DHARMASHASTRA NATIONAL LAW

UNIVERSITY, JABALPUR

SOCIO-ECONOMIC OFFENCES PROJECT

(SESSION OF 2023-24)

REGULATION OF MONEY LAUNDERING IN

INDIA -NATIONAL & INTERNATIONAL
PERSPECTIVE

SUBMITTED TO: SUBMITTED BY:

MR. ANIMESH JHA SANSKRATI JAIN

ASSISTANT PROFESSOR SEMESTER- VIII

DNLU, JABALPUR ROLL NO: 116

 ACKNOWLEDGEMENT

The completion of this project required counselling and assistance from many people and I’m
really thankful towards them for their counselling in my project.

I would like to express my deep gratitude towards my teacher asst. professor Mr. Animesh Jha
who took acute interest in my project and guided me all along. I am feeling extremely
privileged to have him as my instructor in the project. I owe my deep gratitude to the Vice-
Chancellor Prof. (Dr.) Manoj Kumar Sinha for his valuable support throughout the project.
This project helped me in gathering a lot of knowledge and becoming more aware of things
related to my topic.

I would like to extend my gratefulness to my parents and friends for their valuable support and
advice.

I am making this project not only to get marks but also to enhance my knowledge. At the end
I would like thank everyone who helped me and invested their valuable time for this project.

Sanskrati Jain

BAL/116/20
 TABLE OF CONTENTS
introduction ................................................................................................................................ 4

Historical Evolution Of Money Laundering .............................................................................. 5

The Concept Of Money Laundering .......................................................................................... 6

The Modus Operandi Of Money Laundering ............................................................................ 7

1. Placement: ....................................................................................................................... 7

2. Layering: ......................................................................................................................... 7

3. Integration: ...................................................................................................................... 7

Why Criminals Want To “Launder” Proceeds? ......................................................................... 8

Impact Of Money Laundering On Society And Economy ........................................................ 8

Initiatives For Regulating Money Laundering ........................................................................... 9

Conventions And Directives To Counter Money Laundering Global Initiatives .................. 9

Indian Initiatives ................................................................................................................... 11

Prevention Of Money Laundering Act, 2002 .......................................................................... 11

Scheme Of The Act .............................................................................................................. 12

Salient Features Of The Act ................................................................................................. 12

Anti-Money Laundering Standards ...................................................................................... 15

The Financial Intelligence Unit - India (Fiu-Ind)................................................................. 15

Judicial Pronouncements ......................................................................................................... 16

The Fake Stamp Paper Or Telgi Scam ................................................................................. 16

Union Of India Vs. Hassan Ali Khan & Anr ....................................................................... 17

Conclusion & Suggestions ....................................................................................................... 17

 INTRODUCTION
“Capital as such is not evil; it is its wrong use that is evil. Capital in some form or other will
always be needed”. -Mahatma Gandhi

Money laundering can be described as a procedure, which is intended at legitimizing the

proceeds of crime. Even though criminals have tried to launder their crime proceeds ever since
decades but the term ‘money laundering’ came into existence from the practice of 1920’s
Chicago Mobsters - Al Capone buying & running local laundries with their betting, rackets &
liquor profits.1

Money laundering has been described in a number of different ways: money laundering is the
procedure by which one conceals the existence, illegal foundation, or illegal application of
earnings, & then disguises that earnings to make it appear legitimate; or Money laundering is
the progression of taking the proceeds of criminal activity & making these proceeds legal; or
Money laundering is the act of converting money derived from illegal activities into spends
able or unpreserved form.

U.S. Customs Service has given this definition of Money laundering: “Money laundering is the
procedure whereby proceeds, plausibly believed to have been derived from criminal activity,
are transported, transferred, transformed, converted or intermingled with legitimate funds for
the purpose of concealing or disguising the exact nature, resource, disposition, movement or
possession of those proceeds. The aim of money laundering process is to make funds derived
from, or associated with, illicit activity appears legitimate.”

