Context: Observing that the offence of money laundering cannot be treated lightly, the Supreme Court said that it was a more serious and heinous crime than murder as it afffected the entire economy whose growth could be put on hold or derailed because of it.

Background 

• The court is examining the constitutional validity of various provisions of the Prevention of Money Laundering Act (PMLA) for allegedly being violative of basic principles of natural justice and criminal jurisprudence.
• While hearing a batch of petitions, the court said such a crime affects the integrity and sovereignty of the country and that was the purpose for bringing the Act.
• The offence of money laundering damages the economy and the financial system of the country.
• The court said that money laundering is not only used for drug trading but also for terrorist activities and such crimes affect the integrity and sovereignty of the country.

Petition

• The petitioners submitted that the coercive powers provided under the Act, including the power of arrest under Section 19 without a warrant on a mere subjective satisfaction of the officer concerned, is, in fact, to facilitate obtaining of a confessional statement, failing which he may be prosecuted.
• It was pointed out that the procedure prescribed in the Act is against the Criminal Procedure Code and Indian Evidence Act.
• The petitioners have also challenged the validity of Section 45(1) of the Act for putting limitations for granting bail.

About Money Laundering

• It refers to the conversion or misrepresentation of money which has been illegally obtained by unlawful sources and methods.
• The conversion is done in such a way that it appears to have originated from a legitimate source and method. 
• Criminals use a wide variety of money-laundering techniques to make illegally obtained funds appear clean.
• Online banking and cryptocurrencies have made it easier for criminals to transfer and withdraw money without detection.

How Money Laundering works?

• It involves three steps: placement, layering and integration.
• Placement puts the "dirty money" into the legitimate financial system.
• Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
• In the case of integration, the now-laundered money is withdrawn from the legitimate account to be used for criminal activities.
• In reality, money laundering cases may not have all three stages, some stages could be combined, or several stages repeat several times.
• For instance, Cash from drug sales is divided into small amounts then they are deposited by “money mules” and afterwards transferred as payment for services to a shell company.
• In this case, the placement and layering are done in one stage.
• The estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars.
• Due to the clandestine nature of money laundering, it is, however, difficult to estimate the total amount of money that goes through the laundering cycle.

Money Laundering can take several forms, some of them are: Structuring also called as Smurfing; Bulk Cash Smuggling; Cash intensive Businesses; Trade based Laundering; Shell companies; Round tripping; Gambling; Black salaries; Tax amnesties; Transaction laundering

Use of cryptocurrencies in money laundering

• Cryptocurrencies have grown to become the currency of choice in a wide range of online illicit activities. 
• Apart from being the preferred form of payment for buying ransomware tools and services, online exploitative material, drugs, and other illegal goods online, CVCs are increasingly used to layer transactions and obfuscate the origin of money derived from criminal activity.
• Criminals use a number of money-laundering techniques involving cryptocurrencies, including “mixers” and “tumblers” that break the connection between an address (or crypto “wallet”) sending cryptocurrency and the address receiving it.

Impacts of Money Laundering
Economic Impacts:

• Undermines legitimacy of private sector
• Undermines integrity of financial markets
• Loss of control of economic policy
• Economic distortion and instability
• Loss of revenue
• Security threats to privatisation efforts
• Volatility in exchange rates and interest rates due to unanticipated transfers of funds
• Rise of economic prices
• Affects trade and international capital flows

Social Impacts

• Increased criminality
• Decreases human development
• Misallocation of resources
• Affects trust of local citizens in their domestic financial institutions
• Declines the moral and social position of the society by exposing it to activities such as drug trafficking, smuggling, corruption and other criminal activities

Political Impacts

• Initiates political distrust and instability
• Criminalisation of politics

Steps Taken by Government of India to Prevent Money Laundering

• Criminal Law Amendment Ordinance (XXXVIII of 1944): It covers proceeds of only certain crimes such corruption, breach of trust and cheating and not all the crimes under the Indian Penal Code.
• The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976: It covers penalty of illegally acquired properties of smugglers and foreign exchange manipulators and for matters connected therewith and incidental thereto.
• Narcotic Drugs and Psychotropic Substances Act, 1985: It provides for the penalty of property derived from, or used in illegal traffic in narcotic drugs.

Prevention of Money-Laundering Act, 2002 (PMLA)

• It forms the core of the legal framework put in place by India to combat Money Laundering.
• The provisions of this act are applicable to all financial institutions, banks(Including RBI), mutual funds, insurance companies, and their financial intermediaries.

PMLA (Amendment) Act, 2012

• Adds the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary etc.
• PMLA, 2002 levied a fine up to Rs 5 lakh, but the amendment act has removed this upper limit.
• It has provided for provisional attachment and confiscation of property of any person involved in such activities.

Financial Intelligence Unit-IND: It is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
Enforcement Directorate (ED)

• It is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
• One of the main functions of ED is to Investigate offences of money laundering under the provisions of Prevention of Money Laundering Act, 2002(PMLA).
• It can take actions like confiscation of property if the same is determined to be proceeds of crime derived from a Scheduled Offence under PMLA, and to prosecute the persons involved in the offence of money laundering.
• India is a full-fledged member of the FATF and follows the guidelines of the same.

Global efforts to combat Money Laundering

• The Vienna Convention: It creates an obligation for signatory states to criminalize the laundering of money from drug trafficking.
• The 1990 Council of Europe Convention: It establishes a common criminal policy on Money Laundering.
• G-10’s Basel Committee statement of principles: It issued a “statement of principles” with which the international banks of member states are expected to comply.
• The International Organization of Securities Commissions (IOSCO): It encourages its members to take necessary steps to combat Money Laundering in securities and futures markets.
• Multilateral fora such as the Financial Action Task Force (FATF), the Eurasian Group on Combating Money Laundering and Financing of Terrorism, and the Asia Pacific Group on Money Laundering (APG) also need to be optimally utilised by the Enforcement Directorate for bilateral exchanges and follow up with counterpart enforcement agencies for better mutual cooperation.

Road Ahead

• The evolving threats of money laundering supported by the emerging technologies need to be addressed with the equally advanced Anti-Money Laundering mechanisms like big data and artificial intelligence. Both international and domestic stakeholders need to come together by strengthening data sharing mechanisms amongst them to effectively eliminate the problem of money laundering.

By: Shubham Tiwari