMLA for the execution of its provisions and rules. Certain powers are vested, which are very similar to those granted to the civil courts of the nation, to exercise the provisional attachment of properties that are involved in the offence under PMLA.

The PMLA attempts to combat acts regarding money laundering in India, and due to this, it has the following objectives.

 (i)  Prevention and control the money laundering

(ii) Confiscation and seizure of the property acquired from the laundered money

(iii) Dealing with any other issue in relation to money laundering in India.

• The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974

Another initiative to prevent money laundering in India is the enactment of this act which was passed in 1974 in furtherance of the government’s attempt for retaining foreign exchange within the nation. The Act is established on the concept of Preventive Detention which, apart from being a colonial legacy, is also given explicitly in the Indian constitution as ‘the necessary evil’, and laws exist under Article 22 of the said Constitution for the reasons related to the security of the state and maintenance of public order. According to the provisions of section 10, the stipulated period of detention is 1 to 2 years.

All decisions regarding the Act may be taken by the state or central government. The relevant provisions in this regard which must be taken into consideration are Section 3 (power of making orders detaining certain persons), Section 4 (execution of detention orders), Section 5 (power to regulate place and conditions of detention), and Section 11 (revocation of detention orders).

• The Benami Transactions (Prohibition) Act, 1988

A Benami transaction is a transaction wherein there is a transfer of property to one person for a value paid or provided by another person, and often, there is the concealment of the identity of the persons involved. This Act was passed in 1988 for constraining Benami transactions and the right of recovery of the property held by Benami. Section 3 of the Act specifically debars anyone from entering a Benami transaction. The Act further specifies those properties obtained under the Benami transaction which are liable to be acquired by the competent authorities without any need for compensation to be payable by such authority, which can help to prevent money laundering.

• The Indian Penal Code, 1860, and Code of Criminal Procedure, 1973

The Indian Penal Code 1860 is the primary substantive law that deals with various criminal activities along with prescribing penalties for the same. On the other hand, The CrPc, i.e. Code of Criminal Procedure, 1973, is the procedural law specifying procedures to be followed in criminal cases. Various offences under the Indian Penal Code have been recognised as scheduled offences within the meaning explained in the PMLA. Further, Section 65 of the PMLA states that the provisions of the Code of Criminal Procedure are to be followed for several proceedings prescribed under the PMLA.

• The Narcotic Drugs and Psychotropic Substances Act, 1985

This Act was passed in 1985 with the aim of consolidating and amending the laws relating to narcotic drugs. In accordance with its objectives, it identifies, lists, and explains several forms and types of narcotic drugs and psychotropic substances.

The main objective of this Act is stopping and restricting the transport and vending of narcotic and psychotropic substances, and it doesn’t t mention money laundering activities. It may, however, be noted that the trade of narcotic substances does lead to the generation of a lot of cash for people involved in it. So much so that a noticeable portion of the money involved in drug trafficking is then mobilised for giving it legitimacy, or in simple words, the same money gets laundered. The NDPS Act, by working against practices involving drug trading and trafficking, directly restricts restrictions on the flow of money into illegitimate activities.

• Enforcement Directorate

Certain officers of the ED are empowered under the Prevention of Money Laundering Act for conducting investigations in cases involving the offence of money laundering in order to prevent money laundering and was established in India in 2004 as the central national agency responsible for the receipt, processing, analysis, and dissemination of the information regarding suspected financial transactions.

• Financial Intelligence Unit-India (FIU-IND)

It also has the responsibility of coordinating and strengthening efforts of international and national intelligence, investigation, and enforcement agencies in pursuing global efforts against money laundering and the crimes related to the same.

FIU-IND is an independent body which reports directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.

Conclusion:

Money Laundering is a universal menace, and the resolution of the same cannot be made by a single nation alone. The activities related to money laundering have been spreading in Indian society, despite the best efforts of the Indian government for stopping such practices. Through legislation and administrative bodies, and efficient regulators working tirelessly in this matter, the fight against money laundering activities still continues.

Although such activities may be controlled at a domestic level, such practices are never restricted to the confines of a single jurisdiction. Restrictions at a specific jurisdiction motivate the launderers for shifting their base to another jurisdiction, thereby providing a hospitable environment for the growth of such activities.

Read Our Article: Different Stages of Money Laundering

1. https://dea.gov.in/sites/default/files/moneylaunderingact.pdf