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PREVENTION OF MONEY
LAUNDERING

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BACKGROUND OF PMLA

4TH August,1998

Prevention of Money 4TH March,1999

Laundering Bill,1998
was introduced in 29th October,1999
Parliament Standing Committee
17Th January 2003
presented its report to
Lok Sabha GOI introduced
Prevention of Money
Bill received assent of 1st July 2005
Laundering Bill 1999
President
was introduced in the
Parliament
The Act came into
force

OBJECTIVE OF PREVENTION OF MONEY LAUNDERING ACT

Prevent Money Confiscation of property

Laundering derived from or involved in
MAIN
money laundering
INCIDENTAL

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OVERVIEW OF ACT

Chapter Name Sections

I Preliminary 1 and 2
II Offence and Punishment 3 and 4
III Attachment, Adjudication and Confiscation 5 – 11
IV Obligation of Banks, Financial Institutions and intermediaries 12-15
V Summon, Search and Seizure 16-24
VI Appellate Tribunal 25-42
VII Special Courts 43-47
VIII Authority 48-54
IX Reciprocal arrangement for assistance in certain matters and 55-61
procedure for attachment and confiscation of property
X Miscellaneous 62-75

PROCESS OF MONEY LAUNDERING

Placement Layering

Intergration

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PROCESS OF MONEY LAUNDERING

Placement Layering Integration

Launderer introduces Series of conversion or Funds re-enter the

illegal profit into financial movements of funds to legitimate economy
system distance it from source

Launderer funds into real

Break large amounts into estate,luxury assets or
less conspicuous smaller business ventures
sums

LAW STUCTURE OF PMLA

Sections Chapters Schedule

75 10 1

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ATTACHMENT-DEFINITION 2(1)(d)

Means

Prohibition

Transfer Conversion Disposition Movement

By an order issued

PROCEEDS OF CRIME-DEFINITION 2(1)(U)

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 or
where such property is taken or held outside the country, then the property equivalent in
value held within the country or abroad

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PROPERTY-DEFINITION 2(1)(v)

Means Includes

Any property or assets Deeds and instruments

of every description evidencing in such property
or asset wherever located

Movable Tangible
Corporeal or
Or Or
incorporeal Title Interest
Immovable Intangible

SCHEDULED OFFENCE-DEFINITION 2(1)(y)

Offence specified under

Part A of the Schedule Part B of the Schedule Part C of the Schedule

If the total value involved

in the offence is one
crore rupees or more

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MONEY LAUNDERING-SECTION 3

Whosoever

Directly or indirectly

Knowingly assist or Concealment Possession Acquisition or

is party in process Use

Proceeds of Crime

Shall be guilty of offence

PUNISHMENT OF MONEY LAUNDERING-SECTION 4

Whosoever

Commits offence of money laundering

Narcotic Drugs and Psychotropic Other Offence

Substance Act

Imprisonment Fine
Imprisonment Fine
3 to 7 years
3 to 10 years

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ATTACHMENT OF PROPERTY INVOLVED IN MONEY LAUNDERING-SECTION 5

Person is in Committed Conceal, transfer

possession of Scheduled proceeds of
proceeds of crime Offence crime

Director or officer not below Launderer

the rank of Deputy Director

Provisionally attach order File complaint stating the facts of

in writing for a period not attachment within 30days with
exceeding 180 days Adjudicating Authority

ADJUDICATING AUTHORITY-SECTION 6

Empowers CG appoint one or more person as

Adjudicating Authority

CENTRAL
GOVERNMENT ADJUDICATING
AUTHORITY

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ADJUDICATION-SECTION 8

Section 8(1) Adjudicating authority will send notice

Receipt of complaint u/s 5(5) Serve a notice of not less than 30 days

To indicate his source of

income,earning or asset
Director or Officer Adjudicating
Authority
Launderer

Person having
Joint Owners
possession

ADJUDICATION-SECTION 8

Section 8(2) AA will record whether money laundering or not

Considering the Hearing the Taking into

Reply aggrieved party, account all
director and relevant materials
officer

Record a finding
whether money
laundering or not

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ADJUDICATION-SECTION 8

Section 8(3) AA will pass order

Order in writing

Confirm the attachment of

property
Section 8(4)
Possession of
Property Director forwith
shall take the
possession of
property

