Editorial 1. Belated, but essential: On bringing all trade in virtual digital assets under PMLA
Context:
The Finance Ministry’s notification of march 2023, placing all transactions involving virtual digital assets under the purview of the Prevention of Money Laundering Act (PMLA), is a much-needed, even if belated, step.
Dirty money and money laundering:
| Criminal activities like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud schemes produce large profits, generating what is called ‘dirty money’.Money laundering is the process of conversion of ‘dirty money’, to make it appear as ‘legitimate’ money.The money from the criminal activity is considered dirty, and the process “launders” it to make it look clean. |
About Prevention of Money Laundering Act (PMLA):
PML Act, enacted by the Parliament in 2003, seeks to combat money laundering in India and has three main objectives:
- To prevent and control money laundering
- To confiscate and seize the property obtained from the laundered money; and
- To deal with any other issue connected with money laundering in India.
Provisions of PMLA:
1. Definition of money laundering:
Sec. 3 of PMLA defines offence of money laundering as whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering.
2.Prescribes obligation:
PMLA prescribes the obligation of banking companies, financial institutions and intermediaries for verification and maintenance of records of the identity of all its clients and also of all transactions and for furnishing information of such transactions in a prescribed form to the Financial Intelligence Unit-India (FIU-IND).
3.Empowerment of officers:
PMLA empowers certain officers of the Directorate of Enforcement to carry out investigations in cases involving offence of money laundering and also to attach the property involved in money laundering.
It empowers the Director of FIU-IND to impose fines on banking companies, financial institutions or intermediaries if they or any of its officers fails to comply with the provisions of the Act as indicated above.
4.Setting up of Authority:
PMLA envisages the setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties.
It also envisages the setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority and the authorities like Director FIU-IND.
5.Special Courts:
It envisages the designation of one or more courts of sessions as Special Court or Special Courts to try the offences punishable under PMLA and offences with which the accused may, under the Code of Criminal Procedure 1973, be charged at the same trial.
Virtual digital assets (VDAs):
According to the Finance Act, “virtual digital asset” means any information, code, number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise and can be called by whatever name.
It basically means cryptocurrencies like bitcoin, dogecoin, DeFi (decentralised finance) and non-fungible tokens (NFTs). Prima facie, it excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets.
VDAs and money laundering:
The government has been struggling in recent years to formulate an appropriate regulatory response to deal with the pandemic-era upsurge in advertisements soliciting investment in virtual assets as well as reports of actual investment.
A July 2021 online report by BrokerChooser.com had estimated India as being the country with the highest number of ‘crypto owners’, at 10.07 crore, which was more than threefold the number of owners of crypto assets in the second-ranked U.S.
Even if this is discounted as a speculative guesstimate, measures and disclosures by the government indicate that the volume of trade in unregulated virtual assets has grown sizeably in recent years.
Last month, Minister of State for Finance Pankaj Chaudhary informed the Lok Sabha that the Enforcement Directorate was ‘investigating several cases related to cryptocurrency frauds wherein a few crypto exchanges had been found involved in money laundering’. And that as much as ₹936 crore had been attached or frozen as on January 31, on being deemed to be proceeds of crime.
Way forward:
The decision to mandatorily bring all trade in virtual digital assets under the PMLA now lays the onus of ascertaining the provenance of all activity, including safekeeping, in such assets upon individuals and businesses participating in or facilitating these transactions.
The intergovernmental Financial Action Task Force (FATF) — the global money laundering and terrorist financing watchdog — has been continuously flagging the potential that virtual digital assets have for criminal misuse considering the speed and anonymity with which they can be traded worldwide.
As it has pointed out, the fact that a few countries have moved to regulate virtual assets, and some others have banned them outright, while a majority have not taken any action has created a global system with loopholes for criminals and terrorists to abuse.
Conclusion:
India, which holds the presidency of the G-20, has been repeatedly stressing the need for a globally coordinated regulatory response to deal with crypto assets. While the Centre’s decision to add the PMLA monitoring requirements, following the introduction of a tax regime for virtual digital assets in last year’s Budget, has been interpreted by the crypto assets sector as moves towards regulating rather than proscribing it, the RBI’s consistent advocacy for a ban needs to be seriously weighed before any decision is taken on the fate of the long-delayed draft legislation on virtual assets.
Editorial 2. How did the treaty on the high seas come through?
Context:
Last week, the UN member states agreed on a historic treaty for protecting marine life in international waters that lie outside the jurisdiction of any country, marking the culmination of over a decade of negotiations to protect the high seas that cover nearly two-thirds of the global ocean.
