The government’s apparent determination to strengthen the laws and systems against money laundering is unexceptionable, given that curbing black money and formalisation of the economy are its declared policy priorities. Over the last few years, it has acted on these objectives quite convincingly, though it is debatable whether and how much these efforts have borne fruit. The expansion of the clan of “reporting entities” under the Prevention of Money Laundering (PMLA) Act, 2005, by including the whole brethren of chartered accountants, company directors/secretaries, partners of firms and trustee among others, will doubtless help constrict the flow of criminal money into the country’s financial system and the larger economy. It will make it much more difficult for the launderers to camouflage the illegal source of cash, and help foil the co-mingling of such funds with legitimate money.
The new rules strike at the base of the strategy of using front companies to launder ill-gotten cash. In all the three phases of money laundering—placement of “dirty cash” in the formal system, complex layering of the subsequent transactions to escape trail, and re-appropriation of the “laundered” gains—professionals come to the aid of the wrong-doers, willy-nilly. As reporting entities, they can now do the same only at the risk of being booked under a stringent law, languishing in the custody of enforcement agencies for months on end without bail, and being punished with rigorous imprisonment and hefty fines upon conviction.
This is indeed going to be a powerful deterrent for the professionals from being complicit in acts of money laundering. The reinforced PMLA rules are not a one-off; rather, they complement the strengthening of accounting standards and audit regulation apart from enhanced shareholder rights and overall regulatory oversight on incorporated firms and partnerships. With a huge repository of transactions data at their disposal, the authorities are much better equipped now to track down financial offenders than ever before, and have also started using data analytics and AI to improve professional outcomes.
Though domestic interests are sufficiently compelling, the timing of the latest batch of the PMLA rules—the Act came into being in 2005—has also to do with the multilateral Financial Action Task Force’s impending assessment of the country’s compliance with its 40-odd recommendations, regarding national anti-money laundering frameworks. New Delhi being the current chair of G20 wouldn’t want to be seen lacking in the adoption of the FATF norms, a product of G7 deliberations. Given the relatively more attractive returns the Indian capital and consumer markets offer amid a global growth slump and the country’s robust macro-economic fundamentals, many would have proposed a calibrated approach rather than an unmitigated crackdown. However, for a country, which has ambitions to create a few international financial services centres, starting with the GIFT City, and take businesses from the likes of London, Dubai and Singapore, it is important to have the reputation of running a foolproof financial-sector regulatory system.
But there is a flip side. PMLA like many other strict laws like the Army Act, NDPS Act, etc, could be misused by the enforcement wings, given that the burden of proof can be on the accused. The salient principle of criminal justice—innocent until proven guilty—is often reversed in PMLA offences, thanks to the tough bail conditions under Section 24. It is in the domain of the judiciary to look at this issue.