Prevention of Money Laundering Act 2002 (PMLA), Objectives, Amendments

Context: India’s money laundering law aimed at drug money has grown broader, raising concerns about fairness and its true targets.

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Prevention of Money Laundering Act, 2002

The Prevention of Money Laundering Act, of 2002 is a crucial piece of legislation that plays a pivotal role in addressing the issue of illicit financial activities. Aimed at curbing money laundering and the illegal use of funds, this act holds significant importance in maintaining the integrity of financial systems. With stringent regulations and measures in place, the act seeks to detect and prevent the flow of illicit funds, safeguarding the economy and ensuring transparency in financial transactions.

Background of PMLA 2002

The background of the Prevention of Money Laundering Act (PMLA) is rooted in India’s global commitments and efforts to combat money laundering. The enactment of the PMLA was a response to various international agreements and initiatives, including:

• United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988: India’s commitment to addressing illicit drug trafficking and related money laundering activities.
• Basle Statement of Principles, 1989: International guidelines that promote effective measures to combat money laundering and enhance financial system integrity.
• Forty Recommendations of the Financial Action Task Force on Money Laundering, 1990: Internationally recognized standards and measures to combat money laundering and terrorist financing.
• Political Declaration and Global Program of Action adopted by the United Nations General Assembly in 1990: Global efforts to combat money laundering and strengthen international cooperation in this regard.

These international commitments and guidelines influenced India’s decision to enact the PMLA, reflecting the country’s dedication to addressing the menace of money laundering. The PMLA serves as a legal framework to prevent, detect, and prosecute money laundering offences in line with global best practices and international obligations.

What is PMLA?

The Prevention of Money Laundering Act (PMLA) was approved by the government to combat money laundering practices and establish provisions for asset confiscation. The act, initiated on July 1st, aims to prevent and regulate money laundering activities in India. Money laundering is a serious crime, and individuals or groups found guilty can face legal action under the PMLA Act 2002. The act applies to all individuals, businesses, partnerships, organizations, corporations, and their associated offices, agencies, or branches.

The PMLA grants the government the authority to seize assets and properties obtained through money laundering or other illegal means. It provides the necessary rights and provisions to confiscate such assets, ensuring that they cannot be used for illegal activities. According to the PMLA, it is the responsibility of the accused to demonstrate that any property or assets in question were not acquired through criminal activity. This places the burden of proof on the accused to establish the legitimacy of the acquired assets.

The PMLA plays a crucial role in the fight against money laundering, providing a legal framework to combat illicit financial practices and ensure the integrity of financial systems. It aims to create a deterrent effect and promote transparency in financial transactions to safeguard the economy.

Objectives of PMLA

The objectives of the Prevention of Money Laundering Act (PMLA) can be narrowed down to the following points: 

• Preventing money laundering.
• Combating the use of funds for illegal activities and economic crimes.
• Enabling the confiscation of property derived from or involved in money laundering.
• Addressing any other matters associated with or related to the act of money laundering.

Offences under PMLA

The Prevention of Money Laundering Act (PMLA) incorporates various provisions categorized under Part A, Part B, and Part C of the Schedule, which addresses offences related to money laundering.

These provisions listed in the Act ensure that offences related to money laundering, as outlined in Part A, Part B, and Part C of the Schedule, are subject to the provisions and penalties outlined in relevant sections of the Prevention of Money Laundering Act, including Section 3 (Offense of money laundering) and Section 8 (Attachment and confiscation of property involved in money laundering).

Penalties under PMLA

Penalties under the Prevention of Money Laundering Act (PMLA) are outlined in various sections of the Act. Here are the relevant sections mentioned:

Freezing, Seizing, and Attachment of Property

• Section 17: This section empowers the authorities to freeze or seize property and records related to money laundering.
• Section 8(5): This section deals with the attachment of property obtained through crime proceeds.

Punishment for Money Laundering

• Section 4: Money laundering offences are defined under this section.
• Section 4(2): This section stipulates the punishment for money laundering, which includes rigorous imprisonment for a minimum of 3 years and a maximum of 7 years.
• Section 4(3): It mentions that a fine may also be imposed as part of the punishment for money laundering.

Enhanced Punishment for Narcotic Drugs and Psychotropic Substances Act

• Section 21: If money laundering is connected to offences under the Narcotic Drugs and Psychotropic Substances Act, of 1985, this section provides for enhanced punishment.
• Section 21A: This section specifies that the punishment for money laundering related to narcotics offences can be extended up to 10 years of rigorous imprisonment, along with a fine.

Authorities Responsible for Investigation

• Section 36: The Enforcement Directorate (ED) is designated as the authority responsible for investigating offences under the PMLA.
• Section 46: The Financial Intelligence Unit – India (FIU-IND) is established as the national agency responsible for receiving, processing, analyzing, and disseminating information related to suspicious financial transactions.

Recent Legislation and Amendments to PMLA

Focus on Drug Money: Initially, the PMLA focused primarily on laundering money from drug trafficking, based on FATF recommendations and UN declarations.

