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Introduction

Money laundering is the process of disguising illegally obtained money as legitimate by converting or transferring it through complex transactions. It poses a serious threat to economic stability by fuelling illicit financial flows and terror financing, undermining the integrity of financial systems globally and in India.

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Economic Impacts of Money Laundering

• Destabilizes Financial Markets: Laundered money distorts credit and investment flows, leading to volatility.
• Inflates Real Estate Prices: Illicit funds pumped into real estate inflate property prices, making housing unaffordable.
  Eg: In the United States, over $2.3 billion was laundered through real estate from 2015 to 2021 with commercial real estate being a significant channel for such activities.
• Reduces Government Revenue: Tax evasion via laundering reduces government tax collections, weakening public services funding.
• Funds Terrorism and Organized Crime: Laundered money finances terror outfits, jeopardizing national security.
  Eg: Funding of groups like Jaish-e-Mohammed traced partly to laundering through hawala channels.
• Erodes Investor Confidence: Corruption and financial crimes deter foreign investment and hamper economic growth.
• Increases Inflation and Economic Instability: Excess money supply from laundering fuels inflation and disrupts monetary policy.

Prevention of Money Laundering Act (PMLA), 2002 Seeks to Address These Challenges

• Defines and Criminalizes Money Laundering: Section 3 clearly defines laundering activities and criminalizes possession of illicit property.
  Eg: The ED invoked PMLA in the Nirav Modi fraud case, attaching assets worth over ₹7,000 crore.
• Confiscation of Proceeds of Crime: PMLA allows attachment and confiscation of properties acquired via laundered money.
• Empowers Enforcement Directorate (ED): ED investigates money laundering cases and initiates prosecution under PMLA.
• Enables International Cooperation: PMLA facilitates sharing of information and mutual legal assistance with foreign agencies.
  Eg: India collaborates with the Financial Action Task Force (FATF) to strengthen cross-border AML measures.
• Provisions for Attachment without FIR: Allows attachment of property even before registration of a scheduled offence, expediting preventive action.
• Supports Investigation of Complex Financial Crimes: Covers crimes involving layering, shell companies, and new-age methods like cryptocurrencies.

Limitations of the Prevention of Money Laundering Act (PMLA), 2002

• Broad Definition of ‘Proceeds of Crime’: The vague definition gives authorities wide discretion, raising risks of misuse during investigations.
• Lack of Transparency and Clarity: The Enforcement Case Information Report (ECIR), equivalent to an FIR, is treated as an internal document and is not shared with the accused.
• Misuse of Act: The PMLA is invoked in investigations of even routine offences, leading to the attachment of assets belonging to genuine victims.
• Stringent Bail Conditions: Bail is rarely granted since courts must be convinced of the accused’s innocence beforehand, contradicting presumption of innocence.
• Poor conviction rate: Despite a large number of cases registered under the PMLA, conviction rates remain very low, reflecting challenges such as lengthy trials.
  Eg: The Supreme Court criticised the Enforcement Directorate’s low conviction rate, noting that out of nearly 400 ECIRs filed, fewer than 10 have resulted in conviction.
  

Conclusion

Curbing money laundering needs stricter PMLA enforcement, closure of legal loopholes, better inter-agency coordination, advanced data analytics, stronger cross-border cooperation, and transparency in ownership, while ensuring due process to maintain public trust.

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