PREVENTION OF MONEY LAUNDERING ACT,2002

INTRODUCTION
The Prevention of Money Laundering Act (PMLA), 2002 was enacted in January,
2003. The Act along with the Rules framed thereunder have come into force with
effect from 1st July, 2005. Sec. 3 of PMLA defines offence of money laundering as
whosoever directly or indirectly attempts to indulge or knowingly assists or
knowingly is 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 offence
of money-laundering. It prescribes obligation of banking companies, financial
institutions and intermediaries for verification and maintenance of records of the
identity of all its clients and also of all transactions and for furnishing information of
such transactions in prescribed form to the Financial Intelligence Unit-India (FIU-
IND). It empowers the Director of FIU-IND to impose fine on banking company,
financial institution or intermediary if they or any of its officers fails to comply with
the provisions of the Act as indicated above.

PMLA empowers certain officers of the Directorate of Enforcement to carry out

investigations in cases involving offence of money laundering and also to attach the
property involved in money laundering. PMLA envisages setting up of an
Adjudicating Authority to exercise jurisdiction, power and authority conferred by it
essentially to confirm attachment or order confiscation of attached properties. It also
envisages setting up of an Appellate Tribunal to hear appeals against the order of the
Adjudicating Authority and the authorities like Director FIU-IND.

PMLA envisages designation of one or more courts of sessions as Special Court or

Special Courts to try the offences punishable under PMLA and offences with which
the accused may, under the Code of Criminal Procedure 1973, be charged at the same
trial. PMLA allows Central Government to enter into an agreement with Government
of any country outside India for enforcing the provisions of the PMLA, exchange of
information for the prevention of any offence under PMLA or under the
corresponding law in force in that country or investigation of cases relating to any
offence under PMLA.

The Early History of Money Laundering

Money laundering is not the oldest crime in the book but it’s certainly close. Historian
Sterling Seagrave has written that more than 2000 years ago, the wealthy Chinese
merchants laundered their profits because the regional governments banned many
forms of commercial trading. He writes that the government considers merchant
activities with a great amount of suspicion as they were considered to be ruthless,
greedy and they follow different rules. Besides this a considerable amount of the
income of merchants came from black marketing, extortion and bribe. The merchants
who remained invisible were able to keep their wealth safe from the continuous
extortions by bureaucrats. [1] So they used techniques like converting money into
readily movable assets and moving the cash out of the jurisdiction in order to invest
the money in the business. This technique is still used by many money launderers. [2]

According to legend, the term money laundering was originated in 1920’s during the
period of prohibition in the United States. The organized criminals in the United
States got greatly involved in the profitable alcohol smuggling industry and for
legalizing their profits they started combining their profits with the profits from
legislative business. But according to Robinson, the term was first used in 1973 in
relation with the Watergate scandal. He says this case describes the money laundering
perfectly despite of its origin, In that case the dirty or illegal money was put through a
series of transactions and the money appears clean or legal at the other end. [3]

Money laundering can be broadly defined as the process of disguising the financial
earnings of the crime. The U.S Custom Service defines “money laundering is the
legitimization of proceeds from the illegal activity”. And the International Monetary
Fund (IMF) defines money laundering as a “process in which assets generated or
obtained by criminal activities are concealed or moved to create a link between the
crime and the assets which is difficult to understand.” [4] With the introduction of
term money laundering, the types of money was created, first is the money derived
from the illegal activities that is called black money and the money derived from the
legal activities that is called white money. The ultimate goal of the money laundering
is to serve the financial link between a crime and the persons behind that crime,
allowing them unnoticeable enjoyment of funds. [5]

However it’s difficult to visualize the difference between the two. The basic idea
behind visualizing the difference is that the black money cannot be spend easily
particularly on high value goods as compared to white money as now a day’s
merchant cannot sell high valuable goods on cash as he is liable for the clarification
and if the criminal displays his wealth without an obvious legal source, it may raise
the suspicion about the criminal therefore the criminals have setup the money
laundering scheme to convert their illegal gains into legal earned money.

KEY TERMS
MONEY LAUNDERING:

Money laundering has become a world-wide menace. The goal of a large number of
criminal acts is to generate a profit for the individual or group that carries out the act.
Money laundering is the processing of these criminal proceeds to disguise their illegal
origin. This process is of critical importance, as it enables the criminal to enjoy these
profits without jeopardizing their source.

