Punishment for Money Laundering in India

Law
21-May-2024
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Money Laundering is the most common way of changing the cash procured from criminal or criminal operations to white money. In India, there are severe regulations against money laundering mentioned in the Prevention of Money Laundering Act (PMLA) of 2002. The punishment for the same fluctuates depending on how serious the offense is. As per Section 4 of the PMLA, individuals viewed as fault for money laundering can be condemned to between 3 and 7 years of rigorous imprisonment. Moreover, the law enables authorities to force large fines, which might add up to a few times the worth of the proceeds laundered. Further, properties and assets obtained from money laundering activities are liable to seizure by the public authorities under Section 5 of the PMLA.

Money Laundering Acts

Financial Action Task Force (FATF)

The FATF is an international body that sets guidelines and elevates measures to battle illegal money laundering and terrorist financing. India aims to strengthen its anti-money laundering (AML) and counter-terrorist financing (CTF) systems by being a member of FATF and complying with its rules.

Prevention of Money Laundering (Maintenance of Records) Rules, 2005

These standards were sanctioned to employ the powers presented by the PMLA, by the Central Government in a conference with the Reserve Bank of India (RBI). They endorse methods for keeping up with records of exchanges, recognizing clients, and announcing dubious activities. Institutions like banks, monetary foundations, and intermediaries are expected to follow these guidelines to forestall and recognize activities concerning money laundering.

Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA)

The COFEPOSA means to stop criminal operations like smuggling and foreign trade infringement, frequently connected to money laundering. Authorities are engaged to detain people associated with such offenses and seize their resources. The significant arrangements are Section 3, which manages the power to make orders keeping specific people, Section 4 which accommodates execution of confinement orders, Section 5, which manages the power to control spots and states of detainment, and Section 11, which gives the denial of detainment orders.

Benami Transactions (Prohibition) Act, 1988

The Act disallows benami exchanges, where property is bought or held for the sake of one individual, but genuine possession and control have a place with someone else. Benami exchanges are usually used to cover the genuine responsibility for and work with money laundering. Section 3 of the Act explicitly denies Benami exchanges and pronounces them void. The Act further considers the seizure of benami properties and forces punishments on guilty parties.

The Indian Penal Code (IPC)

The IPC contains arrangements connected with different offenses, including misrepresentation, cheating, and corruption, frequently related to money laundering activities. Sections 415, 420, and 120B, which deal with cheating, extortion, and criminal conspiracy, respectively, are regularly conjured in cases including financial violations.

The Code of Criminal Procedure, 1973 (CrPC)

In India, the CrPC sets down procedures for criminal investigations and trials. It gives the structure to the investigation and arraignment of offenses, including those connected with money laundering. Offenses, when tried in court, follow the strategy set down under the CrPC for however long they do not conflict with the arrangements of PMLA according to Section 65 of the PMLA.

Prevention of Money Laundering Act, 2002 (PMLA)

Objectives of the Money Laundering Act 2002

  1. Prevention of Money Laundering: Section 3 proclaims the offense of money laundering and plans to prevent people and entities from participating in activities that work with the most common way of changing unlawful funds into real assets. The endorsed punishment under Section 4 is 3-7 years of rigorous imprisonment for an offense of money laundering with a fine. If there should be an occurrence of an offense referenced under Part A, imprisonment would stretch out as long as 10 years.
  2. Confiscation of Proceeds of Crime: The seizure of the property is managed as per Section 5 of the PMLA. An authority not underneath the position of Deputy Director can order attachment of proceeds of crime for a time of 180 days, after informing the Magistrate. From there on he will send a report containing material data connected with such attachment to the Adjudicating Authority. Section 8 specifies the procedure of adjudication. After the official advance of the report to the Adjudicating Authority, this Authority ought to send a show cause notice to concerned people in 30 days or less. After considering the response and all connected data, the Authority can provide irrevocability to the request for attachment and make a seizure request, which will be affirmed or dismissed by the Special Court.
  3. Obligations on Financial Institutions: The reporting entity is expected to track all material data connected with money laundering and forward it to the Director. Such data ought to be protected for 5 years. The work of the reporting entity will be administered by the Director, who can force any monetary punishment or issue caution or order review of accounts if the entity abuses its obligations. The Central Government, after consulting with the RBI, is approved to determine rules connected with overseeing data by the reporting entity.