Enactment Under Legal Framework

• Article 253 Authorization: The Indian Parliament enacted the PMLA in 2002 based on Article 253, which allows for implementing international conventions into domestic law.
  • Additionally, Item 13 in the Union list of the Seventh Schedule specifically empowers legislation on money laundering, focusing on drug money due to the context of UN resolutions.

Expansion Through Amendments

• Broadening of Scope: Amendments have expanded the PMLA to include offences beyond drug money, incorporating crimes listed in the Indian Penal Code (IPC) and special laws.
• Operational Shift: The linkage of money laundering to scheduled offences broadens the Act’s application, deviating from its original focus on drug trafficking.

Concerns Related to PMLA

• Original Intent: Initially aimed at drug-related money laundering, the Act now encompasses a wide range of offences, diluting its original purpose.
• Application to Lesser Offences: Offences not inherently tied to significant economic disruption, such as those under the Prevention of Corruption Act, 1988, are also tried under the PMLA.
• Presumption of Guilt: Contrary to the principle of “innocent until proven guilty,” the PMLA presumes accused individuals guilty, impacting bail decisions.

Bail Provision Concerns

• Nikesh Tarachand Shah vs Union of India (2018): The Supreme Court declared Section 45 of the PMLA unconstitutional for violating Articles 14 and 21, due to its restrictive bail provisions.
• Legislative Amendments Post-Judgment: Reacting to the 2018 judgement, Parliament amended the PMLA, reinstating Section 45 with changes aimed at aligning with constitutional norms.
• Vijay Madanlal Choudhary vs Union of India (2022): This Supreme Court judgement upheld the amended Section 45, justifying its strict bail conditions as aligned with the PMLA’s aims, marking a significant moment in the Act’s judicial review.

Key Amendments

• 2009 Amendment:
  • Added “criminal conspiracy” (IPC Section 120B) to PMLA schedule.
  • Allows ED to enter cases alleging conspiracy, even if the main offence isn’t covered by PMLA.
    • Example: ED taking over land-grabbing FIRs in Jharkhand against former CM Hemant Soren (currently jailed).
  • Gave ED international jurisdiction for tracking laundered money.
• 2012 Amendment:
  • Moved Prevention of Corruption Act (PCA) from PMLA schedule Part B to Part A.
  • This applied stricter bail conditions for corruption accusations (Section 45(1)).
    • Requires the court to be satisfied that the accused is unlikely to commit crimes if granted bail.
    • Previously only applied to offences like waging war or drug trafficking.
    • Now applies to PCA, wildlife protection, human organ transplants, and more.
  • Example: NCP leader Chhagan Bhujbal (arrested 2016) denied bail for over two years under this amendment.
• Other Impacts of Amendments:
  • Expanded money laundering definition to include concealment, acquisition, possession, and use of proceeds of crime.
  • Presumption of money laundering for detected proceeds of crime (unless proven otherwise).
  • Potential for individuals to be implicated for unknowingly receiving or using tainted money.

Judicial Perspective on Bail

• Supreme Court Rulings: The Supreme Court’s approach to bail under the PMLA has evolved, with recent rulings upholding stringent bail provisions as reasonable and aligned with the Act’s objectives.
• Impact on Personal Liberty: The Act’s approach to bail, and its presumption of guilt, raises concerns about the impact on personal liberty and the principle of judicial discretion in granting bail.

Supreme Court’s Stance

• Supreme Court Validation: On July 27, 2022, the Supreme Court, led by Justice A M Khanwilkar, affirmed the constitutional validity of the PMLA amidst challenges from over 200 petitions.
  • It affirmed the Enforcement Directorate’s operations outside the CrPC’s purview.
• Stringent Bail Standards: Section 45 of the PMLA sets tough criteria for bail, where the accused must demonstrate no prima facie case against them and that they will not commit any offence in the future.
• 2017 Supreme Court Judgement: The court initially deemed Section 45 unconstitutional in Nikesh Tarachand Shah v Union of India.
• Parliamentary Amendment and Reinstatement: Following the 2017 judgement, Parliament reinstated Section 45 via the Finance Act, 2018, which was later upheld by the Supreme Court in 2021.
• Ongoing Review: Parts of the 2021 ruling are currently under review, but there is no stay on the judgement, making it the prevailing law.

Prevention of Money Laundering Act UPSC

Understanding the Prevention of Money Laundering Act (PMLA) is crucial for UPSC aspirants as it is an important topic in the UPSC Syllabus, particularly under the Governance and Security-related subjects. Familiarity with the provisions, objectives, penalties, and recent amendments of the PMLA can help candidates grasp the legal framework for combating money laundering, which is a significant concern for national security and economic stability. Comprehensive knowledge of the PMLA is essential for success in the UPSC examination, and candidates can enhance their understanding through UPSC Online Coaching and UPSC Mock Test, which provide valuable insights and practice opportunities on this topic.

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