New Delhi News, 12 June 2021 : Money laundering is proving to be a major threat to the economy and security of a country. Through this terrorist organizations are making their plans successful. This has been revealed through a research paper prepared by Satyam Singh, a student (BA LLB) of Amity Law College, Noida. According to the research paper, India has adequate legal system to deal with money laundering, but it still needs more amendments. This research paper focuses on highlighting the cases of money laundering in India.
The research paper states that despite many pre-existing laws, money laundering is prevalent in abundance all over the world and a major reason for this is that it is often combined with other types of crimes like human trafficking, drug smuggling, robbery etc. grouped or combined. The main purpose of all these illegal actions is to raise huge amounts of money through wrong means and use money laundering as a means of legalization. An estimated number of 884 companies in India were put on high alert for their involvement in money laundering, with assets worth Rs 50 billion. They are being investigated under the Prevention of Money Laundering Act (PMLA 2002).
According to the research paper, when money laundering is done on a large scale, it can be devastating enough to destroy the already weakening economy of a country. An increase in the presence of unaccounted cash can lead to inflation, a decrease in the value of a currency both nationally and internationally, it can lead to an influx of interest and exchange rates.
Alternatively, withdrawing large sums of money in the eyes of the government may prove disastrous for the country’s economy. These large sums act as an impetus for criminal activity that not only destabilizes the local economy, but also causes mis-allocation of resources, undermining the confidence of foreign investors, making it difficult for them to enter the country. The investment potential is reduced.
See the highlights of the research paper here:-
2. Statement of Problem
The problem surrounding Money Laundering is not simple. It is a global problem which needs to be tackled collectively by all the countries. Money Laundering takes place with a lot of planning which involves people from different expertise, such as bankers, accountants, attorneys etc. laundering is a stepping stone used by criminals, mafias, terrorists to fund their twisted agendas and terrorism that causes harm to the masses. This only goes on to highlight the gravity of the situation that comes along.
Further, Money Laundering when done at a large scale can be disastrous enough to destroy an already debilitating economy of a country. Increase in unaccounted cash’s presence could give rise to inflation, decreasing the value of the currency both at a national and international level, it can cause an influx in interest and exchange rates. Alternatively, pulling out huge sums of money under the government’s eyes could turn out to be devastating for the economy of the country. These large sums of money act as an impetus to criminal activity that goes on to not only destabilase the local economy, it causes misallocation of resources, weakens the belief of foreign investors, which makes it unlikely for them to invest in the country.
Money Laundering causes a ‘domino effect’.
3. Jurisprudence and Money Laundering
There have been laws formulated in order to tackle the issue of Money Laundering. These laws mainly focus on the prevention and total eradication of Money Laundering.
3.1 Prevention of Money Laundering Act, 2002
As we have progressed with time, money launderers have come up with more and more sophisticated forms of cleaning their hands. To tackle this, India had come up with Prevention of Money Laundering Bill in 1988, passed in 2002 to form the Prevention of Money Laundering Act. PMLA had come in full effect from July 1st 2005. After several amendments made to it in 2005, 2009, 2012 and 2019, the purpose of this act was to tackle Money Laundering and to seize assets that were involved in or was of concern to the act itself.
3.1.1 Salient Features of PMLA
1. Definition and Punishment- This act defines Money Laundering as an offence that is committed when a person is involved in normal crimes or scheduled crimes mentioned in the act. The prescribed punishment includes 3-7 years of rigorous imprisonment along with a hefty fine. There is a special punishment, if the offence is committed under Part A of the act, where the imprisonment may be extended to 10 years.
2. Confiscation, Adjudication and Attachment Procedure- Chapter III of the Act deals with the confiscation of the property. Section 8 of the said Act deals with the adjudication part. The procedure is as follows; A Deputy Director or an official above the rank of that, can order for the attachment procedure. He then needs to send a report to the Adjudication Authority , which contains information relating to the attachment. Next, the Adjudication Authority sends a show case notice to the concerned party within 30 days of receiving the report. Once the response has been heard from the party, the Authority needs to submit an order of attachment, followed by an order of confiscation which is thereafter decided at the discretion of the Special Court.
3. Duties of Banks, Financial Institutions and Intermediary parties- A record of information relating to Money Laundering is recorded safely by The Reporting Entity, and is then forwarded to The Director. This piece of record is preserved for a span of 5 years. The functioning of the reporting entity will be supervised by the Director who can impose any monetary penalty or issue warning or order audit of accounts, if the entity violates its obligations. The Central Government, after consulting the Reserve Bank of India is authorised to specify rules relating to managing information by the reporting entity.
4. Summons, Searches and Seizures- The Adjudicating Authority is given the responsibilities of surveying and analysing the records. The Authority may ask any of its officials to carry on the search, collect all relevant information, place identification marks and thereafter send a report to it. The authority authorized in this behalf cannot detain a person beyond 24 hours, must ensure the presence of 2 witnesses, prepare a list of things seized signed by the witnesses and forward the same to the Adjudicating Authority. A time limit of 180 days is given for a property to be confiscated, this time period may be extended at the discretion of the Adjudicating Authority after it is content with the case, further on, the Authority or the Court may order for the release of all withheld properties.
3.2 RBI Directions for KYC Implementation
The KYC guidelines have been revisited in the context of the Recommendations made by the Financial Action Task Force (FATF) on Anti-Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT).
The Reserve Bank of India had ordered refinements in Know Your Customer norms and all the Banks now have to maintain some sort of customer identification procedure whenever there needs to be an opening of an account. This is done to prevent fraudulent accounts. In addition to this, Banks are also ordered to look out for a suspicious transaction and in case spotted, it needs to be reported to the concerning authority immediately. Banks need to ensure there is a systematic framework present on KYC with the approval of the Board is formulated and put it place. This has been done to prevent the misuse of banks for criminal activities relating to the act of Money Laundering. Lastly, by implementing a successful KYC framework, it enables the banks to become familiar with the customers, their activities and the kind/ intensity of the transactions that take place, this helps significantly avoid any sudden uncertain transactions, which will immediately raise flags.
3.3 SEBI Guidelines Against Money Laundering
Securities and Exchange Board of India has played an important initiative, it orders all the SEBI- registered intermediaries to introduce terms and policies that will help them to highlight any illicit activities like funding of terrorism, criminal organizations. Such information should be communicated to the body concerned with managing customer account information and securities transactions.