WHAT IS MONEY LAUNDERING

Money laundering is the process of making large amounts of money generated by criminal activity – such as drug trafficking, terrorist funding, corruption, etc – appear to have come from a legitimate source

UN ACTIONS

• In 1988, United Nations held the Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.
• Urged all countries to prevent laundering of drug crime proceeds and related activities.
• Seven major nations formed the Financial Action Task Force (FATF) in July 1989.
• FATF aimed to address money laundering issues and propose countermeasures.
• In 1990, UN General Assembly adopted the Political Declaration and Global Programme of Action.
• Called upon member countries to enact effective legislation against drug money laundering

ENACTMENT OF PREVENTION OF MONEY LAUNDERING ACT 2002

• India used FATF recommendations to create legislation against drug money laundering, aligning with UN’s directives.
• Recognizing drug trafficking as a global issue, UN emphasized combating money laundering in a special session in 1998.
• Indian Parliament enacted the Prevention of Money Laundering Act in 2002, but it came into effect in 2005.
• Initially focused on drug money laundering, the Act included offenses from IPC and Narcotic Drugs and Psychotropic Substances Act, expanding its scope over time
• PMLA was enacted by India’s Parliament under Article 253, implementing international conventions on money laundering.
• Article 253 confines such laws to the subject matter of the international decision, which in this case pertained to drug money laundering.
• The offenses listed in the schedule serve as the starting point for implementing the PMLA, linking money laundering to these scheduled offenses

HIGHLIGHTS OF PMLA

• Enforcement: The Enforcement Directorate (ED) investigates money laundering offenses, while the Financial Intelligence Unit–India (FIU-IND) processes and disseminates information on suspect financial transactions.
• Investigation of Scheduled Offenses: Various agencies such as local police, CBI, customs departments, and SEBI separately investigate scheduled offenses related to money laundering.
• Actions Against Offenders: The PMLA allows for the seizure/freezing of property and records, attachment of proceeds from crime, and imposes rigorous imprisonment for offenders, along with fines without any limit.
• Obligations on Financial Entities: The PMLA mandates banking companies, financial institutions, and intermediaries to verify client identities, maintain records, and report transactions to FIU-IND, thereby ensuring compliance and accountability in the financial sector.

CONTROVERSIES AROUND PMLA

INCLUSION OF UNRELATED OFFENSES

• Offenses like corruption under the Prevention of Corruption Act, 1988, have been added to the PMLA’s schedule of offenses.
• This inclusion subjects public servants to the same rigorous treatment as drug traffickers under the PMLA.

PRESUMPTION OF GUILT

• One concerning aspect is the presumption of guilt until innocence is proven under the PMLA.
• This reversal of the burden of proof is alarming, affecting the rights of the accused.

REVERSAL OF PRESUMPTION OF INNOCENCE

• PMLA contradicts the Anglo-Saxon legal principle of “innocent until proven guilty.”
• Section 45 of the PMLA mandates denial of bail unless the judge is convinced of the accused’s innocence.

IMPACT ON BAIL

• This provision makes it challenging for accused individuals to obtain bail, leading to prolonged detention without trial.
• Judges are hesitant to grant bail due to the high threshold of proving innocence set by the law.

LEGAL CONTROVERSY

• Section 45 of the PMLA Act regarding bail has faced legal challenges and amendments.
• Initially deemed unconstitutional by a two-judge Bench in 2018, it was later upheld by a three-judge Bench in 2022.

JUDICIAL PERSPECTIVE

• Appears to be very technical
• Laid out by Justice V.R. Krishna Iyer back in 1978 in Gudikanti Narasimhulu And Ors vs Public Prosecutor, High Court Of Andhra
• The judiciary’s approach to bail in PMLA cases has evolved from a perspective emphasizing personal liberty to a more technical assessment of legal provisions and their alignment with legislative intent.Top of Form