Prevention of Money Laundering Act, 2002. Money Laundering can be understood as a process employed by criminals to masquerade the possession and regulation of money derived from wide criminal activities and making the source of income legitimate. The process of money laundering can be broken down into three steps placement (introduction of money into financial system), layering (concealing the source of income) and integration (converting the money into legitimate source). Indian was ranked 70th out of 140 countries in 2013 by Anti-Money Laundering Basel Index. This mean that India is a high risk zone in money laundering. The Indian government has taken immense steps to prevent money laundering by introducing Prevention of Money Laundering Act, 2002.
Prevention of Money Laundering Act, 2002
Money Laundering Techniques
There are multiple ways through which money can be laundered, some of them are:
- Cash Smuggling: Moving cash from one location to another or depositing the cash in Swiss Bank Account.
- Structuring: Cash is broken down into formal receipts to buy money orders etc., smaller amounts are hard to detect.
- Laundering Via Real Estate: Buying a land for money and then selling it making the profits legal.
Before the introduction of PMLA, 2002, government of India had other inappropriate acts like:
- Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
- The Income Tax Act, 1961.
- The Benami Transactions (Prohibition) Act, 1988
- The Indian Penal Code and Code of Criminal Procedure, 1973
- The Narcotic Drugs and Psychotropic Substances Act, 1985.
These acts were dealing with issues on the periphery and did not have money laundering at the heart. The PMLA act was presented on 4th August 1998 in Lok Sabha and was formalised on 17th January 2003.
The Prevention of Money Laundering Act (PMLA) is an attempt to avoid laundering of money and help in seizure of assets acquired through money-laundering activities by individuals or companies.
The act seriously reprimands individuals assisting or indulging in activities related to money laundering or proceeds from criminal activities.
The individual found guilty of laundering money might face:
- Imprisonment for up to seven years and also pay a fine of INR 5 Lacs. The upper limit of the fine was later removed in the 2011 amendment.
- In case an individual is found in violation of Narcotic Drugs and Psychotropic Substances Act, 1985 then the punishment might increase to up to 10 years.
Appointed authorities by Govt. Of India can subjugate any property believed to be from profits of crime for 180 days after taking formal approval from Independent Adjudicating Authority. The central government appoints the Adjudicating Authority. The individual accused would then have to prove that the property is lawful.
Also, under section 12 of the act financial institutions like banks or stock broking firms are mandated under PMLA, 2002 to keep a record of cash transactions above Rs. 10 Lacs or above in domestic and international currency.
The government is trying hard to come up with new amendments to robust the act and prevent further money laundering, however acts can only be amended based on past. With the introduction of definition of “Activities of Terrorism” the government has tried to strangle activities which could not be identified before. Global Financial Integrity in their report state that black money worth $343 billion was laundered from the year 2002-2011 in India. The government has also set up Financial Intelligence Unit to analyse and disseminate information related to money laundering.