The principle of money laundering is to decrease or eliminate the risks of seizure, forfeiture
and confiscation so that the fruits of criminal proceeds can be enjoyed without intervention by
law enforcement.

1
The first reported lighting of the term “money laundering” in a legal context was not until 1984 (see United
States vs. $4,255,625.39, et seq., 551 F.Supp. 314, SD Fla 1984)
 HISTORICAL EVOLUTION OF MONEY LAUNDERING
‘Money Laundering’ as an expression is one of fairly recent origin. The original sighting was
in the newspapers reporting the Watergate Scandal in the United States in 1973.2 The
expression first appeared in a judicial or legal context in 1982 in America in the case of US vs.
$4,255,625.393. Money Laundering as a crime attracted the interest in the 1980s, essentially
within a drug trafficking context4. The term “money laundering” is said to originate from Mafia
ownership of Laundromats in the United States.

Money laundering as a crime only attracted interest in the 1980s, essentially within a drug
trafficking context. It was from an increasing awareness of the huge profits generated from this
criminal activity and a concern at the massive drug abuse problem in western society which
created the impetus for governments to act against the drug dealers by creating legislation that
would deprive them of their illicit gains. The term "money laundering" is said to originate from
Mafia ownership of Laundromats in the United States. Gangsters there were earning huge sums
in cash from extortion, prostitution, gambling and bootleg liquor. They needed to show a
legitimate source for these monies.

In India money laundering is popularly known as Hawala transactions. It gained popularity

during early 90’s when many of the politicians were caught in its net. Hawala is a last accessed
on 8th November, 2008. alternative or parallel remittance system. The Hawala Mechanism
facilitated the conversion of money from black into white. "Hawala" is an Arabic word
meaning the transfer of money or information between two persons using a third person. The
system dates to the Arabic traders as a means of avoiding robbery. It predates western banking
by several centuries.

2
The action of the US President Richard Nixon’s “Committee to re-elect the President” that moved illegal
campaign contributions to Mexico, and then brought the money back through a company in Miami. It was Britain’s
newspaper Guardian that coined the term, referring to the process as “laundering”.
3
(1982) 551 F Sup. 314
4
When under UN Convention against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances,
criminalization of the proceeds of drug related offences was provided. However, later many other crimes were
included in the purview of ‘predicate offences’ to find out a money laundering activity
 THE CONCEPT OF MONEY LAUNDERING
Money Laundering5 refers to the conversion or "Laundering" of money which is illegally
obtained, so as to make it appear to originate from a legitimate source6. Money Laundering is
being employed by launderers worldwide to conceal criminal activity associated with it such
as drug / arms trafficking, terrorism and extortion7. Robinson states that

“Money laundering is called what it is because that perfectly describes what

takes place – illegal, or dirty, money is put through a cycle of transactions, or washed, so that
it comes out the other end as legal, or clean money. In other words, the source of illegally
obtained funds is obscured through a succession of transfers and deals in order that those same
funds can eventually be made to appear as legitimate income.”

Article 1 of EC Directive8 defines the term ‘money laundering’ as “the conversion of property,
knowing that such property is derived from serious crime, for the purpose of concealing or
disguising the illicit origin of the property or of assisting any person who is involved in the
committing such an offence or offences to evade the legal consequences of his action, and the
concealment or disguise of the true nature, source, location, disposition, movement, rights with
respect to, or ownership of property, knowing that such property is derived from serious crime.

Thus, Money laundering is a process where the proceeds of crime are transformed into
apparently legitimate money or other assets. It is the processing of criminal proceeds to disguise
its illegal origin. In simple words, it can be defined as the act of making money that comes
from one source to look like it comes from another source. The act of money laundering is
done with the intention to conceal money or other assets from the State so as to prevent its loss
through taxation, judgement enforcement or blatant confiscation. The criminals herein try to
disguise the origin of money obtained through illegal activities to look

like it was obtained from legal sources because otherwise they will not be able to use it as it
would connect them to the criminal activity and the law enforcement officials would seize it.

