Prevention of Money Laundering Act, 2002 –

Part I

CA Divakar Vijayasarathy
Credits and Acknowledgments
V Thirumal
CA Jugal Gala
Legends used in the Presentation

CG Central Government
PMLA Prevention of Money Laundering Act, 2002
UIDAI Unique Identification Authority of India
Presentation Schema
Short title, Extent
Offence of Money-
Introduction Overview and Relevant Definitions
Laundering
Commencement

Attachment of
Punishment for Adjudicating Vesting of Property
Property involved in Adjudication
Money-Laundering Authority in CG
Money-Laundering

Power regarding
Management of Summons, Verification of
Reporting Entity to Access to
Confiscated Production of Identity by
Maintain Records Information
Properties Documents and Reporting Entity
Evidence

Procedure and
No Civil or Criminal Manner of
Enhanced Due Powers of Director
Proceedings in Furnishing
Diligence to Impose Fine
Certain Cases Information by
Reporting Entities
Introduction

It is an Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering

The PML Act 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
Overview
Chapter I Preliminary
Chapter II Offence Of Money-Laundering
Chapter III Attachment, Adjudication And Confiscation
Chapter IV Obligations Of Banking Companies, Financial Institutions And Intermediaries
Chapter V Summons, Searches And Seizures, Etc
Chapter VI Appellate Tribunal
Chapter VII Special Courts
Chapter VIII Authorities
Reciprocal Arrangement For Assistance In Certain Matters And Procedure For
Chapter IX
Attachment And Confiscation Of Property
Chapter X Miscellaneous
Chapter I - Preliminary
Short title, Extent and Commencement – Sec 1

• Act is called the Prevention of Money-laundering Act, 2002

• It extends to the whole of India including Jammu & Kashmir
• Came into effect from 1st July, 2005

Relevant Definitions – Sec 2

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

means any property or assets of every description, whether corporeal or incorporeal,

Property movable or immovable, tangible or intangible and includes deeds and instruments
evidencing title to, or interest in, such property or assets, wherever located
 Definitions – Contd.
means a banking company, financial institution, intermediary or a
Reporting Entity
person carrying on a designated business or profession

Person carrying on Designated Business or Profession means

A person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino

Inspector-General of Registration appointed under section 3 of the Registration Act, 1908

Real estate agent, as may be notified by the CG

Dealer in precious metals, precious stones and other high value goods, as may be notified by the CG

Person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the CG or

Person carrying on such other activities as the CG may designate, by notification, from time to time
Chapter II – Offence of Money-laundering
 Offence of Money-Laundering – Sec 3
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

including its concealment, possession, acquisition

or use and projecting or claiming it as untainted property

shall be guilty of offence of money-laundering

Explanations:
one or more of the following processes or activities connected with
proceeds of crime shall be regarded as money laundering:

Concealment or Possession or Acquisition or Use or Projecting as Untainted Property or Claiming as Untainted property

The process or activity connected with proceeds of crime is a continuing activity and continues till such
time a person is directly or indirectly enjoying the proceeds of crime
Punishment for Money-Laundering – Sec 4

Whoever commits the offence of money-laundering shall be punishable with

Rigorous imprisonment* - 3 to 7 years and

shall also be liable to fine

In case of money laundering related to Offences Under The Narcotic Drugs And Psychotropic
Substances Act, 1985, Rigorous Imprisonment may extend upto 10 years
* Including hard and unproductive labour
Chapter III – Attachment, Adjudication and Confiscation
Attachment of Property involved in Money-Laundering – Sec 5
Where Director or any other officer not below the rank of Deputy Director authorised by the Director,

has reason to believe (to be recorded in writing), on the basis of material in his possession, that—
Such proceeds of crime are likely to be concealed, transferred or dealt with in any manner
Any person is in possession of any
which may initiate any proceedings relating to confiscation of such proceeds of crime
proceeds of crime; and
under this Chapter,

he may, by order in writing, provisionally attach such property for a period not exceeding 180 days from the date of the order

