Prevention of Money

Laundering Act, 2002

R. Ravichandran

What is money laundering?

Money laundering involves disguising

financial assets so that they can be used
without detection of the illegal activity that
produced them. Through money laundering,
the launderer transforms the monetary
proceeds derived from criminal activity into
funds with an apparently legal source.

What is a Money Laundering offence?

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.

What are proceeds of crime?

Proceeds of crime means any property derived

or obtained, directly or indirectly, by any
person as a result of criminal activity relating
to a scheduled offence or the value of any such
property.

What is a Scheduled Offence?

Scheduled offence means an offence specified

under Part A of the Schedule, or the offences
specified under Part B of the Schedule if the
total value involved in such offences is thirty
lakh rupees or more.

Enormity of problem

IMF report says

2-5% of World GDP is laundered money

Approx.US$2.5 to 6 trillion
4times the GDP of India
Tax Evasion is not included as one of the predicate
offence in PMLA
Offences listed in schedule is not significant
portion of money laundering in India

Overview of Reporting under PMLA

The Prevention of Money-laundering Act, 2002, and the rules

there under require every banking company, financial
institution and intermediary, to furnish to FIU-IND
information relating to
(A) All cash transactions of the value of more than rupees ten
lakhs or its equivalent in foreign currency;
(B) All series of cash transactions integrally connected to each
other which have been valued below rupees ten lakhs or its
equivalent in foreign currency where such series of
transactions have taken place within a month;
(C) All cash transactions where forged or counterfeit currency
notes or bank notes have been used as genuine or where any
forgery of a valuable security or a document has taken place
facilitating the transactions;
(D) All suspicious transactions whether or not made in cash.

Banking Company

Banking Company means a banking company or a cooperative bank to which the Banking Regulation Act, 1949
applies and includes any bank or banking institution referred
to in section 51 of that Act. Banking Company includes
All banking companies namely nationalized banks, private
Indian banks and private foreign banks,
All co-operative banks viz. primary co-operative banks, state
co-operative banks and central co-operative banks,
State Bank of India and its associates and subsidiaries,
Regional Rural Banks.

Overview of Reporting under PMLA

Intermediary registered or
intermediary associated with
securities market and registered
under section 12 of the Securities
and Exchange Board of India Act,
1992 (15 of'1992).
Stock brokers
Sub-brokers
Share transfer agents
Bankers to an issue
Trustees to trust deed
Registrars to issue
Merchant bankers
Underwriters

Portfolio Managers
Investment advisers
Depositories and Depository
Participants
Custodian of securities
Foreign institutional
investors
Credit rating agencies
Venture capital funds
Collective investment
schemes including mutual
funds

Overview of Reporting under PMLA

Financial Institution means a Financial Institution as defined in clause (c) of

section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934) and includes a
chit fund company, a co-operative bank, a housing finance institution and a
non banking financial company. Financial Institution includes:
Financial Institutions as defined in Section 45-I of the RBI Act. RBI regulates
and supervises 8 All- India Financial Institutions namely EXIM Bank,
NABARD, NHB, SIDBI, IFCI Ltd., IDFC Ltd., IIBI Ltd. And TFCI Ltd.
Insurance companies,
Hire Purchase companies,
Chit fund companies as defined in the Chit Funds Act.
Co-operative banks.
Housing finance institutions as defined in the National Housing Bank Act
such as HDFC.
Non-banking financial companies as defined in section 45-I of the RBI Act
such as private finance companies - motor and general, hire purchase
companies, leasing companies, investment companies etc.

Maintenance of Records Obligations

Rule 3 of the Rules notified by Notification No. 9/2005 require e very

banking company, financial institution and intermediary to maintain a record
of,
(A) all cash transactions of the value of more than rupees ten lakhs or its
equivalent in foreign currency;
(B) all series of cash transactions integrally connected to each other which
have been valued below rupees ten lakhs or its equivalent in foreign
currency where such series of transactions have taken place within a month;
(C) all cash transactions where forged or counterfeit currency notes or bank
notes have been used as genuine and where any forgery of a valuable
security has taken place;
(D) all suspicious transactions whether or not made in cash Provision under
Rule 3 of the Prevention of Money-laundering (Maintenance of Records of
the Nature and Value of Transactions, the Procedure and Manner of
Maintaining and Time for Furnishing Information and Verification and
Maintenance of Records of the Identity of the Clients of the Banking
Companies, Financial Institutions and Intermediaries) Rules, 2005

Maintenance of Records

(D) all suspicious transactions whether or not made in cash and by way of
(i) deposits and credits, withdrawals into or from any accounts in
whatsoever name they are referred to in any currency maintained by way
of :

