PREVENTION OF MONEY LAUNDERING ACT, 2002
Updated: Jun 16, 2020
Written By: Tanushree Jaiswal, University of Allahabad
When a criminal activity generates substantial profits, the individual or group involved in such activities route the funds to Safe Heavens by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention. Thus one way to prevent crime is to make difficult to convert-"Black Money into White Money".
-It is a process of conversion of black (tainted) money into white (untainted) money.
-It is the processing of criminal proceeds to hide its illegal origin.
-When the black money is generated, it cannot be used in its original form so it becomes necessary to give it such a character that it can be used.
OBJECT OF THE ACT:
-Is to prevent Money Laundering.
-Provide for the confiscation of property derived from or involved in Money Laundering.
-To punish those who commit the offence of Money Laundering.
-To combat channelizing money into illegal activities and economic crime.
INITIATIVES OF POMLA:
Since Money Laundering is an international phenomenon, a number of initiatives have been taken at international level to deal with this problem.
THE VIENNA CONVENTION:
-It is a UN convention against Narcotics & Drugs.
-It was held in December 1988.
-It has asked the member states to criminalize the Money Laundering activities relating to drugs.
-It has provided for the international co-operation in investigations.
-The Bank secrecy provisions should not create hindrance in investigations.
INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSION (IOSCO):
-It was adopted in October 1992.
-It encourages its members to be vigilant regarding Money Laundering in Securities & Future Markets.
FINANCIAL ACTION TASK FORCE (FATF):
-It has been the most important & effective Global initiative till date.
-It was established in 1989.
-It is the international body promoting the measures to combat Money Laundering.
-It was set up by the Govt. of G - 7 countries.
-It has representatives from:
· Regulatory authorities,
· Law enforcement agencies.
MAIN TASKS OF FATF:
1. It monitors the progress of the member states to counter Money Laundering.
2. It reviews the techniques adopted for Money Laundering.
3. It promotes the implementation of appropriate measures by non - member countries as well.
RECOMMENDATIONS OF FATF:
1. Declaration of Money Laundering as a criminal offence.
2. Disclosure by Financial institutions of certain transactions.
3. Confiscation of proceeds of crime.
4. International co-operation in the investigation.
PREVENTION OF MONEY LAUNDERING ACT, 2002
-The prevention of Money Laundering bill was introduced in Parliament in 1998.
-The Standing Committee made its recommendations & the Govt. introduced it in Parliament again in 1999.
-After receiving the assent of President, it became Prevention of Money Laundering Act, 2002 on 17th January 2003. It has come into force w.e.f. 1st July 2005.
1. Whoever acquires, owns, possesses, or transfers any Proceeds of Crime.
2. Knowingly enters into any transaction which is related to proceeds of crime directly or indirectly or
3. Conceals or aids in the concealment of the proceeds of crime shall be guilty of Offence of Money Laundering.
PROCEEDS OF CRIME:
Proceeds of crime mean any property derived or obtained, directly or indirectly by any person as a result of criminal activity relating to a Scheduled Offence or the value of any such property.
PROCESS OF MONEY LAUNDERING-
STEPS INVOLVED IN MONEY LAUNDERING:
It is the First stage of Money Laundering. A large amount of cash is broken into smaller sums.
This stage serves two purposes:
a) It relieves the criminal from holding large amounts of bulky of cash, and
b) It places the Money into the legitimate financial system.
Such smaller amounts which are illegal profits are introduced in the financial system.
The smaller amounts of Money are either deposited into a Bank account or are invested in some Monetary Instruments.
It is the second stage of Money Laundering. It takes place after the Funds have entered the financial system.
Conversion is done or the Funds are moved to distant location from their source, so that their original character may not be revealed.
The Layering stage is the most Complex and often involves the International movement of the Funds.
It is the last & final stage of Money Laundering. The Funds re-enter the legitimate economy.
Smaller sums of Money which were invested in the assets by disintegrating will be now integrated.
It is at the Integration Stage where the Money is returned to. The criminal from what seem to be legitimate sources.
Now the integrated amount is invested into:
1. Real estate,
2. Luxury assets,
3. Business ventures,
4. Film industry etc.
IMPACT OF MONEY LAUNDERING:
1. Increased crime
2. Increased corruption
3. Inability of the Govt. to control & regulate the economy
4. Bribe in the public offices
5. Weak social & ethical standards
6. Economic & Political influence of criminal organizations
7. Infiltration of Banks & Financial institutions through organized crimes
8. Control over vast sector of economy by small chunk of population
9. Money Laundering weakens the democratic institutions of society
Though the Money Laundering may offer short term benefits by an inflow of hard currency at the time of decelerating growth but the long term effects are surely going to be negative.
OFFENCE OF MONEY LAUNDERING:
Any person who-
Acquires, owns, possesses or transfer any proceeds of crime;
Knowingly enter into any transaction related to proceeds of crime;
Conceals the proceeds of crime
Commits the offence of Money Laundering.
3 - 7 YEARS and Fine up to as RS. 5,00,000/-