Prevention of Money Laundering Act, 2002 (PMLA)

Introduction

The Prevention of Money Laundering Act (PMLA) of 2002 stands as a pivotal legislative measure in India’s fight against the age-old practice of money laundering. Money laundering, a practice with ancient roots, gained significant attention in the 20th century as organized crime burgeoned in the Western world. Criminals devised sophisticated methods, including the use of legitimate businesses like laundromats, to blend their illegal gains with lawful income, obscuring the origins of their wealth.

In India, the Hawala system, dating back to the 8th century, has been a prominent avenue for money laundering, facilitating the transfer of substantial funds across international borders without physical movement. Recognizing the grave implications of money laundering on its economy and national security, the Indian Parliament enacted the Prevention of Money Laundering Act in 2002, which came into force in 2005.

The primary aim of the PMLA is to combat the illicit practice of money laundering, which involves the conversion of illicit funds into legitimate assets. Given the enormous sums of black money generated through international drug trafficking, there arose a pressing need to safeguard the economy from the destabilizing effects of integrating such illicit wealth into the mainstream financial system. Recent high-profile arrests of political figures under the PMLA underscore the significance of scrutinizing and understanding the provisions of this legislation.

Enacted by the NDA government, the Prevention of Money Laundering Act, along with its accompanying rules, became effective on July 1, 2005. The recent amendments to the Act have further empowered the Enforcement Directorate (ED) in its efforts to combat money laundering activities, reinforcing the government’s commitment to curbing financial crimes and preserving the integrity of the nation’s economy.

Objectives of Prevention of Money Laundering Act, 2002 (PMLA)

The Prevention of Money Laundering Act, 2002 (PMLA) in India was formulated with a set of clear objectives aimed at curbing the scourge of money laundering and related financial crimes. The primary goals of the PMLA include:

Preventing Money Laundering: The foremost objective of the PMLA is to establish measures that deter individuals and entities from engaging in money laundering activities, thereby safeguarding the integrity of the financial system.

Combatting Illegal Activities and Economic Crimes: The Act targets the prevention of funds being channeled into illegal activities such as drug trafficking, smuggling, terrorism financing, and other criminal enterprises by disrupting the flow of illicitly obtained funds.

Confiscation of Proceeds: One of the key aims of the PMLA is to facilitate the detection, identification, and confiscation of assets acquired through money laundering activities. By seizing such assets, the Act aims to disrupt the cycle of money laundering and prevent criminals from benefiting from their illicit gains.

Addressing Global Concerns: The Act was introduced to address the global concerns regarding the increasing cases of money laundering and to adhere to international standards in combating financial crimes.

Dealing with Miscellaneous Matters: The Act addresses various ancillary issues related to money laundering within the Indian context, providing a comprehensive legal framework to tackle the complexities associated with financial crimes.

Reasons Behind the Enactment of the Prevention of Money Laundering Act, 2002

The adoption of the Prevention of Money Laundering Act, 2002 (PMLA) in India was necessitated by several factors:

Global Drug Trade Concerns: The flourishing drug trade at a global level led to the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in 1988. This prompted countries to take urgent steps to prevent money laundering associated with drug crimes.

Financial Action Task Force (FATF): The formation of the FATF in 1989 by major industrial nations highlighted the issue of money laundering and recommended measures to combat it, influencing countries to enact suitable legislation.

UN General Assembly Resolutions: The United Nations General Assembly adopted resolutions urging member countries to enact legislation to prevent money laundering, emphasizing the need to combat the laundering of drug money.

Trans-Border Operations: Drug trafficking being a trans-border operation necessitated international cooperation to combat money laundering associated with drug crimes.

Narasimham Committee Recommendations: The Narasimham Committee on Banking Sector Reforms in India highlighted the importance of addressing money laundering concerns within the Indian financial system, prompting legislative action.

Adherence to International Standards: India’s adoption of the PMLA was in line with international resolutions and FATF recommendations, focusing on preventing money laundering associated with drug trafficking.

Amendments and Evolution: The PMLA evolved over time through amendments to address various aspects of money laundering beyond drug-related concerns, reflecting the changing landscape of financial crimes.

These factors collectively underscored the need for a comprehensive legal framework like the PMLA to prevent money laundering, confiscate proceeds derived from illicit activities, and punish offenders engaged in such financial crimes.

Definition of Money Laundering

Money laundering is the process of transforming funds obtained through illegal activities, commonly referred to as black money, into seemingly legitimate funds, known as white money. This illicit process involves a series of deliberate actions aimed at obscuring the origins of the funds and making them appear to be derived from lawful sources. Money laundering typically entails the movement of illicit funds through a complex web of transactions and conversions, ultimately integrating them into the formal financial system, such as banking institutions, in a manner that conceals their criminal origins.

According to the Prevention of Money Laundering Act (PMLA) 2002, money laundering encompasses any direct or indirect involvement in activities associated with the concealment, possession, acquisition, use, projection, or claim of proceeds of crime as untainted property. The Act specifies that the process of money laundering is continuous and persists until an individual directly or indirectly benefits from the proceeds of crime by concealing, possessing, acquiring, using, projecting, or claiming them as untainted property in any form.