5
Section 2(1) (p) of Prevention of Money Laundering Act, 2002 (hereinafter PMLA-02) defines Money
laundering” has the meaning assigned to it in Section 3. Section 3 provides for offence of money laundering –
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
6
Popularly this is known as making black money white.
7
S. Ganesh, Money Laundering,
8
EC Directive on Prevention of the use of the Financial System for the Purpose of Money Laundering, 1991
 THE MODUS OPERANDI OF MONEY LAUNDERING
Money Laundering is not a single act but is in fact a process that is accomplished in three basic
steps as enumerated below9:
1. Placement: "Placement" refers to the physical disposal of bulk cash proceeds derived from
illegal activity. This is the first step of the money-laundering process and the ultimate aim
of this phase is to remove the cash from the location of acquisition so as to avoid detection
from the authorities. This is achieved by investing criminal money into the legal financial
system by opening up a bank account in the name of unknown individuals or organizations
and depositing the money in that account.
2. Layering: "Layering" refers to the separation of illicit proceeds from their source by
creating complex layers of financial transactions. Layering conceals the audittrail and
provides anonymity. This is achieved by moving money to offshore bank accounts in the
name of shell companies, purchasing high value commodities like diamonds and
transferring the same to different jurisdictions. Now, Electronic Funds Transfer (EFT) has
become boon for such layering exercise. Different techniques like correspondent baking,
loan at low or no interest rates, money exchange offices, back-to-back loans, fictitious sales
and purchases, trust offices, and recently the Special Purpose Vehicles (SVPs) are utilized
for the purpose of laundering the money.
3. Integration: "Integration" refers to the reinjection of the laundered proceeds back into the
economy in such a way that they re-enter the financial system as normal business funds.
The launderers normally accomplish this by setting up unknown institutions in nations
where secrecy is guaranteed. New forms of business give a platform for integration
exercise. Now a person can start a business with just a webpage and convert his illegal
money to legal by showing profits from the webpage. There are other ways like capital
market investments, real estate acquisition, the catering industry, the gold market, and the
diamond market.

Following are the various measures adopted all over the world for money laundering, even
though it is not exhaustive but it encompasses some of the most widely used methods.

9
Syed Azhar Hussain Shah, Syed Akhter Hussain Shah and Sajawal Khan “Governance of Money Laundering:
An Application of the Principal-agent Model” The Pakistan Development Review, Vol. 45, No. 4, Papers and
Proceedings PARTS I and II Twenty-second Annual General Meeting and Conference of the Pakistan Society of
Development Economists Lahore, December 19-22, 2006 (Winter 2006), pp. 1117-1133 available at
• Structuring deposits -This method is also known as smurfing. In this method large amount
of money is broken into smaller, less-suspicious amount.
• Overseas banks underground/ alternative banking Money launderers often send money
through various "offshore accounts" in countries that have bank secrecy laws, meaning that
for all intents and purposes, these countries allow anonymous banking. A complex scheme
can involve hundreds of bank transfers to and from offshore banks.
• Shell companies These are fake companies that exist for no other reason than to launder
money. They take in dirty money as "payment" for supposed goods or services but actually
provide no goods or services; they simply create the appearance of legitimate transactions
through fake invoices and balance sheets.
• Investing in legitimate business Launderers sometimes place dirty money in otherwise
legitimate businesses to clean it. They may use large business-like brokerage firms or
casinos that deal in so much money it's easy for the dirty stuff to blend in, or they may use
small, cash-intensive businesses like bars, car washes, strip clubs or check-cashing stores.
It gives an overview as to how this menace has developed into transnational business involving
various sophisticated techniques and procedures. The ill-effects of money laundering are
unimaginable and have been discussed in next section.

WHY CRIMINALS WANT TO “LAUNDER” PROCEEDS?

a) To increase profits
b) To appear legitimate
c) To evade taxes
d) To avoid prosecution
e) To avoid seizure of accumulate wealth.