(a) cheques including third party cheques, pay orders, demand drafts, cashiers
cheques or any other instrument of payment of money including electronic
receipts or credits and electronic payments or debits, or

(b) travellers cheques, or

(c) transfer from one account within the same banking company, financial
institution and intermediary, as the case may be, including from or to Nostro
and Vostro accounts, or
(d) any other mode in whatsoever name it is referred to; (ii) credits or debits
into or from any non-monetary accounts such as d-mat account, security
account in any currency maintained by the banking company, financial
institution and intermediary, as the case may be;

Maintenance of Records

3. Maintenance of records of transactions (nature and value)

(1) Every banking company or financial institution or intermediary, as the
case may be, shall maintain a record of, (A) all cash transactions of the value of more than rupees ten lakhs or its
equivalent in foreign currency;
(B) all series of cash transactions integrally connected to each other which
have been valued below rupees ten lakhs or its equivalent in foreign
currency where such series of transactions have taken place within a
month;
(C) all cash transactions where forged or counterfeit currency notes or
bank notes have been used as genuine and where any forgery of a valuable
security has taken place;

Maintenance of Records

(iii) money transfer or remittances in favour of own clients or non-clients

from India or abroad and to third party beneficiaries in India or abroad
including transactions on its own account in any currency by any of the
following:(a) payment orders, or
(b) cashiers cheques, or
(c) demand drafts, or
(d) telegraphic or wire transfers or electronic remittances or transfers,
or
(e) internet transfers, or
(f) Automated Clearing House remittances, or
(g) lock box driven transfers or remittances, or
(h) remittances for credit or loading to electronic cards, or
(i) any other mode of money transfer by whatsoever name it is called;

Maintenance of Records

(iv) loans and advances including credit or loan substitutes, investments and
contingent liability by way of: (a) subscription to debt instruments such as
commercial paper, certificate of deposits, preferential shares, debentures,
securitized participation, inter bank participation or any other investments in
securities or the like in whatever form and name it is referred to, or
(b) purchase and negotiation of bills, cheques and other instruments, or
(c) foreign exchange contracts, currency, interest rate and commodity and any
other derivative instrument in whatsoever name it is called, or
(d) letters of credit, standby letters of credit, guarantees, comfort letters, solvency
certificates and any other instrument for settlement and/or credit support; (v)
collection services in any currency by way of collection of bills, cheques,
instruments or any other mode of collection in whatsoever name it is referred to."

Records Containing Information

Rule 4 of the Prevention of Money-laundering (Maintenance of Records of

the Nature and Value of Transactions, the Procedure and Manner of
Maintaining and Time for Furnishing Information and Verification and
Maintenance of Records of the Identity of the Clients of the Banking
Companies, Financial Institutions and Intermediaries) Rules, 2005 require
recording of certain information in the records maintained for this purpose.
"4. Records containing Information
The records referred to in rule 3 shall contain the following information:(a) the nature of the transactions;
(b) the amount of the transaction and the currency in which it was
denominated;
(c) the date on which the transaction was conducted; and
(d) the parties to the transaction."

Procedure & Manner of

Maintenance of Records

Every banking company, financial institution and intermediary is required to evolve an internal mechanism
for maintaining transactional details in such form and at such intervals as may be specified by the Reserve
Bank of India , or the Securities and Exchange Board of India, or the Insurance Regulatory Development
Authority as the case may be, from time to time.
Rule 5 of the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of
Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and
Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies,
Financial Institutions and Intermediaries) Rules, 2005 lays down the procedure and manner of maintaining
information.
"5. Procedure and manner of maintaining information
(1) Every banking company, financial institution and intermediary, as the case may be, shall maintain
information in respect of transactions with its client referred to in rule 3 in hard and soft copies in
accordance with the procedure and manner as may be specified by the Reserve Bank of India or the
Securities and Exchange Board of India, as the case may be, from time to time.
(2) Every banking company, financial institution and intermediary, shall evolve an internal mechanism for
maintaining such information in such form and at such intervals as may be specified by the Reserve Bank
of India, or the Securities and Exchange Board of India, as the case may be, from time to time.
(3) It shall be the duty of every banking company, financial institution and intermediary, as the case may
be, to observe the procedure and the manner of maintaining information as specified by the Reserve Bank
of India or the Securities and Exchange Board of India, as the case may be, under sub-rule (1)."