Property stand confiscated to

Government

Section 8(5)
Confiscation to CG

VESTING OF PROPERTY IN CENTRAL GOVERNMENT-SECTION 9

All rights and title in such property shall

vest with Central Government

Encumbrance or lease on Central Government

property is created with a
view to defeat the
provision then it shall be
declared as void

Any Other Person

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OBLIGATION OF BANKING COMPANY,FINANCIAL INSTITUTION AND INTERMEDIARIES-SECTION 12

Maintain Record Furnish Information Maintain KYC

Maintain all the Furnish information to Maintain documents

record of financial Director within time evidencing identity of
transaction prescribed clients and beneficial
owner

INFORMATION TO BE PRESERVED

Nature of Amount of transaction Date on which the Parties to

Transaction and currency in which it transaction is conducted transaction
is denominated

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POWER OF DIRECTOR TO IMPOSE FINE-SECTION 13

Banking
Company

Fail to maintain or retain

Financial Director may
records in accordance
Institution impose fine
with the provision of Act

Intermediaries

PROCEDURE AND MANNER OF FURNISHING INFORMATION-SECTION 15

CG shall prescribe the procedure

and manner of maintaining and
furnishing information

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POWER OF ENTRY-SECTION 16

Section 16(1): Power of Entry

Authority Reason to Enter any place within the

believe of limits of area assigned to
offence u/s 3 him
Section 16(3): Power of Inspection

Power to Inspection of Records

Power to place marks of identification

Power to take extracts or copy thereof

KYC POLICY-KNOW YOUR CUSTOMER

Issued by 29th November Based on Anti-Money

RBI 2004 Recommendations Laundering(AML)
of FATF standards/Combating of
Financial Terrorism(CFT)

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KYC POLICY

Objective of these guidelines

Safeguard banks from acting Help banks to know Helps to check their financial
as chain in money laundering more about clients deals and transaction

KYC POLICY

KYC Elements

Customer Customer Identification Monitoring of Risk Management

Acceptance Policy Procedure Transaction

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KYC POLICY

Customer

Person or entity On whose behalf Beneficial of A person or entity

who maintain a account is maintained transaction connected with
account with a bank (beneficial owner) conducted by financial
professional transaction
intermediaries

Stock broker,
Chartered
Accounts, Solicitors

DEBIT CARDS/CREDIT CARDS/SMART CARDS/GIFT CARDS

Many Banks are engages in the business of issuing a variety of Electronic cards that are used by customer
for buying goods and service,drawing cash from ATM’s and can used by electronic transfer of funds

Banks are required to ensure full compliance with all KYE guidelines in respect of add-on/supplementary
cardholders also

Marketing of Card is generally done by agent

It is also desirable that agents are also subject to KYC measures

Bank should ensure that appropriate KYC guidelines are duly complied before issuing cards to customer

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GLOBAL INITIATIVE TO PREVENT MONEY LAUNDERING

First Major Initiative by United Nations against Illicit traffic in Narcotics Drugs
Vienna
Convention Obliging the member states to criminalize the laundering of money from drug
trafficking and confiscation

Council of Establishes common policy on money laundering

European
It lays down the principles of international co-operation among the member
Convention
state for investigation, search, seizure, confiscation

European Union The member state have to put under obligation to

- require financial institutions to establish and maintain internal systems to
Money
prevent money laundering,
Laundering - to obtain the identification of customers
Directive - Proper records for 5 years

GLOBAL INITIATIVE TO PREVENT MONEY LAUNDERING

Issued principles a statement of principles to be complied by the international

Basel Committee’s banks of members states
Statement of
Principles Principle include identifying customers, avoiding suspicious transaction, co-
operating with law enforcement agencies

International October 1992

Organisation of
Securities Resolution encouraging members to take necessary steps to combat money
Commission (IOSCO) laundering in securities and future markets

