PREVENTION OF MONEY LAUNDERING ACT, 2002

Prevention of Money Laundering Act, 2002 was enacted to fight against the criminal offence of legalizing the income/profits from an illegal source. The Prevention of Money Laundering Act, 2002 enables the Government or the public authority to confiscate the property earned from the illegally gained proceeds.


The Act provides for separate provisions bearing on attachment associate degreed arrogation of property; and a separate procedure for adjudging an offence beneath the Act. Though, the Act provides for a well set proceeding remedy against the attachment of the property, it conjointly lays down the facet of a Special Court for the trial of the regular offence along side the offence beneath the Act. However, procedure relating to any attractiveness against the order of the Special Court is prescribed to be ruled by the Criminal Procedure Code.
With the scene of the on top of provisions, it’s pertinent to notice that the aggrieved party will proceed for attractiveness to the judicature, court and Supreme Court, solely with relevancy attachment or arrogation of tainted property, being yield from crime. The Act doesn’t specifically impose for any recourse against the order of the Special Courts and refers to the provisions of the Code of Criminal Procure, 1973 for any attractiveness and revision of the order of the Special Court.

The Act empowers the Director to connect and confiscate the contaminated property suo-moto, for a most amount of a hundred and eighty days, providing he has reasons to believe that the property has been non heritable out of criminal yield of a regular offence.

  • Every year Brobdingnagian quantity of cash is generated from criminal sources or criminal activities like nonpayment, false accounting practices, criminal arms sales, smuggling, or drug traffic. The funds thus non inheritable are obtainted so brought into the same old national economy to create it clean, additional usable and bonafide.

    ‘Money laundering’ is that the name given to the method by that lawlessly obtained funds are given the looks of getting been licitly obtained.

    Legal definition

    The offence of cash washing is outlined underneath Section three of the bar of cash washing Act, 2002 (hereinafter “PMLA”) which may be scan, within the style of its essential ingredients, as:
  • Whosoever directly or indirectly
  • attempts to indulge;
  • knowingly assists;
  • knowingly could be a party; or
  • is actually concerned in any method or activity connected with-
    proceeds of crime together with its concealment, possession, acquisition or use and protruding or claiming it as stainless property shall be guilty of offence of cash washing.

    The expression “proceeds of crime” is integral to sketch the offence of cash washing. Section 2(u) of PMLA provides for the which means of the said expression as follows:

    Any property derived or obtained, directly or indirectly, by a person, as a results of criminal activity about the regular offence, or the worth of such property, or the property equivalent in price command within the country within the circumstances wherever laundered property i.e. income of crime is taken or command outside the country.

    It are often ascertained that the aforesaid expression should hold a larger interpretation for the term “property” utilized in it’s been given a wide definition within the PMLA.

    In Mahanivesh Oils & Food Pvt. Ltd. v. board of directors of Enforcement, the Hon’ble tribunal of urban center ascertained that cash washing involves 3 stages, that are as follows:-

    “The initial stage is Placement, wherever the criminals place the income of crime into the traditional national economy.

    The second stage is Layering, wherever cash introduced into the traditional national economy is bedded or unfold into numerous transactions among the national economy so any link with the origin of wealth is lost.

    And, third stage is Integration, wherever the profit or income of crime are on the market with the criminals as stainless cash.”

    Some of the wide used kinds of concealing and connected gang are structuring deposits, shell firms, third-party cheques, bulk money importation, gambling, false accounting, larceny, trading or graft.

    Scheme and purpose of the Act PMLA contains seventy five sections and a Schedule. The sections ar divided amongst ten chapters. The Schedule of the Act is split in 3 parts; half A, B and C, every of that lays down offences, additionally known as predicate offence, whose income are referred as income of crime. It includes of the offences underneath Indian legal code, Narcotic medicine and psychedelic Substances, Arms Act, the Immoral Traffic Act, the Explosives Act, the bar of Corruption Act & Wild Life (Protection) Act etc.

    Pre-enactment of the legislation, the laws addressing the problems of cash washing were scattered and inadequate to fulfill the present crisis. the necessity of the hour was to return up with a certain, clear and specific bill to tackle the involved issue that without delay was turning into larger and larger threat to economy. Thus, lawmakers introduced bar of cash washing Bill to stop this prime offence and activities incidental to that, that was gone by the Parliament on seventeenth Jan, 2003 and therefore the PMLA came into force with impact from first July, 2005.

    The Act was devised to stop and management concealing in Asian nation. it absolutely was developed like to confiscate (seize underneath authority) the property obtained from criminal sources and to wear down any issue within the extent and scope of cash washing like activity.

    It has been amended from time to time to cater to purpose of the legislation and broaden its scope to achieve each corner that remained unaddressed so far. Vide change Act of 2009 that came into force on 01.06.2009, and additional the change Act of 2012, that came into force on fifteen.02.2013, the scope has been additional increased.

    Punishment underneath PMLA: Section four of the Act prescribes the penalisation for the said offence. It maintains that whoever commits the offence of cash washing shall be punishable with rigorous imprisonment for a term that shall not be but 3 years extendible up to seven years and shall even be at risk of fine. The term can even extend up to ten years if the income of crime concerned in concealing relates to any offence such that underneath Paragraph two of half A of the Schedule.