Key Aspects of Prevention of Money Laundering Act 2002

  1. Penalties and Punishments: Section 4 outlines rigid punishments, including imprisonment and fines, for people and entities viewed as guilty of money laundering offenses.
  2. Designated Authorities: Sections 2, 5, and 48 assign specific authorities, including the Enforcement Directorate (ED) and the Financial Intelligence Unit-India (FIU-IND), liable for authorizing the arrangements of the Act, conducting investigations, and making important authorizations.
  3. Obligations on Reporting Entities: Section 12 forces commitments on different entities, like banks, financial institutions, intermediaries, and certain professionals, to keep up with records of transactions, verify customer identities, and report dubious transactions to the assigned authorities.
  4. Confiscation and Forfeiture: Chapter 3 of the PMLA frames arrangements for the confiscation and relinquishment of properties and resources obtained from money laundering activities. These arrangements enable authorities to seize and confiscate proceeds of crime, in this way denying guilty parties of their ill-gotten gains.
  5. Special Court: Section 43 of the PMLA states that the Central Government will, by warning, allot at least one Court of Session as the special court(s) for such area(s) or case(s) as might be determined in the notice with the end goal of trial of an offense punishable under Section 4. Such tasks are done after consulting with the Chief Justice of the relevant High Court.
     

Prevention of Money Laundering Act 2002 and its Amendments

The Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023 were introduced by the Department of Revenue under the Ministry of Finance. These rules widened the ambit of reporting entities under money laundering provisions to incorporate more disclosures for non-governmental organizations and defined politically exposed persons (PEPs) under the PMLA in line with the recommendations of the FATF.

Expansion of PMLA Scope

People engaged with company formation, including directors, secretaries, and nominee directors, are now covered under the ambit of the PMLA. This incorporates those given enlisted workplaces, business addresses, or facilities for companies, LLPs, or trusts. The law additionally envelops practicing CAs, CSs, and CWAs associated with financial transactions for clients. In any case, legal advisors are excluded. The update commands KYC systems for accountants dealing with client funds. They should confirm ownership, financial status, and fund sources, making them reporting entities under PMLA.

Politically Exposed Person

The changed rules have presented another provision, which characterizes "Politically Exposed Persons" (PEPs) as people who have been “dependent on prominent public functions by a foreign country, including the heads of States or Governments, senior politicians, senior government or legal or military officials, senior executives of state-possessed corporations and significant political party officials.”

Non-profit organization

The meaning of “non-profit organization” has been extended, which will now incorporate any entity or association comprised for religious or charitable purposes alluded to in Section 2(15) of the Income Tax Act, 1961; or enrolled as a trust or a society under the Societies Registration Act, 1860 or any similar state regulation, or a company enlisted under Section 8 of the Companies Act, 2013.

Beneficial ownership

Through existing arrangements of the Income Tax Act, 1961, and The Companies Act, the changed guidelines have now brought down the limit for identifying beneficial owners by reporting entities, where the client is following up for the benefit of its beneficial owner. Priorly, the meaning of “beneficial owner” included, in addition to other things, the ownership of or right to more than 25% of the organization's shares, capital, or benefits. This limit of 25% has been brought down to 10%, carrying more indirect players into the reporting net.

Cryptocurrency and Virtual Digital Assets (VDAs)

The new standards have brought cryptocurrency and VDAs under the scope of anti-money laundering law (AML). According to new principles, an entity dealing in VDAs will now be viewed as a ‘reporting entity’ under the PMLA. The change will require delegates in the crypto environment to lay out and carry out PMLA measures and frameworks. These actions incorporate leading KYC checks during client onboarding, holding client information for a predefined period, observing and detailing dubious exchanges, and having strategies for tracking transactions.

Offense of Money Laundering

An individual will be at fault for the offense of money laundering when, he/she has straightforwardly or indirectly endeavored to indulge, purposely helped, intentionally is a party, or is engaged with at least one of the following processes or activities associated with proceeds of crime:

  1. Concealment 
  2. Possession
  3. Acquisition
  4. Use
  5. Projecting as untainted property
  6. Claiming as untainted property
    Under PMLA, the commission of any offense, as referenced in Part A and Part C of the PMLA Schedule, will draw in the arrangements of PMLA. A portion of the Acts and offenses that might be drawn in PMLA are counted below:
  • Part A includes offenses under different acts. For example, the Indian Penal Code, Narcotics Drugs and Psychotropic Substances Act, Prevention of Corruption Act, Antiquities and Art Treasures Act, Copyright Act, Trademark Act, Wildlife Protection Act, and Information Technology Act.
  • Part B determines offenses that are Part A offenses. However, the worth engaged with such offenses is Rs 1 crore or more.
  • Part C arrangements with transborder violations and mirrors the devotion to handling money laundering across worldwide limits.

