Sansad TV: Perspective- SC’s PMLA Ruling | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Introduction

In its recent judgment regarding a series of petitions concerning the interpretation of specific provisions within the Act, the Supreme Court (SC) bench expressed the view that money laundering constitutes a "heinous" crime with far-reaching consequences for a nation's social and economic fabric. Furthermore, the court acknowledged that money laundering can inadvertently fuel other serious offenses such as terrorism and drug trafficking.
The SC upheld the validity of certain provisions of the Prevention of Money Laundering Act (PMLA), emphasizing that this legislation was created urgently to combat money laundering and prosecute individuals involved in activities related to the proceeds of criminal acts. Additionally, the court upheld the Enforcement Directorate's authority to make arrests, attach properties connected to money laundering, and conduct searches and seizures under the PMLA, all of which had been contested by multiple petitioners.

Money laundering

• Money laundering is the process of creating the illusion that significant sums of money acquired through criminal activities, such as drug trafficking or terrorist operations, originated from a lawful source. 
• The funds obtained from unlawful activities are typically considered "dirty," and the money laundering process is employed to make them appear legitimate.

The Supreme Court Ruling

• The Enforcement Case Information Report (ECIR) cannot be equated with a First Information Report (FIR).
• Supplying an ECIR to the involved party is not obligatory in every case; instead, it suffices if the Enforcement Directorate (ED) discloses the grounds for the arrest at the time of apprehension.
• Offenses under Section 3 of the PMLA are contingent upon the illicit acquisition of property resulting from criminal activities linked to a scheduled offense.
• Authorities under the 2002 Act cannot prosecute individuals on a hypothetical basis or presume that a scheduled offense has transpired unless it has been registered with the appropriate police jurisdiction and is under investigation, including through a criminal complaint before the competent legal forum.
• The bench affirmed the ED's authority under Section 5 of the Act to provisionally attach the proceeds of crime.
• The Court clarified that Section 5 establishes a balanced mechanism to safeguard the interests of the individuals involved and guarantees that the proceeds of crime remain accessible for treatment in accordance with the 2002 Act.
• The argument that ED authorities are akin to police officers was dismissed.

How Money Laundering Operates

• Money laundering appears to be a legitimate financial transaction on the surface but conceals underlying criminal activities through a three-stage process:
  • Placement: In the first stage, illicit funds are introduced into the formal financial system.
  • Layering: In the second stage, the money is distributed across various transactions to obscure its illicit origin.
  • Integration: The third and final stage involves reintroducing the money into the financial system in a manner that erases its original connection to criminal activities, making it usable as clean funds.

Government of India's Efforts to Combat Money Laundering

Before the enactment of the Prevention of Money Laundering Act, 2002 (PMLA), India's primary legal measures addressing money laundering included:

PMLA Act

• The PMLA imposes obligations on banking institutions, financial entities, and intermediaries to verify and maintain records of their clients' identities, as well as transactions, and to report such information to the Financial Intelligence Unit-India (FIU-IND).
• It grants the Director of FIU-IND the authority to levy fines on banking institutions, financial entities, or intermediaries and their officers for failing to comply with the Act's provisions.
• The PMLA has undergone multiple amendments, including those in 2005, 2009, and 2012.
• PMLA envisions the establishment of an Adjudicating Authority with jurisdiction, powers, and authority to confirm the attachment or order the confiscation of attached properties as prescribed by the Act.