Retention of Records

Rule 6 of the Prevention of Money-laundering (Maintenance

of Records of the Nature and Value of Transactions, the
Procedure and Manner of Maintaining and Time for Furnishing
Information and Verification and Maintenance of Records of
the Identity of the Clients of the Banking Companies, Financial
Institutions and Intermediaries) Rules, 2005 provide for
retention of records for a specified time. Accordingly, the
records should be maintained for a period of ten years from the
date of cessation of the transactions.
"6. Retention of records - The records referred to in rule 3
shall be maintained for a period of ten years from the date of
cessation of the transactions between the client and the
banking company, financial institution or intermediary, as the
case may be."

Client Identity

Every banking company, financial institution and intermediary shall, at the time of
opening an account or executing any transaction with it, verify the record of identity and
current address or addresses including permanent address or addresses of the client, the
nature of business of the client and his financial status. Where it is not possible to verify
the identity of the client at the time of opening an account or executing any transaction,
the banking company, financial institution and intermediary shall verify the identity of the
client within a reasonable time after the account has been opened or the transaction has
been executed.
Provision under Rule 9 of the Prevention of Money-laundering (Maintenance of Records
of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and
Time for Furnishing Information and Verification and Maintenance of Records of the
Identity of the Clients of the Banking Companies, Financial Institutions and
Intermediaries) Rules, 2005 is reproduced as under: "9. Verification of the records of the
identity of clients. - (1) Every banking company, financial institution and intermediary, as
the case may be, shall, at the time of opening an account or executing any transaction
with it, verify and maintain the record of identity and current address or addresses
including permanent address or addresses of the client, the nature of business of the client
and his financial status;

Client Identity

Provided that where it is not possible to verify the identity of

the client at the time of opening an account or executing any
transaction, the banking company, financial institution and
intermediary, as the case may be, shall verify the identity of the
client within a reasonable time after the account has been
opened or the transaction has been executed." Client means a
person that engages in a financial transaction or activity with a
banking company, or financial institution or intermediary and
includes a person on whose behalf the person that engages in
the transaction or activity, is acting.
Transaction includes deposit, withdrawal, exchange or transfer
of funds in whatever currency, whether in cash or by cheque,
payment order or other instruments or by electronic or other
non-physical means.

Individuals Documents

Documents needed for verification:

One certified copy of an officially valid document containing details of his/her permanent address or
addresses, current address or addresses; and
One copy of his/her recent photograph; and
Such other documents including in respect of the nature of business and financial status of the client as
may be required by the banking company or the financial institution or the intermediary.
Officially valid document means the passport, the driving licence, the Permanent Account Number (PAN)
Card, the Voter's Identity Card issued by the Election Commission of India or any other document as may
be required by the banking company, or financial institution or intermediary.
Relevant provision of Rule 9 of the Prevention of Money-laundering (Maintenance of Records of the
Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing
Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking
Companies, Financial Institutions and Intermediaries) Rules, 2005 is reproduced as under: "9. Verification
of the records of the identity of clients.
..
(2) Where the client is an individual , he shall for the purpose of sub-rule (1) submit to the banking
company or the financial institution or the intermediary, as the case may be, one certified copy of an
officially valid document containing details of his permanent address or addresses, current address or
addresses, and one copy of his recent photograph and such other documents including in respect of the
nature of business and financial status of the client as may be required by the banking company or the
financial institution or the intermediary, as the case may be."

Companies

Documents needed for verification:

Certificate of incorporation;
Memorandum and Articles of Association;
A resolution from the Board of Directors and power of attorney granted to its managers, officers or
employees to transact on its behalf; and
An officially valid document in respect of managers, officers or employees holding an attorney to transact
on its behalf.
Relevant provision of Rule 9 of the Prevention of Money-laundering (Maintenance of Records of the
Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing
Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking
Companies, Financial Institutions and Intermediaries) Rules, 2005 is reproduced as under:
"9. Verification of the records of the identity of clients.
..
(3) Where the client is a company , it shall for the purposes of sub-rule (1) submit to the banking company
or financial institution or intermediary, as the case may be, three certified copies of the following
documents : (i) Certificate of incorporation;
(ii) Memorandum and Articles of Association;
(iii) a resolution from the Board of Directors and power of attorney granted to its managers, officers or
employees to transact on its behalf; and
(iv) an officially valid document in respect of managers, officers or employees holding an attorney to
transact on its behalf."

Partnership firm

Partnership FirmDocuments needed for verification:

Registration certificate;
Partnership deed; and
An officially valid document in respect of the person holding an attorney to transact
on its behalf.
Relevant provision of Rule 9 of the Prevention of Money-laundering (Maintenance
of Records of the Nature and Value of Transactions, the Procedure and Manner of
Maintaining and Time for Furnishing Information and Verification and
Maintenance of Records of the Identity of the Clients of the Banking Companies,
Financial Institutions and Intermediaries) Rules, 2005 is reproduced as under: "9.
Verification of the records of the identity of clients.
..
(4) Where the client is a partnership firm , it shall for the purposes of sub-rule (1)
submit to the banking company, or the financial institution, or the intermediary
three certified copies of the following documents: (i) registration certificate;
(ii) partnership deed; and
(iii) an officially valid document in respect of the person holding an attorney to
transact on its behalf."