IMPACT OF MONEY LAUNDERING ON SOCIETY AND ECONOMY

Effects of money laundering are seen all over the world on almost all the sectors of life. More
noticeable are economic effects which are on a broader scale. Developing countries often bear
the brunt of modern money laundering because the governments are still in the process of
establishing regulations for their newly privatized financial sectors.

If left unchecked, money laundering can erode a nation’s economy by changing the demand
for cash, making interest and exchange rates more volatile, and by causing high inflation in
countries where criminal elements are doing business. The draining of huge amounts of money
a year from normal economic growth poses a real danger for the financial health of every
country which in turn adversely affects the global market. Most fundamentally, money
laundering is inextricably linked to the underlying criminal activity that generated it.
Laundering enables criminal activity to continue.

The impact of money laundering can be summed up into the following points:

• Potential damage to reputation of financial institutions and market

• Weakens the “democratic institutions” of the society
• Destabilises economy of the country causing financial crisis
• Give impetus to criminal activities
• Policy distortion occurs because of measurement error and misallocation of resources
• Discourages foreign investors
• Causes financial crisis
• Encourages tax evasion culture
• Results in exchange and interest rates volatility

INITIATIVES FOR REGULATING MONEY LAUNDERING

Conventions and Directives to Counter Money Laundering Global Initiatives
Since money laundering is an international phenomenon, transnational co-operation is of
critical importance in the fight against this menace. A number of initiatives have been taken to
deal with the problem at the international level. The major international agreements addressing
money laundering include the United Nations Convention against Illicit Trafficking in Drugs
and Psychotropic Substances, popularly known as the Vienna Convention and the Council of
Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime.

The Vienna Convention- It was the first major initiative in the prevention of money laundering
held in December 1988. This convention laid down the groundwork for efforts to combat
money laundering by obliging the member states to criminalize the laundering of money from
drug trafficking. It promotes international cooperation in investigations and makes extradition
between member states applicable to money laundering. The convention also establishes the
principle that domestic bank secrecy provisions should not interfere with international criminal
investigations10.

10
United Nations Convention Against Illicit Traffic In Narcotic Drugs And Psychotropic Substances, 1988
available at http://www.unodc.org/pdf/convention_1988_en.pdf.
The Council of Europe Convention- This convention in 1990 establishes a common policy on
money laundering. It sets out a common definition of money laundering and common measures
for dealing with it. The Convention lays down the principles for international cooperation
among the member states, which may also include states outside the Council of Europe. One
of the purposes of this convention is to facilitate international cooperation as regards
investigative assistance, search, seizure and confiscation of the proceeds of all types of
criminality, particularly serious crimes such as drug offences, arms dealing, terrorist offences
etc. and other offences which generate large profits.

Basle Committee’s Statement of Principles- In December 1988, the Basle Committee on

Banking Regulations and Supervisory Practices issued a statement of principles which aims at
encouraging the banking sector to adopt common position in order to ensure that banks are not
used to hide or launder funds acquired through criminal activities. The Statement of Principles
does not restrict itself to drug-related money laundering but extends to all aspects of laundering
through the banking system, i.e. the deposit, transfer and/or concealment of money derived
from illicit activities whether robbery, terrorism, fraud or drugs. It seeks to deny the banking
system to those involved in money laundering by the application of the four basic principles
namely, identifying the customer, compliance with the laws, cooperation with Law
Enforcement Agencies and adherence to the Statement

The Financial Action Task Force (FATF)- The FATF is an inter-governmental body
established at the G7 summit at Paris in 1989 with the objective to set standards and promote
effective implementation of legal, regulatory and operational measures to combat money
laundering and terrorist financing and other related threats to the integrity of the international
financial system.11 The FATF has developed a series of Recommendations that are recognised
as the international standards for combating money laundering and the financing of terrorism.
They form a basis for a co-ordinated response to these threats to the integrity of the financial
system and help ensure a level playing field. In April 1990, it issued a report containing a set
of Forty Recommendations, which were intended to comprehensive plan of action needed to
fight against money laundering. In October 2001, it issued the Eight Special Recommendations
to deal with the issue of terrorist financing. In October 2004, it published a Ninth Special

