INTRODUCTION
Money laundering is the most organized crime. It has been creating a lot of problems in our country. Section 3 of Prevention of Money-laundering Act, 2002 [here-in mentioned PMLA, 2002] defines Money-laundering. Laundering means to clean something, here the launderer cleans illegally obtained funds which have been generated through criminal activity and allow this dirty money to be used in the economy. It is a process by which a person transfers his money or assets to another. The property so transferred is derived from criminal activity. Money laundering not only generates money for the launderer but also leads to smuggling, drug trafficking etc which has been deteriorating our country. The ill-gotten money is not accounted anywhere in books and the launderer does not pay taxes on this money. The process of money-laundering is generally put into a chain of transactions to hide its origin and to make it look like legitimate money. It generally leads to illegal arms sale, drug trafficking, smuggling etc. This article is a small attempt to define money laundering, its essentials and punishment under PMLA.
- DEFINITION OF MONEY-LAUNDERING
Section 3 of PMLA, 2002 defines 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.
- PROCESS OF MONEY LAUNDERING
The process of money laundering can be done in the following process:-
1) Placement
Placement is the first process of money laundering. The launderer holds bulk of funds and place them into the financial system, at the same time, hides its emergence.
Example: – Depositing huge money into a bank by an anonymous corporation, Invoice Fraud, carrying small sums of cash abroad, through aborted transactions.
2) Layering
At this stage, one person transfers money to another and that person transfers it again and this process goes on. Money moves around the world electronically. The launderers convert their cash into monetary instruments. Generally, the launderer buys some assets in cash and sells them.
Example: – transferring money electronically in different countries, converting money into financial instruments, investing in real estate.
3) Integration
It is the final stage of money laundering, the launderer now receives the money back after giving it a legitimate colour. He receives the ill-gotten money in a legal way. The launderer invests this money into property or jewellery etc.
- PROCEEDS OF CRIME
Proceeds of crime have been defined in Section 2(u) of PMLA, 2002. It says:-
“Proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property [or where such property is taken or held outside the country, then the property equivalent in value held within the country] [or abroad].
ESSENTIALS OF MONEY-LAUNDERING
1. MONEY INVOLVED MUST BE PROCEEDS OF CRIME
In the case of Hassan Ali Khan v Union of India (2011) 10 supreme court cases 235 it had been said that, to prove an offence of money laundering, it is important to establish that monies involved are the proceeds of crime and the person has knowledge about the same, and he shows it as undamaged property. In this case, Hassan Ali khan used different passports which he obtained by giving false documents, to open bank accounts in foreign countries for laundering the money.
It has also been stated that when a person is accused of money laundering under section 3 of PMLA, the Burden of proving that the monies involved were neither proceeds of crime nor undamaged property, is on the accused.
2. ACCUSED MUST HIMSELF BE INVOLVED
In the case of Narendra Mohan Singh v Directorate of Enforcement, Ranchi and another, (2014) SCC online Jhar 2861 : (2014) 2 AIR Jhar R 670, it had been held that, a precondition of section 3 of PMLA, is that the accused must himself be involved in the process or activities connected with proceeds of crime which are derived from a criminal activity which is a scheduled offence.
3. SOFTNESS BY STATE
Launderers transfer their large amount of unaccounted money into banks abroad or in tax havens countries and then receives it back and invests. This process shows the weakness of the state in the collection of taxes on income gained by the individuals.
In the case of, Ram Jethmalani v Union of India (2011) 8 supreme court cases 1, it implied that, the state has the responsibility under the constitution, to find the source of monies which has been gained by the person by some illegal ways and has been taken abroad. And shall punish the person and bring back the monies owned to the country.
The money which has been transferred to any foreign country is very essential for the state, to undertake the various public goods and services and to provide necessary things to the citizens which the constitution of India mandates. And it is important to bring back the monies which are owed to the country.
And it had been also said that,
‘if the state is soft to a large extent, especially in terms of the unholy nexus between the lawmakers, the law keepers, and the lawbreakers, the moral authority, also the moral incentives, to exercise suitable control over the economy and the society would vanish. Large unaccounted for monies are generally an indication of that.
- BURDEN OF PROOF LIES ON THE ACCUSED
According to Section 24 of PMLA, if a person is charged under section 3 of offence of the money-laundering, unless the contrary is proved, the court or authority shall presume that proceeds of crime are involved in money-laundering.
In the case of, Gautam Kundu v Directorate of Enforcement (2015) 16 supreme court cases 1, it has been said that, ‘unless the contrary is proved, the authority or the court shall presume that proceeds of crime are involved in money laundering and the burden of proof that the proceeds of crime are not involved, lies on the accused’.
- WHAT HAPPENS WHEN THE LAUNDERER RECEIVES MONEY BACK
The money which has now been obtained after giving it the colour of legitimacy may be transferred to groups of individuals who may use them for illegal or legal activities.
Or the person might use this money for purchasing illegal things.
Or the launderer may invest this money into some property or might get some luxury car or jewellery etc.
- PUNISHMENT FOR MONEY LAUNDERING IN INDIA
Punishment for money laundering has been defined in Section 4 of PMLA, 2002. It provides:-
1) Rigorous Imprisonment
2) From 3 to 7 years
3) And, where proceeds of crime are involved in money laundering relates to an offence specified under para 2 of part A of the schedule (Offences under the Narcotic Drugs and Psychotropic Substances), the terms of imprisonment can be extended up to 10 years.
CONCLUSION
Money laundering makes rich people richer as they pay low taxes on their income and it makes poor people poorer. The economic offences involve huge loss to public funds and it needs to be viewed critically. It should be considered as grave offences that have been affecting the economy of the country. Money laundering poses a serious threat to the financial health of the country. The dirty money can be transferred to groups and individuals who may use it for unlawful activities which are dangerous to the nation. Non-collection of proper taxes by the state indicates state weakness. The state must overcome their weaknesses in the collection of taxes on the income generated by individuals and other legal entities of the country.
(Author Sakshi Jain is perusing BBLA LLB from VIPS, affiliated to IP University and is currently in 4th year. She is also a legal intern at USR legal advisors and can be reached at js.sakshijain@gmail.com.)
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