In essence, money laundering involves the deliberate effort to make illegally obtained funds appear legitimate and clean through a series of financial transactions and manipulations, thereby enabling criminals to enjoy the benefits of their illicit gains without arousing suspicion or legal repercussions.

Punishment for money-laundering Prevention of Money Laundering Act (PMLA) 2002

Under the Prevention of Money Laundering Act, 2002, the punishment for the offense of money laundering is structured to deter individuals from engaging in financial crimes that involve the laundering of illicit proceeds. Here is an elaboration on the punishment provisions:

Rigorous Imprisonment: Individuals found guilty of money laundering face rigorous imprisonment for a term not less than three years. This means that the convicted person will serve a sentence involving strict and demanding conditions, aimed at deterring future criminal behavior.

Imprisonment Duration: The term of rigorous imprisonment can extend up to seven years. This range of three to seven years is set as a standard punishment for money laundering offenses, reflecting the seriousness of the crime and the need for a significant deterrent.

Additional Fine: In addition to the term of imprisonment, the offender is also liable to pay a fine. The imposition of a monetary penalty serves both as a form of punishment and a means of financial restitution for the crime committed.

Enhanced Punishment: If the proceeds of crime involved in money laundering relate to specified offenses under paragraph 2 of Part A of the Schedule, the punishment is intensified. In such cases, the maximum term of imprisonment that can be imposed is increased to ten years.

Specific Circumstances: The severity of the punishment is adjusted based on the nature and gravity of the offense being laundered. This differentiation ensures that individuals involved in more serious crimes face a proportionate level of punishment under the law.

Deterrent Effect: The stringent punishment provisions under the Prevention of Money Laundering Act are designed to act as a deterrent, discouraging individuals from engaging in money laundering activities and safeguarding the integrity of the financial system.

Important provisions under Prevention of Money Laundering Act (PMLA) 2002

1. Attachment of property involved in money-laundering

The attachment of property involved in money laundering under the Prevention of Money Laundering Act, 2002 is a crucial step in preventing the concealment, transfer, or dealing with proceeds of crime that may hinder the confiscation process. Here’s an explanation of the provisions regarding the attachment of property as outlined in the Act:

Reasons for Attachment: When the Director or an authorized officer has reason to believe, based on material in their possession and recorded in writing, that a person is in possession of proceeds of crime that are likely to be concealed or dealt with in a manner that could obstruct confiscation proceedings, they can issue a written order to provisionally attach such property for a maximum period of 180 days.

Conditions for Attachment: Before issuing an order of attachment, certain conditions must be met, including the forwarding of a report to a Magistrate under the Code of Criminal Procedure or a similar report under the laws of another country in relation to the scheduled offense.

Immediate Action: Upon attachment under the Act, the Director or authorized officer must promptly forward a copy of the order along with relevant materials to the Adjudicating Authority in a sealed envelope for further processing.

Duration of Attachment: The order of attachment remains valid until the specified period of 180 days expires or is revoked earlier by an order under section 8(3) of the Act.

Protection of Interests: The Act ensures that the person interested in the enjoyment of the attached immovable property can continue to enjoy it during the attachment period.

Interpretation of “Person Interested”: The term “person interested” concerning any immovable property encompasses all individuals who claim or are entitled to claim an interest in the property.

Filing of Complaint: Within 30 days of the attachment, the Director or the authorized officer must file a complaint before the Adjudicating Authority, detailing the facts of the attachment.

2. Adjudicating Authorities, composition, powers, etc.

the provisions related to Adjudicating Authorities under the Prevention of Money Laundering Act, 2002. Here is an explanation of the various points:

Appointment of Adjudicating Authority: The Central Government has the authority to appoint an Adjudicating Authority through a notification to exercise jurisdiction, powers, and authority conferred by or under the Act.

Composition of Adjudicating Authority: An Adjudicating Authority comprises a Chairperson and two other Members. One Member each should have experience in law, administration, finance, or accountancy.

Qualifications for Members: 

Members must meet specific qualifications:

In the field of law: Qualified for appointment as a District Judge or held a post in Grade I of the Indian Legal Service. In finance, accountancy, or administration: Possess qualifications as prescribed.

Appointment of Chairperson: The Central Government appoints a Member as the Chairperson of the Adjudicating Authority.

Jurisdiction and Sitting of Benches: The Adjudicating Authority may have Benches, with the Chairperson constituting a Bench with one or two Members. Benches can sit at New Delhi and other places specified by the Central Government. The areas where each Bench can exercise jurisdiction are also specified by notification.

Transfer of Members: The Chairperson can transfer a Member from one Bench to another.

Hearing by a Bench of Two Members: If deemed necessary, the Chairperson or a Member may transfer a case to a Bench consisting of two Members.

Term of Office: The Chairperson and Members hold office for five years, with a retirement age limit of sixty-five years.

Salary, Allowances, and Service Conditions: The salary, allowances, and terms of service are prescribed and cannot be altered to the Member’s disadvantage after appointment.

Vacancies: Vacancies in the office of the Chairperson or Members are filled according to the provisions of the Act. Proceedings can continue from the stage at which the vacancy is filled.

