The post is authored by Neha Bhambhani, a 3rd year B.A.LL.B. (Hons.) student at the Insitute of Law, Nirma University, Ahmedabad.
In recent years, money laundering has become a significant point of discussion due to changing trends in financial crimes and technological development. Money laundering is the activity of concealing the source of money obtained illegally to appear that it has originated from legal means. In order to address the issues of money laundering, the government has enacted, The Prevention of Money Laundering Act, 2002 (hereinafter referred to as “Act" or "PMLA") which intends to prohibit money laundering activities and confiscate any assets obtained illegally. The Act was passed with the objective of creating comprehensive laws for money recovery, building organisations and systems that enable authorities to track down, investigate, and bring charges concerning money laundering cases, as well as seizing the assets and properties obtained as a result of those crimes, which can have a detrimental effect on a nation’s financial institutions, reputation, and society as a whole.
Recently, the Ministry of Finance has amended the PMLA to expand its rules to various entities, covering NGOs, accounting professionals, financial companies, and crypto markets. These changes align with India's international commitment to prevent money laundering offences. In order to attract the provisions of PMLA, the offences must come under the list of Scheduled offences mentioned under the Act. These offences are criminal acts that are committed to generate profits that are frequently laundered to make them appear legitimate. However, the scope of the list has been increased to include 30 different pieces of legislation that cover both serious and minor kinds of offences. This has led to the dilution of the purpose of the Act by overburdening the agencies and resources. The author aims to delve into problems related to the listing of minor offences in the Scheduled List and the need to include more laws considering global technological development.
2. SCHEDULED OFFENCES
Scheduled offences are the acts listed in PMLA that are derived from various legislation. These acts are also referred to as predicate offences, as they constitute the basis for the commission of money laundering offences. Section 3 of the Act lays down conditions to charge a person indulging in a money laundering offence. It aims to punish an individual who is directly or indirectly, knowingly assists or is party connected with any activities such as concealment, possession, acquisition, use or projection or claiming the property as untainted or any activity linked to “Proceed of crime”. The scope of proceed of crime has been widened by the government through the 2019 amendment to the Act. It has increased the ambit by including any property or assets resulting from any criminal activity associated with scheduled offences irrespective of its existence under PMLA. Further, it makes clear that the offence is an ongoing process that does not merely end with the commission of the offence, but is continued till the person is enjoying the benefit raised out of the “proceed of crime”. In this context, proceeds of crime refer to any financial profit in the form of money or assets that are obtained by engaging in any criminal activities. The Act mentions proceeds of crime under Section 2(1)(u) of the Act as any property that is obtained or derived by any person engaged in criminal activity connected to the commission of scheduled offences. In other words, PMLA will only be initiated when a person has a direct or indirect link in committing an act listed in Scheduled offences. Further, Section 2(1)(y) of the Act classifies these acts into three distinct parts. The Supreme Court of India made it plain in the case of Vijay Madanlal Choudhary v. Union of India that no actions may be brought under the PMLA where a person is absolved of the scheduled offences or criminal proceedings by the competent court. Thus, the conduct of the offence included on the scheduled list serves as the basis for the prosecution of money laundering cases.
3. INCLUSION OF MINOR OFFENCES
The scheduled offences have comprised both major and minor acts such as UAPA 1967, NDPS Act 1985, Prevention of Corruption Act 1998, etc. Minor ones like the Trade Mark Act of 1999, Copyright Act of 1957, Wild Life (Protection) Act of 1972, etc. The Act grants investigation agencies, including the Enforcement Directorate, a wide range of discretionary powers such as mentioned under section 17 of the Act that empowers ED to temporarily confiscate and seize the alleged property, section 19 of the Act that includes the power to arrest and to inform the ground for the same, section 50 of the Act to summon anybody necessary to give evidence and so on. This makes the process more time-consuming, which may result in a large number of cases that can strain them. The authorities might find it problematic to prioritise major cases over minor ones. Further, concentrating on minor offences can exclude resources from investigating and prosecuting severe criminalities. These resources must be judiciously applied to punish those who are behind large-scale money laundering arrangements.
