Prevention of Money Laundering Act
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Money laundering is a global threat to economic sovereignty where money generated illegally is then legalised and brought into day to day transactions. It involves three stages: Placement, Layering, and Integration. To counter this comprehensively, India introduced the Prevention of Money Laundering Act (PMLA) in 2002. The Act defines money laundering offences, outlines obligations for financial entities, and empowers enforcement bodies. Amendments in 2012, 2019, and 2023 expanded the Act's scope. The government has taken steps, such as bringing the Goods & Services Tax Network under PMLA also to combat money laundering.
Money Laundering is the process by which illegal funds and assets are converted into legitimate funds and assets. Money laundering involves three steps. Firstly, Placement i.e. introducing cash from illegal means into the financial system. Then, Layering i.e. Carrying out complex financial transactions to camouflage the illegal source. Lastly, Integration i.e. Acquiring and returning the wealth generated to the launderer. The Enforcement Directorate (ED) is the primary agency responsible for enforcing the provisions of the PMLA.
The Prevention of Money Laundering Act (PMLA) is a law enacted by the Government of India in 2002 to prevent money laundering and to provide for the confiscation of property derived from money laundering. he Enforcement Directorate (ED) is the primary agency responsible for enforcing the provisions of the PMLA.
2012 Amendment : It expanded the definition of money laundering to include concealment, possession, acquisition, or use of proceeds of crime.
2019 Amendment : It was enacted to treat money laundering as a stand-alone crime on its own, rather than a connected schedule offence. It authorised search and seizure of property and persons without registration of any FIR or chargesheet but merely a formal warrant from appropriate authorities.
The Financial Intelligence Unit-India (FIU-IND) is responsible for receiving, analyzing, and disseminating information related to suspicious financial transactions. It is empowered to impose fine on banking company, financial institution or intermediary if they or any of its officers fails to comply with the provisions of the Act.
Money Laundering is the process by which illegal funds and assets are converted into legitimate funds and assets. Money laundering involves three steps. Firstly Placement i.e. introducing cash from illegal means into the financial system. Then Layering i.e. Carrying out complex financial transactions to camouflage the illegal source. Lastly, Integration i.e. Acquiring and returning the wealth generated to the launderer.
India is ranked 70th out of 141 countries in the Anti-Money Laundering (AML) Basel Index, 2020. Money laundering threatens economic sovereignty and can cause financial crises. It encourages tax evasion culture and leads to exchange and interest rates volatility. It also supplements criminal activities. Globally foreign investors are discouraged, reputation of the government and financial institutions is not only damaged but investment rating is even downgraded. To tackle this, the Prevention of Money Laundering Act was enacted in 2002.
Methods used for money laundering can be many. Dirty money is scrubbed clean through hidden channels like tax havens, secret salaries, and digital currencies. Hawala, a trust-based transfer system, bypasses banks, while round tripping uses tax havens to turn black money white. Trade gets twisted in Trade-Based Money Laundering, where criminals manipulate values to disguise illegal gains as legitimate profits.