Postponed by the pandemic and due later this year, the scope of the mutual evaluations involves technical compliance for legal and institutional frameworks, and their effectiveness
Government agencies have expedited efforts to further strengthen the anti-money laundering and counter-terror financing frameworks in view of the coming Financial Action Task Force (FATF) assessment of India in the fourth round of mutual evaluations expected later this year.
It is learnt that the Financial Intelligence Unit is organising meetings with representatives from sectors like real estate to ensure compliance with KYC (Know Your Client) norms. As mandated by law, all the other agencies have been referring cases involving the money laundering angle to the Enforcement Directorate (ED) for further action. The ED has attached properties worth over ₹1 lakh crore under the Prevention of Money Laundering Act (PMLA).
The government has also organised a series of conferences focused on combating terror financing, including the United Nations Security Council Counter-Terrorism Committee special conference in India; the ‘No Money For Terror’ conference where India proposed to host its headquarters; and the UNSC briefing on challenges to the global counter-terrorism regime at the UN in New York.
According to the FATF, the possible onsite assessment is due in November 2023, whereas the findings may be discussed at its June 2024 plenary. The mutual evaluation of India was postponed due to the COVID-19 pandemic.
The scope of mutual evaluations involves two aspects: technical compliance, for assessment of whether the necessary legal framework and other associated measures are in force and whether the supporting institutional framework is in place; and effectiveness, to determine if the systems are working towards achieving the defined set of outcomes.
“On the legal front, we have one of the most stringent anti-money laundering/terrorist financing laws in the world. Besides, the Fugitive Economic Offenders Act and the Black Money Act have been brought in. Last year, the Parliament passed the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Amendment Bill, banning the funding of weapons of mass destruction and enabling freezing, seizure or attachment of assets and financial resources of those involved,” an official of a probe agency said.
In its 2010 review, the FATF had highlighted two shortcomings in the Indian legal framework. While the confiscation of assets was based on convictions, which was subsequently addressed by amending Section 8(5) of the PMLA, money laundering was not a standalone offence — it was dependent on scheduled/predicated offences under other penal laws.
The government in 2019 notified certain amendments apparently aimed at treating money laundering as a standalone offence. Provisions related to search-and-seizure and search of persons were modified to do away with the prerequisite of a First Information Report (FIR) or a charge-sheet pertaining to scheduled offences by other agencies.
An explanation to Section 44 was inserted to clarify that the jurisdiction of the Special Court dealing with a PMLA offence, during investigation, enquiry or trial, would not depend on any orders passed in respect of the scheduled offence, and that the trial of both sets of offences by the same court would not be construed as a joint trial. The scope of “proceeds of crime”, under Section 2, was expanded to empower the ED to act against even those assets which “may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence”.
“However, in the July-2022 Vijay Madanlal Choudhary judgment, the Supreme Court held that if the accused is discharged or acquitted, or the prosecution stands quashed with respect to the associated predicate offence, there shall be no offence of money laundering. Also, the judgment does not interpret the phrase ‘criminal activity’, which is not defined in any of the Indian laws, but used in the PMLA. These issues have created a major roadblock that should be addressed,” an official said.
Pointing out that money laundering was a conceptual and conduct-based offence evolved by the civil law legal system countries, the official said in India “offence” had been defined — in the Indian Penal Code, Criminal Procedure Code and the General Clauses Act — as an act or omission made punishable by law for the time being in force. It does not explicitly include conduct-based crime.
On the aspect of “effectiveness”, apart from the instances of attachment/seizure/freezing of assets, conviction rate in the money laundering/terror financing cases would be crucial to demonstrate effective implementation.
“While the PMLA came into force in 2005, delays in court proceedings with respect to the predicated offences have impacted the outcome. Nevertheless, multiple convictions have been secured in the recent past. In this regard, another challenge is that money laundering investigations involve complex transactions, often involving overseas entities. Therefore, it’s a time consuming process,” the official said.
While the ED has taken action in several cases related to terror financing under the PMLA, the National Investigation Agency has also been registering cases to probe criminal conspiracies.
“An emerging challenge is the use of digital assets by criminals, including cryptocurrencies. In several cases, the ED and the Narcotics Control Bureau have seized crypto assets. However, this issue also requires attention in terms of legislative initiative and implementation,” a law enforcement official said.
