Prevention of Money Laundering Act and its misuse

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Prevention of Money Laundering Act and its misuse

  • Maharashtra’s Minister of Minority Affairs and Skill Development is arrested by the Enforcement Directorate (ED).
  • The case against the Minister pertains to a transaction in 1999 in which a property was sold to one of the companies belonging to him for a price ostensibly much lower than its actual worth.
  • The Additional Solicitor General alleged that there was enough evidence to make a case under the Prevention of Money Laundering Act.

About Money Laundering

  • Money laundering is the practise of making substantial sums of money obtained via illicit activities such as drug trafficking or terrorist financing, appear to have originated from a legitimate source.
  • Illegal arms sales, smuggling, drug trafficking, prostitution gangs, insider trading, bribery, and computer fraud schemes all generate substantial revenues.
  • As a result, it offers an incentive for money launderers to use money laundering to ""legitimise"" ill-gotten profits.
  • The money created is referred to as ""dirty money,"" and money laundering is the act of converting ""dirty money"" into ""legal"" money.

Process of Money Laundering

  • Placement: The illicit money is introduced into the formal financial system at the first stage.
  • Layering: In the second stage, money is injected into the system and stacked and dispersed across several transactions in order to obscure the money's tainted origin.
  • Integration: Money enters the financial system in the third and final step in such a way that the initial relationship with the crime is intended to be wiped out, allowing the offender to utilise the money as clean money.

Prevention of Money Laundering Act

  • It was enacted in January 2003, and the Act, as well as the Rules issued under it, went into effect on July 1, 2005.
  • It is at the core of India's legislative system for combating money laundering.
  • All financial institutions, banks (including the RBI), mutual funds, insurance companies, and their financial intermediaries are subject to the terms of this act.
  • The PMLA (Amendment) Act of 2012:
  • It adds the idea of a ""reporting entity,"" which might be a bank, a financial institution, or an intermediary, among other things.
  • The PMLA, 2002 imposed a punishment of up to Rs 5 lakh, however the amended legislation eliminated this cap.
  • It allows for the temporary attachment and seizure of the property of anybody who engages in such activities.

Major allegations of misuse of PMLA

  • Even ""regular"" crimes have drew PMLA's attention, and assets of legitimate victims have been attached.
  • The PMLA was implemented in response to India's worldwide commitment to combat money laundering (including the Vienna Convention). Instead,rights have been ""cribbed, cabined, and confined.""
  • The PMLA was enacted to combat the problem of money laundering, particularly as it related to the narcotics trade.
  • Currently, the offences included in the Act's schedule are far too broad, and in many cases have nothing to do with narcotics or organised crime. The ED conducted 1,700 raids and investigations in 1,569 cases in the last decade (2011-20) but could obtain convictions in only nine cases.
  • There's also some ambiguity regarding how the ED chooses which cases to investigate. The commencement of an inquiry by the ED has ramifications that have the ability to limit an individual's liberty.
  • Enforcement Directorate (ED) has the authority to issue summons, record statements, make arrests, and conduct searches and seizures. Despite possessing investigative capabilities, the ED is not regarded as a ""police agency.""
  • There have been several instances where the PMLA has been used by the government at the Centre as a weapon to target politicians from the opposition, their relatives, and activists recently

Enforcement Directorate

  • It is a specialised financial investigative department within the Ministry of Finance's Department of Revenue.
  • The Department of Economic Affairs established a 'Enforcement Unit' on May 1, 1956, to deal with violations of the Foreign Exchange Regulation Act, 1947.
  • This unit was renamed the 'Enforcement Directorate' in 1957.
  • The following laws are enforced by the ED:
  • The Foreign Exchange Management Act (FEMA) was passed in 1999, while
  • The Prevention of Money Laundering Act (PMLA) was passed in 2002.