Resignation and Removal: Members can resign by notice to the Central Government. Removal from office requires an order by the Central Government after providing due opportunity for hearing.

Procedure and Powers: The Adjudicating Authority is not bound by the Civil Procedure Code but must follow principles of natural justice. The Authority has the power to regulate its own procedure, subject to the Act’s provisions.

3. Adjudication under Prevention of Money Laundering Act (PMLA) 2002

the process of adjudication under the Prevention of Money Laundering Act, 2002. Here is a breakdown of the key points outlined in the text:

Initiation of Adjudication: The Adjudicating Authority, upon receiving a complaint or application indicating a person’s involvement in money laundering or possession of proceeds of crime, issues a notice to the individual.

The notice must be served at least thirty days in advance and must detail the sources of income, assets, and other relevant information. The person is given an opportunity to show cause why the attached or seized properties should not be declared as involved in money laundering and confiscated by the Central Government.

Adjudication Process: The Adjudicating Authority, after considering the responses and relevant materials, conducts a hearing involving the aggrieved person and the authorized officer from the Directorate.

An order is then issued to determine if the properties in question are indeed linked to money laundering. If a property is claimed by a different person, that person also has the right to prove that the property is not involved in money laundering.

Confirmation of Attachment or Retention: If the Adjudicating Authority finds that a property is linked to money laundering, it confirms the attachment or retention of the property.

The attachment or retention continues during the investigation or the pendency of legal proceedings related to offenses under the Act.

Order of Confiscation: The property’s attachment becomes final after an order of confiscation is passed by the Special Court.

The period of 365 days mentioned for investigation excludes any period during which the investigation is stayed by a court.

Execution of Confiscation Order: If the provisional attachment order is confirmed, the Directorate or authorized officers take possession of the property as prescribed.

Trial and Confiscation: The Special Court, after concluding a trial, may order the confiscation of properties involved in money laundering to the Central Government.

In cases where the offense of money laundering is not proven, the property is released to the rightful owner.

Restoration of Confiscated Property: The Special Court, upon confiscation, may direct the Central Government to restore the confiscated property or a part thereof to a claimant who has a legitimate interest and has suffered quantifiable loss due to the offense, provided the claimant acted in good faith and was not involved in money laundering.

4. Vesting of property in Central Government

The vesting of property in the Central Government following an order of confiscation under various sections of the Prevention of Money Laundering Act, 2002. Here is an explanation of the key points outlined in the text:

Vesting of Property: When an order of confiscation is issued in relation to a person’s property under specified sections of the Act, all rights and title in that property are transferred absolutely to the Central Government. This transfer is made free from any encumbrances.

Voiding Encumbrances: If the Special Court or Adjudicating Authority, after hearing any other interested parties in the attached, seized, or frozen property, determines that encumbrances were created to evade the provisions of the Act, it can declare those encumbrances or lease-hold interests void.

Following such a declaration, the property in question will vest in the Central Government without these encumbrances.

Liability of Persons: The provision does not absolve any person from liabilities related to encumbrances. Any person remains liable for such encumbrances, and these liabilities can be enforced against them through legal actions like a suit for damages

5. Management of properties confiscated under this Chapter.

The management of properties confiscated under the Prevention of Money Laundering Act, 2002. Here is an explanation of the key points outlined in the text:

Appointment of Administrator: The Central Government has the authority to appoint its officers, not below the rank of a Joint Secretary to the Government of India, through an order published in the Official Gazette. These officers are appointed to perform the functions of an Administrator in relation to confiscated properties.

Functions of the Administrator: The Administrator, once appointed under sub-section (1), is tasked with receiving and managing the property for which an order of confiscation has been issued under specified sections of the Act.

The management of these properties is to be carried out in a manner and subject to conditions as prescribed by relevant regulations or guidelines.

Disposal of Confiscated Property: In addition to managing the confiscated properties, the Administrator is required to take measures directed by the Central Government for the disposal of properties that have vested in the Central Government under section 9 of the Act.

This provision implies that the Administrator is responsible for overseeing the proper handling and eventual disposal of properties that have been confiscated as part of the legal process outlined in the Act.

6. Power regarding summons, production of documents and evidence, etc.

The powers of the Adjudicating Authority concerning summons, production of documents, and evidence under the Prevention of Money Laundering Act, 2002. Here is an explanation of the key points mentioned in the text:

Powers of the Adjudicating Authority: The Adjudicating Authority is granted powers equivalent to those vested in a civil court under the Code of Civil Procedure, 1908, when dealing with certain matters under the Act.

These powers include: 

• Discovery and inspection of documents.
• Ensuring the attendance of individuals for examination under oath, including officers of banking companies, financial institutions, or companies.
• Compelling the production of records or documents.
• Accepting evidence through affidavits.
• Issuing commissions for the examination of witnesses and documents.
• Any other matters as prescribed.

Obligations of Summoned Persons: Individuals summoned by the Adjudicating Authority are required to attend in person or through authorized agents as directed by the Authority.

They are obligated to truthfully state information related to the examination and provide any necessary documents upon request.

Judicial Proceeding: Every proceeding conducted under this section is deemed to be a judicial proceeding as per the definitions outlined in section 193 and section 228 of the Indian Penal Code (IPC) (45 of 1860).