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GLOBAL INITIATIVE TO PREVENT MONEY LAUNDERING

FATF- Financial Action Task Force

FATF is Established in Intergovernmental Established by G-7 Objective

international 1989 Body summit held in
agency Paris

Combact Combact Combact

Money Terrorist other
laundering Financing threats

GLOBAL INITIATIVE TO PREVENT MONEY LAUNDERING

FUNCTIONS OF FATF

Review the techniques Check the initiatives Spread the awareness

adopted for money made by countries among non-member
laundering countries also

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GLOBAL INITIATIVE TO PREVENT MONEY LAUNDERING

FATF Recommendations

April 1990 October 2001 October 2004 February 2012

40 Recommendation 8 Recommendation 9th FATF completed a

Recommendation thorough review
standards and
published the
Revised FATF

Total Recommendation=40+9

GLOBAL INITIATIVE TO PREVENT MONEY LAUNDERING

RECOMMENDATION OF FATF

Declare money Confiscation of Disclosure by Extradiction of International co-

laundering of proceeds of financial person involved in operation in
offence crime institution money laundering prevention of money
regarding laundering
reportable
transaction

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INDIAN INITIATIVE TO PREVENT MONEY LAUNDERING

PMLA forms the core of legal framework to combat money laundering

PMLA provides for freezing,seizure and confiscation of proceeds of crime

Financial Intelligence Unit (FIU) agency monitors Anti-Money Laundering activities

FIU is responsible for receiving, processing, analysing and dissemination of information

FIU report directly to Economic Intelligence Council(EIC) headed by Finance Minister

APPELLATE TRIBUNAL

Section 25:CG to establish AT

APPELLATE Smugllers and Foreign Exchange

TRIBUNAL Manipulators(Forfeiture of
Property)Act,1976
Central Order of Adjudicating
Government
Authority

Appeal against the order

Order of Director of AT lies with High
Court( Section 42)

Section 26: Matters with

Lies with AT

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SPECIAL COURTS

Section 43:- Special Courts

Empowers CG,one or more Courts of Session as Special

Courts, in consultation of Chief Justice of High Court

Central
Government Special Court

SPECIAL COURTS

Section 44:- Offences Triable by Special Court

SECTION 4
OFFENCE

Special Court

Authority

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SECTION 45:- OFFENCE TO BE COGNIZABLE AND NON BAILABLE

Every Offence

PMLA

Cognizable Non Bailable Except

Complaint is made in writing

Under the Age Women Sick or Accused of money
of 16 years Infirm laundering of sum of
Director Officer of
CG and SG less than one crore

SECTION 56:- AGREEMENT WITH FOREIGN COUNTRIES

Enforcing the Exchange information

provision of PMLA for prevention of
Central Foreign Country
Government offence under PMLA

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SECTION 58:- ASSISTANCE TO CONTRACTING STATE IN CERTAIN CASES

Letter of request is received for

investigation of offence under the Act
Court or
Authority in
Contracting State

CG may forward
letter of request to
Special Court

Special Court

HARMFUL EFFECT OF MONEY LAUNDERING

• Widespread use of bribery in government offices leading to corruption.

• Control over vast sector of economy by handful persons through investment by unfair means.

• The reputation of country and its financial institutions can be tarnished.

• Increases criminal activities

• Criminal acquire control over market and its financial institutions by investment

• Reduces revenue in term of tax

• Infiltration of banking and financial institutions through organized crimes

• Dampen social fabric and ethical standards prevalent in the society.

• Weakens the democratic institutions from grass-root level itself.

• Loss of Control of Economic Policy as monetary and financial statistics gives misleading information
to policymakers and leads to misallocation of resources.

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UNLAWFUL ACTIVITIES PREVENTION ACT,1967-SECTION 51A

It is more effective prevention of certain unlawful activities of individual and association and for dealing
with terrorist activities

CG is empowered to freeze,seize or attach funds and other financial assets or economic resources held
by or on behalf or at the direction of the individuals or entities listed in the Schedule

Prohibit any individual or entity from making any funds, financial assets or economic resources or
related services available for the benefit of the individuals or entities Listed in the Schedule to the Order

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