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?
- Notifying changes to the Prevention of Money Laundering Act, the Finance Ministry has brought in practicing chartered accountants, company secretaries, and cost and works accountants carrying out financial transactions on behalf of their clients into the ambit of the money laundering law.
- Lawyers and legal professionals, however, have been kept out in the new definition of entities covered under the PMLA.
- The amendments are expected to aid investigative agencies further in their probe against dubious transactions involving shell companies and money laundering.
- A Shell company is one that primarily or solely exitss on paper only. This means that there will be no significant assets linked to the shell company and it will deliver no goods, services or other business functions to generate revenue for itself.