Central agencies gear up for FATF mutual evaluations
Postponed by the pandemic and due later this year, the scope of the mutual evaluations involves technical compliance for legal and institutional frameworks, and their effectiveness
Government agencies have expedited efforts to further strengthen the anti-money laundering and counter-terror financing frameworks in view of the coming Financial Action Task Force (FATF) assessment of India in the fourth round of mutual evaluations expected later this year.
It is learnt that the Financial Intelligence Unit is organising meetings with representatives from sectors like real estate to ensure compliance with KYC (Know Your Client) norms. As mandated by law, all the other agencies have been referring cases involving the money laundering angle to the Enforcement Directorate (ED) for further action. The ED has attached properties worth over ₹1 lakh crore under the Prevention of Money Laundering Act (PMLA).
The government has also organised a series of conferences focused on combating terror financing, including the United Nations Security Council Counter-Terrorism Committee special conference in India; the ‘No Money For Terror’ conference where India proposed to host its headquarters; and the UNSC briefing on challenges to the global counter-terrorism regime at the UN in New York.
According to the FATF, the possible onsite assessment is due in November 2023, whereas the findings may be discussed at its June 2024 plenary. The mutual evaluation of India was postponed due to the COVID-19 pandemic.
The scope of mutual evaluations involves two aspects: technical compliance, for assessment of whether the necessary legal framework and other associated measures are in force and whether the supporting institutional framework is in place; and effectiveness, to determine if the systems are working towards achieving the defined set of outcomes.
“On the legal front, we have one of the most stringent anti-money laundering/terrorist financing laws in the world. Besides, the Fugitive Economic Offenders Act and the Black Money Act have been brought in. Last year, the Parliament passed the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Amendment Bill, banning the funding of weapons of mass destruction and enabling freezing, seizure or attachment of assets and financial resources of those involved,” an official of a probe agency said.
In its 2010 review, the FATF had highlighted two shortcomings in the Indian legal framework. While the confiscation of assets was based on convictions, which was subsequently addressed by amending Section 8(5) of the PMLA, money laundering was not a standalone offence — it was dependent on scheduled/predicated offences under other penal laws.
The government in 2019 notified certain amendments apparently aimed at treating money laundering as a standalone offence. Provisions related to search-and-seizure and search of persons were modified to do away with the prerequisite of a First Information Report (FIR) or a charge-sheet pertaining to scheduled offences by other agencies.
An explanation to Section 44 was inserted to clarify that the jurisdiction of the Special Court dealing with a PMLA offence, during investigation, enquiry or trial, would not depend on any orders passed in respect of the scheduled offence, and that the trial of both sets of offences by the same court would not be construed as a joint trial. The scope of “proceeds of crime”, under Section 2, was expanded to empower the ED to act against even those assets which “may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence”.
“However, in the July-2022 Vijay Madanlal Choudhary judgment, the Supreme Court held that if the accused is discharged or acquitted, or the prosecution stands quashed with respect to the associated predicate offence, there shall be no offence of money laundering. Also, the judgment does not interpret the phrase ‘criminal activity’, which is not defined in any of the Indian laws, but used in the PMLA. These issues have created a major roadblock that should be addressed,” an official said.
Pointing out that money laundering was a conceptual and conduct-based offence evolved by the civil law legal system countries, the official said in India “offence” had been defined — in the Indian Penal Code, Criminal Procedure Code and the General Clauses Act — as an act or omission made punishable by law for the time being in force. It does not explicitly include conduct-based crime.
On the aspect of “effectiveness”, apart from the instances of attachment/seizure/freezing of assets, conviction rate in the money laundering/terror financing cases would be crucial to demonstrate effective implementation.
“While the PMLA came into force in 2005, delays in court proceedings with respect to the predicated offences have impacted the outcome. Nevertheless, multiple convictions have been secured in the recent past. In this regard, another challenge is that money laundering investigations involve complex transactions, often involving overseas entities. Therefore, it’s a time consuming process,” the official said.
While the ED has taken action in several cases related to terror financing under the PMLA, the National Investigation Agency has also been registering cases to probe criminal conspiracies.
“An emerging challenge is the use of digital assets by criminals, including cryptocurrencies. In several cases, the ED and the Narcotics Control Bureau have seized crypto assets. However, this issue also requires attention in terms of legislative initiative and implementation,” a law enforcement official said.
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