Prevention of Money Laundering Act - UPSC Notes

The Prevention of Money Laundering Act (PMLA) was enacted by the Indian Parliament in 2002 to prevent money laundering in India. This is an important legislation, especially from an economy and polity points of view for the IAS exam.

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Prevention of Money Laundering Act Notes

The PMLA was enacted in 2002 and it came into force in 2005. The chief objective of this legislation is to fight money laundering, that is, the process of converting black money into white.

To know more about black money and money laundering, click on the linked article.

• The Act enables government authorities to confiscate property and/or assets earned from illegal sources and through money laundering.
• Under the PMLA, the burden of proof lies with the accused, who has to prove that the suspect property/assets have not been obtained through proceeds of crime.

PMLA Objectives

The basic objectives of the PMLA are:

1. Preventing money laundering.
2. Combating the channelising of money into illegal activities and economic crimes.
3. Providing for the confiscation of property derived from or involved in money laundering.
4. Providing for any other matters connected with or incidental to the act of money laundering.

What are the Offenses under PLMA?

Offences mentioned under Part A and C of the Schedule of this Act will attract its provisions.

• Part A includes offences under acts namely:
  • Indian Penal Code, Prevention of Corruption Act, Narcotics Drugs and Psychotropic Substances Act, Antiquities and Art Treasures Act, Trademark Act, Wildlife Protection Act, Copyright Act and Information Technology Act.
• Part B includes offences that are mentioned in Part A, but are of a value of Rs 1 crore or more.
• Part C includes trans-border crimes.

Penalties under PMLA

Various actions can be initiated against persons found to be guilty of money laundering, such as:

• Freezing or seizing of property and records, and/or attachment of property obtained through crime proceeds.
• Money laundering is punishable with:
  • Rigorous imprisonment for a minimum of 3 years and a maximum of 7 years.
  • Fine.
• If the crime of money laundering is involved with the Narcotic Drugs and Psychotropic Substances Act, 1985, the punishment can go up to 10 years, along with fine.

Authorities that can Investigate under PMLA

The Enforcement Directorate (ED) is responsible for investigating offences under the PMLA. Also, the Financial Intelligence Unit – India (FIU-IND) is the national agency that receives, processes, analyses and disseminates information related to suspect financial transactions.

Recent Changes to PMLA

The government has been undertaking changes in the money laundering law bringing in practising chartered accountants, company secretaries, and cost and works accountants within the Money Laundering Act. 

What are the changes being done under the PMLA?

• Change in the money laundering rules aims to incorporate more disclosures for non-governmental organisations by reporting entities like financial institutions, banking companies or intermediaries.
• It also defined “politically exposed persons” (PEPs) under PMLA.
  • Politically Exposed Persons: As individuals who have been “entrusted with prominent public functions by a foreign country, including the heads of States or Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials”.
  • The amendment was in relation to foreign PEPs and not domestic ones.
• The Finance Ministry widened the list of non-banking reporting entities to allow 22 financial entities to verify the identity of their customers via Aadhaar under the ambit of the money laundering law. 
  • The Ministry of Electronics and IT (MeitY) had proposed allowing a wide range of private entities to carry out Aadhaar authentication for a number of services, expanding the use of the digital identity beyond its ministries and departments.
• Chartered accountants will need to exercise utmost care, adhere to professional standards and be vigilant in due diligence procedures. This will have a far-reaching impact on these professionals. 

Why have these changes in PMLA been undertaken?

• It aims to bring uniformity with a 2008 circular of the Reserve Bank of India (RBI) for KYC norms/anti-money laundering standards for banks and financial institutions, which had defined PEPs in line with FATF norms.
• The FATF conducts an assessment of the implementation of anti-money laundering and counter-terrorist financing (AML/CFT) standards in India. 
• The move will alter the way they do due diligence of transactions, source of funds examination, and reporting of irregularities.

Conclusion: The Centre has been enhancing reporting guidelines of accountants and disclosure regulations by companies as part of its efforts to improve corporate governance practices, and to check the generation of unaccounted wealth, diversion of funds from businesses, bogus inter-corporate transactions and laundering of funds.