    Section forty three empowers the Central Government to represent special courts for the trial offences underneath Section four. in line with the section 45, the aforesaid offence is non-bailable.

    It should be borne in mind that power of judgment authority that is additionally appointed by the Central Government (under Section six, PMLA) is restricted to hold out the investigation on whether or not the property hooked up provisionally by authorities underneath the Act is on affordable grounds or not. Hence, overlap of powers between the manager and therefore the judiciary is avoided.
    Conventions, primarily operating to plan anti-money washing rules so as to wear down menace of cash washing and obviate such danger at world level.  International Convention for the Suppression of the funding of act of terrorism (1999) and global organization Convention against Corruption (2003).

CHALLENGES :

Money laundering is associate economic menace inflicting injury to the economic, political and social material of the economy. it’s a method by that outlawed origin of the criminal income is disguised. this era of globalization has created the planet economy, world village by creating it a lot of interactive, tangled, reticulated and interconnected however at a similar time has unleashed the flood gates of opportunities for the criminals to expand, grow and prosper. Least developed economies and developing economies like Indian economy square measure a lot of vulnerable of being moving into the clutches of cash launderers. As developed economies have stronger money controls and effective laws to visualize the activities that results in the menace. Weak economic system and management existing in least developed and developing countries offer entry and helps the cash launder in establishing their foothold in same countries. This paper deals with impact of cash washing on the Indian economy and assessment of the appropriateness of a penal provision gift in India for coping with menace. The conclusion section of this paper throws chance upon the penal system prevailing in India and its good and can facilitate the policy manufacturers and legislators to require call concerning having an inspiration upon creating a lot of demanding penal provision exploitation that the menace may be checked.

Effectiveness :

It is to be noted that even after so many efforts and prevailing laws, India is among six countries being actively monitored by Interpol and International banking watchdogs after the detection of massive money-laundering because of inadequate internal compliance procedures.

Omission of proviso provided under Sections 17(1) and 18(1) of the PMLA

In Sections 17(1) And 18(1) of the PMLA, the following provision has been deleted, namely:–

“Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973(2 of 1974), or a complaint has been filed by a person, authorized to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorized by the Central Government, by notification, for this purpose.”

The impact of deleting the proviso from Sections 17(1) And 18(1) of the PMLA, is that the authorized officer under the PMLA can enter any property for purpose of conducting search and seizure, and the search of any person, even in absence of any reporting of the scheduled offence to a Magistrate or court for taking cognizance of the scheduled offence or to the Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be.

The deletion of the proviso is only going to have prospective operation in law. There seems to be no conflict.

Insertion of explanation to the provision of “Offences to be cognizable and non-bailable” under Section 45(2) of the PMLA

In section 45 of the PMLA, after sub-section (2), the following Explanation has been inserted, namely:–

“Explanation.– For the removal of doubts, it is clarified that the expression “Offences to be cognizable and non-bailable” shall mean and shall be deemed to have always meant that all offences under this Act shall be cognizable offences and non-bailable offences notwithstanding anything to the contrary contained in the Code of Criminal Procedure, 1973 (2 of 1974), and accordingly the officers authorized under this Act are empowered to arrest an accused without warrant, subject to the fulfillment of conditions under section 19 and subject to the conditions enshrined under this section.”

This explanation puts an end to a much long controversy, as there were contradictory judgments of the various High Courts on the point whether the offence of money laundering is cognizable and non-bailable or non-cognizable and bailable.

Under the Criminal Procedure Code, 1973 (Cr.P.C), the meanings of cognizable and non-cognizable offence are as under:

  • ‘Cognizable Offence‘ means an offence in which, a Police officer may arrest without any warrants or orders of the court.
  • ‘Non-cognizable Offence’ means an offence in which a Police Officer has no authority to arrest without warrants.

In general parlance, if an offence is a cognizable offence, it means that the Police Officer has the power to arrest and investigate without the permission of the Court, and for the non-cognizable offence, it is vice-versa.

The impact of the present explanation and the question of its retrospective or prospective operation are of not much importance, as, under the PMLA, there are separate provisions for search, seizure and arrest and the same are not dependent on the provision of the Cr.P.C. As per Section 65 of the PMLA, the provision of Cr.P.C shall apply only to the extent of not being inconsistent with the provisions of the PMLA. The issue of arrest of a person or investigation under PMLA are not dependent on whether the offence is cognizable or not.

The Division Bench of the Bombay High Court in the case of Chhagan Chandrakant Bhujbal v. Union of India (https://indiankanoon.org/doc/138917199/) has held that it does not matter whether the offence under PMLA is cognizable or non-cognizable since the power of arrest conferred under Section 19 of the PMLA is not restricted by such characterization.

The Government of India has again brought major amendments in the PMLA through the Finance Act, 2019, by avoiding the normal route of introduction of the amendment bill in both the houses of Parliament. Needless to mention, the recent amendments in the PMLA would beget multiple litigation and challenges to such provisions, their interpretation and application.