The Prevention of Money Laundering (Amendment) Bill, 2011 was introduced in the Lok Sabha on 27th December 2011. The Bill was passed by the Lok Sabha on 29th November 2012 and by the Rajya Sabha on 17th December 2012.
The Bill received the Presidential assent on the 4th January, 2013 , however is yet to be notified in the official gazette. The Bill, which was passed, included most of the 18 recommendations that were put forth by the Parliamentary Standing Committee on Finance. The primary objective behind the Bill was to introduce the concept of ‘corresponding law’, which would seek to link the provisions of the Indian law with foreign law.
Finance Minister P. Chidambram enunciated the sentiment when he said that the passage of the Bill will send a signal to the international community about India’s commitment to deal with the offences having wide international ramifications.
NEW CONCEPTS INTRODUCED: Besides introducing the concept of ‘corresponding law’ it also brings in the concept of ‘reporting entity’ to bring banking company, financial institution, intermediary or a person carrying on a designated usiness or profession – under its ambit.
NO UPPER LIMIT FOR PENALTY: The upper limit of Rs 5 hundred thousand for fines, which is provided for in the PMLA is removed, to give no upper limit to the fines that may be imposed.
CLASSIFICATION: Part B of the Schedule in the PMLA includes only those offences, where the monetary value is Rs 3 million or more while Part A of the PMLA does not specify any monetary limit for the offence. This discrepancy will be set right by bringing all the offences under Part A.
BROADENED DEFINITION: The definition of the offence of money laundering has been widened to include activities like concealment, acquisition, possession and the use of proceeds of crime.
PRESUMPTIVE PREMISE: In all proceedings relating to money laundering under the PMLA, the Bill seeks to introduce a presumption that the funds in question are involved in the offence unless it is proven otherwise.
ATTACHMENT AND CONFISCATION OF PROPERTY: The Bill provides for the provisional attachment and confiscation of property, if the authorities have reason to believe that the offence of money laundering has taken place. However, such provisional attachment and confiscation cannot exceed a period of 180 days.
WIDER POWERS TO THE DIRECTOR: The investigative powers of the Director of the Financial Information Unit (FIU) have also been widened to allow him/her to call for records of transactions or any additional information that is important from the perspective of the investigation.
OBLIGATIONS OF REPORTING ENTITY: The Bill casts a responsibility on the reporting entity and such directors of the board and employees who are responsible for omissions or commissions in relation to the reporting obligations. This is an extremely important provision to take note of from a compliance perspective and something that has been widely used to bring directors and employees to the book in foreign countries, most prominently the US and the UK.
APPEALS: Appeals against the orders of the Appellate Tribunal may lie directly to the Supreme Court of India within a period of 60 days from the communication of the decision or order of the Tribunal.
TRANSFER OF CASES: The Bill also provides for the transfer of cases pending in a court to the special courts for completion of trial.
COMPARISON WITH UK’S ‘THE PROCEEDS OF CRIME ACT 2002’: In India, the anti-money laundering provisions apply only to drug offences and specified serious offences and the new Bill does not extend the remit of the provisions to encompass all crimes, as is presently the case in the UK. The Proceeds of Crime Act 2002 (POCA) is the principal anti-money laundering legislation in the UK along with the Money Laundering Regulations 2007. The regulations impose additional antimony laundering administrative requirements on organisations undertaking specified regulated activities. The statutory criminal law is contained within Part 7 of the POCA and the money laundering provisions apply to all crimes committed on or after 24 February 2003, not simply drug trafficking, terrorism and serious crime.
While the new Indian Bill does expand the definition of money laundering offences to include activities like concealment, acquisition, possession and use of proceeds of crime, it must still be proved that an accused has knowledge that property represents ‘criminal property’. The scope of the UK principal money laundering offences remains comparatively broad; mere suspicion that property represents ‘criminal property’ would suffice.
Furthermore, the Bill does not introduce offences for failing to report a knowledge or suspicion of money laundering or offences of “tipping off “, namely making a disclosure likely to prejudice a money laundering investigation. In the UK, sections 330, 331 and 332 of POCA 2002 create offences of failure to disclose possible money laundering activities. The maximum penalty on conviction for such offences is five years imprisonment and/or a fine and the prosecution need only prove that the accused has ‘reasonable grounds’ for suspicion.