Trust

TrustDocuments needed for verification:

Registration certificate;
Trust deed; and
An officially valid document in respect of the person holding an attorney to transact
on its behalf.
Relevant provision of Rule 9 of the Prevention of Money-laundering (Maintenance
of Records of the Nature and Value of Transactions, the Procedure and Manner of
Maintaining and Time for Furnishing Information and Verification and
Maintenance of Records of the Identity of the Clients of the Banking Companies,
Financial Institutions and Intermediaries) Rules, 2005 is reproduced as under: "9.
Verification of the records of the identity of clients.
..
(5) Where the client is a trust , it shall, for the purposes of sub-rule (1) submit to
the banking company, or the financial institution, or the intermediary three
certified copies of the following documents: (i) registration certificate;
(ii) trust deed; and
(iii) an officially valid document in respect of the person holding an attorney to
transact on its behalf."

AOP

Association of Persons (AOP) or Body of Individuals (BOI)Documents needed for

verification:
Resolution of the managing body of such association or body of individuals;
Power of attorney granted to him to transact on its behalf;
An officially valid document in respect of the person holding an attorney to transact on its
behalf; and
Such information as may be required by the banking company or the financial institution or
the intermediary to collectively establish the legal existence of such an association or body of
individuals.
Relevant provision of Rule 9 of the Prevention of Money-laundering (Maintenance of Records
of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time
for Furnishing Information and Verification and Maintenance of Records of the Identity of the
Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 is
reproduced as under: "9. Verification of the records of the identity of clients
(6) Where the client is an unincorporated association or a body of individuals , it shall
submit to the banking company, or the financial institution or the intermediary three copies of
the following documents: (i) resolution of the managing body of such association or body of
individuals;
(ii) power of attorney granted to him to transact on its behalf;
(iii) an officially valid document in respect of the person holding an attorney to transact on its
behalf; and
(iv) such information as may be required by the banking company or the financial institution
or the intermediary to collectively establish the legal existence of such an association or body
of individuals."

Overview of Scheduled Offences

As per 2(1)(y) of the Prevention of Money Laundering Act,

2002, Scheduled offence means

the offences specified under Part A of the Schedule, or

the offences specified under Part B of the Schedule if the total value
involved in such offences is thirty lakh rupees or more
The Schedule to the Prevention of Money Laundering Act, 2002 lists
all such offences.

Part A Paragraph 1 Offences under the Indian Penal Code (Part A)

Paragraph 2 Offences under the Narcotic Drugs And Psychotropic
Substances Act, 1985
Part B Paragraph 1 Offences under the Indian Penal Code (Part B)
Paragraph 2 Offences under the Arms Act, 1959 Paragraph 3 Offences
under the Wild Life (Protection) Act, 1972 Paragraph 4 Offences under the
Immoral Traffic (Prevention) Act, 1956 Paragraph 5 Offences under the
Prevention Of Corruption Act, 1988

OFFENCES UNDER THE INDIAN PENAL CODE

Section
121 Waging, or attempting to wage war, or
abetting waging of war, against the
Government of India.
121A Conspiracy to commit offences
punishable by section 121 against the State.

OFFENCES UNDER THE NARCOTIC DRUGS AND

PSYCHOTROPIC SUBSTANCES ACT, 1985

Section

15 Contravention in relation to poppy straw.

18 Contravention in relation to opium poppy and opium.
20 Contravention in relation to cannabis plant and cannabis.
22 Contravention in relation to psychotropic substances.
23 Illegal import into India , export from India or transshipment of
narcotic drugs and psychotropic substances.
24 External dealings in narcotic drugs and psychotropic substances in
contravention of section 12 of the Narcotic Drugs and Psychotropic
Substances Act, 1985.
25A Contravention of orders made under section 9A of the Narcotic
Drugs and Psychotropic Substances Act, 1985.
27A Financing illicit traffic and harbouring offenders.
29 Abetment and criminal conspiracy.

