Prior Sanction Required to Prosecute Public Servants for Money Laundering: SC

What is Money Laundering?

Money laundering is the illegal process by which criminals conceal the origins of illegally obtained funds. It involves a series of financial transactions designed to make illicit money appear legitimate. Criminal activities such as drug trafficking, corruption, tax evasion, fraud, and terrorism financing typically generate the illicit funds that are laundered.

Stages of Money Laundering

Money laundering usually occurs in three stages:

1. Placement:
   1. Introduction of illicit funds into the financial system.
   2. Methods include depositing money into bank accounts, currency exchange, or buying valuable assets like art or real estate.
2. Layering:
   1. Disguising the source of funds by moving money through complex financial transactions.
   2. This can involve transferring funds across borders, changing the form of the money (e.g., into stocks or bonds), or using shell companies.
3. Integration:
   1. Reintroducing laundered funds into the legitimate economy.
   2. Methods include investing in businesses, real estate, or other assets that can be resold, thus making the money appear clean.

Common Methods of Money Laundering

1. Structuring (Smurfing):
   1. Breaking large sums of illicit money into smaller, less suspicious amounts.
   2. These smaller amounts are deposited into multiple bank accounts to avoid detection by regulatory authorities.
2. Trade-Based Money Laundering:
   1. Manipulating trade transactions to disguise the movement of money across borders.
   2. Criminals may overstate or understate the value of goods being traded to move illicit funds.
3. Shell Companies:
   1. Establishing fake companies that engage in no legitimate business, allowing criminals to funnel illicit money through seemingly legitimate transactions.
4. Real Estate:
   1. Buying and selling properties to convert illicit money into legitimate wealth.
   2. Real estate is an attractive vehicle for laundering money due to its high value and ability to appreciate over time.

Prevention of Money Laundering Act, 2002 (PMLA)

Objectives of PMLA

The Prevention of Money Laundering Act, 2002 (PMLA) was enacted in India to curb the illegal practice of money laundering. The main objectives of the PMLA are:

1. Prevention: To implement stringent measures to prevent money laundering activities by monitoring and regulating financial transactions.
2. Detection: To detect and investigate money laundering offenses through strong enforcement and regulatory mechanisms.
3. Confiscation: To confiscate the proceeds of crime derived from money laundering to disrupt illicit financial flows and deter offenders.
4. International Cooperation: To promote global cooperation in combating money laundering and terrorist financing activities.

Key Provisions of PMLA

1. Definition of Money Laundering (Section 3): Money laundering is defined as any attempt, involvement, or assistance in processes that involve the proceeds of crime, aimed at making them appear as legitimate property.
2. Offences and Penalties (Section 4): Money laundering is punishable with rigorous imprisonment for not less than three years, extending up to seven years, along with the possibility of a fine.
3. Attachment and Confiscation of Property: The Act allows for the attachment and confiscation of property involved in money laundering. An Adjudicating Authority is established to oversee these proceedings.
4. Reporting Requirements: Banks and financial institutions must maintain records of transactions and report suspicious transactions to the Financial Intelligence Unit (FIU-IND).

Agencies' Powers under the PMLA

1. Enforcement Directorate (ED): The ED is responsible for investigating money laundering offenses and attaching properties involved in such crimes. It operates under the Department of Revenue, Ministry of Finance.
2. Financial Intelligence Unit-India (FIU-IND): FIU-IND is the central agency for receiving, processing, analyzing, and disseminating information about suspicious financial transactions.
3. Other Investigating Agencies: Other agencies, such as local police, CBI, customs, and SEBI, investigate specific offenses listed under the PMLA.

Obligations under the PMLA

Financial Institutions and Intermediaries: Banks, financial institutions, and intermediaries are obligated to verify client identities, maintain records, and report suspicious transactions to FIU-IND.

Key Structures under PMLA

1. Adjudicating Authority:
   1. The Adjudicating Authority determines whether attached properties are connected to money laundering. This process must be concluded within 180 days.
   2. The Government of India (GoI) appoints the Adjudicating Authority.
2. Appellate Tribunal: The Act provides for the establishment of an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authority.
3. Special Courts: Special Courts are designated to try offenses under the PMLA and related crimes.

Amendments to PMLA

The PMLA has undergone several amendments over the years:

1. Amendments in 2009 and 2012:
   1. 2009 Amendment: Expanded the scope of the Act to include criminal conspiracy (Section 120B of the IPC) and gave the Enforcement Directorate (ED) international jurisdiction for tracking laundered money.
   2. 2012 Amendment: Moved the Prevention of Corruption Act (PC Act) to Part A of the statute's schedule, imposing stringent bail conditions on accused public servants.
2. 2023 Amendment:
   1. Defined Politically Exposed Persons (PEPs) as individuals holding prominent public functions.
   2. Expanded the list of non-banking reporting entities, such as Amazon Pay, to enhance the monitoring of financial transactions.
   3. Implemented Know Your Customer (KYC) norms for better identification and reporting of suspicious transactions.

Concerns Regarding PMLA

While the PMLA has been a crucial tool for combating money laundering, several concerns have been raised about its provisions:

1. Inclusion of Minor Offenses:

   1. The inclusion of minor offenses, like copyright infringements, in the schedule dilutes the original intent of the law, which was designed to target major economic crimes.

2. Punishment Equality:

   1. The PMLA equates the punishment for ordinary crimes (like corruption) with severe crimes such as drug trafficking, which some critics argue is unfair and disproportionate.

3. Broad Definition of 'Proceeds of Crime':

   1. The broad definition of "proceeds of crime" grants considerable discretion to enforcement authorities, which can lead to potential misuse.

4. Stringent Bail Conditions:

   1. Under PMLA, bail can only be granted if the judge is satisfied that the accused is innocent, placing the burden of proof on the accused, which contradicts the presumption of innocence in Anglo-Saxon legal systems.

5. Burden of Proof on the Accused:

   1. The Act places the burden of proof on the accused to demonstrate their innocence, which can undermine the fairness of trials.

6. Violation of Fundamental Rights:

   1. Article 21 (Right to Life and Liberty): The failure to disclose the Enforcement Case Information Report (ECIR) against an accused person violates their right to know the allegations against them.
   2. Article 14 (Right to Equality): Treating a public servant charged with corruption the same as a hardcore criminal violates the fundamental right to equality.
   3. Article 20(3) (Right Against Self-Incrimination): The powers granted under the PMLA to summon and interrogate individuals may violate the right against self-incrimination.

7. Extensive Powers to Authorities:

The ED is granted extensive powers of summons, arrest, and raids, which critics argue may lead to potential misuse and overreach.