Prevention of money laundering act, 2019

Prevention of money laundering act, 2019


Author: Aradhaya Singh
               BA LLB, 1st year
               Indraprastha Law College, Greater Noida

Introduction:


The finance act, 2019 (the 2019 act) is the central government endeavour to tighten the gaps around the existing provisions of the Prevention of money laundering act, 2002 (PMLA). Amidst the growing number of financial crimes and high profile cases, the 2019 Act attempts to make the existing provisions stricter and better armoured to detect suspicious transactions.

Additionally the Act, along with the other amendments, has a greater aim of targeting money laundering and terrorist financing. The 2019 Act attempts to remove the ambiguity in the existing provisions by amending 8 clauses of the PMLA.

What is Money Laundering?:

  • Money laundering is the process of making large amounts of money generated by criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
  • Criminal activities like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud scheme produce large profits.
  • Thereby it creates the incentive for money launderer to “legitimize” the ill gotten gains through money laundering.
  • The money so generated is called ‘dirty money’ and money laundering is the process of conversion of ‘ dirty money’ to make it appear as ‘legitimate’ money.

Crime and Punishment:


In cases of money laundering a major ambiguity exists in the PMLA’s clause concerning what constitutes ‘ proceeds of crime ‘. This ambiguity the Directorate of Enforcement (ED) has contended adversely affects it’s ability to investigate the money trail, the adjudication of attachments before the PMLA Adjudicating Authority and Tribunals, as well as the trial of the offence of money laundering under PMLA.

In considering the ED’s views of the PMLA, the government, through these amendments, has made the anti – money laundering laws stricter by expanding the ambit of the “ proceeds of crime”. The scope now includes properties and assets created, derived, or obtained through any criminal activity related to the scheduled offence, even if it is not under the PMLA.

This is aside from the existing definition which covers any direct or indirect attempts to indulge or knowingly assist or knowingly participate or actual involvement in any process or activity, connected with the proceeds of crime, including it’s concealment, possession, acquisition or use and projecting or claiming it as untainted property. A property will be considered as tainted if it relates to any offence on the basis of which a PMLA case has been initiated.

Furthermore, 2019 Act offers clarification to Section 3 of the PMLA to the extent that a person shall be held guilty of the offence of money laundering if he is found to have directly
or indirectly attempted to indulge or knowingly assisted or knowingly was a party or was actually involved in any one or more processes or activities included in Section 3. The 2019 Act clarifies that it would be incorrect to interpret money laundering as a one – time, instantaneous offence that ceases with the concealment or possession or acquisition or use or use or projection of the proceeds of crime as untainted property or claiming it as untainted. A person shall now be considered guilty of the offence of money laundering for long as the said person is enjoying the ‘ proceeds of crime ‘ thus, making the offence of money laundering a continuous offence.

The legislative intent here appears to be to prosecute and attach all proceeds of crime, however remotely related. A key proposed change in the definition of “ proceeds of crime” would allow the ED to proceed against assets of equivalent value located even outside the country.

The 2019 Act deletes the proviso contained in sections 17 (1) and 18 (1) and empowers the ED to undertake search actions even in the absence of report under sections 157 of CrPC, 1973. The 2019 Act broadens the existing powers of the ED under the PMLA provisions – by bringing Sections 17 and 18 at par with section 19 – where there is no pre condition to forward s report under Section 157 of CrPC or to seek warrants from the court for making an arrest. An arrest can be made an offence under the PMLA even in the absence of a FIR.

In the Lok Sabha, the minister for finance mentioned that a proviso would be inserted to ensure that where a case exists in one court and the hearings are going on, and simultaneously there are proceedings happening in a different court, the two proceedings cannot be clubbed together and treated as one. They are treated as different.

Furthermore, a new proviso to Section 44 (1) has been inserted, which provides for closure of investigation in cases where no offence of money laundering is made out. It requires filing of complaint under Section 44 (1) (b), and the relevant authority to submit a closure report before the special court under the PMLA.

PMLA vs IBC:


The Act does not adequately address the issue of attachment of property between PMLA and The Insolvency and Bankruptcy Code (IBC). The process of attachment of property under the PMLA often collides with the Corporate Insolvency and Restructuring Process (CIRP) under the IBC and is likely to frustrate the very objective of CIRP.

On the other hand, in the case relating to Rotomac Global Pvt Ltd, the National Company Law Appellate Tribunal (NCLAT) has said that the PMLA , 2002 gets invoked simultaneously with the IBC and that neither of the laws has an over riding effect over the other.

The NCLAT, citing the provisions of the PMLA said it relates to “ proceeds of crime” and the offence relates to “ money laundering”, resulting in the confiscation of property derived from or involved in money laundering and for matters connected therewith or incidental thereto.

Conclusion:


Further clarity is needed with regards to the practical implementation and implication of the PMLA, especially in relation to the provision on attachment of property.

The 2019 Act widens the ambit of the Act and endeavours to push the regulating authorities to monitor, detect and prevent further financial crimes by flagging suspicious, illegal transactions and clients, instead of playing the part of a silent spectator.

References:

  • The Economic Times
  • Indian Economy
  • Pratiyogita darpan
  • Business Laws
  • The Hindu
  • The Times Of India
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