OFFENCES UNDER THE INDIAN PENAL CODE

(Part B)

Section

302Murder.
304Culpable homicide not amounting to murder, if act by which the death is caused is
done with the intention of causing death.
307Attempt to murder.
308Attempt to commit culpable homicide.
327Voluntarily causing hurt to extort property, or a valuable security, or to constrain to do
anything which is illegal or which may facilitate the commission of the offence.
329Voluntarily causing grievous hurt to extort property, or a valuable security, or to
constrain to do anything which is illegal or which may facilitate the commission of the
offence
364AKidnapping for ransom, etc.
384 to 389Offences relating to extortion.
392 to 402Offences relating to robbery and dacoity.
467Forgery of a valuable security, will or authority to make or transfer any valuable
security, or to receive any money, etc.
489ACounterfeiting currency notes or bank notes.
489BUsing as genuine, forged or counterfeit currency notes or bank notes.

OFFENCES UNDER THE ARMS ACT, 1959

Section

25 To manufacture, sell, transfer, convert, repair or test or prove or expose or offer for sale or transfer
or have in his possession for sale, transfer, conversion, repair, test or proof, any arms or ammunition
in contravention of section 5 of the Arms Act, 1959.

7 To acquire, have in possession or carry any prohibited arms or prohibited ammunition in

contravention of section 7 of the Arms Act, 1959. Contravention of section 24A of the Arms Act,
1959 relating to prohibition as to possession of notified arms in disturbed areas, etc.

24B Contravention of section 24B of the Arms Act, 1959 relating to prohibition as to carrying of
notified arms in or through public places in disturbed areas.

25-26 Other offences specified in section 25. 26.To do any act in contravention of any provisions of
section 3, 4, 10 or 12 of the Arms Act, 1959 in such manner as specified in sub-section (1) of section
26 of the said Act. To do any act in contravention of any provisions of section 5, 6, 7 or 11 of the
Arms Act, 1959 in such manner as specified in sub-section (2) of section 26 of the said Act.

Other offences specified in section 26. .27Use of arms or ammunitions in contravention of section 5
or use of any arms or ammunition in contravention of section 7 of the Arms Act, 1959.
28Use and possession of fire arms or imitation fire arms in certain cases.29Knowingly purchasing
arms from unlicensed person or for delivering arms, etc., to person not entitled to possess the
same.30Contravention of any condition of a licence or any provisions of the Arms Act, 1959 or any
rule made thereunder.

OFFENCES UNDER THE WILD LIFE

(PROTECTION) ACT, 1972

Section

51 read with section 17A Contravention of provisions of Section 17A

relating to prohibition of picking, uprooting, etc., of specified plants
51 read with section 39 Contravention of provisions of Section 39
relating to wild animals, etc., to be Government property.
51 read with section 44 Contravention of provisions of Section 44
relating to dealings in trophy and animal articles without licence
prohibited
51 read with section 48 Contravention of provisions of Section 48
relating to purchase of animal, etc., by licence
51 read with section 49B Contravention of provisions of Section 49B
relating to prohibition of dealings in trophies, animal articles, etc.,
derived from scheduled animals.

OFFENCES UNDER THE IMMORAL

TRAFFIC (PREVENTION) ACT, 1956

Section

5 Procuring, inducing or taking person for the sake

of prostitution.
6 Detaining a person in premises where
prostitution is carried on.
8 Seducing or soliciting for purpose of
prostitution.
9 Seduction of a person in custody.

OFFENCES UNDER THE PREVENTION OF

CORRUPTION ACT, 1988

Section

7 Public servant taking gratification other than

legal remuneration in respect of an official act.
8 Taking gratification in order, by corrupt or illegal
means. to influence public servant.
9 Taking gratification for exercise of personal
influence, with public servant.
10 Abetment by public servant of offences defined
in section 8 or section 9 of the Prevention of
Corruption Act, 1988.

Section 13 - Powers of the Director

Section 13 of the Prevention of Money Laundering Act, 2002 confers

following powers on the Director to ensure compliance.

"13. (1) The Director may, either of his own motion or on an application made
by any authority, officer or person, call for records referred to in sub-section
(1) of section 12 and may make such inquiry or cause such inquiry to be made,
as he thinks fit.
(2) If the Director, in the course of any inquiry, finds that a banking company,
financial institution or an intermediary or any of its officers has failed to
comply with the provisions contained in section 12, then, without prejudice to
any other action that may be taken under any other provisions of this Act, he
may, by an order, levy a fine on such banking company or financial institution
or intermediary which shall not be less than ten thousand rupees but may
extend to one lakh rupees for each failure.
(3) The Director shall forward a copy of the order passed under sub-section (2)
to every banking company, financial institution or intermediary or person who
is a party to the proceedings under that sub-section."

