The Centre informed the Supreme Court that 4,700 cases are being investigated by the Enforcement Directorate (ED), and only 313 people have been arrested for the alleged offences since the enactment of the Prevention of Money Laundering Act (PMLA) in 2002.

The total amount covered by interim orders of no coercive action passed by the courts in such matters is approximately Rs 67,000 crore, the government told a bench.

In money laundering cases relating to Vijay Mallya, Mehul Choksi and Nirav Modi, the ED has confiscated around Rs 18,000 crore by the orders of the courts following due procedure.

The apex court is dealing with a batch of petitions concerning the interpretation of certain provisions of the PMLA.

What is money laundering?

• Money laundering generally refers to financial transactions in which criminals, including terrorist organisations, attempt to disguise the proceeds, sources or nature of their illicit activities. Money laundering facilitates a broad range of serious underlying criminal offences and ultimately threatens the integrity of the financial system. 

• Through money laundering, the criminal transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.

• This process has devastating social consequences. For one thing, money laundering provides the fuel for drug dealers, terrorists, arms dealers, and other criminals to operate and expand their criminal enterprises.

Prevention of Money Laundering Act

• Prevention of Money Laundering Act (PMLA) was enacted on January 17, 2003 and brought into force on July 1, 2005. 

• The Act aims to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto. 

Two main objectives of the Act are:

• Criminalise money laundering and provide for attachment, seizure and confiscation of property involved in money laundering.

• Prescribe obligations on banks, financial institutions and intermediaries relating to KYC, record keeping and furnishing reports.

• PMLA was amended in 2005, 2009, 2012, 2015, 2016, 2018 and 2019 to overcome the deficiencies and to meet the international standards on Anti-Money Laundering as prescribed by Financial Action Task Force (FATF).

• Section 3 of the PMLA criminalises the offence of money laundering related to a wide range of criminal offences listed in the schedule to the PMLA.

• These offences include participation in an organised criminal group and racketeering, terrorism and terrorist financing, illicit trafficking in narcotics drugs and psychotropic substances, illegal human trafficking, illicit arms trafficking, illicit trafficking in stolen goods, corruption and bribery, fraud, counterfeiting and piracy of products, environmental crimes, kidnapping, robbery, smuggling, extortion, forgery, piracy and insider trading and market manipulation. 

• These offences listed in the schedule are called “predicate offences” and section 3 of the PMLA states that whoever is directly or indirectly involved or associated with any process or activity connected with “proceeds of crime” related to these criminal activity will be guilty of the offence of money laundering and is liable for punishment with rigorous imprisonment of three to ten years under section 4 of the PMLA.

• The scope of section 3 has been widened over the years following a risk based approach to ensure that each and every kind of money laundering offence is covered under the provision and the “proceeds of crime” are not enjoyed with any person who could in any way connected to the underlying criminal activity.

Enforcement Directorate

• The primary function of the Enforcement Directorate is administration and enforcement of the Prevention of Money Laundering Act, 2002 (PMLA) including investigation into the offence of money laundering, filing of prosecution complaint before the special court against the accused, attachment and confiscation of property involved in money laundering and carrying out international cooperation with competent authorities in foreign jurisdictions. 

• The ED has the sole jurisdiction to investigate the money laundering cases and the law enforcement agencies having the responsibility to investigate a “predicate offence”, including the state police authorities, are required to make a reference to the ED to examine the money laundering aspect of the criminal activity. 

• In certain cases, the fact that a predicate offence has taken place is also obtained from publicly available sources or on receipt of information from the Financial Intelligence Unit (FIU). 

• On receipt of the reference or information and after making certain preliminary verification, the ED registers a case and initiates investigation (Enforcement Case Information Report or the ECIR) following a risk based approach taking into consideration factors such as materiality of the offence, transnational nature of the crime, complexity of the case, the larger public interest and the availability of resources.

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