- India will have to make money laundering an explicitly standalone offence to upgrade its compliance ahead of the on-site mutual evaluation by the Financial Action Task Force (FATF), which is due in 2020.
Background – First mutual evalution by FATF:
- The first FATF mutual evaluation of India was done in 2010 when the body expressed satisfaction with the measures taken by the country.
- However, the FATF highlighted a number of lacunae in the then extant legislation, for which it suggested changes.
- Current situation on Money Laundering law:
- As of now, despite several amendments, the Prevention of Money Laundering Act (PMLA) remains a predicate-offence-oriented law.
- A predicate offence is the offence through which is the property originally derived from a criminal activity, referred to as “proceeds of crime”. The PMLA lists such Predicate offences in the Schedule to the Act and thus they are also referred to as Scheduled offences under PMLA.
- The scheduled offences include corruption, extortion, trafficking etc.
- Under PMLA, occurrence of the a Predicate/Scheduled offence is a pre requisite for initiating investigation into the offence of money laundering.
- The fate of cases on predicate/scheduled offences depends on primary agencies pursuing them, such as the CBI, the Income Tax Department or the police.
- FATF recommendations:
- Legislation must be made to allow for confiscation of the money laundered as subject of the money laundering (ML) offence and which is not contingent on conviction for the predicate offence.
- The predicate offence conviction condition creates fundamental difficulties when trying to confiscate the proceeds of crime in the absence of a conviction of a predicate offence, particularly in a standalone ML case, where the laundered assets become corpus delicti [concrete evidence of a crime] and should be forfeitable as such.
- So money laundering should be made a standalone offence.
Current status and mutual evaluation:
- The Prevention of Money Laundering Act (PMLA) currently remains a predicate-offence-oriented law.
- So ahead of the on-site mutual evaluation by the Financial Action Task Force (FATF), India will have to make money laundering an explicitly standalone offence to upgrade its compliance.
About money laundering:
- Money laundering is the process used to disguise the source of money or assets derived from criminal activity.
- Money laundering facilitates corruption and gives organized crime the funds it needs to conduct further criminal activities.
- While the techniques for laundering funds vary considerably and are often highly intricate, there are generally three stages in the process:
- Placement: It involves placing the proceeds of crime in the financial system;
- Layering: It involves converting the proceeds of crime into another form and creating complex layers of financial transactions to disguise the audit trail and the source and ownership of funds (e.g., the buying and selling of stocks, commodities or property); and,
- Integration: involves placing the laundered proceeds back in the economy under a veil of legitimacy.
The Prevention of Money-laundering Act, 2002 (PMLA)
- The PMLA Act is an umbrella statutory framework which prohibits and criminalises money laundering activities.
- It aimed at combating money laundering in India with three main objectives –
- To prevent and control money laundering.
- To confiscate and seize the property obtained from laundered money.
- To deal with any other issue connected with money laundering in India.
- The work relating to investigation, attachment of property/proceeds is given to the Directorate of Enforcement (ED), which currently deals with offences under the Foreign Exchange Management Act (FEMA).
- Information of the afore-said transactions shall have to be furnished to the Director, Financial Intelligence Unit, India (FIU-IND).
- The Act has been amended many times and recently through Finance Act, 2018.