Introduction:
Delivering its verdict on a batch of petitions concerning the interpretation of certain provisions of the Act, the SC bench opined that money laundering is a “heinous” crime that not only affects the social and economic fabric of a nation but also tends to promote other serious offenses like terrorism and drug trafficking. Upholding the validity of certain provisions of the PMLA, the bench noted that the law was enacted to address the urgent need for comprehensive legislation to prevent money laundering and prosecute those indulging in activities related to the proceeds of crime. The court also upheld the Enforcement Directorate’s powers relating to arrest, attachment of property involved in money laundering, search and seizure under the PMLA, which were challenged by multiple petitioners.
- It is the process of creating the appearance that large amounts of money obtained from criminal activity, such as drug trafficking or terrorist activity, originated from a legitimate source.
- The money from the illicit activity is considered dirty, and the process “launders” the money to make it look clean.
- Enforcement Case Information Report (ECIR) cannot be equated with an FIR.
- Supplying an ECIR in every case to the person concerned is not mandatory and “it is enough if the Enforcement Directorate (ED), at the time of arrest, discloses the grounds of such arrest”.
- Offence under Section 3 “is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence”.
- The Authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and pending enquiry including by way of criminal complaint before the competent forum.
- The bench upheld the ED’s power under Section 5 of the Act (order provisional attachment of any proceeds of crime).
- The Court stated that Section 5 provides for a balancing arrangement to secure the interests of the person and also ensures that the proceeds of crime remain available to be dealt with in the manner provided by the 2002 Act.
- It rejected the argument that ED authorities are police officers.
How does Money Laundering Work?
A case of Money laundering ostensibly appears to be an above-board financial transaction, however, the criminality underneath is hidden by a three stage process:
- The first stage is when the crime money is injected into the formal financial System. This is called ‘placement’;
- In the second stage, money injected into the system is layered and spread over various transactions with a view obfuscate the tainted origin of the money. This process is called ‘layering’;
- In the third and the final stage, money enters the financial system in such a way that original association with the crime is sought to be obliterated so that the money can then be used by the offender or person receiving as clean money. This is called ‘Integration.
Efforts of Government of India to address money laundering:
In India, before the enactment of Prevention of Money Laundering Act, 2002 (PMLA) the major statutes that incorporated measures to address the problem of money laundering were:
- It prescribes obligation of banking companies, financial institutions and intermediaries for verification and maintenance of records of the identity of all its clients and also of all transactions and for furnishing information of such transactions in prescribed form to the Financial Intelligence Unit-India (FIU-IND).
- It empowers the Director of FIU-IND to impose fine on banking company, financial institution or intermediary if they or any of its officers fails to comply with the provisions of the Act as indicated above.
- It has been subject to several amendments including 2005, 2009, 2012.
- PMLA envisages setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties.