The primary goal of the Act was to stop money laundering from offences that could seriously endanger India's economic stability and sovereignty. However, there is no differentiation in the severity of the offences when determining the penalties. Both categories of offences are punished equally. This approach not only lacks fairness but also contravenes the principle of proportionality within the criminal justice system. It results in minor offenders receiving identical punishment as those who have committed more serious offences. For instance, a person who is a small businessman laundering money under the Trademark Act would be subjected to the same punishment as one who launders money for drugs and psychotropic substances. Therefore, the Act should consider the severity of predicate offences and not overlook the potential consequences. Thus, the question remains whether there is a threat to India’s economic stability and sovereignty from minor offences. According to current data, there have been 5,906 registered cases, but only 25 of them have been disposed of. The number of cases is expected to rise, so it is crucial to make a clear differentiation in the list to prevent any ambiguity or uncertainty.
4. THE INTEGRATION OF TECHNOLOGICAL ADVANCEMENTS IN SCHEDULED OFFENCES
As the world becomes increasingly digital, it becomes significant to address the potential for money laundering through technology. An unprecedented level of anonymity has been added to financial transactions through cryptocurrencies and digital assets. Criminals can use it for their own benefit and may exploit technology to obscure the origin of illegally obtained funds, facilitate illicit financial transactions, and evade law enforcement. The government has tried to regulate money laundering through the crypto market by bringing it into PMLA’s preview for regulation. However, the nature of many cryptocurrencies is unpredictable, as their prices can change quickly and uncertainly, making them difficult to regulate. Inadequate regulation of cryptocurrencies can make it easier for people to evade taxes, commit fraud, and launder money more easily. Additionally, these are susceptible to hacking, online fraud, and cyberattacks, which can lead to the loss of crucial data. Suspecting the nature of cryptocurrencies, it is desired that the legislation provides the necessary guidelines to minimise the issue. It is required to build a robust and reliable monitoring system that can proficiently keep track of the changes in the market and the behaviour of the users of cryptocurrency. This becomes imperative to gain a bird’s eye view of the fast movement of resources and unusual trade patterns. It is also essential to remain updated with the pros and cons of technology, hence strong education and training program needs to be organised for supervisory authorities, users, or any financial institutes to keep efficient with the changes.
Further, cyberattacks pose a threat to the security of financial information. It can result in the harm of private data, invaluable digital assets, and financial data. Criminals use various methods to launder money anonymously, construct intricate webs of transactions, create numerous accounts to transfer money for illegal purposes, use virtual currencies, and engage in other strategies to launder money. It can be problematic to pinpoint their sources. To tackle the issue at hand, it is imperative to revise the list of scheduled offences in PMLA by incorporating stronger technology and communication laws. This will enable investigating agencies to carry out their duties with greater precision and clarity, thereby facilitating the process of investigation.
In light of rapid technological progress, in recent times, it has become imperative to expand the scope of offences by including laws under PMLA to effectively combat money laundering offences. Some of the laws can be related to data breaches such as penalising the offenders connected with stealing and trade of unauthorised personal data without consent, imposing severe penalties, and imprisonment. Analysing and regulating the recent increase in the online payment process by building strong mechanisms that can detect illicit activities associated with money laundering through digital gadgets as money launderers can use sophisticated tactics with the help of technology to launder illicit gains. Therefore, it is significant that financial authorities and the legal system remain vigilant and ahead of the strategies of the offenders. Moreover, there’s a need to revisit concerns related to the potential impact of money laundering on a nation's sovereignty and stability and to adopt a more balanced approach to classifying major and minor offences. Discussions and debates by the legislation and enforcement agencies are imperative to stay ahead of the curve. The legislation can make a separate enactment to classify minor offences and give them a different lookout.