IGC on BBNJ:
The ‘breakthrough’ followed protracted talks led by the UN during the Intergovernmental Conference (IGC) on Marine Biodiversity of Areas Beyond National Jurisdiction (BBNJ) in New York. The pact will be crucial for addressing the planetary crisis of climate change, biodiversity loss and pollution. The treaty is yet to be formally adopted as members are yet to ratify it.
About the high seas
Parts of the sea that are not included in the territorial waters or the internal waters of a country are known as the high seas, according to the 1958 Geneva Convention on the High Seas. It is the area beyond a country’s Exclusive Economic Zone (EEZ) which extends up to 200 nautical miles (370 km) from the coastline and till where a nation has jurisdiction over living and non-living resources.
No country is responsible for the management and protection of resources on the high seas. The high seas account for more than 60% of the world’s ocean area and cover about half of the Earth’s surface, which makes them a hub of marine life. They are home to around 2.7 lakh known species, many of which are yet to be discovered.
The high seas are fundamental to human survival and well-being by regulating the climate by playing a fundamental role in planetary stability by mitigating the effects of climate change through its absorption of carbon and by storing solar radiation and distributing heat around the globe.
In addition, the ocean provides a wealth of resources and services, including seafood and raw materials, genetic and medicinal resources, air purification, climate regulation, and aesthetic, scientific and cultural services.
However, these oceans absorb heat from the atmosphere, are affected by phenomena like the El Nino, and are also undergoing acidification — all of which endanger marine flora and fauna. Several thousand marine species are at a risk of extinction by 2100 if current warming and acidification trends continue.
Anthropogenic pressures on the high seas include:
- seabed mining
- noise pollution
- chemical spills and fires
- disposal of untreated waste (including antibiotics)
- overfishing
- introduction of invasive species
- coastal pollution.
Preserving marine biodiversity :
As climate change and global warming emerged as global concerns, a need was felt for an international legal framework to protect oceans and marine life. The United Nations general assembly or UNGA decided in 2015 to develop a legally binding instrument within the framework of UNCLOS. Subsequently, the IGC was convened to frame a legal instrument on BBNJ. In 2022, the European Union (EU)launched the High Ambition Coalition on BBNJ to finalise the agreement at the earliest.
At the latest UN Conference of Parties of the Convention on Biological Diversity (COP15 of UN-CBD), countries agreed to protect 30% of oceans by 2030, as part of the ’30 x 30 pledge’ made by the historic Kunming-Montreal Global Biodiversity Framework (GBF) in December.
Features of the ‘High Seas Treaty’:
The draft agreement of the treaty recognises the need to address biodiversity loss and degradation of ecosystems of the ocean and proposes rules to protect oceans outside national borders and regarding the sustainable use of its resources. It places “30% of the world’s oceans into protected areas, puts more money into marine conservation and covers access to and use of marine genetic resources,” as per the United Nations.
A marine protected area (MPA) is defined as a “geographically defined marine area that is designated and managed to achieve specific long-term biodiversity conservation objectives and may allow, where appropriate, sustainable use provided it is consistent with the conservation objectives.”
Key features include:
- An important point is the developing countries’ access to benefits reaped from the commercialisation of resources (especially genetic resources) extracted from the ocean. The treaty has agreed to setup an access- and benefit-sharing committee to frame guidelines.
- It was also underlined that activities concerning marine genetic resources of areas on high seas should be in the interests of all States and for the benefit of humanity. They have to be carried out exclusively for peaceful purposes.
- Activities concerning marine genetic resources of areas on high seas should be in the interests of all States and for the benefit of humanity. They have to be carried out exclusively for peaceful purposes.
- Signatories will have to conduct environmental impact assessments before the exploitation of marine resources.
- It stipulates that marine resources in areas beyond national jurisdiction that are held by indigenous people and local communities can only be accessed with their “free, prior and informed consent or approval and involvement”.
- No State can claim its right over marine genetic resources of areas beyond national jurisdiction.
- Members will have to provide the clearing-house mechanism (CHM), established as part of the treaty, with details like the objective of the research, geographical area of collection, names of sponsors, etc.
- Provision of funding to help developing countries implement the treaty. A special fund will be established which will be fixed by the conference of parties, which will be formed as part of the pact. The conference of parties will also oversee the functioning of the treaty.
Conclusion:
Despite the alarming situation, the high seas remain as one of the least-protected areas, with only about 1% of it under protection. It’s time to change it.
