GS3 – Internal Security
Context:
A recent Finance Ministry report presented in the Rajya Sabha has highlighted a concerning rise in money laundering incidents, persistently low conviction rates under the Prevention of Money Laundering Act (PMLA), and debates over the Enforcement Directorate’s (ED) operational overreach.
Current Trends in Money Laundering Cases
- Prosecution Gap: Since 2015, ED has initiated 5,892 PMLA cases but achieved only 15 convictions.
- Operational Load: Over 3,985 search operations conducted, but limited prosecutorial success.
- Asset Attachment: Properties worth approximately ₹1.5 lakh crore have been provisionally seized since the PMLA’s inception.
- Shell Entities: Around 1.2 lakh companies deregistered under the Companies Act for violations, many linked to laundering activities.
Understanding Money Laundering
- Definition: Process of concealing illicit funds and presenting them as legitimate through complex transactions.
- Three Stages:
- Placement – Introducing illegal money into the financial system.
- Layering – Concealing its source via multiple transactions.
- Integration – Introducing laundered funds back into the economy as legitimate assets.
- Common Channels: Shell companies, real estate investments, trade misinvoicing, and digital assets.
Legal Framework in India
- Statutory Base: PMLA, 2002 – India’s primary anti-money laundering law.
- Offence Definition: Section 3 – Concealment of illicit proceeds as lawful assets.
- Penalties: Section 4 – Rigorous imprisonment (3–7 years) and monetary fines.
- Investigation Trigger: ED can initiate probes via Enforcement Case Information Report (ECIR) without a prior FIR.
- Enforcement Agencies: ED and Financial Intelligence Unit–India (FIU-IND) serve as the primary bodies for investigation and intelligence.
Enforcement Challenges
- Scope Expansion: Inclusion of minor offences dilutes the Act’s focus on serious economic crimes.
- Bail Clause Reversal: Section 45 shifts the burden of proof onto the accused.
- Potential Misuse: Wide arrest and search powers risk politically motivated or arbitrary action.
- Centre–State Friction: PMLA allows ED to act without state government approval.
- Broad Definitions: Vague “proceeds of crime” clause enables excessive asset seizures.
- Effectiveness Questioned: High number of cases with minimal convictions undermines credibility.
International Cooperation Measures
- FATF Compliance: India adheres to all 40 recommendations of the Financial Action Task Force.
- Bilateral & Multilateral Treaties: Over 85 Double Taxation Avoidance Agreements (DTAAs) for tax and asset information sharing.
- Legal Instruments:
- UNTOC – UN Convention against Transnational Organised Crime.
- Vienna Convention – UN Convention on drugs-related money laundering.
- FIU Networking: Member of the Egmont Group for cross-border intelligence sharing.
Government Measures
- Scope Enhancement: PMLA amended to include conspiracy, possession, and intermediary-linked offences.
- Digital KYC: Aadhaar-based KYC mandated by RBI and SEBI to curb identity misuse.
- Technology Use: AI-based transaction monitoring and alert systems.
- Judicial Efficiency: More benches and improved case tracking for faster trials.
- Benami Transactions Act Enforcement: Targeting undisclosed ownership patterns.
- Data Integration: Linking FIU-IND with PAN, Aadhaar, and GSTN for real-time alerts.
- Expanded Reporting: Jewellers, NGOs, and real estate agents brought under compliance obligations.