Prevention of Money Laundering Act (PMLA)

What’s in today’s article?

• Why in the News?
• About Prevention of Money Laundering Act, 2002
• Major Provisions of the Act
• Section 45 of the PMLA
• News Summary

Why in the News?

• The Supreme Court has highlighted that sickness and infirmity of an accused are grounds for bail even under the Prevention of Money Laundering Act (PMLA).

About Prevention of Money Laundering Act, 2002

• The Prevention of Money Laundering Act (PMLA), 2002 was enacted in January, 2003.
• The Act seeks to combat money laundering in India and has three main objectives:
  • To prevent and control money laundering
  • To confiscate and seize the property obtained from the laundered money; and
  • To deal with any other issue connected with money laundering in India.
• Sec. 3 of the Act defines offence of money laundering as:
  • whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering.
• The Act was amended by the Prevention of Money Laundering (Amendment) Act, 2009 and by the Prevention of Money Laundering (Amendment) Act, 2012.

Major Provisions of the Act

• The Act prescribes obligation of banking companies, financial institutions and intermediaries for verification and maintenance of records of the identity of all its clients and also of all transactions.
• PMLA empowers the Directorate of Enforcement (ED) to carry out investigations in cases involving offence of money laundering and also to attach the property involved in money laundering.
  • ED is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
  • It was formed as an Enforcement Unit, in the Department of Economic Affairs, for handling Exchange Control Laws violations under Foreign Exchange Regulation Act, 1947.
• PMLA envisages setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties. 
• It also envisages setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority
• PMLA envisages designation of one or more courts of sessions as Special Court or Special Courts to try the offences punishable under the Act.
• PMLA also allows Central Government to enter into an agreement with Government of any country outside India for enforcing the provisions of the PMLA.

Section 45 of the PMLA

• Section 45 of the Act, deals with the bail provisions related to money laundering offenses in India.
• This section places stringent conditions on the granting of bail to individuals accused of money laundering, making it one of the more controversial aspects of the PMLA.
• Twin Conditions for Bail: Under Section 45(1) of the PMLA, before granting bail to a person accused of money laundering, the court must be satisfied of two conditions:
  • Prima Facie Innocence: The court should have reasonable grounds to believe that the accused is not guilty of the offense.
  • No Risk of Tampering: The court should be convinced that the accused is not likely to commit any offense if released on bail.
• Non-Bailable Offenses: Offenses under the PMLA are considered non-bailable. This means that the court has discretionary powers in granting bail, and bail is not an automatic right for the accused.
• Amendments and Court Rulings: The stringent nature of Section 45 has led to several challenges in court, with arguments that it violates the right to personal liberty.
• The Supreme Court, in Nikesh Tarachand Shah v. Union of India (2017), struck down the twin conditions as unconstitutional, but they were reintroduced through amendments to the PMLA in 2018.

News Summary

• The Supreme Court of India has underscored that illness and frailty of an accused can be valid grounds for granting bail under the Prevention of Money Laundering Act (PMLA).
• In a recent ruling, a three-judge Bench led by Chief Justice D.Y. Chandrachud granted interim bail to Amar Sadhuram Mulchandani, former chairperson of Seva Vikas Co-operative Bank, due to his severe health issues.
• Section 45 of the PMLA generally imposes stringent conditions for bail, requiring courts to believe the accused is likely innocent and unlikely to re-offend.
• However, a proviso in Section 45(1) allows the court discretion to exempt minors, women, the sick, and infirm individuals from these conditions.
• The court highlighted this humane provision, noting Mulchandani’s deteriorating health, including cardiac and kidney issues, as well as diabetes and hypertension, as sufficient grounds for bail.

Q1. What is Money Laundering?

Money laundering is the process of illegally concealing the origin of money obtained from illicit activities such as drug trafficking, underground sex work, terrorism, corruption, embezzlement, and gambling, and converting the funds into a seemingly legitimate source, usually through a front organization.

Q2. What is Hawala?

Hawala is an informal funds transfer system that allows for the shifting of money from one person to another without the actual movement of money. It is a simple process that requires no documentation and, therefore, is an anonymous system of moving money.

News: Sickness, infirmity are grounds for bail in PMLA case: SC order