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BRBL MODULE –B
Chapter: 8 THE PREVENTION OF MONEY LAUNDERING
ACT, 2002
What we will study?
*All about definition The Prevention of money laundering?
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INTRODUCTION:

*The Prevention of Money Laundering Act, 2002 was

enacted to prevent money laundering and to provide for
the confiscation of property derived from, or involved in,
money laundering.
*The banking machinery has been used by the persons
indulging in money laundering.
*In order to prevent the misuse of the banking machinery, a
separate Chapter, viz.,
*Chapter IV dealing with Obligations of Banking Companies,
Financial Institutions and Intermediaries has been included
in the Act.
*The Central Government in consultation with the Reserve
Bank of India has framed the rules, viz.,
*The Prevention of Money Laundering, Maintenance of
Records of the Nature and Value of Transactions etc.,Rules,
2004.
*The PMLA (Amendment) Act, 2012 has enlarged the
definition of money laundering by including activities such
as concealment, acquisition, possession and use of proceeds
of crime as criminal activities.
*With the enactment of Prevention of Money Laundering
(Amendment)Act, 2012 (made effective from 15-02-2013)
and amendment to Section 13 of the Act which provides for
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"Powers of Director to impose fine", the section 13(2) now

reads as under:
"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
(a) issue a warning in writing; or
(b) direct such reporting entity or its designated director on
the Board or any of its employees, to comply with specific
instructions; or
(c) direct such reporting entity or its designated director on
the Board or any of its employees, to send reports at such
interval as may be prescribed on the measures it is taking;
or
(d) by an order, levy a fine on such reporting entity or its
designated director on the Board or any of its employees,
which shall not be less than ten thousand rupees but may
extend to 1 lakh rupees each failure."
* In view of the above amendment, Authorized Persons,
who are Indian Agents under Money Transfer Service
Scheme (MTSS), may nominate a Director on their Boards as
"Designated Director" to ensure compliance with the
obligations under the Prevention of Money Laundering
(Amendment) Act, 2012.
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* The statute was also amended in 2019 and the details of

the amendments wherever applicable are incorporated in
this unit.

OFFENCE OF MONEY LAUNDERING:

There is no definition of money laundering in the Act.

However, Section 3 of the Act states "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.

Explanation: - for the removal of doubts, it is hereby

clarified that:
* A person shall be guilty of offence of money-laundering if
such person is found to have directly or indirectly
attempted to indulge or knowingly assisted or knowingly is
a party or is actually involved in one or more of the.

following processes or activities connected with proceeds of

crime, namely:
A) Concealment; or
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B) Possession; or
C) Acquisition; or
D) Use; or
E) Projecting as untainted property; or
F) Claiming as untainted property, in any manner
whatsoever.
* 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 by its
concealment or possession or acquisition or use or
projecting it as untainted property or claiming it as
untainted property in any manner whatsoever."

PUNISHMENT FOR MONEY LAUNDERING:

In terms of Section 4 of the Act "Whoever commits the
offence of money-laundering shall be punishable with
rigorous imprisonment for a term which shall not be less
than 3 years but which may extend to seven years and shall
also be liable to fine.
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 7 years", the words "which may extend to ten
years" had been substituted."
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OBLIGATIONS OF BANKING COMPANIES,

FINANCIAL INSTITUTIONS AND INTERMEDIARIES:

Maintenance of Records:
* The obligations of Banking Companies, Financial
Institutions and intermediaries are enumerated in Chapter
IV of the statute comprising of Sections 12-15.
* "Under Section 12 dealing with maintenance of records (1)
every reporting entity shall—

* Maintain a record of all transactions, including

information relating to transactions covered under clause
(b), 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.
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* Every information maintained, furnished or verified, save

as otherwise provided under any law for the time being in
force, shall be kept confidential.
* The records referred to in clause(a) of sub-section (1) shall
be maintained for a period of five years from the date of
transaction between a client and the reporting entity.
* The records referred to in clause (c) of sub-section (1) shall
be maintained for a period of 5 years after the business
relationship between a client and the reporting entity has
ended or the account has been closed, whichever is later.
* The Central Government may, by notification, exempt any
reporting entity or class of reporting entities from any
obligation under this Chapter."

