Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that let to its production. Through the process of “money laundering” a person converts illegal money into a legal entity. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be held guilty of the offence of money laundering.
The Schedule to the Prevention of Money Laundering Act (henceforth, PMLA), 2002, lists some of the offences under the following Legislations: Offences under the India Penal Code (part A) – eg. Waging or attempting to wage war, or abetting waging of war against the Government of India, Conspiring to commit offences punishable by s.121 against the state
1. Offences under the Narcotic Drugs and Psychotropic Substances Act, 1985- eg. Contravention in relation to opium poppy and opium.
2. Offences under India Penal Code (part B) – eg. Murder, kidnapping for ransom, counterfeiting currency notes or bank notes.
3. Offences under the Arms Act, 1959- eg. Knowingly purchasing arms from unlicensed person not entitled to purchase the same.
4. Offences under the Wildlife (Protection) Act, 1972- eg. Contravention of provisions of s.48 relating to purchase of animals etc by license.
5. Offence under the Immoral Traffic (Prevention) Act, 1956- eg. Seducing or soliciting for purpose of prostitution.
6. Offences under the Prevention of Corruption Act, 1988- eg. Taking gratification for exercise of personal influence, with public servant
The innumerate under therefore stated Acts generate huge sums. The launderer converts these sums into untainted money by investing them into shares or banks and thereby converts the essential character of the money.
The UN General Assembly, in its Special Session (1999), came up with a political declaration that required the Member-States to adopt money laundering legislation and programme. Moreover with the changed economic scenario and the dynamic process of liberalization laws like Foreign Exchange Management Bill in place of earlier FERA was felt to be much static and harsh. As is said in Latin Summum Jus Suma Injuria (too much legislation, too much of regulations create problems for a man) hence it was felt that a new law was required to curtail the powers of launderers. Accordingly on the Recommendations of the Standing Committee on Finance on 4th March, 1999 the Bill was presented in the Lok Sabha and the Act was incorporated and enacted on 17th January, 2003.
The PMLA was a very peculiar legislation. The Civil Procedure Code, 1908 and the Criminal Procedure Code, 1973 were clubbed together. Moreover, the Act had hit the source of illegal money itself.
With the PMLA coming into force, banks, financial institutions and financial intermediaries will have to mandatorily report to Government all suspicious transactions and those over Rs.10 Lakh. As per the provisions of the Act, every banking company, financial institution and intermediary needs to maintain a record of all transactions, the nature and value of which is being prescribed in the rules. Financial institutions, including chit funds, cooperative banks and intermediaries like stock brokers, share transfer agents, underwriters and investment advisers were to be registered with SEBI. The Financial Intelligence Unit (FIU-IND) was set up as a multi-disciplinary unit for establishing links between suspicious or unusual financial transactions and criminal activities.
Legislations in consonance with PMLA:-
1. Banking Regulation Act, 1949.
2. Chit Funds Act, 1982.
3. Deposit Insurance and Credit Guarantee Corporation Act, 1961
4. NABARD Act, 1981.
5. National Housing Bank Act, 1987.
6. Reserve Bank of India Act,1934.
7. Securities and Exchange Board of India act,1992.
International support system:-
It stands highly imperative to exchange information at an international level in order to make the enforcement of a law efficient. FIUs therefore have the ability to exchange financial information that stands helpful to follow the financial trail in respect to investigation and enforcement of law in activities related to terrorism and uncovering financial assets.
- FATF: – The Financial Action Task Force (FATF) is an inter-governmental body which sets standards, and develops and promotes policies to combat money laundering and terrorist financing. The Force has provided forty Recommendations and Nine Special Recommendations that provide a complete set of counter measures against money laundering. These Recommendations have been recognized, endorsed and adopted by many international bodies as the international standards for combating Money Laundering.
- Egmont Group: – The Egmont Group serves as an international network fostering improved communication and interaction among FIUs. Egmont Group is named after the venue in Brussels where the first such meeting of FIU was held in June, 1995. The goal of the Group is to provide a platform for FIUs around the world to improve support to their respective governments in the fight against money laundering terrorist financing and other financial crimes.
