What is Money laundering?
- Money laundering refers to a financial transaction scheme that aims to conceal the identity, source, and destination of illicitly-obtained money.
- According to the United Nations Office on Drugs and Crime, money laundering is a process which typically follows three stages to finally release laundered funds into the legal financial system.
- The 3 Stages of Money Laundering are:
- Placement (i.e. moving the funds from direct association with the crime)
- Layering (i.e. disguising the trail to foil pursuit)
- Integration (i.e. making the money available to the criminal from what seem to be legitimate sources).
Prevention of Money-Laundering Act, 2002
- Prevention of Money Laundering Act, 2002 was enacted to fight against the criminal offence of legalizing the income/profits from an illegal source.
- The Act enables the Government or the public authority to confiscate the property earned from the illegally gained proceeds.
- The PMLA 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
- The Prevention of Money Laundering (Amendment) Act 2012 enlarges the definition of offence of money laundering. The new definition includes activities like concealment, acquisition, possession and use of the proceeds of crime as criminal activities, also it has removed the existing limit of Rs 5 lakhs fine under the Act.
Why in News?
- The government has imposed money laundering provisions on cryptocurrencies or virtual assets as it looks to tighten oversight of digital assets.
- In a gazette notification, the Finance Ministry said the Prevention of Money Laundering Act, 2002 has been applied to crypto trading, safekeeping and related financial services.
- After this, Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (FIU-IND).
- The move is in line with the global trend of requiring digital-asset platforms to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers.
- Virtual digital assets were defined as any code or number or token generated through cryptographic means with the promise or representation of having inherent value.
- Financial Intelligence Unit – India was set by the Government of India vide in 2004 as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions.
- FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and financing of terrorism.
- FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.