11
Kathryn L. Gardner, Fighting Terrorism the FATF Way, Lynne Rienner Publishers, Vol. 13, No. 3 (July– Sept.
2007), pp. 325-345
Recommendation, further strengthening the agreed international standards for combating
money laundering and terrorist financing12

United Nations Global Programme Against Money Laundering- GPML was established in
1997 with a view to increase effectiveness of international action again money laundering
through comprehensive technical cooperation services offered to Governments. The
programme encompasses following 3 areas of activities, providing various means to states and
institutions in their efforts to effectively combat money laundering: 1. Technical cooperation
is the main task of the Programme. It encompasses activities of creating awareness, institution
building and training. 2. The research and analysis aim at offering States Key Information to
better understand the phenomenon of money laundering and to enable the international
community to devise more efficient and effective countermeasure strategies. 3. The
commitment to support the establishment of financial investigation services for raising the
overall effectiveness of law enforcement measures.

Indian Initiatives
In India, before the enactment of Prevention of Money Laundering Act, 2002 (PMLA) the
major statutes that incorporated measures to address the problem of money laundering were:
• The Income Tax Act, 1961
• The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
(COFEPOSA)
• The Smugglers and Foreign Exchange Manipulators Act, 1976 (SAFEMA)
• The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPSA)
• The Benami Transactions (Prohibition) Act, 1988
• The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988
• The Foreign Exchange Management Act, 2000, (FEMA)

PREVENTION OF MONEY LAUNDERING ACT, 2002

In view of an urgent need for the enactment of a comprehensive legislation for preventing
money laundering and connected activities, confiscation of proceeds of crime, setting up of
agencies and mechanisms for coordinating measures for combating money laundering etc., the
Prevention of Money Laundering Bill 1998 was introduced in Parliament on 4th August, 1998.

12
Ibid
The Bill received the assent of the President and became Prevention of Money Laundering Act,
2002 on 17th January 2003. The Act has come into force with effect from 1st July 2005. It has
been amended in 2005, 2009 and recently in 2012. The objective of the Act is to prevent
money-laundering and to provide for confiscation of property derived from, or involved in,
money-laundering and for matters connected therewith or incidental thereto13.

Scheme of The Act

The Act consists of 10 chapters containing 75 sections and 1 schedule divided in 5 parts.
Chapter I contain section 1 and 2 which deals with short title, extent and commencement and
definitions. Chapter II contain section 3 and 4 which provide for offences and punishment for
money laundering. Chapter III has sections 5-11 which provide for attachment of property,
adjudication and confiscation. Chapter IV has sections 12-15 which deals with obligations of
banking companies, financial institutions and intermediaries. Chapter V has sections 16-24
which relates to summons, searches, seizures, retention, presumptions etc. Chapter VI has
sections 25-42 which deals with the establishment, composition, qualifications, powers and
procedures etc of the Appellate Tribunal. Chapter VII has sections 43-47 which deal with
Special Courts and Chapter VIII has sections 48-54 which provide for various authorities under
the Act their appointment, powers, jurisdiction etc. Chapter IX has sections 55-61 which deals
with reciprocal arrangement for assistance in certain matters and procedure for attachment and
confiscation of property. Chapter X has sections 62-75 which deals miscellaneous provisions
including punishments, cognizance of offences, offences by companies etc.

Salient Features of The Act

• Offence of Money Laundering and its punishment- An offence of money laundering is
said to be committed when a person in any way deals with the proceeds of crime 14. The
proceeds of the crime referred above include the normal crimes 15 and the scheduled
crimes16 . 17The prescribed punishment is 3-7 years rigorous imprisonment for an offence

