HAND BOOK

ON
THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

CA Rajkumar S. Adukia
B. Com. (Hons.), FCA, ACS, ACMA, LL.B, Dip.IFR (UK), MBA, DLL& LW,
DIPR, Dip Criminology
[email protected]
093230 61049 / 098200 61049

Index

1. Introduction
2. History of Money Laundering
3. Important definitions
4. What is Money Laundering?
4.1. Why is money laundered?
5. Money Laundering process and methods
5.1. Why is money laundering punishable?
5.2. Fundamental laws of money laundering
6. Overview of the Prevention of Money Laundering Act,2002

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 6.1. Prevention of Money Laundering (Amendment) Act, 2009
6.2 Prevention of Money Laundering (Amendment) Act, 2012
7. Rules under the Prevention of Money Laundering Act, 2002
8. Obligations of Banking Companies, Financial Institutions and Intermediaries
9. Maintenance of Records
10. Furnishing of Information
11. Identity of Clients
12. Client Due Diligence
13. Role of Financial Intelligence Unit- India
14. Authorities under PMLA
15. Directorate of Enforcement
16. Notifications/Guidelines issued by various Authorities
17. Financial Action Task Force on Money Laundering (FATF)
18. Cases related to Money Laundering
19. The Adjudicating Authority Procedure Regulations
18.1 The Adjudicating Authority (Procedure) Regulations, 2013
18.2 The Prevention of Money-Laundering (Issuance of Provisional Attachment
Order) Rules, 2013

20. Overview of the Benami Transactions (Prohibition) Bill, 2011

21. Overview of the Whistleblower’s Protection Act, 2011
22. Professional Opportunities under Prevention of Money Laundering Act, 2002
23. Useful Websites
24. About the Author

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 1. INTRODUCTION

Money is any object or record that is generally accepted as payment for goods and services and
repayment of debts in a given country or socio-economic context. Money is generally considered
to have the following four main functions, which are summed up in a rhyme found in older
economics textbooks: "Money is a matter of functions four, a medium, a measure, a standard, a
store."

Money is the root cause of many evils like corruption, black marketing, smuggling, drug
trafficking, tax evasion etc. The more developed the nation, the more the standard of living of the
people. People want more money to cater to their needs and at a point of time they don’t hesitate
to have money from any source i.e. black or white money. This is the point where the concept of
money laundering enters and then prospers.

Although the word “laundering” is generally used for cleaning dirty clothes, the term Money
Laundering refers to the conversion or “Laundering” of money which is illegally obtained, in
order to make it appear to originate from a legitimate source. Thus it is a process by which
proceeds from illegal activities are disguised in order to conceal their illicit origin. Money
Laundering is being employed by launderers worldwide to conceal criminal activity associated
with it such as drug / arms trafficking, terrorism and extortion.

Money laundering, loosely defined, is the transactional processing or moving of illicitly gained
funds (such as currency, cheques, electronic transfers or similar equivalents) towards disguising
its source, nature, ownership or intended destination and/or beneficiaries. The desired outcome
of this process is “clean” money that can be legally accessed or distributed via legitimate
financial channels and credible institutions.

Money laundering, at its simplest, is the act of making money that comes from Source A look
like it comes from Source B. In practice, criminals are trying to disguise the origins of money

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obtained through illegal activities so it looks like it was obtained from legal sources. Otherwise,
they can't use the money because it would connect them to the criminal activity, and law-
enforcement officials would seize it.

The most common types of criminals who need to launder money are drug traffickers,
embezzlers, corrupt politicians and public officials, mobsters, terrorists and con artists. Drug
traffickers are in serious need of good laundering systems because they deal almost exclusively
in cash, which causes all sorts of logistics problems. One important aspect of money laundering
is the tendency and need for perpetrators to operate cross border schemes for the purpose of
concealment and/or to take advantage of the uneven developments in the national anti-money
laundering regimes.

Government of India is committed to tackle the menace of Money Laundering and has always
been part of the global efforts in this direction. India is signatory to the following UN
Conventions, which deal with Anti Money Laundering / Countering the Financing of Terrorism:
1. International Convention for the Suppression of the Financing of Terrorism (1999);
2. UN Convention against Transnational Organized Crime (2000); and
3. UN Convention against Corruption (2003)

A consequence of the political Declaration adopted by the special session of the United Nations
General Assembly (UNGASS) held on 8th to 10th June 1998 (of which India is one of the
signatories) calling upon member States to adopt Anti-Money Laundering Legislation &
Programme, the Parliament has enacted a special law called the ‘Prevention of Money
Laundering Act, 2002’ (PMLA 2002). This Act has been substantially amended, by way of
enlarging its scope, in 2009 (w.e.f. 01.06.2009), by enactment of Prevention of Money
Laundering (Amendment) Act, 2009. The Act was further amended by Prevention of Money-
Laundering (Amendment) Act, 2012 w.e.f. 15-02-2013.