• No order shall be made unless a report or complaint for investigation of offence has been made to a Magistrate or similar report is
filed in case of other countries
• The property may be attached without prior report, if the Director or any other officer has reason to believe (be recorded in
writing), on the basis of material in his possession, that the non-attachment of the property is likely to hamper the proceedings

• For calculating 180 days, period of stay of proceedings if any ordered by the High Court shall be excluded and further 30 days shall
be counted from the expiry of period of stayed order
• The Director or any other officer immediately after attachment shall forward the order and the material in his possession to the
Adjudicating Authority
• Within 30 days of such attachment, a complaint stating facts must be filed before Adjudicating Authority
• Order made under this Sec shall be valid until the expiry of 180 days or the date of order of Adjudicating Authority (Sec 8) whichever
is earlier
• This provisional attachment shall not prevent the enjoyment of the immovable property by a person having interest or claim
Adjudicating Authority

Sec 6 The CG appoints Adjudicating Authority to exercise powers under the PMLA

An Adjudicating Authority shall consist of a Chairperson and 2 other Members:

Provided that one Member each shall be a person having experience in the field of law, administration, finance or accountancy

CG shall appoint officers and employees under the supervision of Chairperson

Sec 7 and prescribe their salaries, allowances and other conditions, for the purpose
of administration of Adjudicating Authority
Adjudication – Sec 8
On receipt of a complaint after Attachment, or applications made after Search and Seizure or Search of persons,

if the Adjudicating Authority has reason to believe that any person has committed a money-laundering offence
or is in possession of proceeds of crime,

it may serve a notice of not less than 30 days on such person calling upon him

to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the
property attached or, seized or frozen,

the evidence on which he relies and other relevant information and particulars, and

to show cause why all or any of such properties should not be declared to be the properties involved in money-
laundering and confiscated by the CG

• Where a property is held on behalf of another person, notice shall also served to that person
• Where such property is held jointly by more than one person, such notice shall be served to all persons holding such property

The Adjudicating Authority shall, after—

o Considering the reply, if any, to the notice
o Hearing the aggrieved person and the concerned Director or any other officer; and
o Taking into account all relevant materials placed on record before him,
by an order, record a finding whether all or any of the properties are involved in money-laundering
Confiscation of Property
If the property is claimed by a person, other than a person to whom the notice had been issued, such person
shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering

Where the Adjudicating Authority decides that any property is involved in money-laundering, he shall, by an order in writing,

confirm the provisional attachment of the property or

retention of property or record seized or frozen and record a finding to that effect,

whereupon such attachment or retention or freezing of the seized or frozen property or record shall—

continue during investigation for a period not exceeding 365 days or

the pendency of the proceedings relating to any offence under this Act before a court or

under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be

and become final after an order of confiscation is passed

• Where the provisional order of attachment has been confirmed, the Director or any other officer shall
take the possession of the property attached or frozen
• If it is not practicable to take possession of a property frozen, the order of confiscation shall have the
same effect as confiscation
Trial before Court
Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place
or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it.

Where the trial cannot be conducted by reason of the death of the accused or the accused being declared a
proclaimed offender or for any other reason or having commenced but could not be concluded,

the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession
of a property in respect of which an order has been passed,

pass appropriate orders regarding confiscation or release of the property, as the case may be, involved in the
offence of money-laundering after having regard to the material before it

• Where a property stands confiscated to the CG, the Special Court may also direct the CG to
restore such confiscated property or part thereof of a claimant with a legitimate interest in the
property, who may have suffered a quantifiable loss as a result of the offence of money laundering
• Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good
faith and has suffered the loss despite having taken all reasonable precautions and is not
involved in the offence of money-laundering
• Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration
of such properties during the trial of the case
Vesting of Property in CG – Sec 9