What are the Punishments for Money Laundering in India?

Imprisonment

Under Section 4 of the PMLA, people sentenced for money laundering can face rigorous imprisonment going from 3 to 7 years and will likewise be obligated to a fine which might stretch out to 5 lakh rupees. Besides, in cases including proceeds of crime connected with specific offenses, for example, drug dealing, the greatest term of imprisonment can stretch out as long as 10 years.

Monetary Penalty

The PMLA enables authorities to levy huge fines on guilty parties notwithstanding imprisonment. The quantum of the penalty can stretch out up to three times the worth of the property laundered. Section 4(3) of the PMLA likewise determines the monetary punishment for the offense of money laundering, which might reach out to 5 lakh rupees or three times the worth of the property associated with money laundering, whichever is higher.

Non-Bailable offense

Money laundering is a non-bailable offense in India, which means that people accused of money laundering are not qualified for bail as a matter of right and should move to court for bail consideration. The non-bailable nature of the offense mirrors the concerns regarding flight risk, altering proof, and the possibility of executing further monetary wrongdoings whenever released on bail. Section 45 of the PMLA sets down arrangements concerning the non-bailable nature of the offense and the circumstances under which bail might be allowed to the accused.

Arrest without warrant

As per the PMLA, law enforcement agencies are approved to capture people associated with money laundering without getting a warrant from the court. Notwithstanding, it is fundamental to guarantee that such powers are practiced wisely to forestall any abuse or encroachment of individual privileges. Section 19 of the PMLA enables assigned officials to capture any individual whom he has reason to believe has committed an offense culpable under the PMLA, without a warrant.

Disqualifications from Elections

The Representation of the People Act, of 1951, outlines that people sentenced for specific offenses, including money laundering, are precluded from challenging elections for a predefined period. This disqualification fills in as a huge hindrance, especially for people serving in a position of authority or trying to do as such, as it can have extensive ramifications on their political vocations and public standing. Section 8 of the Act determines the disqualification of people indicted for specific offenses.

Consequences of Money Laundering

  1. Legal Penalties: Money laundering is a serious criminal offense in India, and those found blameworthy can have to deal with huge lawful damages. The PMLA is the essential regulation administering money laundering in India. Wrongdoers can face detainment going from 3 to 7 years and fines.
  2. Confiscation of Assets: The PMLA accommodates the seizure of property obtained from or associated with money laundering. This incorporates resources obtained straightforwardly or indirectly through proceeds of crime. Authorities can hold onto such assets, including bank accounts, properties, vehicles, and other valuables.
  3. Blacklisting and Reputation Damage: People and entities engaged in money laundering can face serious reputational harm. Banks and financial establishments might boycott them, making it hard for them to participate in authentic monetary transactions. This can have long-term ramifications for their own and professional lives.
  4. Impact on the Economy: Money laundering undermines the respectability of the financial framework and can inconveniently affect the economy. It distorts market components, works with defilement, and disintegrates public confidence in monetary organizations. This, thus, hampers financial development and improvement.
  5. International Cooperation and Sanctions: Money Laundering frequently includes cross-border exchanges, requiring international collaboration in battling crime. India is a member of different international bodies and has gone into agreements for mutual legal assistance in criminal matters. The inability to agree with international norms for fighting money laundering can prompt authorities and damage diplomatic relations.

Important Judgments

Vijay Madanlal Choudhary v. Union of India

Facts: In the present case, the Apex Court dealt with a number of petitions that challenged the constitutional validity of the provision of the Prevention of Money Laundering Act, 2002, along with the procedure followed in the Act. Apart from these, some of the petitioners also challenged the investigation procedure followed by the ED as per the provisions of this Act. Also, some petitioners have assailed the Apex Court against the decision rendered by the High Court while considering the efficacy of amended Section 45 of the PMLA, which was challenged by the petitioners.