This indicates that the proceedings before the Adjudicating Authority hold the status of judicial proceedings and adhere to the legal framework established by the Indian Penal Code

7. Obligations of banking companies, financial institutions and intermediaries

Verification of Identity by Reporting Entity: Reporting entities, such as banking companies, financial institutions, and intermediaries, are required to verify the identity of their clients and beneficial owners. This verification process involves confirming the identities through various methods, including Aadhaar authentication, offline verification, or through the presentation of officially valid documents like passports.

It’s essential to note that clients cannot be denied services solely for not possessing an Aadhaar number. Biometric information and Aadhaar numbers should not be retained during the verification process to ensure the security and privacy of individuals.

Reporting Entity to Maintain Records: Reporting entities must maintain comprehensive records of all transactions and information related to these transactions. They are obligated to furnish transaction information to the Director within the specified time frame. Additionally, they must retain documents that validate the identities of their clients and beneficial owners for a prescribed period.

It is crucial for reporting entities to ensure the confidentiality and security of all the information they maintain to safeguard the privacy of their clients.

Access to Information: The Director overseeing regulatory compliance in the financial sector has the authority to request records and additional information from reporting entities as part of their supervisory responsibilities. Reporting entities are obliged to provide the requested information within the stipulated time and in the prescribed manner.

Moreover, any information sought by the Director must be treated with strict confidentiality by reporting entities to maintain the integrity of the regulatory process.

Enhanced Due Diligence: Reporting entities are required to conduct enhanced due diligence procedures before engaging in specified transactions. This includes verifying client identities, investigating ownership structures and financial standings, documenting transaction purposes, and assessing the nature of relationships involved.

Failure to adhere to these conditions may result in the prevention of specified transactions, and any suspicious transactions must be subjected to heightened monitoring to prevent potential financial crimes.

Powers of Director to Impose Fine: The Director holds the authority to conduct inquiries into the compliance of reporting entities with the regulatory framework. In cases of non-compliance, the Director can issue warnings, levy monetary penalties, or provide specific compliance instructions to ensure adherence to the law.

Orders issued by the Director must be communicated to the relevant parties to clarify the necessary actions required for compliance.

Protection from Civil or Criminal Proceedings: Reporting entities, as well as their directors and employees, are shielded from civil or criminal proceedings for furnishing information as required by the regulatory authorities unless otherwise specified in Section 13 of the regulatory framework.

Procedure and Manner of Furnishing Information: The Central Government, in consultation with the Reserve Bank of India, has the authority to establish procedures for reporting entities to maintain and provide information as mandated by the regulatory framework. These procedures ensure consistency and efficiency in information disclosure across the sector.

8. Power of survey

Reasonable Belief of Offense: The provision empowers an authority to conduct a survey if they have reasonable grounds to believe that an offense under section 3 of the Act has been committed. This belief must be based on material in their possession, and they are required to document the reasons for this belief in writing.

Authority to Enter Premises:

• Scope of Entry: The authority is allowed to enter any place within their assigned area or any place for which they have been authorized by another relevant authority. This includes places where activities constituting the offense are being carried out.
• Facilities Required: Once inside the premises, the authority can request facilities to inspect records, verify proceeds of crime, and gather relevant information necessary for any proceedings under the Act.
• Definition of “Place”: The definition of a “place” is broad and includes not only locations where the offense is actively being committed but also places where records or property related to the offense are kept, as stated by the person involved.
• Post-Survey Procedures: After completing the survey, the authority must promptly send a copy of the recorded reasons and material gathered during the survey to the Adjudicating Authority in a sealed envelope. The Adjudicating Authority is responsible for preserving this information for a specified period as per the Act.

Actions During Survey:

The authority conducting the survey is empowered to:

• Mark records for identification.
• Make extracts or copies of relevant documents.
• Create an inventory of any property checked or verified during the survey.
• Record statements of individuals present at the place which could be useful for or relevant to any proceedings under the Act.

This section outlines the procedures and powers granted to authorities when conducting surveys in cases where an offense under the Act is suspected. These measures are in place to ensure transparency, facilitate the collection of evidence, and aid in the fair adjudication of cases related to the specified offense. The documentation and preservation of information gathered during the survey are crucial for maintaining the integrity of the legal process.

9. Search and seizure.

Authorization for Search and Seizure: The Director or an authorized officer not below the rank of Deputy Director, based on credible information and recorded beliefs, can conduct search and seizure operations.

Reasons for Search: 

The authorized officer can search if there is reason to believe that a person:

• Committed a money laundering act.
• Possesses proceeds of crime related to money laundering.
• Holds records related to money laundering.
• Owns property linked to a crime.

Actions Permitted: 

The authorized officer can:

• Enter and search premises where incriminating evidence might be found.
• Break open locks if necessary.
• Seize records or property discovered during the search.
• Mark identified items, make extracts, or copies.
• Inventory seized items.
• Examine individuals under oath regarding relevant matters.
• Freezing of Property:
• If seizure is impractical, the officer can issue a freezing order, restricting property transactions without prior permission.

Reporting and Retention: After search and seizure or freezing order, the reasons and materials are forwarded to the Adjudicating Authority in a sealed envelope.

