THE DOCTRINE OF EXPROPRIATION IN INVESTMENT DISPUTES
2.1 Early Efforts and International Commitments
Indian anti-money laundering laws start early with attempts at implementing legislation to regulate financial crime. Though not an attempt to regulate money laundering as such, these efforts helped to identify suspicious transactions and levy financial penalties. Global instruments and agreements to which India became a signatory also aided the anti-money laundering (AML) framework. Early Legislative Attempts in India
- The Income Tax Act, 1961
The Income Tax Act, 1961 was the first legislative step in India that indirectly dealt with money laundering operations. Even though the primary intention of the Act was to regulate taxation and curb tax evasion, provisions under it were effective in identifying suspicious financial transactions. Under Section 132 of the Act, the agencies were authorized to carry out search and seizure operations, which led to the identification of unexplained assets that could be traced back to illegal financial transactions. The Act also provided directions for tracing unexplained cash credits (Section 68), unexplained investments (Section 69), and unexplained expenditure (Section 69C),which enhanced financialsurveillance.
- The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA)
The COFEPOSA Act, 1974 was legislated with the aim of preventing illegal capital formation through foreign exchange malpractices and smuggling operations. Although not specifically designed to prevent money laundering, the Act did much to prevent criminal proceeds arising out of cross-border trade mispricing and smuggling. The Act empowered the authorities to arrest people who were suspected of engaging in activities adverse to the economic stability of India.
- Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act)
Recognizing the link between drug trafficking and illicit money flows, the NDPS Act, 1985 introduced strict provisions to prevent the accumulation and circulation of illicit drug money. The Act criminalized the acquisition, possession, and utilization of proceeds of narcotics offenses. Section 68-E of the NDPS Act provided that the enforcement agencies could freeze and seize the properties linked with drug trafficking and thereby indirectly discouraged money laundering in drug organizations.
India’s Compliance with International Initiatives
India’s compliance with the war against money laundering increased through its active involvement in landmark international initiatives. These initiatives imposed additional pressure within India’s legislative environment and aligned its policies with internationally-accepted Anti-Money Laundering standards.
- Financial Action Task Force (FATF)
India became a full member of the Financial Action Task Force (FATF) in June2010, showing adherence to global AML and counter-terrorist financing (CTF) standards. The FATF 40 Recommendations provide general standards for the prevention of money laundering with stringent requirements for the implementation of preventive policy, strengthening financial reporting systems, and ensuring effective investigation and prosecution. India, as a member, restructuring its law, i.e., the Prevention of Money Laundering Act, 2002, onFATF lines.
- United Nations Conventions
India signed several international agreements that played an important role inshaping its AML regime:
The United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 (Vienna Convention) required the signatory nations to criminalize money laundering proceeds of drug trafficking. The United Nations Convention against Transnational Organized Crime, 2000(Palermo Convention) committed states to criminalizing money laundering of organized crime proceeds and ensuring effective financial monitoring systems. The International Convention for the Suppression of the Financing of Terrorism, 1999, committed signatories to freeze, seize, and confiscate property for terrorist use.
- Basel Committee on Banking Supervision
The Basel Committee on Banking Supervision has made several guidelines on enhanced banking regulation and avoidance of financial institution misuse for money laundering. India adopted these recommendations in the Reserve Bank of India’s (RBI) policy of regulation by forcing the banks to comply with Know Your Customer (KYC) norms and maintain unblemished records of financialdealings.
- Egmont Group
India’s Financial Intelligence Unit (FIU-IND) joined the Egmont Group in2007, thus facilitating international collaboration to prevent money laundering. With the Egmont Group, member countries can collaborate by sharing information, exchanging best practices, and promoting international efforts against illicit financial flows. Early Indian legislation and compliance with international conventions formed the basis for the introduction of a formal AML system. The legislation eventually resulted in the enactment of the Prevention of Money Laundering Act, 2002, as a key anti-financial-crime legislation and a way of placing India’slegalsystem in line with international AML standards.