UKPSC Prelims 2024 General Studies Paper-I · Question 52 of 147

Correct — D, The Director of Money Laundering is not given power to call for records maintained by Financial Institutions..

The key marks The Director of Money Laundering is not given power to call for records maintained by Financial Institutions as the untrue statement. The Act gives the Director exactly that power. Section 12 obliges banks, financial institutions and other reporting entities to keep transaction records and furnish prescribed information to the Director.

Section 12A then lets the Director call for any of those records, and any additional information he considers necessary, from any reporting entity. The original 2002 text carried the same power in Section 13(1); the 2012 amendment moved it into a new Section 12A.

The idea to carry away: PMLA runs on a reporting chain that ends at the Director. Reporting entities record and report, the Director can demand what they hold, and Section 13 lets him fine those who default. An option claiming the Director lacks access to financial records reverses the Act.

• (a)
  It includes all major offences which help in generation of black money. — The examiner treats this as a true description of the Act, so it is not the answer. PMLA does not list laundering methods; it lists predicate offences in a Schedule whose proceeds count as 'proceeds of crime'.

  Part A runs from the Indian Penal Code and the NDPS Act to the Prevention of Corruption Act, the Arms Act, the SEBI Act and the Customs Act.

  Because the Schedule is the gateway, the Act reaches the main crime-driven sources of black money, which is the sense in which the statement is accepted as true.

• (b)
  Tax evasion and smuggling have been kept out of the definition of money laundering. — The key treats this as true. Section 3 defines money-laundering through proceeds of a scheduled offence, and offences under the Income-tax Act, 1961 are not in the Schedule, so ordinary tax evasion is outside the definition. Wilful evasion under the Black Money Act, 2015 enters through Part C, for cross-border cases.

  One caution for your notes: Customs Act section 135 (evasion of duty or prohibitions) is a Part A scheduled offence today, so the smuggling half of this statement is weaker than the tax half. It is still not the statement the key marks false, because (d) contradicts a plain section of the Act.

• (c)
  Any case under this Act is non-bailable. — The key treats this as true. Section 45 makes offences under the Act cognizable and non-bailable, and a 2019 Explanation declares that this is what the section has meant since enactment.

  Bail is not barred, but fenced by 'twin conditions': the Public Prosecutor is heard, and the court must find reasonable grounds to believe the accused is not guilty and unlikely to offend on bail.

  A proviso lets the Special Court release a person under sixteen, a woman, a sick or infirm person, or someone accused of laundering less than one crore rupees. The Supreme Court upheld the twin conditions in Vijay Madanlal Choudhary v. Union of India (2022).

Money-laundering under PMLA is a derivative offence. First there must be a 'scheduled offence', a crime listed in the Act's Schedule. Property derived from it is 'proceeds of crime'. Section 3 then punishes any process or activity connected with those proceeds: concealing, possessing, acquiring, using, or projecting them as untainted.

The Act works through two arms. The Enforcement Directorate investigates, attaches property under Section 5, arrests under Section 19 and prosecutes before Special Courts. Separately, Chapter IV builds a reporting regime: reporting entities keep records and report to the Director, in practice the Director of the Financial Intelligence Unit-India (FIU-IND).

The Director's powers under Sections 12A, 13 and 50, which cover calling for records, inquiring into compliance, imposing fines, summoning persons and compelling production of documents, are what make the reporting regime bite.

• The PMLA was enacted in 2002 (Presidential assent 17 January 2003) and came into force on 1 July 2005.
• Section 3 defines money-laundering through 'proceeds of crime', which Section 2(1)(u) ties to property derived from a scheduled offence.
• Scheduled offences sit in Parts A, B and C of the Schedule; Part B offences count only when the value involved is one crore rupees or more.
• Part A includes the Indian Penal Code, NDPS Act, Prevention of Corruption Act, Arms Act, SEBI Act and Customs Act section 135.
• Section 12 requires reporting entities to maintain transaction records for five years and furnish prescribed information to the Director.
• Section 12A lets the Director call for those records and any additional information from any reporting entity; before 2013 this power sat in Section 13(1).
• Section 4 punishes money-laundering with rigorous imprisonment of three to seven years and fine; the ceiling is ten years where the scheduled offence is under the NDPS Act.
• Section 45 makes offences cognizable and non-bailable with twin conditions for bail, upheld in Vijay Madanlal Choudhary v. Union of India (2022).
• FIU-IND, set up in 2004, receives reports from reporting entities; the Enforcement Directorate under the Department of Revenue investigates and prosecutes.

• Rejecting (d) because there is no post called 'Director of Money Laundering'; the mark rests on Section 12A, which gives the Director appointed under Section 49 the power to call for records.
• Reading the Section 45 twin conditions as making the offence bailable; they regulate bail for an offence the section declares non-bailable.
• Assuming the Act's black-money purpose puts Income-tax Act evasion in the Schedule; it does not, which is why (b) is accepted as true.
• Mixing the enactment year (2002, assent January 2003) with the commencement date (1 July 2005).

• practice — not a real PYQ

  Under the Prevention of Money Laundering Act, 2002, a banking company that maintains records of prescribed transactions is required to furnish information relating to those transactions to:

  • (a)The Director appointed under the Act
  • (b)The Adjudicating Authority
  • (c)The Special Court
  • (d)The Appellate Tribunal
  Answera — Section 12(1)(b) requires the reporting entity to furnish information on prescribed transactions to the Director.

  The Adjudicating Authority (b) decides under Section 8 whether attached property stays attached; the Special Court (c) tries the laundering offence under Sections 43 and 44; the Appellate Tribunal (d) hears appeals from the Adjudicating Authority's orders under Section 26.

• practice — not a real PYQ

  Which of the following statements about bail under the Prevention of Money Laundering Act, 2002 is correct?

  • (a)Offences under the Act are bailable, so bail follows as a matter of course.
  • (b)Bail may be granted only after the Public Prosecutor has been heard and the court finds reasonable grounds to believe the accused is not guilty and is not likely to commit an offence while on bail.
  • (c)Bail under the Act can be granted only by a High Court.
  • (d)Bail under the Act can be granted only after the trial has begun.
  Answerb — this restates the Section 45 twin conditions. (a) fails because Section 45 makes offences under the Act non-bailable.

  (c) fails because the Special Court, a Sessions Court, applies Section 45 itself; the High Court is not the sole forum. (d) fails because Section 45 conditions bail on the twin findings, not on the stage of the trial; its proviso even allows bail for women, minors, the sick and small-value accused.

• practice — not a real PYQ

  Under Section 4 of the Prevention of Money Laundering Act, 2002, the punishment for money-laundering is rigorous imprisonment for a term of:

  • (a)Not less than one year, which may extend to three years
  • (b)Not less than three years, which may extend to seven years
  • (c)Not less than five years, which may extend to ten years
  • (d)Not less than seven years, which may extend to fourteen years
  Answerb — Section 4 prescribes rigorous imprisonment of not less than three years, extendable to seven, plus fine. Where the scheduled offence is under the NDPS Act (Part A, paragraph 2), the ceiling rises to ten years.

  (a) understates the minimum and the maximum; (c) has the NDPS ceiling but the wrong minimum; (d) is far above Section 4's seven-year, or ten-year, ceiling.