Decision: The Supreme Court clarified that under the Prevention of Money Laundering Act (PMLA), presenting proceeds of crime as clean assets constitutes money laundering, even without other criminal actions like hiding or using the money. To attach alleged crime proceeds, registration of a predicate offense isn't required, but attachment relies on evidence indicating possession of illicit funds. Confirmed property attachment lasts 365 days or during ongoing trials. The PMLA's search and seizure powers have safeguards ensuring fairness. Bail conditions under PMLA are deemed reasonable, and evidence provided to the Enforcement Directorate (ED) can be used in court. The Act's scope covers all criminal activities leading to illicit property, regardless of severity. While the ED Manual remains internal, its transparency is encouraged. Vacancies in the ED Appellate Tribunal hamper case resolution but don't challenge the Act's validity. Penalties under the PMLA apply to money laundering, not underlying offenses. Lastly, 'proceeds of crime' must have a clear connection to the initial offense for action under PMLA to be warranted.

Murali Krishna Chakrala v. Deputy Director on 21 April 2022

Facts: Murali Krishna Chakrala, a Chartered Accountant (CA), faced charges under the PMLA for issuing Form 15CB to a client involved in imports. The ED investigated five individuals for opening fake bank accounts, submitting fraudulent bills, and transferring funds abroad. During the probe, 15CB forms were found with one accused, linked to the CA. The CA argued that issuing forms didn't constitute money laundering.

Decision: The Madras High Court ruled that nationalized banks, except one, processed money transfers without Form 15CB. The petitioner's certificates were uploaded, suggesting no involvement in any conspiracy. The petitioner merely received payment for issuing Form 15CB and nothing more. The Court clarified that a Chartered Accountant's duty is limited to assessing the nature of remittance, not verifying document authenticity. Since the petitioner issued Form 15CB after reviewing client documents, there was no cause for suspicion. The petitioner fulfilled professional obligations, leading to acquittal.

Narendra Kumar Gupta v State rep by Assistant Director, Directorate of Enforcement (2022)

Facts: The appellant was seen guilty of abetting money laundering in an international trade scheme, including proceeds directed through his Hong Kong Organization's record, causing foreign trade misfortunes. He guaranteed innocence, stating control by a criminal-minded person, who deceived him into signing documents. The appellant looked for bail, referring to comparable circumstances allowed to other co-accused. The Enforcement Directorate went against bail, contending the appellant’s consciousness of his activities and obligation according to Section 70 of the PMLA.

Decision: The Madras High Court inclined towards giving bail on light of a few grounds. It first noticed the absence of significant proof showing the appellant's immediate contribution to the supposed scam or the collection of "proceeds of crime." Furthermore, the applicant satisfied the bail conditions illustrated in Section 45(1) of the PLMA. In addition, clinical reports introduced to the court featured the applicant's serious ailment, requiring quick clinical mediation. The court underlined the significance of maintaining personal liberty, particularly on well-being grounds, especially when proof against the applicant gives off an impression of being speculative because of inadequate investigation.

P. Chidambaram vs Directorate Of Enforcement on 5 September 2019

Facts: On July 23, 2018, Mr. P. Chidambaram petitioned for anticipatory bail in the Delhi High Court after being arrested by the Directorate of Enforcement in the ECIR case. The court gave interim assurance until July 20, 2019, after excusing the application. A resulting appeal to the High Court was excused, referring to concerns that conceding anticipatory bail could hinder the investigation. Following his arrest by the CBI on August 21, 2019, and ensuing authority from that point forward, the appealing party recorded one more application on October 23, 2019, under Section 439 of the CrPC. Nonetheless, the High Court excused the application, referring to the serious nature of the charges and indicating an active role played by the appellant in the situation.

Decision: The Supreme Court recognized economic offenses as serious but noticed no lawful order to deny bail exclusively on this premise. It censured the High Court for putting together its decisions concerning the offense's seriousness. Bail was conceded considering the appellant's age, medical problems, and delayed guardianship, with no valuable chance to alter proof or impact observers. The court overturned the Delhi High Court's choice, requiring a bail bond of Rs. 2 lakhs and two protection. The court likewise educated that the appealing party should give his visa to the CBI, cease leaving the country without authorization, alter proof, affect witnesses, or unveil comments about the case.