The Adjudicating Authority preserves this information as prescribed.

Survey-Related Search: If evidence is at risk of concealment or tampering after a survey under section 16, the authority can conduct a search without separate authorization.

Application for Retention: The authority must file an application within thirty days of seizure or freezing to retain the seized property or continue the freezing order before the Adjudicating Authority.

Implications: 

• Empowered Enforcement: The provisions grant authorities significant powers to search, seize, and freeze assets related to money laundering offenses.
• Preservation of Evidence: The process ensures the preservation of evidence through proper documentation and reporting to the Adjudicating Authority.
• Efficient Enforcement: By allowing for freezing orders and streamlined retention applications, the Act aims to facilitate effective enforcement actions against money laundering activities.

The Act provides a robust framework for search and seizure operations concerning money laundering activities. By authorizing designated officers to conduct searches, seize incriminating evidence, and issue freezing orders where necessary, the Act enhances the ability to investigate and prosecute cases of money laundering effectively. The stringent reporting and retention requirements ensure transparency and accountability in the enforcement process, ultimately strengthening efforts to combat financial crimes and uphold the integrity of the financial system.

10. Search of persons

Authorization for Search: An authority authorized by the Central Government, either through a general or special order, can conduct a search if they have a reason to believe that a person possesses records or proceeds of crime relevant to proceedings under the Act.

The reason for this belief must be documented in writing.

Seizure of Records or Property: Upon searching the person, the authority can seize any record or property that is deemed useful or relevant to the proceedings under the Act.

Post-Search Procedures: The authorized authority must, after the search and seizure, send a copy of the recorded reasons and materials to the Adjudicating Authority in a sealed envelope as prescribed. The Adjudicating Authority is required to retain this information for a specified period.

Rights of the Person Being Searched: If requested by the person being searched, the authority must take them within twenty-four hours to a Gazetted Officer or a Magistrate superior in rank.

The person cannot be detained for more than twenty-four hours before being presented before the Gazetted Officer or Magistrate.

Search Procedure: Before conducting the search, the authority must call upon two or more witnesses to attend and witness the search.

The search must be carried out in the presence of these witnesses.

Recording of Seized Items: The authority is required to prepare a list of the records or property seized during the search and obtain the signatures of the witnesses on this list.

Search of Female Persons: Female persons must only be searched by another female, ensuring privacy and dignity.

Recording Statements: Statements of the person searched regarding the records or proceeds of crime found during the search must be recorded by the authority.

Retention of Seized Items: The authority must file an application within thirty days of seizing any record or property, requesting the retention of such items before the Adjudicating Authority.

These detailed provisions ensure that searches of persons are conducted lawfully, with proper documentation, witness presence, and respect for individual rights. The process is designed to safeguard the integrity of the search, the rights of the person being searched, and the retention of any seized items in accordance with the legal requirements of the Act.

11. Power to arrest

Authority to Arrest: The Director, Deputy Director, Assistant Director, or any other authorized officer by the Central Government can arrest a person if they have a reason to believe, based on material in their possession, that the individual has committed an offense punishable under the Act.

The reason for such belief must be recorded in writing, and the arrested person must be informed promptly of the grounds for their arrest.

Post-Arrest Procedures: After the arrest, the arresting officer must promptly send a copy of the arrest order along with the material to the Adjudicating Authority in a sealed envelope, as prescribed.

The Adjudicating Authority is mandated to retain this order and material for the prescribed period.

Transfer to Court: Any person arrested under this provision should be taken within twenty-four hours to a Special Court, Judicial Magistrate, or Metropolitan Magistrate with jurisdiction.

The twenty-four-hour period excludes the time required for transportation to the court.

12. Retention of property

Seizure and Retention: When property is seized under specific sections of the Act and the authorized officer believes that retention is necessary for adjudication purposes, the property can be retained for up to one hundred and eighty days from the seizure date.

The officer must record the reasons for retention in writing and forward the order and relevant material to the Adjudicating Authority.

Release of Property: After the specified retention period, the property should be returned to the rightful owner unless the Adjudicating Authority permits further retention.

The release of property not involved in money laundering is directed by the Special Court once confiscation orders are passed.

Withholding Release: In specific circumstances, such as pending appeal proceedings, the Director or an authorized officer can withhold the release of property for up to ninety days from the date of the order.

These detailed provisions ensure that arrests are made based on valid reasons and that the necessary procedures are followed to inform the arrested individual and transfer them to the appropriate judicial authority promptly. Additionally, the rules regarding the retention and release of seized property aim to uphold fairness and transparency in the adjudication process under the Act.

13. Retention of records

Authority to Retain Records: If records have been seized or frozen under specific sections of the Act, the Investigating Officer or another authorized officer can retain them if there is a belief that these records are necessary for any inquiry under the Act.

The retention period for such records should not exceed one hundred and eighty days from the date of seizure or freezing.

Right to Obtain Copies: The person from whom the records were seized or frozen is entitled to obtain copies of those records.

Return of Records: Once the specified retention period expires, the records should be returned to the individual from whom they were seized or whose records were frozen, unless the Adjudicating Authority allows further retention or freezing.

