Prevention of Money Laundering Act, 2002 (PMLA)

The Prevention of Money Laundering Act, 2002 (PMLA) was established to combat the criminal act of legitimizing income or profits derived from illegal sources. This legislation empowers the government or public authorities to seize assets acquired through unlawfully obtained proceeds. Essentially, money laundering involves the transformation of illicitly earned funds into legal currency.

What is Money Laundering?

Money laundering is the act of taking funds acquired through illegal activities, such as black money, and camouflaging them as legal currency, ultimately presenting them as white money. This process involves the movement of laundered funds through diverse channels or stages of conversions and transfers, transforming them into legal currency before ultimately reaching a legally acceptable institution, such as a bank.

PMLA Objectives

The Prevention of Money Laundering Act, 2002, introduced to combat the issue of money laundering, has the following objectives:

Prevent money-laundering.
Combat/prevent channelising of money into illegal activities and economic crimes.
Provide for confiscating property derived from, or involved/used in, money laundering.
Penalise the offenders of money laundering offences.
Appointing an adjudicating authority and appellate tribunal for taking charge of money laundering matters.
Provide for matters connected and incidental to the acts of money laundering.

Salient Provision

Key definitions:

Attachment: Prohibition of transfer, conversion, disposition or movement of property by an appropriate legal order.
Proceeds of crime: Any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence.
Money-laundering: Someone who directly or indirectly attempts to engage or assist another person, or who is actively involved in any activity involving criminal proceeds and presents it as untainted property.
Payment system: A system facilitates payment between a payer and a beneficiary, encompassing the systems enabling credit card, debit card, smart card, money transfer, or similar operations.

Punishment for money-laundering:

The Government of India set it up in 2004 as the central national agency responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions.
FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes.
FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the finance minister.

Conclusion:

The Centre has been enhancing reporting guidelines of accountants and disclosure regulations by companies as part of its efforts to improve corporate governance practices, and to check the generation of unaccounted wealth, diversion of funds from businesses, bogus inter-corporate transactions and laundering of funds.