Section 50 - Powers of authorities regarding summons,

production of documents and to give evidence

"50. (1) The Director shall, for the purposes of section 13, have the same powers as
are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908)
while trying a suit in respect of the following matters, namely:(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking
company, financial institution or a company, and examining him on oath;
(c)compelling the production of records;
(d)receiving evidence on affidavits;
(e)issuing commissions for examination of witnesses and documents;
(f)any other matter which may be prescribed
(2) The Director, Additional Director, Joint Director, Deputy Director or Assistant
Director shall have power to summon any person whose attendance he considers
necessary whether to give evidence or to produce any records during the course of
any investigation or proceeding under this Act.

S.50..

(3) All the persons so summoned shall be bound to attend in person or

through authorised agents, as such officer may direct, and shall be bound
to state the truth upon any subject respecting which they are examined or
make statements, and produce such documents as may be required.
(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be
a judicial proceeding within the meaning of sections 193 and 228 of the
Indian Penal Code, 1860 (45 of 1860). (5) Subject to any rules made in
this behalf by the Central Government, any officer referred to in subsection (2) may impound and retain in his custody for such period, as he
thinks fit, any records produced before him in any proceedings under this
Act: Provided that an Assistant Director or a Deputy Director shall not (a)impound any records without recording his reasons for so doing; or
(b)retain in his custody any such records for a period exceeding three
months, without obtaining the previous approval of the Director.

Section 4 - Punishment for Money-Laundering

Section 4 of the Prevention of Money Laundering

Act, 2002 specifies punishment for money laundering
as under:

"4. Whoever commits the offence of money-laundering

shall be punishable with rigorous imprisonment for a term
which shall not be less than three years but which may
extend to seven years and shall also be liable to fine which
may extend to five lakh rupees: Provided that where the
proceeds of crime involved in money-laundering relates to
any offence specified under paragraph 2 of Part A of the
Schedule, the provisions of this section shall have effect as
if for the words "which may extend to seven years", the
words "which may extend to ten years" had been
substituted."

Section 39 - Right of Appellant

Section 39 of the Prevention of Money Laundering Act, 2002

provides for the right of the appellant.

"39. (1) A person preferring an appeal to the Appellate Tribunal under

this Act may either appear in person or take the assistance of an
authorised representative of his choice to present his case before the
Appellate Tribunal.
Explanation - For the purposes of this sub-section, the expression
"authorized representative" shall have the same meaning as assigned
to it under sub-section (2) of section 288 of the Income Tax Act, 1961.
(2) The Central Government or the Director may authorise one or
more authorised representatives or any of its officers to act as
presenting officers and every person so authorised may present the
case with respect to any appeal before the Appellate Tribunal."

Section 26 - Appeal to Appellate Tribunal

Section 26 of the Prevention of Money Laundering Act, 2002 deals with appeal to Appellate
Tribunal.

"26. (1) Save as otherwise provided in sub-section (3), the Director or any person aggrieved by an
order made by the Adjudicating Authority under this Act, may prefer an appeal to the Appellate
Tribunal.
(2) Any banking company, financial institution or intermediary aggrieved by any order of the
Director made under sub-section (2) of section 13, may prefer an appeal to the Appellate Tribunal.
(3) Every appeal preferred under sub-section (1) or sub-section (2) shall be filed within a period of
forty-five days from the date on which a copy of the order made by the Adjudicating Authority or
Director is received and it shall be in such form and be accompanied by such fee as may be
prescribed: Provided that the Appellate Tribunal may, after giving an opportunity of being heard,
entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was
sufficient cause for not filing it within that period.
(4) On receipt of an appeal under sub-section (1), or sub-section (2), the Appellate Tribunal may,
after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it
thinks fit, confirming, modifying or setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal
and to the concerned Adjudicating Authority or the Director, as the case may be. (6) The appeal filed
before the Appellate Tribunal under sub-section (1) or sub-section (2) shall be dealt with by it as
expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six
months from the date of filing of the appeal."

Section 42 - Appeal to High Court

Section 42 of the Prevention of Money Laundering

Act, 2002 provides for appeal to High Court.

"42. Any person aggrieved by any decision or order of the

Appellate Tribunal may file an appeal to the High Court
within sixty days from the date of communication of the
decision or order of the Appellate Tribunal to him on any
question of law or fact arising out of such order: Provided
that the High Court may, if it is satisfied that the appellant
was prevented by sufficient cause from filing the appeal
within the said period, allow it to be filed within a further
period not exceeding sixty days.

