All About Prevention of Money Laundering Act

To prevent money laundering.
To provide for confiscation of property derived from, or involved in, money laundering.
For matters connected therewith or incidental thereto.
It forms the core of the legal framework put in place by India to combat money laundering.

Salient Features of PMLA

Which Body controls the money laundering act in India

Enforcement Directorate,
Department of Revenue,
Ministry of Finance,
SEBI, and Government of India oversee money laundering and related activities.

Offences under the Prevention Of Money Laundering Act

Offences scheduled under Part A, B, and C come under the Prevention of Money Laundering Act 2002.
Part A includes offences from IPC, drugs, corruption, antiquities, copyright, trademark, IT, and wildlife acts.
Part B encompasses offences from Part A with involvement of ₹1 crore or more.
Part C addresses money laundering cases with international connections, targeting transnational crimes.

Penalties Under PMLA

The body can freeze the assets, properties, and records of the criminal.
The person found guilty in the case under the prevention of money laundering act is heavily fined without any limit and is/or also eligible to be imprisoned for three to seven years.
Money laundering act enhances punishment to 10 years imprisonment and increased fines for drugs-related offenses.

Recent Amendments in Prevention of Money Laundering Act 2002

The Finance Act 2018 amended the Prevention of Money Laundering Act (PMLA) to allow for the confiscation of properties and assets linked to economic offenders.
Finance Act 2019 broadened PMLA’s “proceeds of crime” definition to include properties held by money laundering suspects.
Finance Act 2020 allowed creation of an “Asset Reconstruction Company” to manage confiscated properties under PMLA.
Finance Act 2021 amended PMLA to strengthen regulations, improve investigations, and enhance international cooperation against money laundering and terrorist financing.
Finance Act 2022 amended PMLA to strengthen enforcement, increase penalties, and enable information sharing against money laundering.

Money laundering in India

Money laundering in banking has increased in frequency and sophistication with internet-based banking, involving larger sums of money.
Much recently, in February 2022, India witnessed its biggest ever bank fraud of INR 22,842 crores (approx. USD 3 billion) that involved ABG Shipyard Ltd., a shipbuilding and repair company.
During the fiscal years between 2012-13 to 2021-22, ED filed a total of 3,985 criminal complaints under the Prevention of Money Laundering Act (PMLA) and 24,893 under the civil law of FEMA.

Impacts of Money laundering

Economic Distortion: Money laundering can distort the economy by inflating asset prices and causing misallocation of resources.
- For example,Illegally obtained funds invested in real estate can create artificial bubbles and lead to economic damage.
Loss of Tax Revenue:Money laundering leads to loss of tax revenue as illegal funds evade taxation.This can have a significant impact on the government’s ability to fund public services and infrastructure development.
Corruption and Organized Crime: Money laundering is often associated with corruption and organized crime. The flow of illicit funds can undermine the rule of law and create a culture of corruption, which can have far-reaching negative impacts on society.
Security Risks: Money laundering can also pose a security risk, as it can be used to fund terrorism and other illegal activities. For example, the 2008 Mumbai attacks were partly funded through money laundering.
Reputation Damage: Money laundering damages reputation, lowers investor confidence, and hampers economic activity for banks, institutions, and countries.For example, the recent money laundering scandal involving a major Indian bank has damaged its reputation and led to a loss of investor confidence.
Other impacts: Impacts of cash-based economy: Decreased human development, resource misallocation, and reduced trust in domestic financial institutions.

Steps taken to prevent money laundering

The Prevention of Money Laundering Act (PMLA): PMLA enacted in 2002 to prevent money laundering and seize involved property. The act defines money laundering as a criminal offence and provides for penalties for those found guilty of it.
Financial Intelligence Unit (FIU): Indian government established FIU to receive, analyze, and share information on money laundering. This helps to identify suspicious financial transactions and prevent money laundering.
Powers to Enforcement Directorate (ED): ED is an Indian law enforcement agency combating economic crimes and enforcing economic laws. An important function of ED is to Investigate cases of money laundering under PMLA.

FAQs related with Prevention of Money Laundering Act

Ques 1: What is the Prevention of Money Laundering Act (PMLA)?

Answer: The Prevention of Money Laundering Act is a legislation enacted in India to prevent and control money laundering activities by criminalizing money laundering and establishing measures for its prevention, detection, and confiscation of proceeds of crime.

Ques 2: What are the main objectives of the PMLA?

Answer: The main objectives of the PMLA include preventing money laundering and combating the financing of terrorist activities. It aims to promote transparency, accountability, and integrity in financial systems and to deter and prosecute money laundering offenses.

Ques 3: What constitutes a money laundering offense under the PMLA?

Answer: Money laundering offenses under the PMLA involve knowingly dealing with or acquiring, using, transferring, or concealing proceeds of crime, directly or indirectly, with the intention of projecting them as untainted or legitimate funds. It encompasses various predicate offenses listed under the Act, such as drug trafficking, corruption, fraud, and organized crime.