Legal Provisions Concerning Money Laundering Cases

Ashish M. Shaji

11 Jul, 2023

Money laundering is an offence where a person through an illegal activity earns money and spends it in a lawful manner. The PMLA 2002 involves provisions for violator who involves themselves in illegal activities. Money laundering can have serious implications on the economy of any nation therefore, it is imperative to stop such activity. In this article, we shall discuss some of the legal provisions related to money laundering and also discuss the provisions of bail in money laundering cases.

Introduction to Money Laundering

In the case of money laundering, the launderer earns money through illegal activities such as child abuse, bribery, corruption, etc., but as per records, the money is shown in the accounts as legally earned money.

For instance- Suppose A has a business selling clothes, but the origin from where he makes investment is through some illegitimate source, and the money that he makes from such illegal activity, he invests it in the apparel business turning the illegal money into legal. This entire process is called as money laundering.

In the case of money laundering, criminals look to change the original source of money and the original source from where the money laundering cannot be traced easily as the money is transferred into the bank account. The banks may inquire about the original source of such money, but they may or may not figure out if the money is illegally obtained or not. Hence in case where they doubt about the enormous amount of money transacted, they must report it under Section 35A of Banking Regulation Act 1949 and also under PML Rules 2005

.

How do criminals turn illegal money into legal?

The criminal transfers money into a financial institution, and when the money is stored in the bank, they may ask about the source of such money. Hence when money is made from an illegal source, the person will hide the illegal earning source by furnishing other legitimate investments such as showing shares in any company and claiming that due to their share, they are making profits. When banks accept their false theory, the money is deposited in the bank as a legitimate one and can withdraw whenever they wish.

Money Laundering Cases: Role of Banks and FIU-Ind

Banks are institutions that fund different ventures, and start-ups and they play a pivotal role in economic growth as they accept deposits that help in growing the economy. If banks accept deposits from someone who is involved in illegal activity, then their market value can suffer as their repute would be tarnished, and the customers’ trust can also be affected. Hence banks should follow guidelines laid down by the RBI in case of a suspicious transaction.

The Ministry of Finance set up an independent body in 2004 called Finance Intelligence Unit- India to undertake, inspect and promulgate any information which is connected to dubious transactions. FIU-Ind combat money laundering at global levels.

Their main functions are discussed below:

• Recordkeeper

They are reported about transactions that are made in the purchase or sale of immovable property, NGOs, cross border, and suspicious transactions.

• Inspection

They inspect those transactions that are suspicious in nature.

• Sharing data

They share data with foreign as well as national intelligence units.

• Identification

They identify and deliberate over different mechanisms for the prevention of money laundering.

• A reservoir of data

They act as a reservoir of data which is obtained from different reporting agencies.

PML (Maintenance of Records Rules) 2005: RBI guidelines

Reporting of Transactions

The transactions mentioned below should be reported:

• In case of a transaction where the amount involved is more than 10 lakh rupees but the transacted currency is foreign;
• In cases where a series of transactions is made in a month, and all are related to each other. Note- The transacted amount need not be equal to 10 lakh rupees.
• In case of transactions related to an investment in an NGO and the currency, the amount is more than or equal to foreign currency of 10 lakh rupees.
• Where a counterfeited currency is involved, or any forged document is used to facilitate transactions.
• Where there is a suspicious transaction made where cash may or may not be involved.
• In case of a purchase or sale valued more than 50 lakh rupees.

Information Record

A proper record must be maintained about the mode of transaction, the value and the currency involved, transaction date and the parties involved in the transaction.

Due Diligence

A bank is required to perform due diligence for the client so that they possess information about their customers who deposit or take loan from them. They should ask clients to comply with KYC requirements.

Punishment in Money Laundering Cases

A person or an organization may be liable for the offence of money laundering. Section 3 of the PMLA 2002 makes directly involved or indirectly involved party guilty. Those that are proved to be involved in the offence of money laundering shall be punished with a minimum imprisonment of 3 years which can extend to 7 years, along with a fine of 5 lakh rupees.

Bail in Money Laundering Cases

The provision of bail in our legal system necessitates that the accused person shall be present in the court when he is required, and anyone charged with a criminal offence can get bail on paying a specific amount. However, court takes into account various things before granting bail to an accused.

Section 45 of the PML Act 2002 deals with the provision of bail for those charged with the offence of money laundering. Bail can be granted to a person charged with imprisonment for less than 3 years, and in case of punishment of more than 3 years, bail bond must be filed, and court grants bail after receiving security in monetary terms that they must appear in court when required.

Conditions under which bail is granted by special court

The following are the conditions:

• When a person files for bail, the public prosecutor is provided an opportunity to argue against the grant of the bail;
• Juveniles, women, and a person with bad health conditions can get bail on the discretion of the special court. Further bail can also be granted if the court believes that the person accused is innocent and is not a threat to the investigation;
• The offence of money laundering shall not be considered as cognizable offence until there is a written complaint from the central/state government. Further, there won’t be any investigation from the police until the government passes a special order to do so.
• The time duration of granting bail under money laundering offence is as per CrPc 1973.

Conclusion

Read our article:Role of Financial Intelligence Unit in Restraining Money Laundering and Terrorist Financing Activities

1. https://fiuindia.gov.in/files/AML_Legislation/notification.html