Authorization for Retention: Before permitting the retention or continuation of freezing of records beyond the initial period, the Adjudicating Authority must ensure that the records are necessary for adjudication under a specific section of the Act.

Release of Records: Following an order of confiscation or release under relevant sections of the Act, the Adjudicating Authority directs the release of the records to the person from whom they were seized.

Withholding Release: In cases where the Adjudicating Authority orders the release of records, the Director or an authorized officer can withhold the release for up to ninety days from the date of receiving such an order if they believe the record is relevant for appeal proceedings under the Act.

These detailed provisions ensure that records seized or frozen are retained only when necessary for inquiries or adjudication under the Act. The regulations also safeguard the rights of individuals to obtain copies of the records and ensure their timely return unless authorized for further retention by the Adjudicating Authority. The rules concerning the release and withholding of records aim to maintain transparency and fairness in the legal processes outlined in the Act

14. Presumption as to records or property in certain cases

Records or Property in Possession: If records or property are found in the possession or control of any person during a survey, search, or other specified actions, a presumption is established:

• The records or property are presumed to belong to that person.
• The contents of the records are considered true.
• Signatures and other parts of the records that appear to be in a specific person’s handwriting are assumed to be authentic, including stamps, executions, or attestations.

Records Received from Outside India: When records are received from a foreign location, duly authenticated as prescribed, during proceedings under the Act, certain presumptions and actions are mandated:

• The court or relevant authority should presume that signatures and other parts of the record appearing to be in a particular person’s handwriting are indeed authentic, including executions or attestations.
• The document should be admitted as evidence, even if not properly stamped, given it is admissible otherwise.

These presumptions play a crucial role in the legal processes outlined in the Act, especially in cases where records or property are involved. By establishing these presumptions, the Act aims to streamline procedures related to the authenticity and ownership of records and property discovered during surveys, searches, or other actions. Additionally, the provisions regarding records received from outside India ensure the admissibility of such documents in proceedings under the Act after due authentication.

15. Presumption in inter-connected transactions

Inter-Connected Transactions: When money-laundering involves multiple inter-connected transactions, and at least one of these transactions is proven to be involved in money-laundering, a presumption is established:

Presumption Clause: Unless otherwise proven to the satisfaction of the Adjudicating Authority or the Special Court, it shall be presumed that the remaining transactions are part of these inter-connected transactions.

16. Burden of proof

Proceedings Relating to Proceeds of Crime

This section deals with the burden of proof in proceedings related to the proceeds of crime under the Act, delineating the burden in cases of money-laundering offenses and other situations:

• In Cases of Money-Laundering Offenses (Section 3): The Authority or Court shall presume, unless proven otherwise, that the proceeds of crime are indeed involved in money-laundering.
• In Cases Involving Other Persons: The Authority or Court may presume, in the absence of evidence to the contrary, that the proceeds of crime are linked to money-laundering.

These provisions establish crucial presumptions and burdens of proof in cases involving money-laundering and proceeds of crime under the Act. In situations where inter-connected transactions are identified, the Act presumes that all transactions within this network are part of the money-laundering activity unless proven otherwise. Moreover, the burden of proof in cases of money-laundering offenses is placed on the accused, shifting the presumption towards the involvement of the proceeds of crime in money-laundering activities unless evidence suggests otherwise. These legal mechanisms aim to streamline proceedings, enhance enforcement, and combat financial crimes effectively under the purview of the Act.

17. Civil court not to have jurisdiction

Jurisdiction Limitation: The provision explicitly states that civil courts do not have the jurisdiction to entertain any lawsuit or proceeding concerning matters that fall within the authority of the following entities under the Act:

• The Director
• An Adjudicating Authority
• The Appellate Tribunal

Injunction Restriction: Additionally, the provision prohibits the granting of injunctions by any court or authority regarding any action taken or to be taken in pursuit of powers conferred by or under the Act.

Implications

Exclusive Jurisdiction: The Act grants exclusive jurisdiction to the Director, Adjudicating Authority, and the Appellate Tribunal over matters assigned to them. This is to ensure specialized handling of cases related to the Act.

Legal Protection: By limiting civil court intervention, the Act aims to prevent delays and ensure efficient resolution of matters falling under its domain.

Injunction Prohibition: Restricting the granting of injunctions helps maintain the integrity of actions taken under the Act, preventing external interference that could hinder investigations or proceedings.

By conferring exclusive jurisdiction to specific authorities and prohibiting civil courts from intervening in matters under the Act, this provision ensures the effective implementation and enforcement of the legislation. It safeguards against potential disruptions or delays that could arise from parallel civil proceedings, thereby streamlining the adjudication process and upholding the integrity of actions taken in accordance with the Act

18. Special Courts & Offenses triable by Special Courts

Designation and Functioning

• Designation of Special Courts: The Central Government, in consultation with the Chief Justice of the High Court, is empowered to designate one or more Courts of Session as Special Court(s) for the trial of offenses punishable under section 4 of the Act. These Special Courts can be designated for specific areas, cases, or groups of cases as specified in the notification.

Explanation: The term “High Court” refers to the High Court of the State in which a Sessions Court designated as a Special Court was functioning just before being designated as such.