In terms of requirements to put in place appropriate anti-money laundering controls, the Bill broadens the definition of reporting entity to include banks, financial institutions, intermediaries or a professional, including persons engaged in real estate business and/or jewellery business. The Bill also increases the power of directors to call for records and conduct inquiries and direct audits in cases of non compliance of obligations. However it does not propose to introduce offences for failure to comply with these requirements. The UK takes a far more draconian approach and failure to comply with its Money Laundering Regulations can amount to a criminal offence, which can be prosecuted by the Crown Prosecution Service or the FSA, with a maximum penalty of two years imprisonment and/or a fine.
In terms of punishment, the Indian Bill removes the upper limit fine of INR 5 lakh. However, the maximum period of imprisonment remains 7 years (10 years for specified offences). The maximum period of imprisonment in the UK, for example, is more severe, namely 14 years.
The Indian Bill proposes to provide for attachment and confiscation of the proceeds of crime, even if there is no conviction, provided that the property in question (i.e. the proceeds of crime) is involved in money laundering. This appears to go further than the UK, for example, where confiscation orders can only be made following the conviction or absolute discharge of an accused, who can be shown to have benefitted from criminal conduct (s. 92 POCA 2002).
However, pursuant to s. 41 of POCA 2002, the UK courts can make restraint orders to prohibit dealing with property obtained through unlawful conduct. A restraint order has the effect of freezing property that may be liable to confiscation following the trial and the making of a confiscation order. The new Indian Bill does not make any mention of similar restraint order provisions. However, a new presumption has been introduced by the Bill so that in the proceedings relating to money laundering, the funds shall be presumed to be involved in the offence, unless proven otherwise.
The Bill also adds multiple persons/entities including members of ICAI, ICWAI, ICSI to assist the authorities in the enforcement of the Act. Similarly, in the UK, the Money Laundering Regulations establish supervisory authorities to monitor and ensure compliance with the regulations.
In Germany, money laundering is codified in the Criminal Code (‘Strafgesetzbuch – StGB’) as well as in the Money Laundering Act (‘Geldwäschegesetz – GwG). Money laundering is punishable by 3 months to 5 years in prison, if acting with criminal intend. Additionally, Section 261 (5) of the Criminal Code expands the scope of application. Hereafter, acting recklessly unaware that an asset is derived from an unlawful act can be punished by up to 2 years in prison or a fine.
Besides the Criminal Code, the Money Laundering Act requires particular attention. Due to efforts to prevent money laundering, the financing of terrorism and organised crime, the European Union constantly intensified the requirements of the money laundering regulations in the member states over the last 20 years.
While in the past the Money Laundering Act was mainly directed at the financial sector, now it covers others professions e.g. the insurance sector, the legal profession, real estate brokers and commercial traders. As one fundamental principle to combat money laundering is to identify the persons in the background of a business relationship, Section 11 of the Money Laundering Act lays down an obligation to immediately report suspicious transactions to the law enforcement authorities and the Federal Criminal Police Office (‘Bundeskriminalamt’), where a Financial Intelligence Unit (FIU) has been established.
A violation of this rule can be fined by up to EUR 100,000.00 (Rs. 72 lakh). Contrary to Section 261 of the Criminal Code, neither criminal intent nor thoughtless nonrecognition is needed, pure suspicion is sufficient. Further, in order to ensure transparency in business relationships and financial transactions, the Money Laundering Act states certain obligations to prevent money laundering offences, especially the ‘know your customer’- principle. As a result of this legislation the awareness of the importance of anti-money laundering compliance has increased significantly in Germany.
Compared to the German anti-money laundering regulations, the Prevention of Money Laundering (Amendment) Bill of 2011 demonstrates considerable deficits. It is one step in the right direction though, but in times of an inter-dependent global economy a stricter legislation is indispensable.
The Prevention of Money Laundering (Amendment) Bill of 2011 is most definitely a step in the right direction, but should not be the only step taken by the legislature to strengthen the anti-money laundering framework in the country. As is evident from the comparison drawn above, the law still has sufficient lacunae and is yet to really drive home the point hard.
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