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Money Laundering (PMLA) in India

What is Money Laundering? This is the process by which criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source. It is the process by which criminally derived property may be laundered as extensive.

In India, before the enactment of the Prevention of Money Laundering Act 2002, the Government of the day brought several legislations to address the menace of money laundering.

These statutes were, The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, The Income Tax Act, 1961, The Benami Transactions (Prohibition) Act, 1988, The Indian Penal Code and Code of Criminal Procedure, 1973, The Narcotic Drugs and Psychotropic Substances Act, 1985, The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988 and also included demonetization of currency.

How does Money Laundering take place?

There are three stages to a transaction of money-laundering:

The first stage is Placement, where the criminals place the proceeds of the crime into normal financial system.

The second stage is layering, where money introduced into the normal financial system is layered or spread into various transactions within the financial system so that any link with the origin of the wealth is lost.

The third stage is Integration, where the benefit or proceeds of crime are available with the criminals as untainted money.

What is money laundering?

The Financial Crime Enforcement Network defines it as “the process by which criminal or criminal organisations seek to disguise the illicit nature of their proceeds by introducing them into the stream of legitimate commerce and finance”. Putting it into a more colloquial language, it is a technique designed to make dishonestly or unlawfully earned money appear to have been derived from honest and legitimate means. It is basically creating a veil of legal cleanliness around an illegal transaction.

Objectives

The PMLA seeks to combat money laundering in India and has three main objectives:

· To prevent and control money laundering

· To confiscate and seize the property obtained from the laundered money; and

· To deal with any other issue connected with money laundering in India.

Presumption in inter-connected transactions

Where money laundering involves two or more inter-connected transactions and one or more such transactions is or are proved to be involved in money laundering, then for the purposes of adjudication or confiscation, it shall presumed that the remaining transactions form part of such inter-connected transactions.

Banks, financial institutions and intermediaries including stock market intermediaries such as brokers would be required to maintain records of all cash transactions, exceeding Rs 10 lakh. The Act makes it clear that even if the value of individual cash transactions is less than Rs 10 lakh each, but are seemingly between related parties and takes place in a month, records would have to be maintained.

The Act provides that whoever directly or indirectly attempts to indulge or knowingly assists or is knowingly 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 guilty of offences of money-laundering.

Involvement of Banks in Money Laundering

Banks are frequently used for money maundering and banks become conduit in helping these people by relaxing their KYC & Reporting requirements.

“Washing” money through Investments in Gold, Property, Stake in Company via tax heavens or through web of entities including “Shell” Companies.

Burden of proof

A person, who is accused of having committed the offence of money laundering, has to prove that alleged proceeds of crime are in fact lawful property.

Who are Money Launderers?

Ø Politicians

Ø Bureaucrats

Ø People at position of power and decision making (in Government, in Public Sector enterprises, in Private Sector Enterprises)

Ø Agents of above people

Why do people launder Money?

It’s human Greed to become rich & wealthy. When people make money from crime, bribes, drugs, extortion they receive the money in the form of cash, Transfer of money using banking channels and using web of entities, Gold Bars, Property at below Market price or Fair Market Value and pay the “reduced cost over longer duration.

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