Where an order of confiscation has been made in respect of any property of a person, all the rights and
title in such property shall vest absolutely in the CG free from all encumbrances

Special Court or the Adjudicating Authority, after giving an opportunity of being heard to any other person interested in the
property attached or seized or frozen,

is of the opinion that any encumbrance on the property or lease-hold interest has been created, by the person, with a view to
defeat the provisions of this Chapter,

it may, by order, declare such encumbrance or lease-hold interest to be void and

thereupon the aforesaid property shall vest in the CG free from such encumbrances or lease-hold interest

Nothing in this section shall operate to discharge any person from any liability in respect of such encumbrances which may be
enforced against such person by a suit for damages. For e.g. property taken on loan by the person and now has been
confirmed as property in relation to money laundering and confiscated to CG, the banker can claim suit for damages against
the person who has availed the loan facility.
Management of Confiscated Properties – Sec 10

CG shall appoint an officer not below the rank of a Joint Secretary to the Government of India as it thinks fit, to
perform the functions of an Administrator

Administrator shall receive and manage the property which have been vested in the CG

Administrator shall also take such measures, as the CG may direct, to dispose of the property
Power regarding Summons, Production of Documents and
Evidence – Sec 11
The Adjudicating Authority shall, for the purposes of this Act, have the same powers as are vested in a
civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the following matters:

Discovery and inspection

Enforcing the attendance of any person

Compelling the production of records;

Receiving evidence on affidavits;

Issuing commissions for examination of witnesses and documents; and

Any other matter which may be prescribed

All the persons so summoned shall be bound to attend in person or through authorised
agents, as the Adjudicating Authority may direct, and shall be bound to state the truth

Every proceeding under this section shall be deemed to be a judicial proceeding

Chapter IV - Obligations of Banking Companies, Financial
Institutions And Intermediaries
Verification of Identity by Reporting Entity – Sec 11A
Every reporting entity shall verify the identity of its clients and the beneficial owner, by -

Authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits
and Services) Act, 2016 if the reporting entity is a banking company or

Offline verification under the Aadhaar (Targeted Delivery of Financial and Other Subsidies,
Benefits and Services) Act, 2016 or

Use of passport issued under section 4 of the Passports Act, 1967 or

Use of any other officially valid document or modes of identification

• CG may permit a reporting entity other than banking company to perform Aadhaar authentication, if it complies
with such standards of privacy and security under the Aadhaar (Targeted Delivery of Financial and Other Subsidies,
Benefits and Services) Act, 2016, and it is necessary and expedient to do so
• Prior consultation with Unique Identification Authority of India (UIDAI) shall be made

• An entity performing Aadhaar authentication shall make the other modes of identification available
• Use of modes of identification shall be a voluntary choice of every client or beneficial owner and services
shall not be denied due to non-availability of Aadhaar
• If, for identification of a client or beneficial owner, authentication or offline verification, his core biometric
information or his Aadhaar number shall not be stored
Reporting Entity to Maintain Records – Sec 12
Every reporting entity shall:

Maintain a record of all transactions, including information relating to transactions covered

under subsequent clause, in such manner as to enable it to reconstruct individual transactions

Furnish to the Director within such time as may be prescribed, information relating to such
transactions, whether attempted or executed, the nature and value of which may be prescribed

Maintain record of documents evidencing identity of its clients and beneficial owners as well
as account files and business correspondence relating to its clients

Every information maintained, furnished or verified shall be kept confidential

Shall be maintained for a period of five years from the date of transaction between a client and the reporting entity

shall be maintained for a period of five years after the business relationship between
a client and the reporting entity has ended or the account has been closed
Access to Information – Sec 12A

The Director may call for any reporting entity any of the records of identification or records under
Sec 12 and any additional information

Every reporting entity shall furnish to the Director such information as may be required by him
within such time and in such manner as he may specify