ENHANCED DUE DILIGENCE:

The amendment in 2019 resulted in addition of Section

12AA which deals with enhanced due diligence According to
Section 12AA “(1) Every reporting entity shall, prior to the
commencement of each specified transaction, -
(1) Verify the identity of the clients undertaking such
specified transaction by authentication under the Aadhaar
(Targeted Delivery of Financial and Other Subsidies,
Benefits and Services) Act, 2016(18 of 2016) in such manner
and subject to such conditions, as may be prescribed:
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(a) Provided that where verification requires authentication

of a person who is not entitled to obtain an Aadhaar
number under the provisions of the said Act, verification to
authenticate the identity of the client undertaking such
specified transaction shall be carried out by such other
process or mode, as may be prescribed;
(b) Take additional steps to examine the ownership and
financial position, including sources of funds of the client, in
such manner as may be prescribed;
(c) Take additional steps as may be prescribed to record the
purpose behind conducting the specified transaction and
the intended nature of the relationship between the
transaction parties.

(2) Where the client fails to fulfil the conditions laid down
under sub-section (1), the reporting entity to be carried out.
shall not allow the specified transaction to be carried out.

3) 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 in such manner as may be prescribed.
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4) The information obtained while applying the enhanced

due diligence measures under sub-section (1) shall be
maintained for a period of five years from the date of
transaction between a client and the reporting entity.

Explanation: - for the purposes of this section, "specified

transaction" means-
(a) Any withdrawal or deposit in cash, exceeding such
amount;
(b) Any transaction in foreign exchange, exceeding such
amount;
(c) Any transaction in any high value imports or
remittances;
(d) such other transaction or class of transactions, in the
interest of revenue or where there is a high risk or money-
laundering or terrorist financing, as may be prescribed.”

* It is also important to note that as per Section 14 of the

Act no civil or criminal proceedings can lie against a
reporting entity or its directors or officers for furnishing
information to the Director under clause (b) of sub-section
(1) of Section 12 of the Act.
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RULES FRAMED:
The Central Government in consultation with the Reserve
Bank of India has framed '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, 2004' and these rules
have been amended from time to time We shall be
discussing certain important provisions of these rules.

RECORDS TO BE MAINTAINED:
In terms of Rule 3 of the above mentioned ‘Rules' as
amended last in 2013(w.e.f. 27-08-2013) pertaining to
'maintenance of records of transactions” “Every reporting
entity shall maintain the record of all transactions including,
the record of
A) All cash transactions of the value of more than ten lakh
rupees or its equivalent in foreign currency;
B) All series of cash transactions integrally connected to
each other which have been individually valued below
rupees 10 lakh or its equivalent in foreign currency where
such series of transactions have taken place within a month
and the monthly aggregate exceeds an amount of 10 lakh
rupees or its equivalent in foreign currency;
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(BA) All transactions involving receipts by non-profit

organizations of value more than rupees 10 lakh, or its
equivalent in foreign currency;
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
and by way of

* 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) Travelers 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;
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* Credits or debits into or from any non-monetary accounts

such d-mat account, security account in any currency
maintained by the banking company, financial institution
and intermediary, as the case may be;
* 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:
* Payment orders, or
* Cashiers’ cheques, or
* Demand drafts, or
* Telegraphic or wire transfers or electronic remittances or
transfers, or
* Internet transfers, or
* Automated Clearing House remittances, or
* Lock box driven transfers or remittances, or
* Remittances for credit or loading to electronic cards, or
* Any other mode of money transfer by whatsoever-name it
is called;