• Trial Proceedings: A Special Court trying an offense under this Act can also try other offenses, as per the Code of Criminal Procedure, 1973, for which the accused may be charged in the same trial.

Offenses Triable by Special Courts

• Offenses Triable: Offenses punishable under section 4 and any scheduled offense linked to that section are triable by the Special Court designated for the area where the offense occurred. The Special Court, handling a scheduled offense before the Act’s commencement, will continue to try such scheduled offenses.

Taking Cognizance: A Special Court can take cognizance of offenses under section 3 upon a complaint by an authorized authority under the Act, without the accused being committed for trial. If no offense of money laundering is established after investigation, the authority must submit a closure report before the Special Court.

Handling Scheduled Offenses: If the court taking cognizance of the scheduled offense is different from the Special Court handling the money laundering complaint, the case related to the scheduled offense can be transferred to the Special Court upon application by the authorized authority.

Conduct of Trials: The Special Court, while trying scheduled offenses or offenses of money laundering, follows the procedures outlined in the Code of Criminal Procedure, 1973, applicable to trials before a Court of Session.

Explanation: Clarifies that the jurisdiction of the Special Court in dealing with offenses under the Act is independent of orders related to scheduled offenses. The trial of both sets of offenses by the same court is not considered a joint trial. The complaint is deemed to include subsequent complaints for further investigation and evidence against any accused person involved in the offense.

High Court Powers: The special powers of the High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973, can be exercised as if the reference to “Magistrate” in that section includes a reference to a “Special Court” designated under section 43.

These sections outline the establishment and functioning of Special Courts for the trial of specific offenses under the Act. They specify the jurisdiction, trial proceedings, and the powers of these Special Courts, ensuring efficient and specialized adjudication of cases related to money laundering and scheduled offenses as outlined in the Act.

19. Offences to be cognizable and non-bailable

Bail Restrictions:

• No person accused of an offense under this Act can be released on bail or their own bond unless:
• The Public Prosecutor has had the opportunity to oppose the bail application.
• The court, upon the Public Prosecutor’s opposition, is convinced that there are reasonable grounds to believe the accused is not guilty of the offense and will not commit any offense while on bail.

Exceptions for Bail: Individuals under sixteen years of age, women, sick or infirm individuals, or those accused of money laundering less than one crore rupees can be granted bail if directed by the Special Court.

Cognizance of Offenses: The Special Court can only take cognizance of offenses punishable under section 4 upon a written complaint by:

• The Director; or
• Officers of the Central or State Government authorized in writing by the Central Government.

Police Investigation: No police officer can investigate an offense under this Act unless specifically authorized by the Central Government, subject to prescribed conditions.

Limitations on Bail: The restrictions on granting bail in subsection (1) are additional to limitations under the Code of Criminal Procedure, 1973, or any other prevailing law regarding bail.

Explanation: Clarifies that all offenses under this Act are cognizable and non-bailable, empowering authorized officers to arrest without a warrant, subject to conditions specified in section 19 and this section.

Implications:

• Bail Restrictions: These provisions prioritize public safety and the seriousness of offenses under the Act by imposing strict conditions for granting bail.
• Special Court Authority: The Special Court plays a crucial role in deciding bail for specific categories of individuals and in the cognizance of offenses under the Act.
• Central Government Authorization: The Act ensures that police investigations are conducted under specific authorization, maintaining control and oversight over the process.

The Act establishes stringent provisions regarding bail, investigation, and cognizance of offenses, ensuring that individuals accused of offenses under the Act are subject to strict legal procedures. These regulations aim to uphold the integrity of investigations, safeguard public interest, and ensure the effective enforcement of the law against money laundering and related offenses.

20. Application of Code of Criminal Procedure, 1973 to proceedings before Special Court

Applicability of Code of Criminal Procedure: The provisions of the Code of Criminal Procedure, 1973, including those concerning bails or bonds, apply to proceedings before a Special Court, unless provided otherwise in this Act. The Special Court is considered equivalent to a Court of Session for the purposes of these provisions. Individuals conducting prosecution before the Special Court are regarded as Public Prosecutors.

Special Public Prosecutor: The Central Government can appoint a Special Public Prosecutor for specific cases, classes, or groups of cases.

• Qualifications: To be appointed as a Public Prosecutor or a Special Public Prosecutor under this section, a person must have practiced as an advocate for at least seven years, demonstrating special knowledge of law.
• Status of Prosecutors: Those appointed as Public Prosecutors or Special Public Prosecutors under this section are considered Public Prosecutors as defined in the Code of Criminal Procedure, 1973.

The provisions of the Code apply accordingly to these appointed prosecutors.

Implications:

• Legal Framework: Ensuring uniformity in legal proceedings, the Code of Criminal Procedure, 1973, provides a structured approach for conducting trials before the Special Court.
• Prosecutorial Roles: Designating individuals as Public Prosecutors or Special Public Prosecutors with specific qualifications ensures competent legal representation in proceedings.
• Central Government Authority: The provision for appointing Special Public Prosecutors allows for tailored legal representation in complex or significant cases.

