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Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering Act, 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.
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Prevention of Money Laundering Act 2002 Background
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.
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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.
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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.
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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.
|Part A||Part A includes offences specified in acts such as the Indian Penal Code (Section 420), Prevention of Corruption Act (Section 13), Narcotic Drugs and Psychotropic Substances Act (Section 24), Antiquities and Art Treasures Act (Section 25), Trademark Act (Section 103), Wildlife Protection Act (Section 51), Copyright Act (Section 63), and Information Technology Act (Section 66).|
|Part B||Part B encompasses offences mentioned in Part A but with a value equal to or exceeding Rs 1 crore. These offences are subject to stricter scrutiny under the PMLA.|
|Part C||Part C focuses on trans-border crimes, including cross-border money laundering activities and offences with an international dimension.|
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).
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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.
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Recent Amendments to PMLA
Recent amendments to the Prevention of Money Laundering Act (PMLA) include changes aimed at enhancing disclosures for non-governmental organizations (NGOs) and expanding the definition of “politically exposed persons” (PEPs). Under the revised rules, reporting entities such as financial institutions, banking companies, or intermediaries are required to make additional disclosures for NGOs.
The amendment also defines PEPs as individuals who hold prominent public functions in foreign countries, including heads of states or governments, senior politicians, government or judicial officers, military officers, senior executives of state-owned corporations, and important political party officials. The focus of the amendment was on foreign PEPs rather than domestic ones.
To facilitate compliance with the money laundering law, the Finance Ministry has expanded the list of non-banking reporting entities. This allows 22 financial entities to use Aadhaar, the biometric identification system, to verify customer identities. The Ministry of Electronics and IT (MeitY) proposed widening the use of Aadhaar authentication beyond its ministries and departments to include a range of private entities for various services.
The amendments also impose greater responsibility on chartered accountants, emphasizing the need for utmost care, adherence to professional standards, and diligence in due diligence procedures. These changes have significant implications for chartered accountants and other professionals.
Overall, these recent amendments aim to strengthen anti-money laundering measures, improve transparency, and ensure compliance with international standards in combating money laundering and related financial crimes.
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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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