PREVENTION OF MONEY LAUNDERING ACT (PMLA)

Specific Concerns

• The PMLA's retrospective application, allowing for the prosecution of offences committed before the law's enactment, has been challenged as violative of the fundamental right against ex post facto laws.
• The PMLA places the burden of proof on the accused to establish innocence, a departure from the general principle of criminal law that presumes innocence until proven guilty.
• Critics argue that the PMLA's provisions are overly broad and draconian, giving the ED excessive powers to arrest, detain, and seize assets without adequate judicial oversight.
•  The PMLA's lack of adequate safeguards against arbitrary actions and misuse of power has raised concerns about the potential for abuse of authority by the ED.
•  The PMLA's provisions have been criticized for potentially infringing upon fundamental rights such as the right to personal liberty, the right to property, and the right against self-incrimination.

3. Money laundering

• Money laundering is the illegal process of making large amounts of money.
• This money is generated by criminal activity but may appear to come from a legitimate source.
• Criminal activities include drug trafficking, terrorist funding, illegal arms sales, smuggling, prostitution rings, insider trading, bribery and computer fraud schemes that produce large profits.

3.1. Different stages in money laundering

1. Placement: The crime money is injected into the formal financial system.
2. Layering: Money injected into the system is layered and spread over various transactions and book-keeping tricks to hide the source of origin.
3. Integration: Laundered money is withdrawn from the legitimate account to be used for criminal purposes. Now, Money enters the financial system in such a way that the original association with the crime is disassociated.  The money now can be used by the offender as legitimate money.

Money laundering can have a significant impact on economic development by:

• When money laundering occurs, it can undermine public confidence in banks and other financial institutions. This can lead to increased risk aversion and a decline in investment, which can hamper economic growth.
• Money laundering can distort economic activity by directing funds away from legitimate businesses and into criminal enterprises. This can lead to inefficient allocation of resources and slower economic growth.
• Money laundering can facilitate corruption by providing a means to conceal the proceeds of corrupt activities. This can weaken governance and undermine the rule of law, further hindering economic development.
• Money laundering can also lead to a loss of tax revenue, as criminals seek to evade taxes on their illicit gains. This can deprive governments of much-needed funds for essential services, such as education and healthcare.
• Money laundering is often used to finance organized crime groups, which can lead to an increase in violence and instability.
• Money laundering can also be used to finance terrorist activities, posing a serious threat to international security.
• Money laundering can also have a direct impact on individuals and businesses, who may lose money or be victims of fraud as a result of this crime.

The Prevention of Money-Laundering Act, 2002 (PMLA) is a comprehensive legislation enacted by the Indian Parliament to combat money laundering and other financial crimes. It aims to prevent the use of proceeds of crime, particularly those derived from drug trafficking, organized crime and corruption, from being laundered and utilized to finance further criminal activities or to gain legitimacy.

4.1. Key Features of the PMLA

• The PMLA prohibits the process of money laundering, defined as the act of concealing or disguising the proceeds of crime.
• The PMLA empowers the Enforcement Directorate (ED), the designated agency for investigating money laundering cases, to attach and seize property derived from or involved in money laundering.
• The PMLA provides for the confiscation of property that is involved in money laundering, even if it is not in the possession of the accused person.
• The PMLA grants the ED extensive powers to conduct searches, make arrests, and detain individuals suspected of money laundering.
• The PMLA facilitates international cooperation in combating money laundering through mutual legal assistance treaties and other mechanisms.

4.2. Significance of the PMLA

The PMLA has played a crucial role in strengthening India's anti-money laundering framework and enhancing its global standing in combating financial crimes. It has enabled the investigation and prosecution of numerous money laundering cases, leading to the recovery of substantial illicit funds.

4.3. Challenges in Implementing the PMLA

Despite its significance, the implementation of the PMLA has faced certain challenges, including:

• The PMLA and other laws, such as the Narcotics Drugs and Psychotropic Substances Act, have overlapping jurisdictions, which can lead to confusion and delays in investigations.
• There have been concerns about the lack of adequate safeguards against arbitrary actions and misuse of power under the PMLA.
• The ED faces resource constraints in terms of manpower and infrastructure, which can hamper its ability to effectively investigate and prosecute money laundering cases.

• The Directorate of Enforcement (ED) is an agency in India that primarily deals with the enforcement of economic laws and regulations to combat money laundering, foreign exchange violations, and financial fraud.
• The ED is part of the Department of Revenue under the Ministry of Finance, Government of India.
• The Directorate of Enforcement was established on 1st May 1956, as the "Enforcement Unit" within the Department of Economic Affairs.
• Its primary focus was on preventing and detecting violations of the Foreign Exchange Regulation Act (FERA) of 1947.
• Over the years, the agency's role expanded, and in 1999, the Enforcement Directorate was established as a separate entity under the Ministry of Finance.
• The enactment of the Prevention of Money Laundering Act (PMLA) in 2002 further broadened its jurisdiction, giving it the power to investigate cases related to money laundering.
• Since its establishment, the ED has played a crucial role in combating economic offences and ensuring compliance with economic laws in India.
• It has been involved in several high-profile cases, including those related to financial scams, money laundering by influential individuals, and cross-border financial crimes.
• The ED collaborates with various domestic and international agencies, including financial intelligence units, law enforcement agencies, and Interpol, to gather information, share intelligence, and effectively coordinate efforts to combat economic offences.

5.1. Functions and Roles of ED

• Enforcing Economic Laws: The primary function of the ED is to enforce two key economic laws in India: the Prevention of Money Laundering Act (PMLA) and the Foreign Exchange Management Act (FEMA). It ensures compliance with these laws and investigates money laundering, foreign exchange violations, and economic fraud cases.
• Money Laundering Investigations: The ED investigates cases involving money laundering, which is the process of concealing the origins of illegally obtained money to make it appear legitimate. It identifies and seizes properties and assets derived from illicit activities and prevents their further use.
• Foreign Exchange Violations: The ED is responsible for investigating cases related to violations of foreign exchange laws and regulations. It monitors and controls foreign exchange transactions to maintain the stability of the Indian rupee and prevent illegal activities such as smuggling and illegal money transfers.
• Financial Frauds: The ED also investigates and takes action against financial frauds, including bank frauds, Ponzi schemes, and other fraudulent activities affecting the Indian financial system. It works closely with other law enforcement agencies, such as the Central Bureau of Investigation (CBI), to tackle complex financial crimes.