Every information sought by the Director shall be kept confidential

Enhanced Due Diligence – Sec 12AA
Inserted by Finance Act (No. 2), 2019

Every reporting entity shall, prior to the commencement of each specified transaction:
Verify the identity of the clients undertaking such specified transaction by authentication under the Aadhaar or any of
the other methods of verification
Take additional steps to examine the ownership and financial position, including sources of funds of the client
Take additional steps to record the purpose behind conducting the specified transaction and the intended nature of the
relationship between the transaction parties

• Any withdrawal or deposit in cash, exceeding such amount

• Any transaction in foreign exchange, exceeding such amount
Specified • Any transaction in any high value imports or remittances
Transaction • Such other transaction or class of transactions, in the interest of revenue
or where there is a high risk of money-laundering or terrorist financing,
• as may be prescribed

• Where the client fails to fulfil the conditions, the reporting entity shall not allow the specified transaction to be carried out
• Where any specified transaction or series of specified transactions undertaken by a client is considered suspicious or likely
to involve proceeds of crime, the reporting entity shall increase the future monitoring of the business relationship with the
client, including greater scrutiny or transactions
• The information obtained while applying the enhanced due diligence measures shall be maintained for a period of five
years from the date of transaction between a client and the reporting entity
Powers of Director to Impose Fine – Sec 13
The Director may, either of his own motion or on an application made by any authority, officer or person, make such inquiry
or cause such inquiry to be made, as he thinks fit to be necessary, with regard to the obligations of the reporting entity

• If at any stage of inquiry or any other proceedings before him, the Director having regard to the nature and
complexity of the case, is of the opinion that it is necessary to do so, he may direct the concerned reporting
entity to get its records, audited by an accountant from amongst a panel of accountants, maintained by the CG
• Expenses of such audit shall be borne by the CG

If the Director, in the course of any inquiry, finds that a reporting entity or its designated director on the Board or
any of its employees has failed to comply with the obligations under this Chapter, then, without prejudice to any
other action that may be taken under any other provisions of this Act, he may -

• Issue a warning in writing

• Direct such reporting entity or its designated director on the Board or any of its employees, to comply with specific instructions or
• Direct such reporting entity or its designated director on the Board or any of its employees, to send reports on the measures it is
taking or
• By an order, impose a monetary penalty on such reporting entity or its designated director on the Board or any of its employees,
which shall not be less than Rs. 10,000 but may extend to Rs. 1 lakh for each failure

The Director shall forward a copy of any order passed to every banking company,
financial institution or intermediary or person who is a party to the proceedings
No Civil or Criminal Proceedings – Sec 14
Other than the penalties as per Sec 13, the reporting entity, its directors and employees shall not
be liable to any civil or criminal proceedings against them for any failure

Procedure and Manner of Furnishing Information by Reporting

Entities – Sec 15
The CG may, in consultation with the Reserve Bank of India, prescribe the procedure
and the manner of maintaining and furnishing information by a reporting entity

Accordingly Reporting Entities have to be registered with Financial Intelligence Unit of India (FIU-IND) of Ministry of Finance, GOI

FIU-IND is the national agency responsible for receiving, processing, analyzing financial transactions and
disseminating information related to suspect transactions to various national intelligence/enforcement agencies
Prescribed Reporting
The PMLA requires every reporting entity (banking company, financial institution and intermediaries) to furnish the following reports:

Cash Transaction reports (CTRs)

Suspicious Transaction Reports (STRs)

Counterfeit Currency Reports (CCRs)

Non Profit Organization Transaction reports (NTRs)

Such reports shall be furnished by the Reporting Entity through the FIN Net Portal of the FIU-IND – finnet.gov.in

The reporting XML formats specified are:

Account based reporting format (ARF) for reporting of account based CTRs, STRs and NTRs

Transactions based reporting format (TRF) for reporting of transaction based CTRs, STRs and NTRs

CCR reporting format (CRF) for reporting of counterfeit currency reports (CCRs)
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