13
Satapathy, Money Laundering: New Moves to Combat Terrorism, Economic and Political Weekly, Vol. 38,
No. 7 (Feb. 15-21, 2003), pp. 599-602.
14
Section 2(u) of the Act: 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
15
Crimes which are not mentioned specifically in the schedule of the Act
16
The crimes which are mentioned in the Part A and Part B and now Part C (added in PML Bill -08) of the
Schedule attached to the Act, if the total value involved in such offences is thirty lakh rupees or more (this limit
has also been removed under PML Bill 08)
17
Section 3 of the PMLA
 of money laundering with fine18. In case of an offence mentioned under Part A19,
imprisonment would extend up to 10 years20.
• Attachment, Adjudication and Confiscation- The confiscation of the property under the
Act is dealt with in accordance with the chapter III of the said Act. An official not below
the rank of Deputy Director can order attachment of proceeds of crime for a period of 180
days, after informing the Magistrate. Thereafter he will send a report containing material
information relating to such attachment to the Adjudicating Authority21. Section 8 details
the procedure of adjudication. After the official forwards the report to the Adjudication
Authority, this Authority should send a show cause notice to concerned person(s) within
30 days. After considering the response and all related information, the Authority can give
finality to the order of attachment and make a confiscation order, which will thereafter be
confirmed or rejected by the Special Court.
• Obligations of Banking Companies, Financial Institutions and Intermediaries- The
reporting entity is required to keep a record of all material information relating to money
laundering and forward the same to the Director. Such information should be preserved for
5 years22. The functioning of the reporting entity will be supervised by the Director who
can impose any monetary penalty or issue warning or order audit of accounts, if the entity
violates its obligations23.The Central Government, after consulting the Reserve Bank of
India is authorised to specify rules relating to managing information by the reporting
entity24.
• Enforcement Paraphernalia Adjudicating Authority - The Act empowers the Central
Government to constitute an Adjudicating Authority having a Chairman and 2 members
and define their scope of functioning and other terms of service. The Adjudicating
Authority will operate through a Single or Division bench. The Authority has been given
autonomous powers to regulate its adjudicating procedure.25

18
Section 4 of the PMLA
19
These deal with the offences under the Narcotic Drugs and Psychotropic Substances Act, 1985, Sections 15,
16, 17,18, 19, 20, 21, 22, 23, 24, 25A, 27A, 29.
20
Proviso to Section 4 of the PMLA
21
Section 5 of the PMLA
22
Section 12 of PMLA.
23
Section 13 of PMLA
24
Section 15 of PMLA
25
Section 6 of PMLA.
• Administrator - The property laundered will be taken care of i.e. managed after
confiscation by an Administrator who will act in accordance with the instructions of the
Central Government.26
• Appellate Tribunal - All appeals from an order made by the Adjudicating Authority will
lie to an Appellate Tribunal constituted by the Central Government.27 It will consist of 2
members headed by a Chairman.28 An official can resign by sending his resignation to the
Central Government thereby giving a 3 months’ notice. He can also be removed by an order
made by the Central Government on the grounds of misbehaviour or incapacity.29
• Special Courts - the Central Government, after consulting the High Court is empowered
to designate Court of Sessions as Special Courts.30 The Special courts can try all scheduled
offences and that under section 4 and also offence under section 3, but after the authority
requests in this behalf.31 Authorities under the Act - There shall be the following classes
of authorities for the purposes of this Act, namely: (a) Director or Additional Director or
Joint Director, (b) Deputy Director, (c) Assistant Director, and (d) such other class of
officers as may be appointed for the purposes of this Act.32
• Summons, Searches and Seizures etc.- The power of surveying and scrutinizing records
kept at any place is conferred on the Adjudicating Authority. The Authority may ask any
of its officials to carry on the search, collect all relevant information, place identification
marks and thereafter send a report to it.33 The search of a person to be conducted is allowed
if it is ordered by the Central Government. The authority authorized in this behalf cannot
detain a person beyond 24 hours, must ensure the presence of 2 witnesses, prepare a list of
things seized signed by the witnesses and forward the same to the Adjudicating Authority.34
A property confiscated or frozen under this Act can be retained for 180 days. This period
can be extended by the Adjudicating Authority after being satisfied of the merits of the
case. The Court or the Adjudicating Authority can subsequently also order the release of
such property.35 There shall be a presumption of the ownership of property and records