Loans and advances including credit or loan substitutes,

investments and contingent liability byway of:
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(a) subscription to debt instruments such as commercial

paper, certificate of deposits, preferential shares,
debentures, securitized participation, interbank
participation or any
(b) other investments in securities or the like in whatever
form and name it is referred to, or
(c) Purchase and negotiation of bills, cheques and other
instruments, or
(d) Foreign exchange contracts, currency, interest rate and
commodity and any other derivative instrument in
whatsoever name it is called, or
(e) Letters of credit, standby letters of credit, guarantees,
comfort letters, solvency certificates and any other
instrument for settlement and/or credit support;

* 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

(E) All cross-border wire transfers of the value of more than

five lakh rupees or its equivalent in foreign currency where
either the origin or destination of fund is in India;
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(F) all purchase and sale by any person of immovable

property valued at fifty lakh rupees or more that is
registered by the reporting entity, as the case may be."

INFORMATION CONTAINED IN THE RECORDS:

As per Rule 4 of the “Rules” "The records shall contain all

necessary information specified by the Regulator to permit
reconstruction of individual transaction, including]
The following information:
* The nature of the transactions;
* The amount of the transaction and the currency in which
it was denominated;
* The date on which the transaction was conducted; and
* The parties to the transaction."

PROCEDURE FOR MAINTAINING INFORMATION:

As per Rule 4 of the Rule 6 the information as to the
transactions should be maintained in hard and soft copies in
accordance with the procedure and manner as way be
specified by the RBI or SEBI.
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PROCEDURE FOR FURNISHING INFORMATION TO THE

DIRECTOR:
As per Rule 8
* The Principal Officer of a reporting entity shall furnish the
information in respect of transactions referred to in clauses
(A), (B),(BA),(C) and (E) of sub-rule (1) of rule 3 every month
to the Director by the 15th day of the succeeding month.

* The Principal Officer of a reporting entity shall furnish the

information promptly in writing or by fax or by electronic
mail to the Director in respect of transactions referred to in
clause (D) of sub-rule (1) of rule 3 not later than seven
working days on being satisfied that the transaction is
suspicious.
* The Principal Officer of a reporting entity shall furnish, the
information in respect of transactions referred to in clause
(F) of sub-rule (1) of rule 3, every quarter to the Director by
the 15th day of the month succeeding the quarter.
* For the purpose of this rule, delay of each day in not
reporting a transaction or delay of each day in rectifying a
mis-reported transaction beyond the time limit as specified
in this rule shall constitute a separate violation).
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VERIFICATION OF RECORDS OF THE IDENTITY OF CLIENTS:

The rules prescribe the type of records to be obtained or

verified in respect of various types of clients.
The rules mandate that every banking company 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
of the client, the nature of business of the client and his
financial status.
If it is not possible to verify the identity at the time of
opening the account or executing the transaction, the
banking company shall verify the identity of the client
within a reasonable time after the account has been opened
or the transaction has been executed.
The documents required to be taken for verification of the
identity of clients differ from the type of client.

Those are listed below:

Individual:
One certified copy of an officially valid document containing
details of his permanent address, current address including
in respect of the nature of business and financial status.
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Company:
*Certificate of incorporation
*Memorandum and articles of association
*Board resolution or the power of attorney
*Officially valid document in respect of the person, operate
the account
Partnership firm:
*Registration certificate;
*Partnership deed;
*Officially valid document in respect of the person acting in
the transaction.
Trust:
*Registration certificate;
*Trust deed; and
*Officially valid document in respect of the person acting in
the transaction.
Unincorporated association:
*Resolution of the managing body
*Power of attorney granted to the person conducting the
transaction; and
*Information as may be required by the banking company
to establish the legal existence of the association or body of
individuals.
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MAINTENANCE OF RECORDS OF IDENTITY OF CLIENTS:

