What is PMLA Act? Money laundering, law statement and objectives

New Delhi, August 25, 2022

What is the Prevention of Money Laundering act and how does it affect a nation? Read this article to understand money laundering, the PMLA act, objectives of the PMLA act, FATF and everything

Chief Justice N.V Ramana reviewed the Prevention of Money Laundering Act (PMLA) on Thursday, August 25. The two key points that the Supreme court will review are upholding the Enforcement Directorate's powers, regarding the arrest and will seek a response from the Centre on the issue.

"After reading the judgment, two areas, not providing ECIR and burden of proof needs reconsideration", Chief Justice N.V Ramana said after reading Karti Chidambaram's petition on the PMLA act.

What is money laundering?

Cash and corruption have been two close entities. People do crimes for money, and the money created by crimes gets converted into white money, this whole process or system is called money laundering. In simpler language, money laundering is a process of converting illegally earned money into legitimate money.

Money laundering not only affects the economic and social structure of society. Drug trafficking and funding terrorism are also some concerns affiliated with money laundering. Fortunately, India is not currently on the Financial Action Task Force list of countries that have anti-money laundering strategic deficiencies.

What is the Prevention of Money Laundering Act (PMLA)?

Prevention of Money Laundering Act is a criminal law of the Parliament of India passed by the NDA government in 2002 to prevent money laundering and confiscate property derived from the laundered money. PMLA became law and came into force on July 1, 2005.

Many petitions have been filed nationally about the blanket powers assigned to the Enforcement Directorate (ED) under PMLA for seizing, investing, searching and attaching assets.

The reason why this act was introduced was because of India's commitment at the Vienna Convention to combat money laundering.

What are the objectives of the PMLA act?

While the objectives of the PMLA act can be extended to anything. Here are a few core objectives.

• Prevention and controlling money laundering.
• Confiscation and seizing of property involved in or derived from money laundering.
• Providing punishment to offenders
• Appointment of adjudicating authority and appellate tribunal concerning money laundering matters
• Maintaining records and putting obligations on financial institutions, banking companies and institutions
• Dealing with every issue related to money laundering

 What is money laundering's effect on development?

• Damaged reputation: Money laundering activities hamper the country's reputation. Foreign Financial Institutions (FII) might limit their transactions with institutions from money laundering shelters. This will have a direct impact on the country's economy.
• Increased corruption and crime: Money laundering helps criminals to evade. Countries with high money laundering often suffer from a higher rate of crimes.
• A weaker economy and private sector - There are business enterprises that are legitimate, but are controlled by criminals. This results in a weaker private sector as people don't trust them.

What is the Financial Action Task Force (FATF)?

The Financial Action Task Force is an intergovernmental institution established in 1989 in the endeavour of the G7 to create policies to battle money laundering. In 2001, its directive was expanded to include terrorism financing.

FATF releases grey and black lists, in which few countries are mentioned. A grey list is created to check its nation's progress on measures against money laundering and terrorism financing activities, while a black list includes non-cooperative countries against battling money laundering and terror financing.

Why do we need Financial Action Task Force (FATF)?

Given below are some reasons why countries need FATF:

• They help in monitoring members’ progress in implementing measures to fight money laundering.
• They are adept at reviewing money laundering techniques and countermeasures.
• Promoting the adoption and implementation of applicable measures by non-member countries for fighting money laundering.

[The Business Standard]