Over the decades, money laundering has become a prevalent issue. Both government and financial institutions are constantly looking for new ways to prevent money laundering. It is the process by which criminally derived property may be laundered are extensive. Money laundering refers to convert the illegally earned money into legitimate money. It is the way to hide the illegally acquired money. The government does not receive any tax on the money earned due to money laundering as they do not have any accounting for this.
In money laundering, money is invested in such a way that even the investigating agencies can’t trace the primary source of wealth. The person who manipulates the money is called as a launderer.
Indian laws governing money laundering
Prevention of Money-laundering Act (PMLA), 2002: Initially, the money laundering act was enacted in the year 2002, but it has been amended in the year 2005, 2009 and 2012.
The Money laundering act is enacted for the following reasons:
- To prevent the activity of money laundering.
- To impound and seize the property obtained from money laundering.
- To deal with the issues related to money laundering in India.
- The act has put concealment of funds, acquisition of a possession, use of proceeds of crime and possession of money in the criminal list.
- SEBI, RBI and IRDA (Insurance Regulatory and Development Authority) are also brought under the purview of the PMLA.
- The provision of this act shall also apply to all financial institutions like banks, mutual funds, insurance companies and their other financial intermediaries.
- The money of a criminal may be laundered without the assistance of the financial sector, but the reality is that billions of dollars of criminally derived money are mainly laundered through financial institutions.
Anti - Money Laundering:
The term anti-money laundering refers to the policies and regulations that force financial institution to monitor their clients to prevent money laundering and corruption. The Anti-money laundering laws entered the global arena after the Financial Action Task Force (FATF) was created. After putting the framework, FATF began to systematically identify what countries did not have proper legislation in relation to money laundering. The financial institutions play an essential role in the financial world. The employees of the financial institutions must be adequately trained to prevent and handle the money laundering. Every bank employee is trained in anti-money laundering, and they are legally bound to report any suspicious activity.
Stages of Money Laundering:
The money laundering has been described in three distinct phases as follows:
- Placement: It is the stage at which criminally derived funds are placed in the financial system and economy.
- Layering: Layering is the substantive stage of the process in which the property is washed, and its ownership and source are disguised.
- Integration: It is the final stage where the laundered property is re-introduced in the legitimate economy.
Penalties for Money Laundering:
The PMLAprescribed under section 4 that any person found guilty of Money laundering shall be punishable with rigorous imprisonment from 3 - 7 years and a penalty of Rs 5 lakh.
Also, any offence under the Narcotic Drugs and Psychotropic Substances Act, 1985, the maximum punishment may extend to 10 years.
The PMLA gives vast powers to the Director or any other officer, not below the rank of any other officer not below the rank of Dy. Director to attach the property.
The authority may by the order attach the property for a period not exceeding 180 days from the date of order.