Some statistics 2006-07

India is member of APG /EGMONT

Member of FATF
Cash Transaction Reports 2.1.million
Suspicious Transaction Reports 817
98% CTR in electronic format

CTR Analysis

STR

In the Prevention of Money-laundering (Maintenance

of Records of the Nature and Value of Transactions,
the Procedure and Manner of Maintaining and Time
for Furnishing Information and Verification and
Maintenance of Records of the Identity of the Clients
of the Banking Companies, Financial Institutions and
Intermediaries) Rules, 2005, (c) appears to have no economic rationale or bona
fide purpose; or
(d) gives rise to a reasonable ground of
suspicion that it may involve financing of the
activities relating to terrorism.

Analysis of STR

STR

STR

Money Laundering in Securities

Market

Money Laundering (ML)- A

perspective
8

Money laundering- process of transforming

illicit proceeds into legal capital.

Process Placement/Layering/Integration

According

to

worldwide

money

one

recent

estimate,

laundering,

activity

amounts to $ 6 trillion dollar a year.

International Initiatives on Anti Money LaunderingContd.

Creation of the Financial Action Task Force on Money Laundering (FATF) in 1989 by the G7 industrialised countries and today consisting of 29
members, most of whom are OECD members.

Council Of Europe Convention On Laundering, Search, Seizure And

Confiscation Of The Proceeds Of Crime (1990).UNConvention Against Illicit
Trafficking In Narcotic Drugs And Psychotropic Substances (The Vienna
Convention).

EC Directive On Prevention Of The Use Of The Financial System For The

Purpose Of Money Laundering (1991).

Establishment Of APG In February 1997.

APG & FATF reviewed compliance of India in 2004/2005/2006

Anti Money Laundering Provisions in India

Prevention of Money Laundering Act, 2002 made effective from

July 01, 2005.

Comprehensive Act covering banking companies, financial

institutions and market intermediaries registered under Section 12
of the SEBI Act.

The Act defines Offences of Money Laundering as any process

or activity connected with the proceeds of crime and being
projected as untainted property.

Civil and Criminal Proceedings Provided for under The Act.

The Act also provides for provisions relating to Attachment,

Adjudication and Confiscation.

Anti Money Laundering Provisions in India

Rules notified under the Act prescribe the value and nature
transactions, whose records are to be maintained.

These transactions are:

All cash transactions of the value of more than Rs 10 lacs or its

equivalent in foreign currency.

All series of cash transactions integrally connected to each other

which have been valued below Rs 10 lacs or its equivalent in
foreign currency where such series of transactions take place
within one calendar month.

All suspicious transactions whether or not made in cash.

SEBI Guidelines for prevention of

money laundering
KYC

procedures
prescribed
for
all
intermediaries dealing
with clients.
All transactions routed
through the banking
channels and no cash
permitted to enter the
system

Key Features of SEBI AML Procedures

Detailed Guidelines containing broad policy framework for

market intermediaries issued.

Procedure for maintenance of records and formats of

reporting transactions finalized and issued.

The Key Features of the SEBI AML procedures as contained

in the Guidance Note are as under:

Key Features of SEBI AML Procedures Contd.

Client Due Diligence which include policy for acceptance and

identification of clients.

Record Keeping procedures including retention thereof.

Monitoring of transactions.

Suspicious transactions monitoring and reporting.

Designation of Compliance Officer.

Continuous review of internal procedures and systems.

Ongoing training and up gradation of skill set of employees.

Money Laundering - Business Areas Prone To Money

Laundering

Business areas prone to Money laundering:

Banking

Securities (both cash and futures)

Insurance Sector

Finance houses

Real Estate sector

Financial transmitters

Antique dealers/Jewellers/designer goods suppliers

Suspicious Transactions Reporting.

Multiple depository accounts with same address.

Multiple saving accounts for subscribing to IPOs.

Sudden deposit/withdrawals of huge sums into/from bank

accounts for securities market transactions

Sudden activity of sale/purchase of securities in huge

quantity.

STR - Securities Market

Wash sales or other fictitious transactions schemes to transfer

money through the clearing and settlement infrastructure.

Fraudulent transactions carried out in collusion with tainted

market intermediaries.

Acceptance of orders and related funds from intermediaries

and banks operating from non cooperative jurisdictions.

Activities of unscrupulous market intermediaries, opening

multiple accounts in violation of internal procedures.

Quality of money coming through overseas channel.

