How is Money Laundering Done?
The three main steps of money laundering are placement, layering, and integration.
- Placement: The first stage is when the criminally attained money is introduced into the formal financial system. By this the illegal money through various agents and banks is in the form of cash.
- Layering: The second stage involves the money being inserted into the system is layered and dispersed over various transactions; this is done to cloud the tainted money’s origin.
- Integration: For the third stage, the money enters the financial system so that the original connection to the crime is removed and the money can now be used as clean money by the culprits.
Prevention of Money Laundering Act 2002
The Prevention of Money Laundering Act 2002 (PMLA) was enacted by the Parliament of India to prevent money laundering and confiscate property acquired from money laundering. The PMLA came into effect on 1st July 2005. The PMLA was enacted to honour India’s international commitment (the Vienna Convention) to fight money laundering and financing of terrorism.
In the 2005 amendment action could be taken only after the concerned authority had filed a complaint. For example, if the crime had been committed under the Income Tax act 1961 (IT Act ) then The Income Tax authorities had to launch prosecution under the IT Act then only would the PMLA kick in. This would prevent PMLA from being invoked for petty ordinary crimes and catch only the big fish. Some of these amendments are: In 2009, cross-border implications were brought in so that if the offense was committed in another country action could be taken as if the offense had been committed in India.
In 2012 again to prevent misuse an amendment was made so that a trial could not be initiated immediately on cognizance of the offense under PMLA. Again in 2019, the amendment made ensured that if after investigation it was found that there was no offense under PMLA then a closure report had to be filed so the case does not remain open if no evidence is found of a scheduled crime. For example, all cases of tax evasion or fraud may not be covered by money laundering, and the closure report would give finality to the proceedings. At the same time, PMLA was strengthened as the result of any parallel trial enquiry, investigation or enquiry would not affect the case under PMLA. In addition, any subsequent complaint by the authorized authority can be taken into account in the PMLA investigation/trial and additional evidence brought out subsequently could be considered for action under PMLA.