- Asia/Pacific Group: – The Asia/Pacific Group on money laundering (APG) was officially established as an autonomous regional anti-money laundering body in February, 1997 at the Fourth Asia/Pacific Money Laundering Symposium in Bangkok, Thailand. The purpose of APG is to facilitate the adoption, implementation and enforcement of internationally accepted anti-money laundering and anti terrorist financing standards set out in the recommendations of the FATF. The APG undertakes studies of methods and trends of money laundering and the financing of terrorism in Asia/Pacific region. It is a voluntary and co-operation international body established by agreement among its members and is autonomous.
Why amend the Anti-Money Laundering Act:-
In the recent years there has been a sudden upsurge in organized crimes and terrorist activities. Like any other activity even these anti-social activities need financial support. This financial support is provided through illegal money which is laundered in economy of a country. Money laundering has recently gained urgency of attention due to its links with terrorist activities. RBI, SEBI and IRDA are under the purview of PMLA. It allows search and seizure of suspected properties by officials and stipulates punishment of minimum three years’ imprisonment for the Guilty.
Money laundering can be checked by monitoring illegal forex transactions, real estate, gems and jewellery and high value purchases. In India, however, PMLA regulates only banking companies, financial institutions and intermediaries to maintain records, furnish information and verify identity of the customers. It does not deal with tapping of information within the ambit of informal economy as in case of forex transactions, because lot of dealing in this avenue is done through informal channels. The PMLA makes it illegal to enter into a transaction related to funds derived from criminal activities as also to possess or transfer such funds.
Financial institutions and intermediaries registered with SEBI are required to furnish to the income-tax authorities, details of all transactions also need to be furnished. However, this task of furnishing information and maintaining records is indeed a titanic one. Infrasoft Technologies Ltd. has launched OMNI Enterprise, anti-money laundering software that offers reporting and query capabilities. This software is widely used by banks in UK.
In 2000, black money was estimated to account for more than 40% of Indian’s GDP (approximately $150 billion). The IMF estimates the global volume of money laundering to be somewhere between $600 billion to $1.8 trillion a year. With such statistics, in India, there are absolutely no estimates regarding spending on anti money laundering measures by banks and financial institutions. Whereas, in USA, the collective spending by banking, insurance and fund management companies on anti money laundering measures is estimates to be $ 10.9 billion between 2003 and 2005.
With PMLA in force it is very crucial for the Banks to find AML software to check, identify and report suspicious transactions regularly. Failure to comply with this demand would result in losing business and fighting legal battles. Despite of all the afore stated problems, Infrasoft OMNI AML software has found no takers. The major part of the blame for not making use of the software is , however, shelved on the shoulders of strict and static RBI Rules.
It should be realized that PMLA is not a one-time legislation. The Act was amended to resolve the technicalities. India has only made amendments in respect to 11 out of 20 categories prescribed by FATF. This clearly means that amendments are required to be made in other categories as well particularly enclosing within its scope- terrorism financing, smuggling, piracy etc.- to cope with the International Standards. Without which the India banks would get paralyzed in developed nations.
Apart from the banking and other financial institutions and intermediaries the Act also extends upon the working of International Payment gateways such as Visa and Master card along with money transfer providers. However, it is strongly felt that PMLA should incorporate within its ambit the casinos, because a huge amount of money, in form of informal transactions, is being operated upon through such places.
The menace of money laundering is highly diabolical in nature. It hits not only at the root of a country’s financial structure but also kills its social structure by financing anti-social activities. It is as a matter of great grief that despite of having innumerable enactments and legislation, India is still under the vigilance of the Interpol because of her relaxed attitude towards the threat posed by money laundering. Hence, it is extremely important to catch hold of the growing threat of money laundering by legislating and implementing amendments in the present law of Anti- money Laundering.