DNA Explainer: As SC order on PMLA boosts ED powers, know what the anti-money laundering law is all about

The Supreme Court on Wednesday upheld the constitutional validity of various provisions of the Prevention of Money Laundering Act (PMLA) and said it is not mandatory to give an Enforcement Case Information Report (ECIR) in every case to the person concerned.

It is enough if the Enforcement Directorate (ED) discloses grounds at the time of arrest, said a bench headed by Justice A M Khanwilkar.

The top court’s ruling came on a batch of 241 petitions, most of them filed by opposition leaders, which challenged several stringent provisions of PMLA in proceeds of crime, search and seizure, power of arrest, attachment of properties, and bail. 

What is Prevention of Money Laundering Act, 2002?

Explaining in simple words, the PMLA is a criminal law to prevent money laundering and to provide for confiscation of property involved in money laundering. 

The law enables the government or the public authority to confiscate the property earned from illegally gained proceeds. 

Any person who directly or indirectly attempts to indulge; assists the person who us actually involved in any process; is a party to the activity connected with the proceeds of crime, can be booked under the stringent law. 

Those involved in supply of illegal arms, drug trafficking, and prostitution, which can generate huge amounts of money, are also liable to be held guilty of the offence of money laundering. 

The Act and Rules that are notified impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information in prescribed form to Financial Intelligence Unit - India.

Widening of ‘proceeds of crime’ in 2019

In July 2019, the government widened the definition of ‘proceeds of crime’ in the form of amendments to the Finance Bill, 2019.

The ramification of the definition was two-fold. First, the ED could now prosecute persons or entities, even if the ‘proceeds of crime’ were not under the PMLA. This meant ‘proceeds of crime’ were no more a standalone crime under the PMLA and assets created through any criminal activity were treated as ‘proceeds of crime’.

More importantly, the government also deleted provisions related to search and seizure in the PMLA, doing away with the pre-requisite of an FIR or chargesheet by other agencies authorised to probe the offences listed in the PMLA.

Why was the Act formulated?

• Prevent money-laundering
• Combat/prevent channelising of money into illegal activities and economic crimes
• Provide for the confiscation of property derived from, or involved/used in, money-laundering
• Provide for matters connected and incidental to the acts of money laundering

What is money laundering and how is it done?

Obtaining or deriving any property by committing a crime which amounts to a Scheduled offence, and then projecting or claiming such money or property as untainted property amounts to money laundering.

Firstly, the illicit money is introduced into the financial system in what is known as ‘placement’. Then comes the ‘layering’ process in which the money is layered and spread over various transactions with a view to clear the origin of the money.  

In the third and the final stage, the money enters the financial system in such a way that original association with the crime is sought to be cleared so that the money can then be used by the offender or person receiving it as clean money and this is called ‘integration‘.

What the law says on attachment of property?

The purpose of attachment is to deprive an accused of the benefits of the attached asset. The law also provides for the property to remain out of bounds for the accused until the trial is complete.

However, properties that are in use are generally not sealed until the case reaches its logical conclusion. Usually, the accused secures release of the property in appellate tribunals or High Courts, or is able to get a stay, and continue to enjoy it while the matter remains pending in the courts.