Nikesh Tarachand Shah v. Union Of India on 23 November 2017

Facts: An appeal was recorded which scrutinized the constitutional validity of Section 45 of the PMLA. Section 45 forces two circumstances for the allowing of the bond. That's what the circumstances are. The investigator should have the event to go against any solicitation for bail. Likewise, the Court should be satisfied that the respondent was not at legitimate fault for such a crime and that he wouldn't perpetrate any crime while on bail.

Decision: The Court definitively announced that Section 45 of the PMLA, to the extent that it forces two further circumstances for discharge on bail, is unconstitutional, as it abuses Articles 14 and 21 of the Constitution of India. In this way, the core of the matter is that bail has been denied as a result of the presence of the twin circumstances contained in Section 45 and should return to the particular Courts that denied bail. The Court put away such orders and the cases were remanded to the particular Courts to be heard on merits, without utilization of the twin circumstances contained in Section 45.

Rohit Tandon v. The Enforcement Directorate on 10 November 2017

Facts: The accused purportedly conspired to store old currency notes adding up to around Rs. 25 crores to bank accounts utilizing forged documents. He purportedly opened various accounts under counterfeit organization names and kept the cash after demonetization. The investigation uncovered that the accused, including a bank supervisor and others, connived to change old currency into new by storing it in these records. The accused was arrested in commission with ECIR enlisted under Sections 3 and 4 of the PMLA. The ECIR was enrolled at the issuance of an Assistant Director (PMLA), Directorate of Enforcement, engaged to explore the offenses culpable under the PMLA. The bail application was dismissed by the High Court. The charged individuals pursued the decision.

Decision: The Supreme Court held that the accused's arrest was not unlawful and that Section 44 of the PMLA doesn't envisage a joint investigation, yet there is an arrangement specifying that the trial of the offense under Sections 3 and 4 of the PMLA and any planned offense associated with the offense under that section might be attempted exclusively by the Special Court comprised for the area wherein the offense has been committed. The court additionally held that the circumstances indicated under Section 45 of the PMLA are required and should be consented to. The court likewise held that the possession of demonetized cash and new cash without unveiling the source from where it was obtained and the reason for which it was obtained was sums of money laundering.

Internet And Mobile Association of India v. Reserve Bank Of India on 4 March 2020

Facts: On April 6, 2020, the RBI published a circular tending to concerns about customer protection concerning virtual currency, otherwise called cryptocurrency. The circular guided entities to cease managing virtual currency and precluded them from offering related types of assistance. Additionally, the RBI trained entities to end any current associations with people or entities managing virtual currency in three months or less to fortify the monetary market, develop currency management, advance monetary consideration and education, and forestall money laundering.

The appellant recorded a written petition protesting the proportionality of the RBI's circular. It contended that the RBI needed administrative ability to restrict virtual currency trading and disregarded essential fundamental rights under the Indian Constitution.

Decision: The court was of the view that even though the RBI has broad abilities and does assume a significant part in the uplift of the Indian economy, here it can't show any harm endured by its regulated entities. Consequently, the rules provided by the RBI, guiding the banks to quit managing or offering types of assistance to the entities exchanging virtual currencies are unlawful and subsequently unenforceable.

Conclusion

Money laundering is a danger to the monetary arrangement of all nations and it prompts obliteration of the nation's sovereignty and character. The battling of money laundering has assumed a critical impulse at both national and international levels because of the scale that money laundering has started to assume, particularly as for the supporting of financing of terrorist acts. The negative monetary impacts of money laundering on financial improvement are hard to evaluate, similarly as the degree of money laundering itself is challenging to gauge. Money laundering is not a local wrongdoing but rather a serious offense that ought not be taken lightly.

FAQs

Q1. What is the maximum punishment for money laundering in India?

According to the PMLA, the maximum punishment for the offense of money laundering is imprisonment for a term of as long as 7 years. Moreover, guilty parties may likewise face fines and forfeiture of belongings procured through money laundering activities.

Q2. What are the Money Laundering Penalties?

Money laundering penalties include freezing assets and property, with imprisonment ranging from 3 to 7 years or a fine. If linked to the Narcotic Drugs and Psychotropic Substances Act, 1985, the imprisonment can extend up to 10 years, along with a fine. The Director of the FIU may impose a penalty of up to INR 100,000 per failure on reporting entities or their personnel.