26
Section 10 of PMLA
27
Section 25 of PMLA.
28
Section 27 of PMLA
29
Section 32 of PMLA
30
Section 43 of PMLA
31
Section 44 of PMLA
32
Section 48 of PMLA
33
Section 16 of PMLA.
34
Section 18 of PMLA
35
Retention of Property u/s 20 of PMLA
 recovered from a person's possession.36 The burden of proof will be on the accused to prove
that he is not guilty of an offence under this Act.37 The offences under the Act are to be
cognizable and non-bailable.38

Anti-Money Laundering Standards

RBI issued Master Circular on Know Your Customer (KYC) norms/ Anti-Money Laundering
(AML) standards/ Combating of Financing of Terrorism (CFT)/ Obligation of banks under
Prevention of Money Laundering Act, 2002 and Banks were advised to follow certain customer
identification procedure for opening of accounts and monitoring transactions of a suspicious
nature for the purpose of reporting it to appropriate authority. These KYC guidelines have been
revisited in the context of the Recommendations made by the Financial Action Task Force
(FATF) on Anti-Money Laundering (AML) standards and on Combating Financing of
Terrorism (CFT). Banks have been advised to ensure that a proper policy framework on KYC
and AML measures with the approval of the Board is formulated and put it place. The Objective
of KYC Norms/ AML Measures/ CFT Guidelines is to prevent banks from being used,
intentionally or unintentionally, by criminal elements for money laundering or terrorist
financing activities. KYC procedures also enable banks to know/ understand their customers
and their financial dealings better which in turn help them manage their risks prudently.

The Financial Intelligence Unit - India (FIU-IND)

While the Prevention of Money Laundering Act (PMLA) 2002, forms the core framework for
combating money laundering in the country, The Financial Intelligence Unit - India (FIUIND)
is the nodal agency in India for managing the AML ecosystem and has significantly helped in
coordinating and strengthening efforts of national and international intelligence, investigation
and enforcement agencies in pursuing the global efforts against money laundering and related
crimes. These are specialized government agencies created to act as an interface between
financial sector and law enforcement agencies for collecting, analysing and disseminating
information, particularly about suspicious financial transactions. In terms of the PMLA Rules,
banks are required to report information relating to cash and suspicious transactions and all
transactions involving receipts by non-profit organizations of value more than rupees ten lakh
or its equivalent in foreign currency to the Director, FIUIND in respect of transactions. It
receives prescribed information from various entities in financial sector under the Prevention

36
Presumption as to records or property in certain cases u/s 22 PMLA
37
Section 24 of PMLA
38
Section 45 of PMLA.
of Money Laundering Act 2002 (PMLA) and in appropriate cases disseminates information to
relevant intelligence/ law enforcement agencies which include Central Board of Direct Taxes,
Central Board of Excise & Customs Enforcement Directorate, Narcotics Control Bureau,
Central Bureau of Investigation, Intelligence agencies and regulators of financial sector. FIU-
IND does not investigate cases.

JUDICIAL PRONOUNCEMENTS
The Fake Stamp Paper or Telgi Scam39- The syndicate led by Abdul Karim Telgi used the
chemically washed stamps and thus reintroduced the used stamp papers back into the system
simply by washing them in the chemicals so as to remove the original contents. This was made
possible because of the loophole in the system where there was no branding of new stamps and
the used stamp papers were not cancelled. Also, the receipt used by Central Stamp Office does
not have any security features so his allowed the accused to replicate them and show them as a
genuine copy in order to convince the customers. Additionally, he cultured officials at the
Security Press in Nashik, where stamp papers were printed. With their participation he used
government machinery to print stamp paper and eventually bought some of the machinery and
started counterfeiting on his own. The trial court held that evidences show that Abdul Karim
Telgi hired an office at City Centre, Indore and he also took apartment on rent and was carrying
on business of sale of fake Government revenue papers causing loss to the Government and
corresponding gain to himself. The Court thus, found the accused guilty of the offences and
sentenced him to various terms of imprisonment. The accused filed an appeal to the High Court
against the order of the Trail Court. While dismissing the appeal the Court held that considering
the making out of a consummate crime and resultant loss caused to the public revenue by sale
of fake, counterfeit stamp papers, adhesive stamps, non-judicial stamp papers, Appellant has
caused substantial loss to the Government and corresponding gain to himself by his 'white
collar' crime. It was an economic crime which has cascading effect. This is one of those
exceptional cases where the law should come down with heavy hands to deal such kind of
persons who are a menace to the Society.

