Prevention of Money Laundering Act 2002 | PMLA - Swarit Advisors
Channel: Bada CFO
Date: 2021-09-17

Money laundering is a tainted tactic of disguising or concealing illicit income to make it look like legitimate. This tactic has been employed worldwide to hide criminal activities associated with it like terrorism etc. To curb the instances of black money and to prevent such acts of money laundering, the government introduced the Prevention of Money Laundering Act (#PMLA)2002. 

Introduction to Money Laundering

Money laundering originated in the United States with the mafia groups who made massive amounts from extortion, gambling and showed the money gained from it as legitimate money.

In India, you would have come across the term #Hawala transactions which is money laundering. Money laundering is a shrewd tactic employed by launderers who spent the money in a manner which is untraceable for agencies to know the actual source of the wealth. 

Money laundering can be executed with different methods, but the most common of all is by establishing fake companies called as shell companies. This company acts like a real one, but the existence of business is not real, and no investment is made by these firms. They can be found on paper but not in the reality.

Different stages of #MoneyLaundering
There are three different stages of money laundering:

• The first stage is Placement– Here, the criminals place the proceeds of crime into the regular financial system;
• The second stage is called Layering– Here, the money introduced in the financial system is layered or is spread into different transactions within the financial system. It helps in removing any link with the origin of wealth.
• The third stage is called Integration– Here, the proceeds of crime are with the criminals as untainted money. 

The Act of Prevention of Money Laundering 2002

The money laundering law was implemented in 2002, but it was changed thrice. The President gave assent to the last amendment of 2012, and the legislation came into effect on 2013.

The #PreventionofMoneyLaunderingAct was aimed to fight the evil of money laundering in India with its main objective to:
• Prevent and regulate money laundering;
• Confiscate the property obtained from money laundering;
• Tackle other issues and problems associated with money laundering in India.

The Reserve Bank, Securities Exchange Board of India and the Insurance Regulatory and Development Authority, were brought under the ambit of #PML Act 2002. Thus financial institutions like banks, mutual funds, insurance firms were made subject to the provisions of this Act as the money laundering is a complex and manipulative subject.

Prevention of money laundering before 2002

Before the PMLA 2002 was enacted, there were numerous statutes that addressed the issue. Some of these were as follows:
• The Conservation of Foreign Exchange & Prevention of Smuggling Activities Act 1974;
• The Benami Transactions (Prohibition) Act, 1988;
• Indian Penal Code & Code of Criminal Procedure;
• Prevention of Illicit Traffic in Narcotic Drugs & Psychotropic Substances Act 1988.

Amendment to Prevention of Money Laundering Act 2002 under Finance Act 2019

The PMLA 2002 has been amended under the Finance Act 2019. One of the changes made to the concept of PMLA’s proceeds of crime. It covers not just assets derived or acquired from scheduled offenses but also property derived or obtained directly or indirectly due to any illegal activity related to a scheduled offense.

Scope of proceeds of crime
The phrase proceeds of crime is mentioned in Section 2(1) (u). The provision of PMLA on the meaning of proceeds of crime is quite wide and broad. The Enforcement Directorate believes that this scope of proceeds of crime leaves a lot of uncertainty to investigate and prosecute money laundering cases. Hence the #FinanceAct 2019 inserted an explanation to the section mentioned above.

Explanation under Finance Act 2019
To avoid doubt, proceeds of crime includes #property not only produced or obtained from scheduled offence but also a property derived or received directly or indirectly due to any unlawful activity related to the scheduled offence.
Hence the scope of Section 2(1) (u) is broadened, thus allowing proceeds resulting from an illegal activity relating to scheduled offence to be included. 

PMLA vs IBC
The Act fails to address the issue of attachment of property between Prevention of Money Laundering Act and #IBC. The attachment of property under PMLA often comes in conflict with the #CIRP under IBC and frustrates the objective of CIRP.

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