PMLA, money laundering, and the misuse of law
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Abuse of "Prevention of Money Laundering Act" - an update
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- The story: The apex court (Supreme Court) is looking into allegations of rampant abuse of Prevention of Money Laundering Act 2002 (PMLA) by the government and the Enforcement Directorate (ED).
- Allegations: There are allegations that the PMLA is pulled into the investigation of even “ordinary” crimes and assets of genuine victims have been attached. The PMLA was enacted in response to India’s global commitment (including the Vienna Convention) to combat the menace of money laundering but rights have been “cribbed, cabined and confined”.
- PMLA was a comprehensive penal statute to counter the threat of money laundering, specifically stemming from trade in narcotics but in several cases the offences have absolutely no relation to either narcotics or organised crime.
- Lack of transparency - even the Enforcement Case Information Report (ECIR) - an equivalent of the FIR - is considered an “internal document” and not given to the accused.
- Lack of clarity about ED’s selection of cases to investigate - the initiation of an investigation by the ED has consequences which have the potential of curtailing the liberty of an individual.
- What is the Prevention of Money Laundering Act: The "Prevention of Money Laundering Act, 2002" is an Act of the Parliament of India enacted by the NDA government to prevent money-laundering and to provide for confiscation of property derived from money-laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005. The Act and Rules notified there under impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information in prescribed form to Financial Intelligence Unit - India (FIU-IND). The act was amended in the year 2005, 2009 and 2012. The provisions of this act are applicable to all financial institutions, banks (Including RBI), mutual funds, insurance companies, and their financial intermediaries.
- PMLA (Amendment) Act, 2012: It added the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary etc. The PMLA, 2002 levied a fine up to Rs 5 lakh, but the amendment act has removed this upper limit. It has provided for provisional attachment and confiscation of property of any person involved in such activities.
- Money laundering: It is the process of conversion of 'black money', to make it appear as 'legitimate' money. What is ‘black or dirty money’? Money earned through criminal activities can be like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud schemes.
- It is a three-stage process: First stage is Placement, at this state crime money is injected into the formal financial system; Second stage is Layering, when money injected into the system is layered and spread over various transactions with a view to obfuscate the tainted origin of the money and Third stage is Integration, at this stage money enters the financial system in such a way that original association with the crime is sought to be wiped out and the money can then be used by the offender as clean money.
- Bulk Cash Smuggling, Cash Intensive Businesses, Trade-based laundering, Shell companies and trusts, Round-tripping, Bank Capture, Gambling, Real Estate, Black Salaries, Fictional Loans, Hawala, False invoicing are some of the common methods of Money Laundering.
- Enforcement Directorate: The Directorate of Enforcement (ED) is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India. It is part of the Department of Revenue, Ministry of Finance, Government Of India. It is composed of officers from the Indian Revenue Service, Indian Police Service and the Indian Administrative Service as well as promoted officers from its own cadre. The total strength of the department is less than 2000 officers out of which around 70% of officials came from deputation from other organizations while ED has its own cadre, too. The origin of this Directorate goes back to 1 May 1956, when an ‘Enforcement Unit’ was formed, in Department of Economic Affairs, for handling Exchange Control Laws violations under Foreign Exchange Regulation Act, 1947. In the year 1957, this Unit was renamed as ‘Enforcement Directorate’.
- Sanjay Kumar Mishra former Chief Commissioner of Income Tax, New Delhi was appointed as ED chief in the rank of Secretary to Government of India.
- The ED enforces Foreign Exchange Management Act,1999 (FEMA) and Prevention of Money Laundering Act, 2002 (PMLA)
- Summary: Efficient implementation of laws is a pre-requisite for a stable and peaceful society. Democracy is the torch-bearer for a vibrant people-centric governance. The democratic fabric of a nation compliments the jurisprudence in ensuring the lawful governance. The country needs to bring in a law to prevent misuse of law! If a case is dismissed, the complainant and others involved in the investigation and tendering of false witnesses must be punished. Only then the country's judiciary as well as the police and other agencies would be spared such wastage of time and at the same time the law protecting citizens would be implemented well.
- EXAM QUESTIONS: (1) Explain the significance and issues with the Prevention of Money Laundering Act 2002 .(PMLA) (2) Massive globalisation has made the problem of money laundering international. Discuss the issue and suggest policy level steps India should be taken to tackle the case. (3) Do you agree that India needs a law to prevent the 'misuse of law'? Explain.
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