Investigation in money laundering

activities

Pyramiding of companies

Money laundering through FDI

Shell/Investment Companies/ Subsidiaries/Subsidiaries of subsidiaries

Accounts of a Subsidiary not subjected to public scrutiny
Absence of consolidation of group accounts
Verifying source of capital at every stage of Pyramid
Build up of capital by Subsidiaries & Shell companies
Investments from tax havens

Money laundering through advantages of bilateral trade

Bilateral tax treaties taken advantage to pump in funds from abroad

Treaty Shopping

INVESTIGATION IN MONEY
LAUNDERING ACTIVITIES

Money laundering through OCB/PCB

Investment through private placement/preferential allotment of

shares/IPO subscriptions by ADR/GDR, acquiring shareholding by
swap

Money laundering through cross border trading

Hawala Transactions/reverse Hawala/ Round Tripping

Misuse of Corporate vehicle for Financial Fraud /Manipulation
Cross border Mergers & Acquisitions : Due diligence and valuation
thereof
Use of multiple channels for cross border trades and involvement of
multiple intermediaries

INVESTIGATION IN MONEY
LAUNDERING ACTIVITIES

Money laundering through Internet

Cyber Laundering
Wire Transfers
Messaging system

Dabba trading & off market deals

Transactions settled in cash

Money not routed through banking channels
Limited regulatory scrutiny

Money Laundering Possible Scenarios

Identity of clients

Submission of false identification documents.

Identification documents which could not be verified within
reasonable time.
Non-face to face with client.

Suspicious background

Suspicious background or links with known criminals

Multiple Accounts

Large number of accounts having a common account holder,

introducer or authorized signatory with no rationale
Unexplained transfers between multiple accounts with no
rationale

Money Laundering Possible Scenarios

Activity in Accounts
Unusual activity compared to past transactions
Use of different accounts by client alternatively
Inconsistent with client's business pattern
Account used for circular trading
Nature of Transactions
Unusual or unjustified complexity
No economic rationale or bonafide purpose
Source of funds are doubtful
Investment proceeds transferred to a third party
Transactions reflect likely market manipulations

Money Laundering Possible Scenarios

Value of Transactions

Large sums being transferred from overseas for

making payments
Inconsistent with the clients apparent financial
standing
Block deal which is not at market price or prices
appear to be artificially inflated/deflated
Inconsistent with client's business pattern

Hurdles in Detecting Money

Laundering transactions

Liquidity & Diversity of Investment Portfolios

Complexity of Investment vehicles
International market with regular cross border transactions
Proceeds of transactions hard to trace
Technology driven
Online trading & settlement
Innovative financial instruments
Global demand for capital
Organizations becoming global
Varying Global accounting standards
Privacy & Secrecy Laws

ML- Measures to Prevent

FATF has identified certain choke points in the ML

process, which the launderer finds difficult to avoid
and where he is vulnerable to detection. The choke
points identified are:

Entry of cash into the financial system;

Transfers to and from the financial system; and

Cross-border flows of cash.

Road Ahead- a few points for discussion

A few of the recommendations to strengthen fight
against ML:

to strengthen international co-operation on information

exchange and law enforcement;

proper mechanisms for handling suspicious reports;

A compliance culture among financial institutions; and

to ensure that they put proper systems and procedures
in place;

Road Ahead- a few points for discussion

to increase public awareness of the threat from money

laundering;

increasing co-ordination between the multiple agencies

(National and International) involved and to improve
the limited intelligence sharing;

to increase the limited human resources involved in the

labour intensive and time consuming work of
investigating suspected violations;

Thank You

FAQ

Which records need to be maintained as per PMLA 2002?

As per Rule 3 of the Rules notified by Notification No. 9/2005 every banking
company, financial institution and intermediary shall maintain a record of, all cash transactions of the value of more than rupees ten lakhs or its equivalent in
foreign currency;
all series of cash transactions integrally connected to each other which have been
valued below rupees ten lakhs or its equivalent in foreign currency where such
series of transactions have taken place within a month;
all cash transactions where forged or counterfeit currency notes or bank notes have
been used as genuine or where any forgery of a valuable security or a document
has taken place facilitating the transactions;
all suspicious transactions whether or not made in cash

Can a banking company, financial institution or an intermediary be

penalised for not complying with the obligations of maintenance of
records under PMLA, 2002?

Yes, under section 13 of the Prevention of Money Laundering Act, 2002. If the
Director, FIU-IND finds that any banking company, financial institution or
intermediary has failed to comply with the obligations of maintenance of records,
then, he may levy a fine from ten thousand rupees upto one lakh rupees for each
failure.

FAQ

What constitutes a suspicious transaction under

PMLA 2002?

Suspicions transaction means a transaction whether or not

made in cash which, to a person acting in good faith gives rise to a reasonable ground of suspicion that it may
involve the proceeds of crime; or
appears to be made in circumstances of unusual or
unjustified complexity; or
appears to have no economic rationale or bonafide purpose;
or
gives rise to a reasonable ground of suspicion that it
may involve financing of the activities relating to terrorism.