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 2. HISTORY OF MONEY LAUNDERING

The word "money" is believed to originate from a temple of Hera, located on Capitoline, one of
Rome's seven hills. In the ancient world Hera was often associated with money. The temple
of Juno Moneta at Rome was the place where the mint of Ancient Rome was located. The name
"Juno" may derive from the Etruscan goddess Uni (which means "the one", "unique", "unit",
"union", "united") and "Moneta" either from the Latin word "monere" (remind, warn, or instruct)
or the Greek word "moneres" (alone, unique).

Money laundering has fairly benign origins in the hawala and hundi systems of South Asia,
which were informal financial systems which allowed people to execute financial transactions in
confidence and secrecy. These systems were perfectly legitimate to begin with, and merely
reflected institutional underdevelopment or unfamiliarity or lack of confidence in the formal
banking system. However, these systems soon attracted criminal organizations, which began to
use them along with other means in order to launder money to remove the taint of illegality. In
the past century, money laundering has become an international problem.

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. One of
the ways in which they were able to do this was by purchasing outwardly legitimate businesses
and to mix their illicit earnings with the legitimate earnings they received from these businesses.
Laundromats were chosen by these gangsters because they were cash businesses and this was an
undoubted advantage to people like Al Capone who purchased them. Al Capone, however, was
prosecuted and convicted in October, 1931 for tax evasion. It was this that he was sent to prison
for rather than the predicate crimes which generated his illicit income.
Meyer Lansky (affectionately called ‘the Mob’s Accountant’) was particularly affected by the
conviction of Capone for something as obvious as tax evasion. Determined that the same fate
would not befall him he set about searching for ways to hide money. Before the year was out he

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had discovered the benefits of numbered Swiss Bank Accounts. This is where money laundering
would seem to have started and according to Lacey Lansky was one of the most influential
money launderers ever. The use of the Swiss facilities gave Lansky the means to incorporate one
of the first real laundering techniques, the use of the ‘loan-back’ concept, which meant that
hitherto illegal money could now be disguised by ‘loans’ provided by compliant foreign banks,
which could be declared to the ‘revenue’ if necessary, and a tax-deduction obtained into the
bargain.

Even though the term has been used for a fairly long period of time, the first judicial use of the
term was only in 1982 in America. Towards the latter half of the last century, money laundering
began to be increasingly connected to the offences of drug trafficking and organized crime, and
criminal organizations and drug lords began to conduct large operations to launder their profits
of their taint of illegality. The conversion or transfer of proceeds from drug trafficking in order to
conceal or disguise the illegal origin of the property was made an offence under the United
Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.

Money laundering also was developed in order to facilitate trade. Nigeria is the money-
laundering centre of Africa and that Nigerians around the world are engaged in large-scale crime
and laundering. The criminals create an illusion that the money they are spending is actually
theirs.

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 an 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.

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 3. IMPORTANT DEFINITIONS

Sec.2 of Prevention of Money-laundering Act, 2002 deals with definitions.

Section 2 Definitions.—

(1) In this Act, unless the context otherwise requires,—

(a) “Adjudicating Authority” means an Adjudicating Authority appointed under sub-section (1)
of section 6;
(b) “Appellate Tribunal” means the Appellate Tribunal established under section 25;
(c) “Assistant Director” means an Assistant Director appointed under sub-section (1) of section
49;
(d) “attachment” means prohibition of transfer, conversion, disposition or movement of
property by an order issued under Chapter III;
(da) “authorised person” means an authorised person as defined in clause (c) of section 2 of the
Foreign Exchange Management Act, 1999 (42 of 1999);
(e) “banking company” means a banking company or a co-operative bank to which the Banking
Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred
to in section 51 of that Act;
(f) “Bench” means a Bench of the Appellate Tribunal;
(fa) “beneficial owner” means an individual who ultimately owns or controls a client of a
reporting entity or the person on whose behalf a transaction is being conducted and includes a
person who exercises ultimate effective control over a juridical person;]
(g) “Chairperson” means the Chairperson of the Appellate Tribunal;
(h) “chit fund company” means a company managing, conducting or supervising, as foreman,
agent or in any other capacity, chits as defined in section 2 of the Chit Funds Act, 1982 (40 of
1982);
(ha) “client” means a person who is engaged in a financial transaction or activity with a
reporting entity and includes a person on whose behalf the person who engaged in the transaction