The records relating to the identity of clients shall be
maintained for a period of 5 years from the date of
cessation of the transactions between the client and the
banking company.
SOME CASES PERTAINING TO THE ACT:
Convictions under PMLA:
Rose Valley Money Laundering Case
In February 2021, the Special PMLA court in Kolkata
convicted a Rose Valley official Arun Mukherjee, in the Rose
Valley money laundering case, sentencing him to 7-year
imprisonment and levied a fine of Rs. 2.5 lakh.
It was alleged that Rose Valley Real Estate Construction
Limited and its Associate Companies repeatedly floated
Secured Non- Convertible Debentures in several years and
issued to more than 49 persons in each financial year and
illegally raised Rs. 12.82 Crores from over 2500 persons.
The money so acquired were laundered by investing the
same in various movable properties.
Under PMLA 14 fixed deposits of Rs. 12 crores were
attached.
Two accused persons, Shri Gautam Kundu and Shri Amit
Banerjee, were arrested in 2015.
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Shri Arun Mukherjee, who was Debenture Trustee, had

pleaded guilty for the offence of money laundering before
the Special Court under PMLA in Kolkata.

Galaxy Impex Money Laundering Case:

In November 2021, K Liakath Ali, a Chennai based importer,
was convicted by the Special PMLA court in Chennai and
was sentenced to 7-year imprisonment and levied a fine of
Rs. 1 crore, and additional 1-year imprisonment on not
paying the fine.
K Liakath Ali made foreign outward remittance of USD 28
lakh, about Rs. 18.66 crore, through a bank branch in
Chennai.
He opened a current account in the name of Galaxy Impex
company by submitting forged identity documents and the
transfers were carried out without disclosing the beneficial
owner either within the country or abroad.
He was arrested in 2017 under the provisions of PMLA.
(Source: Website of DTNEXT- dtnext.in)
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Drug Related Money Laundering Case:

In March 2017, a special CBI Court convicted Allaudin Sheikh
in a drug case sentencing him to eight years of rigorous
imprisonment and a fine of Rs. 2 lakhs.
The Narcotics Control Bureau (NCB) had seized 3.950 kg of
opium from his possession, and 25.450 kg of opium and 550
kg of poppy husk from his residence.

He had traded in opium on regular basis:

The Enforcement Directorate had filed an Enforcement Case

Information Report (ECIR), in the matter, in 2011.
The ED filed the charge sheet in 2016, and had attached
Allaudin’s assets (about 152 decimals of land) worth about
Rs. 30 lakhs.
This was the highest sentence awarded under PMLA till that
time.
(Source: Website of Business world – business world.in)

Hari Narayan Rai Money Laundering Case:

In January 2017, the first money laundering conviction took
place, when a Special Court at Ranchi convicted former
Jharkhand Minister Shri Hari Narayan Rai sentencing him to
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7 years' rigorous imprisonment and a fine of Rs. 5 lakhs, and

not paying the fine further RI of 18 months.
Shri Reformer state Chief Minister Madhu Koda's cabinet
colleague, was convicted for laundering funds to the tune of
over Rs. 3.72 crore.
He was holding the portfolios like Tourism Development,
Urban Development, Rural Works and Forests, and was also
in the Cabinets of other Chief Minsters namely, Arjun
Munda and Shibu Soren.
During the period 2005-08, he had laundered his illegal
income, made by misappropriation of public money,
through purchase and acquisition of various assets and
using the same for his personal benefits.
He established a construction company under the name Ms
Malampaya Construction Pt. Ltd.
(of his wife Sushila Devi and others), Ms Maa Gauri
Construction for his brother Sanjay K Rai and others) and
Ms Baba Basuki Dairy Firm (of his wife and brother).
He sundered huge money in the name of the said
companies/firms and projected them as untainted money.
The scam was unearthed in September 2009, and several
arrests were made and assets worth hundreds of encores
were attached.
BIBLIOGRAPHY:
https://blog.ipleaders.in/right-bail-money-laundering-
cases/