Prevention of Money Laundering Act (PMLA)

Prevention of Money Laundering Act (PMLA)

Why in news:

• Recently, the Finance Ministry made an amendment to Section 2(sa) of the Prevention of Money Laundering Act (PMLA) by using their powers given on Section 2(vi) of the same Act.
• Through this amendment, Chartered Accountants, Company Secretaries and Cost Accountants were included in the list of “persons carrying on designated business or profession”.
• PMLA states that both the Adjudicating Authority and the Appellate Tribunal shall not be bound by the Code of Criminal Procedure, 1908 but by the principles of natural justice.

About Prevention of Money Laundering Act (PMLA):

• The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering.
• PMLA and the Rules notified there under came into force with effect from July 1, 2005.
• Director, FIU-IND and Director (Enforcement) have been conferred with exclusive and concurrent powers under relevant sections of the Act to implement the provisions of the Act.
• The PMLA and rules notified thereunder impose obligation on banking companies, financial institutions, and intermediaries and persons carrying on a designated business or profession, to verify identity of clients, maintain records and furnish information to FIU-IND.
• PMLA is an act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto.

Objectives of the Prevention of Money Laundering Act, 2002:

The Prevention of Money Laundering Act, 2002, was sanctioned with the aim of combating the issue of money laundering. Some of its objectives are as follows:

1. To prevent and control the issue of money laundering.
2. To confiscate or take into custody any property that is likely derived from or has involvement in cases of money laundering.
3. To penalise the offenders with the offence of money laundering.
4. For appointing the adjudicating authority and appellate tribunal for taking in charge of matters related to money laundering.
5. To make it obligatory for banking companies, financial institutions and intermediaries to preserve records or documents relating to financial transactions.
6. To manage any other issues related to money laundering.

What is money laundering?

• Money laundering is defined as the process by which an illegal fund, perhaps, black money, obtained from illegal activities is disguised as legal money, which is eventually portrayed to be white money.

Common forms of money laundering:

1. Hawala system,
2. Smuggling bulk amounts of money ,
3. Fictional loans,
4. Business involving cash-incentives,
5. Round-tripping,
6. Laundering Laundering that is trade centric,
7. Shell companies and trusts,
8. Real estate,
9. Fake invoicing.

Syllabus: Prelims