Introduction

Money Laundering refers to an act of directly, or indirectly, attempting to indulge, or intentionally assisting, in a process or activity connected with the proceeds of crime and projecting it as untainted property.[1] In simple terms, money laundering is concerned with the concealment, and subsequent disguise, of the source of illicit money. It is punishable with a sentence of three to seven years and a fine of up to five lakh rupees. 

The offence of money laundering finds its roots in the United States of America in the late 1980s, followed by several anti-money laundering legislation.[2] However, it did not infest India till the late 1990s, when a string of Hawala transactions (a sub-sect of money laundering) came to light in the ‘Jain Diaries’ case[3] . Several politicians were caught in this trap. 

This prompted the need for urgent laws against the economic offense of money laundering. The Ministry of Finance, Government of India appointed an inter-ministerial committee in 1996, to look into the money laundering act. This committee submitted a report recommending comprehensive legislation on the same. The Parliament of India, in 2002, enacted the Prevention of Money Laundering Act (subsequently referred to as the PMLA) and it came into force on July 1, 2005. 

The Lacunae with the Money Laundering Act, 2002

As of 2019, there have only been 13 convictions in 9 cases under the anti-money laundering legislation. The monogamous focus of authorities on nailing the liquor barons and diamond billionaires of today, who have devised nefarious means of escaping the Law, has led to a paltry conviction rate. 

The sole jurisdiction to convict offenders under this Act rests with the ‘Special Courts’, which are often under-staffed and do not have sufficient resources to streamline investigations and facilitate efficient trials. 

According to Section 2(1)(y)[4], notwithstanding an offence related to the State, an offence is considered as money laundering under this Act only if the amount involved is equal to, or exceeds, thirty lakh rupees. This acts as an exculpatory hatch for perpetrators who escape prosecution by laundering an amount less than thirty lakhs at a time. 

With the advent of globalization, the offense of money laundering is no longer a national one, but rather an international and multi-State conundrum. This cross-country crime takes place through e-resources such as the dark web, which makes regulation of online platforms concerning the laundering of money a need of the hour. However, the same finds no mention in the Prevention of Money Laundering Act, 2002. 

Another glaring loophole lies in the contextualization of the Act. Money laundering is often connected to terrorism, organized crime, drug trafficking, etc. The Prevention of Money Laundering Act, 2002 mentions these under the offences of dacoity, robbery, etc. It should be noted here that money laundering being an economic offence has to it certain components that are absent from the definitions provided in the Indian Penal Code, 1860, and therefore such crimes warrant an elaborate definition in the Act. 

The implementation of the Law is very chaotic. There is no mention of an authority with the mandate of investigating a case and filing charges before the Court. Since searches are possible only after an official charge-sheet has been filed, delays are caused. 

A caisson may be found in the conciliation between a criminal court’s verdict and a ‘Special Court’. Though the Act states that any judgement passed under it (intra vires) cannot be challenged in a civil court, even under Article 32 of the Constitution of India (Section 41), it provides no mention of the binding nature of a ‘Special Court’ verdict or its lack thereof on a criminal court. 

 Sections at issue


1. Section 2(1)(u)[5] provides the definition of the term “proceeds of crime”, which forms the very basis of the offense and subsequent proceedings. This definition is highly ambiguous, vague and subjective. 

2.Section 5 allows for the attachment of property prior to the accused’s conviction, which is violative of the general principle of presumption of innocence, which holds that an accused is “innocent until proven guilty”. 

3.Section 17 provided the guidelines for freezing the accounts and assets of the accused. However, there is no mention of any guideline based on the principle of proportionality which states that freezing should not cause more harm than it seeks to protect.  

4. Section 19 of the Act allows for the arrest of a person on the Enforcement Directorate’s subjectivity. This means that any authorized person may exercise his discretion in arresting an individual under this Act. This opens the door for malicious prosecution. 

5. Section 24 of the Prevention of Money Laundering Act, 2002 lays the onus of proving the legitimacy of a ‘proceed of crime’ on the accused, rather than the prosecution. This goes against the accepted principle of ‘Actori Incumbit Onus Probandi’ which states that the burden of proof lies with those who bring the case.

The Way Forward

A substantive perusal of India’s anti-money laundering legislation elucidates the need for amendments to the same, vis-a-vis revising the rather sluggish means of implementing said laws. It is cardinal that the laws include stringent monitoring of, and regulations for, e-platforms such as the dark web with special emphasis on their financial apparatuses such as cryptocurrencies which are prone to malevolent exploitation. Additionally, the snag of an appallingly low conviction rate needs to be dealt with. The ‘Special Courts’ are faced with a dearth of resources, and therefore it is proposed that a part of the state’s budget be allotted to such courts. It is also recommended that an ad-hoc committee under the Ministry of Law & Justice, Government of India be set up with representatives from the Ministry of Finance and the Financial Action Task Force (FATF) to review the controversial sections, namely Sections 2(1)(u), 5, 17, 19, 24 and 50. This committee should also recommend alternate, more rigorous, and inflexible definitions of ‘money laundering’(in the context of the quantitative extremum) as well as ‘proceeds of crime’. Moreover, the legislation should be further codified to bring in more objectivity and less capriciousness. For example- The discretionary powers of the relevant authorities concerning arresting an individual under this Act should be changed and proper guidelines should be drafted to bring surgical precision to the process.  

The principles of natural justice, along with various peremptory norms as well as universally followed maxims and generally accepted postulates form the basis of any law, both substantively and procedurally. Any legislation or part thereof that goes against the above-stated propositions needs to be instantaneously reviewed and re-codified. This is true for the Prevention of Money Laundering Act, 2002, conceived with a righteous intention but went blasphemously astray in its effectuality and execution. 

Analysis and Conclusion

With the war against economic offences on the turbulent oceans of national and international banking industries at its zenith, the efficacious drafting and effective implementation of anti-money laundering laws is an emergent issue. The arbitrariness, misuse and dismal execution of the Prevention of Money Laundering Act, 2002 is a flagrant real-life portrayal of the phrase ‘Solitudinem faciunt, pacem appellant’ which translates to- creating despondency and calling it peace. It is apposite that the lacunae in the legislation be dealt with, and the convictions under the Act be more systematic and ever-increasing.

References

[1] The Prevention of Money Laundering Act [2002] <https://dea.gov.in/sites/default/files/moneylaunderingact.pdf>

[2]  History of Anti-Money Laundering Laws <https://www.fincen.gov/history-anti-money-laundering-laws>

[3] Vineet Narain & Others vs Union Of India & Another [1996] SCC (2) 199

[4] The Prevention of Money Laundering Act [2002]

[5] The Prevention of Money Laundering Act [2002]

Author: Vibhu Gautam

Maharashtra National Law University, Mumbai

Leave a Comment

Your email address will not be published. Required fields are marked *