Some of the offences of like- illegal arms sales, smuggling, and the activities of
organised crime, including for example drug trafficking and prostitution rings, can
generate huge sums. Insider trading, bribery and computer fraud schemes can also
produce large profits and create the incentive to legitimize the ill-gotten gains through
money laundering.
DEFINATION OF MONEY LAUNDERING:
Money laundering is the process of moving illegally acquired cash through financial
systems so that it appears to be legally acquired
Money laundering is the processing of dirty money in order to disguise their illegal
origin. Dirty money is proceeds derived from criminal conduct and criminals want the
money to look like it came from a legitimate source.
ANTI MONEY LAUNDERING:
Anti-money-laundering refers to a set of procedures, laws and regulations designed to
stop the practice of generating income through illegal actions. Though anti-money-
laundering laws cover a relatively limited number of transactions and criminal
behaviors, their implications are far-reaching.
For example, AML regulations require institutions issuing credit or allowing
customers to open accounts to complete due-diligence procedures to ensure they are
not aiding in money-laundering activities. The onus to perform these procedures is on
the institutions, not on the criminals or the government.
In India, the Anti Money Laundering (AML) measures are controlled through the
Prevention of Money Laundering Act, 2002 which was brought in force with effect
from 1st SS July 2005. RBI, SEBI and IRDA have been brought under the PML Act,
and therefore it will be applicable to all financial institutions, banks, mutual funds,
insurance companies, and their financial intermediaries. The agency monitoring the
AML activities in India is called Financial Intelligence Unit (FIU IND) and
compliance is required by all financial intermediaries.

Financial Action Task Force (FATF):

The Financial Action Task Force (FATF) is an intergovernmental organization that

designs and promotes policies and standards to combat financial crime.
Recommendations created by the Financial Action Task Force (FATF) target money
laundering, terrorist financing, and other threats to the global financial system. The
FATF was created in 1989 at the behest of the G7, and is headquartered In Paris.

Certified Anti-Money Laundering Specialist - CAMS:

A Certified Anti-Money Laundering Specialist (CAMS) is a professional designation

awarded to those who pass the CAMS exam and meet certain qualifications. The
designation is awarded by the Association of Certified Anti-Money Laundering
Specialists (ACAMS) to professionals who pass the exam, earn 40 qualifying credits
based on education, other professional certification and work experience, and who
provide three professional references. Successful applicants earn the right to use the
CAMS designation, which can improve job opportunities, professional reputation and
pay.

Combating the Financing of Terrorism (CFT) :

Combating the Financing of Terrorism (CFT) involves investigating, analyzing,
deterring and preventing sources of funding for activities intended to achieve political,
religious or ideological goals through violence and the threat of violence against
civilians. By tracking down the source of the funds that support terrorist activities,
law enforcement may be able to prevent some of those activities from occurring.
Instead of trying to catch a criminal plotting or committing an act of terrorism through
other means such as surveillance, law enforcement addresses the problem from the
money side by detecting suspicious financial transactions and tracking down all the
individuals and organizations involved in those transactions.

Anti-Fragility:

Anti-fragility is a postulated antithesis to fragility where high-impact events or shocks

can be beneficial. Anti-fragility is a concept developed by professor, former trader
and former hedge fund manager Nassim Nicholas Taleb. Taleb coined the term "anti-
fragility" because he thought the existing words used to describe the opposite of
"fragility," such as "robustness," were inaccurate. Anti-fragility goes beyond
robustness; it means that something does not merely withstand a shock but actually
improves because of it.

Anti-Diversion Clause:

The anti-diversion clause is a regulation that prevents exported goods from going to
destinations not approved by the government. In the United States, the Department of
Commerce's Bureau of Export Administration requires commercially exported goods
to be accompanied by a destination control statement saying that the goods are only
authorized for export to certain locations and that U.S. law prohibits their diversion.
The latter part of this statement is the anti-diversion clause. Often, in practice, you
may see anti-diversion shortened to just diversion.
BIBLOGRAPHY

http://www.legalserviceindia.com/articles/mlau.htm

https://dor.gov.in/prevention-of-money-laundering-list
https://www.investopedia.com/terms/a/anti-fragility.asp