What is Money Laundering in India? Hawala, PMLA, NDPS, and all you need to know

Money Laundering refers to the conversion or misrepresentation of money which has been illegally obtained by unlawful sources and methods. The conversion is done in such a way that it appears to have originated from a legitimate source and method. Notably, the phrase 'money laundering' originated from the mafia ownership of Laundromats in the United States in the 1920s and 1930s as organised criminals earned hefty amounts from extortion, gambling, etc and altered the source for the sum. 

Money laundering in India

In India, the term money laundering, which includes Hawala transactions, gained momentum during the early 1990s when a number of bureaucrats, investors, businessmen and politicians were found to have indulged in the practice and were caught in its net. Theoretically, hawala transaction, an alternative or parallel remittance system, dates back to the Arabic traders as a means of avoiding theft. The system was initiated to include the transfer of money or information between two persons and included a third person in the transaction. For instance, if a person based overseas wants to send money to another person in India, they may hand it to a middleman. That middleman then asks another middleman in India to hand over the predecided sum to the eventual beneficiary. This circumvents transfers via formal channels and everything they entail, such as records, invoices and charges, if any. 

Predating the western banking system, hawala transactions facilitated the conversion of money from the status of being legal to illegal; from being white money to black money. Black money refers to the amount earned, secured on which income and other taxes have not been paid or established. 

The goal behind the misdeed is to multiply and hide unlawful activities to generate profit. Money laundering is a criminal offence in India and charges in this instance refer to statutory provisions of the Prevention of Money Laundering Act, 2002. The process of advancing criminal proceeds to disguise illegal origins, activities, earnings in a bid to seek profit. Illegal arms sales, insider trading, drug trafficking, smuggling, embezzlement, bribery, computer fraud scheme and other organised crimes create incentives to legitimize the unaccounted for money and illegal gains. 

Here are FAQs on Money Laundering in India

• What is the extent of applicability of PMLA?

The PMLA and Rules are applicable to all persons which include individuals, companies, firms, partnership firms, associations of persons or incorporations and any agency, office or branch owned or controlled by any of the above-mentioned persons. 

• What is the objective of PMLA?

The PMLA seeks to combat money laundering while preventing or controlling it or confiscating/seizing the property obtained from the laundered amounts and to deal with issues related to it. Punishment under the Act is provided as under section 4 of the statute. 

• What constitutes an offence of money laundering under PMLA?

Any person who directly or indirectly attempts to indulge or knowingly assists or is actually involved in any activity connected to proceeds of crime is guilty of the offence of money laundering. Concealment, possession, acquisition or use and projecting or claiming the untainted property is an offence under the PMLA. 

• What is the punishment for the offence of money laundering?

The PMLA provides for rigorous imprisonment for at least 3 years which may extend up to 7 years along with a fine. In instances of money laundering in relation to the Narcotic Drugs and Psychotropic Substances Act (NDPS), the sentence may extend to 10 years too. Accordingly, if a company has committed a money laundering offence, then every member in charge and responsible for the conduct of the business and profit-making will be deemed to be guilty and will be liable to be punished via legal proceedings conducted by the Enforcement Directorate.