Observation: The Court does not blindly follow the provisions of the Act but look into the
depth of the activities of the accused, the loss and damages caused to the Government and the
public; and gives punishment which is proportional to the criminal act.

39
Abdul Karim Telgi and Sohail Khan vs. Union of India, through CBI, 2014(2) JLJ136
Union of India vs. Hassan Ali Khan & Anr40- The allegation against the accused is that they
have committed an offence punishable under Section 4 of the Prevention of Money Laundering
Act, 2002. The said case has been registered on the basis of a complaint filed by the Deputy
Director, Directorate of Enforcement on the basis of the Report based on certain information
and documents received from the Income Tax Department. An investigation was also
conducted under the Foreign Exchange Management Act, 1999, (‘FEMA’). Show-cause
notices were issued to the accused for alleged violation of Sections 3A and 4 of FEMA for
dealing in and acquiring and holding foreign exchange to the extent of Rs.36,000 crores
approximately in Indian currency, in his account with the Union Bank of Switzerland. Inquiries
also revealed that Shri Hassan Ali Khan had obtained at least three Passports in his name by
submitting false documents, making false statements and by suppressing the fact that he already
had a Passport. Based on the aforesaid material, the Directorate of Enforcement arrested the
accused and produced him before the Special Judge, PMLA and was remanded in custody
which was rejected and the accused was released on bail. The Union of India thereupon filed
Special Leave Petition and upon observing that the material made available on record prima
facie discloses the commission of an offence by the accused punishable under the provisions
of the PMLA, the Supreme Court disposed of the appeal as well as the Special Leave Petition
and set aside the order of the Special Judge, PMLA and directed that the accused be taken into
custody. Thereafter, the accused was remanded into custody from time to time.

Observation: The offence of money laundering is an offence of a grave nature. A person

indulged in it cannot escape from the hands of the law. If such an offence is committed, strict
actions will be taken.

CONCLUSION & SUGGESTIONS

As it can be seen that money laundering involves activities that are international in nature and
are also at a greater level, therefore, to make a heavy impact it is necessary that all countries
should enact strict and as far as possible same laws so that the money launderers will have no
place to target in order to launder their proceeds of crime by way of weakness of jurisdiction
or the like. Since the States have no obligation in deciding which offences should be considered
as predicate offences to money laundering there is no consensus into the international
harmonizing efforts for anti-money laundering. Thus, there is a need to enlist common
predicate offences to solve the problem internationally particularly keeping in mind the trans-

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[2011] 11 SCR 778.
national character of the offence of money laundering. Furthermore, the provision of financial
confidentiality in other countries is an issue. The states are unwilling in compromising with
this confidentiality. There is a need to draw a line between such financial confidentiality rules
and these financial institutions becoming money laundering havens. Apart from that, many a
people are of the opinion that money laundering seem to be a victimless crime. They are
unaware of the harmful effects of such a crime. So, there is a need to educate such people and
create awareness among them and therefore infuse a sense of watchfulness towards the
instances of money laundering. This would also help in better law enforcement as it would be
subject to public examination. Moreover, to have effective anti-money laundering measures
there need to be a proper coordination between the Centre and the State. For that the tussle
between the two should be removed. The laws should not only be the responsibility of the
Centre but it should be implemented at the State level also. The more decentralised the law
would be the better reach it will have. Therefore, to have an effective anti-money laundering
regime, one has to think regionally, nationally and globally.