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Anti Money Laundering law

Money laundering is a widespread issue. It is predominant in every nation and is a topic dealt with even at the international level. Money laundering in simple terms means disguising the illegal origin of the money to make it appear clean. India has dealt with the issue of money laundering via various legislations such as The 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, The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988. In all of these legislations, however, the issue was addressed very lightly. In 2002 India passed the Prevention of Money Laundering Act (PMLA) to specifically deal with money laundering and it criminalizes the same. The Act and the Rules notified under it, both came into force on 1st July 2005. According to the long title of the act, the act has been enacted to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto.

SECTION 3 of the PMLA defines money laundering. According to the said Section, any person who directly or indirectly:

  1. attempts to indulge in, or
  2. knowingly assists in, or
  3. knowingly is a party in, or
  4. is actually involved in 

any process or activity connected with the proceeds of crime including its concealment, possession, acquisition, or use and projecting or claiming it as untainted property has committed the offence of money laundering. So in the offence of money laundering, the person not only obtains money or property illegally through the commission of a crime but also tries to show it as having been obtained via legitimate means.

Both, natural and legal persons can commit the crime of money laundering. So a company or a firm can also commit the offence of money laundering.

However, what exactly would constitute proceeds of crime? SEC 2(u) of the PMLA defines ‘proceeds of crime’ as any property derived or obtained, directly or indirectly, by a person as a result of criminal activity relating to a scheduled offence, or the value of any such property, or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. So basically, any property or value of such property which has been obtained by a person after the commission of any of the one or more offences specified in the schedule annexed to the Act, whether the property is in India or abroad, will be considered as proceeds of crime. Such property may be movable or immovable, corporeal or incorporeal, tangible or intangible and includes deeds and instruments evidencing title to, or interest in such property or assets. The important part is that this property or the value of this property has been obtained by the commission of a scheduled offence. Any property which may have been derived or obtained as a result of any criminal activity relatable to the scheduled offences is also considered as proceeds of crime under this Act. It is therefore important to pay due attention to the schedule of the Act. The Schedule of the PMLA has divided the offences into three parts – PART A, PART B, and PART C.

  1. PART A references to and lists down certain offences under various acts such as the Indian Penal Code, 1860, the NDPS Act,1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act,1988, et cetera.
  2. PART B contains the offence under SEC 132 of the Customs Act,1962.
  3. PART C deals with trans-border crime and when money laundering occurs across various nations. 

Commission of offence laid down under PART A or PART C would be a scheduled offence, irrespective of the value involved in the said offence. However, for the offence specified in PART B of the Schedule, the total value involved must be one crore or more for the offence to be a scheduled offence.

After having looked into what exactly is money laundering under the PMLA, it is important to look into what would happen if a person is accused of the offence of money laundering. According to SEC 45 of PMLA, the offence of money laundering is a cognizable and non-bailable offence. SEC 43 of the PMLA states that the Central Government shall designate one or more Sessions Court as Special Court to try the offence of Money Laundering. Currently, The Enforcement Directorate in the Department of Revenue, Ministry of Finance, and the Government of India are responsible for investigating the offences of money laundering under the PMLA.  Under SEC 5, the Director as appointed under the said Act can attach property involved in money-laundering for a period of not more than 180 days if the Director has reasons to believe that a person is in possession of proceeds of crime and that such proceeds are likely to be concealed or dealt with in such manner that may frustrate proceedings related to the confiscation of such proceeds. The burden of proof is on the person who is accused of money laundering, i.e unless the contrary is proved it is presumed that proceeds of crime are involved in money laundering. If a person is found guilty of the offence of money laundering then such person shall be punished with rigorous imprisonment of at least three years which may extend to seven years and shall also be liable for a fine.

Therefore, the Prevention of Money Laundering Act,2002 and the Rules notified under it deal exhaustively with the issue of money laundering. It is a widespread issue and continues to persist despite the legislators’ efforts to curb it. Having such laws in place does act as a deterrent and hopefully, with even more stringent laws in the future, India and other nations would be able to curb money laundering activities.

By Mihika Awate