The Act mandates the application of the Code of Criminal Procedure, 1973, to proceedings before the Special Court, ensuring standard legal practices and procedures. The appointment of qualified Public Prosecutors or Special Public Prosecutors strengthens the prosecution’s role in maintaining the integrity and effectiveness of trials conducted under the Act. This framework aims to uphold the principles of justice and fair legal proceedings in cases related to money laundering and scheduled offenses.

21. Authorities under Act & Appointment and powers of authorities and other officers

Classes of Authorities:

The Act establishes the following classes of authorities:

• Director, Additional Director, Joint Director
• Deputy Director
• Assistant Director
• Any other class of officers as appointed for the Act’s purposes.

Appointment and Powers:

• The Central Government has the authority to appoint individuals as authorities for the Act.
• The Central Government can authorize specific officials to appoint authorities below the rank of an Assistant Director.
• Authorities can exercise powers and fulfill duties under the Act subject to conditions set by the Central Government.

Powers of Authorities

• Director’s Powers: The Director possesses powers similar to a civil court under the Code of Civil Procedure, 1908, concerning matters such as discovery, inspection, witness examination, record production, affidavit evidence, and more.
• Summoning Powers: The Director and other designated officials can summon individuals for necessary evidence or record production during investigations or proceedings.
• Attendance and Truthfulness: Summoned individuals must attend as directed, speak truthfully, and provide the required documents.
• Judicial Proceedings: Proceedings under summoning powers are considered judicial proceedings under relevant sections of the Indian Penal Code.
• Impounding Records: Officials can impound and retain records produced during proceedings, subject to specified rules. Assistant Directors and Deputy Directors have limitations on impounding records without reasons or retaining them beyond a set duration without Joint Director’s approval.

Implications:

• Structured Hierarchy: The Act establishes a clear hierarchy of authorities with defined powers and responsibilities.
• Investigative Powers: Authorities are granted extensive powers to gather evidence, summon individuals, and retain records for investigations.
• Legal Compliance: The Act ensures that procedures followed by authorities adhere to legal standards, including the requirement for truthful testimony and proper record-keeping.

The Act defines a framework for authorities, outlining their roles, powers, and limitations. These provisions empower authorities to conduct thorough investigations, ensure compliance with legal procedures, and maintain the integrity of proceedings under the Act. By establishing clear guidelines for summoning individuals, handling evidence, and impounding records, the Act aims to facilitate effective enforcement against money laundering and related offenses while upholding legal standards and due process.

22. Jurisdiction of authorities

Exercise of Powers and Functions:

• Authorities are empowered to exercise powers and perform functions as outlined in the Act or its accompanying rules.
• The Central Government can issue directions for the exercise of powers and functions by these authorities.

Central Government’s Role: The Central Government is responsible for issuing directions to authorities regarding the exercise of powers and performance of functions.

Criteria for Issuing Directions: The Central Government may consider various criteria when issuing directions or orders to authorities.

The criteria include: 

• Territorial area
• Classes of persons
• Classes of cases
• Any other criterion specified by the Central Government for this purpose.

Implications:

• Centralized Oversight: The Central Government plays a pivotal role in providing directions to authorities, ensuring uniformity and consistency in the exercise of powers and functions.
• Tailored Directions: Authorities may receive specific directions based on territorial considerations, types of individuals involved, categories of cases, or other specified criteria.
• Efficient Allocation of Resources: By issuing directions based on relevant criteria, the Central Government can streamline the operations of authorities, optimizing their efforts and resources.

The jurisdiction of authorities under the Act is subject to the directions issued by the Central Government. These directions guide the exercise of powers and functions by authorities, ensuring that their actions align with the objectives of the Act and are carried out effectively. By considering various criteria such as territorial area, classes of persons, and types of cases, the Central Government can provide tailored guidance to authorities, enhancing the efficiency and effectiveness of their operations in combating money laundering and related offenses.

Conclusion

The Prevention of Money Laundering Act (PMLA) 2002 stands as a crucial legislative instrument in India’s fight against money laundering. Despite facing certain challenges, this act has played a pivotal role in the identification and prosecution of money laundering offenses within the country. It is imperative for all entities falling under the purview of this act to adhere to reporting requirements and collaborate with enforcement agencies to effectively combat money laundering activities.

The government’s initiatives to enhance reporting standards for accountants and disclosure regulations for corporations signify a concerted effort to bolster corporate governance practices, curb the emergence of unrecorded wealth, prevent fund diversions, root out sham inter-corporate transactions, and thwart the illicit laundering of funds.

The judicial stance on bail matters under the PMLA has been critiqued for being excessively technical. Justice V.R. Krishna Iyer’s 1978 emphasis on personal liberty and the weighty responsibility of denying bail under Article 21 underscores the need for thoughtful consideration of its implications on both the individual and society. However, subsequent amendments extending the law’s scope to encompass offenses beyond drug-related money laundering have raised questions about the act’s original intent.

The evolution of the PMLA highlights the intricate nature of combating money laundering while upholding principles of equity and justice. It underscores the ongoing struggle to strike a balance between stringent enforcement measures and safeguarding individual rights, reflecting the complexities and challenges inherent in addressing financial crimes within a legal framework that aims to ensure both efficacy and fairness.