Critical analysis of Prevention of Money Laundering Act

Money laundering can be regarded as a multiplier of criminal activities as it gives economic power to criminals. Laundering makes crime worthwhile by permitting offenders makes use of the proceeds of crime, which in turn would result in encouraged criminal behavior. Fighting money laundering without fighting organized crime is a waste of time and efforts. Initially countries applied their AML laws only to those crimes which they believed would generate more profits on the belief that seizing such profits would materially reduce incidence of crime. Money laundering as a separate offence begins where the intention to conceal the illicit money ends.
The primary object behind the money laundering process is to create a veil of legal cleanliness around the object. This veil allows the object’s disassociation with unlawful activity from being traced and identified, but also enables the subject to be used in the legal economy with anonymity and without fear of criminal, civil or legal sanction.
Money laundering is a process where the proceeds of crime are transformed into apparently legitimate money or other assets. It is the processing of criminal proceeds to disguise its illegal origin. In simple words, it can be defined as the act of making money that comes from one source to look like it comes from another source. INTERPOL’s definition of money laundering is: “any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources”. The act of money laundering is done with the intention to conceal money or other assets from the State so as to prevent its loss through taxation, judgment enforcement or blatant confiscation. The criminals herein try to disguise the origin of money obtained through illegal activities to look like it was obtained from legal sources because otherwise they will not be able to use it as it would connect them to the criminal activity and the law enforcement officials would seize it.
Article 1 of EC Directive defines Money Laundering as “The conversion of property, knowing that such property is derived from serious crime, for the purpose of concealing or disgusting the illicit origin of the property or of assisting any person who is involved in committing such an offence(s) to evade the legal consequences of his action, and the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from serious crime.”
The most common types of criminals who need to launder money are drug traffickers, embezzlers, corrupt politicians and public officials, mobsters, terrorists and conartists. Drug traffickers are in serious need of good laundering systems because they deal almost exclusively in cash, which causes all sorts of logistics problems. Criminal activities such as terrorism, illegal arms sales, financial crimes, smuggling, or illicit drug trafficking generate huge sums of money and criminal organizations need to find a way to use these funds without awakening suspicions about their illicit origin.
The purpose of these criminal organizations’ is to generate profits for the group or for one of its individual members. When a criminal activity generates substantial profits, the individual or group involved in such activities route the funds to safe heavens by disguising the sources, changing the form or moving the funds to a place where they are less likely to attract attention. The logic of controlling the drug money trial is that profit motivates drug sales, and because most sales are in cash, the recipient of cash has to find some way of converting these funds into utilizable financial resources that appear to have legitimate origins.
The objective of criminalizing money laundering is to take profit out of the crime. The rationale for the creation of the offence is that it is wrong for individuals and organizations to assist criminals to benefit from the proceeds of their criminal activity or to facilitate the commission of such crimes by providing financial services to them.
In India, before the enactment of the Prevention of Money Laundering Act 2002, a number of statutes addressed scantily the issue in question. These statutes were The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974,The Income Tax Act, 1961,TheBenami 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.
The Prevention of Money Laundering Act 2002 is sought to be further amended by The Prevention of Money Laundering (Amendment) Bill, 2011 hereinafter referred to as the ‘Bill’, which has been introduced by the Minister of Finance, Mr. Pranab Mukherjee in the LokSabha on December 27, 2011.
The Bill proposes to introduce the concept of ‘corresponding law’ to link the provisions of Indian law with the laws of foreign countries. It also adds the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary or a person carrying on a designated business or profession. The Bill expands the definition of offence under money laundering to include activities like concealment, acquisition, possession and use of proceeds of crime.
The Prevention of Money Laundering Act, 2002 levies a fine up to Rupees five lakhs. The Bill proposes to remove this upper limit of fine.
The Bill seeks to provide for provisional attachment and confiscation of property of any person for a period not exceeding 180 days if the authority has reason to believe that the offense of money laundering has taken place. The Bill proposes to confer powers upon the Director to call for records of transactions or any additional information that may be required for the purposes of investigation. The Director may also make inquiries for non-compliance of the obligations of the reporting entities. The Bill seeks to make the reporting entity, its designated directors on the Board and employees responsible for omissions or commissions in relation to the reporting obligations. The Bill states that in the proceedings relating to money laundering, the funds shall be presumed to be involved in the offence, unless proven otherwise. The Bill proposes to provide for appeal against the orders of the Appellate Tribunal directly to the Supreme Court within 60 days from the communication of the decision or order of the Appellate Tribunal. The Bill seeks to provide for the process of transfer of cases of the Scheduled offences pending in a court which had taken cognizance of the offence to the Special Court for trial. In addition, on receiving such cases, the Special Court shall proceed to deal with it from the stage at which it was committed. The Bill also proposes to bring all the offences mentioned under Part A of its Schedule to ensure that the monetary thresholds do not apply to the offence of money laundering.
Money Laundering is a global menace that cannot be contained by any nation alone. The Prevention of Money Laundering (Amendment) Bill 2011 was necessitated in view of India being an important member of FATF and to bring prevention legislation on par with global norms.