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What You Should Know About The Money Laundering Bill
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For better human development and sustainable growth of India, money laundering trends must be vanquished. It is not important but essential. The Prevention of Money Laundering (Amendment) Act, 2012 (PML) found itself being enacted in a positive spirit on 15 February. The idea was noble – to counter financial terrorism. India, being a member of the Financial Action Task Force (FATF), had to align its money laundering laws with international standards. The FATF recommendation requires courtiers to apply customer due diligence (CDD) on non-financial businesses and professions (DNFBPs) such as casinos, real estate agents, dealers in precious metals and precious stones, lawyers, trust and company service providers.
In such turbulent times, stringent law is the need of the hour with the PML Act sailing in. However, there are some angles of the Act that still warrant attention and need to be considered in new light.
The PML Act has altered the definition of money laundering to include concealment, possession, acquisition or use of proceeds of a crime. Sounds harmless, doesn’t it? But it’s not. Clandestinely, the Act directs for punishing a person for merely possessing the proceeds of the crime. Many times it happens that long distance relatives or neighbours give us money in cash on festive occasions. As per the new Act, the authorities could come snooping around accusing us of holding the proceeds of crime. One wouldn’t even realise that the proceeds were in our possession or who gave us the tainted money even if it was a small sum of Rs 1,000! Questions are being asked in the legal circles as to how innocent possession of proceeds of a crime constitutes criminal activity? The element of mens rea seems to be missing. Further, the penalty provisions in case of offences under the Act entail rigorous imprisonment for a term anywhere from 3-7 years and the cap on the fine which can be imposed has been omitted.
The Act widens the ambit of money laundering by bringing in sectors dealing with precious stones, metals and real estate within its fold. Precious metals have been defined to mean gold, silver platinum, etc., while precious stones have come to mean diamond, emerald, ruby, sapphire, etc. The Act now provides norms for reporting entities. These reporting entities include not just financial institutions or banking companies but also persons carrying on any of the designated business or profession as mentioned above. The Act mandates all reporting entities to verify the identity of its clients and to identify the beneficial owner of such clients.
The government is yet to provide the manner in which the verification process is to be conducted. Prior to the enactment jewellers would collect KYC for jewellery being bought above a certain threshold. But with the new developments jewellers worry that customers would find it easier to purchase jewellry from countries like Dubai or Thailand. Could this be the reason for the slowdown in the gold market? Even real estate agents are covered by the PML Act. At the moment, the real estate sector is quite calm but it wouldn’t be long before they too realise the complexities involved.
The reporting entity would now have to maintain a record of all transactions for a period of five years from the date of the transaction. Furthermore, the director or deputy director as appointed by the Central Government may call for information from the reporting entities within any time that he provides. There are two loop holes with such provisions. First, the director has been handed large discretionary powers to call for any information. This should not become a means for bureaucratic goonism for smaller reporting entities especially in the hinterlands of the country. Second, if the object of the PML is to cleanse the system, transparency plays a key role. If wide powers are being given to the government officials then ordinary citizens have a right to know what entails behind closed doors.
The director can make an inquiry if deemed fit with regard to the obligations of a reporting entity. The worst hit comes from a provision for search and seizure. As per the new amendment if the director is of the opinion that a person has committed an act of money laundering and has in his possession any property/record relating to money laundering, the director would compulsorily authorise any person to enter and search the building, break open locks, seize any property and examine any person on oath.
Earlier the power given to the director was discretionary, now it is mandatory. This would result in the rise of search and seizure by the authorities irrespective of the nature or type of proceeds. A new provision has also been inserted which gives the power to the director or the authorised officer to freeze property when it is not possible to seize the property. The time given to the authorities for retaining the property has also been increased from 90 days to 180 days.
The PML Act brings to mind the provisions as envisioned by GAAR. The GAAR empowered the tax department to invalidate any transaction which is believed to be undertaken deliberately to avoid payment of tax. Given the harsh nature of the norms it was vehemently opposed by the industry causing the finance minister to defer its implementation. However, with the PML this was not the case. The implications of the PML are just being brought to light as different sectors and common citizens are being affected.
While the PML Act seeks to curb the demonic nature of money laundering by enlarging its ambit there are still considerations that need to be addressed. The government may have to intricately look at the finer aspects and appease the growing fears.
Shankar and Puri are partners with J. Sagar Associates, solicitors and advocates. The views of the authors are personal