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or activity, is acting;
(i) “co-operative bank” shall have the same meaning as assinged to it in clause (dd) of section 2
of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (47 of 1961);
(ia) “corresponding law” means any law of any foreign country corresponding to any of the
provisions of this Act or dealing with offences in that country corresponding to any of the
scheduled offences;]
(ib) “dealer” has the same meaning as assigned to it in clause (b) of section 2 of the Central
Sales Tax Act, 1956 (74 of 1956);
(j) “Deputy Director” means a Deputy Director appointed under sub-section (1) of section 49;
(k) “Director” or “Additional Director” or “Joint Director” means a Director or Additional
Director or Joint Director, as the case may be, appointed under sub-section (1) of section 49;
(l) “financial institution” means a financial institution as defined in clause (c) of section 45-I of
the Reserve Bank of India Act, 1934 (2 of 1934) and includes a chit fund company, a housing
finance institution, an authorised person, a payment system operator, a nonbanking financial
company and the Department of Posts in the Government of India
(m) “housing finance institution” shall have the meaning as assigned to it in clause (d) of
section 2 of the National Housing Bank Act, 1987 (53 of 1987);
(n) “intermediary” means,— a stock-broker, sub-broker share transfer agent, banker to an issue,
trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager,
investment adviser or any other intermediary associated with securities market and registered
under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); or

i. an association recognised or registered under the Forward Contracts (Regulation) Act,

1952 (74 of 1952) or any member of such association; or
ii. intermediary registered by the Pension Fund Regulatory and Development Authority; or
iii. a recognised stock exchange referred to in clause (f) of section 2 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956);]

(na) “investigation” includes all the proceedings under this Act conducted by the Director or by
an authority authorised by the Central Government under this Act for the collection of evidence.
(o) “Member” means a Member of the Appellate Tribunal and includes the Chairperson;

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(p) “money-laundering” has the meaning assigned to it in section 3;
(q) “non-banking financial company” shall have the same meaning as assigned to it in clause
(f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);
(r) “notification” means a notification published in the Official Gazette;
(ra) “offence of cross border implications”, means— any conduct by a person at a place
outside India which constitutes an offence at that place and which would have constituted an
offence specified in Part A, Part B or Part C of the Schedule, had it been committed in India and
if such person 11[transfers in any manner] the proceeds of such conduct or part thereof to India;
or

i. any offence specified in Part A, Part B or Part C of the Schedule which has been
committed in India and the proceeds of crime, or part thereof have been transferred to a
place outside India or any attempt has been made to transfer the proceeds of crime, or
part thereof from India to a place outside India.
Explanation.—Nothing contained in this clause shall adversely affect any investigation,
enquiry, trial or proceeding before any authority in respect of the offences specified in
Part A or Part B of the Schedule to the Act before the commencement of the Prevention
of Money-laundering (Amendment) Act, 2009.]

(rb) “payment system” means a system that enables payment to be effected between a payer and
a beneficiary, involving clearing, payment or settlement service or all of them. Explanation.—
For the purposes of this clause, “payment system” includes the systems enabling credit card
operations, debit card operations, smart card operations, money transfer operations or similar
operations;]
(rc) “payment system operator” means a person who operates a payment system and such
person includes his overseas principal.
Explanation.—For the purposes of this clause, “overseas principal” means,—
(A) in the case of a person, being an individual, such individual residing outside India, who owns
or controls or manages, directly or indirectly, the activities or functions of payment system in
India;
(B) in the case of a Hindu undivided family, Karta of such Hindu undivided family residing

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 outside India who owns or controls or manages, directly or indirectly, the activities or functions
of payment system in India;
(C) in the case of a company, a firm, an association of persons, a body of individuals, an artificial
juridical person, whether incorporated or not, such company, firm, association of persons, body
of individuals, artificial juridical person incorporated or registered outside India or existing as
such and which owns or controls or manages, directly or
indirectly, the activities or functions of payment system in
India;]

(s) “person” includes;—

i. an individual,
ii. a Hindu undivided family,
iii. a company,
iv. a firm,
v. an association of persons or a body of individuals, whether incorporated or not,
vi. every artificial juridical person, not falling within any of the preceding sub-clauses, and
vii. any agency, office or branch owned or controlled by any of the above persons mentioned
in the preceding sub-clauses;

(sa) “person carrying on designated business or profession” means,—

i. i. a person carrying on activities for playing games of chance for cash or kind, and
includes such activities associated with casino;
ii. a Registrar or Sub-Registrar appointed under section 6 of the Registration Act,
1908 (16 of 1908) as may be notified by the Central Government;
iii. real estate agent, as may be notified by the Central Government;
iv. dealer in precious metals, precious stones and other high value goods, as may be
notified by the Central Government;
v. person engaged in safekeeping and administration of cash and liquid securities on
behalf of other persons, as may be notified by the Central Government; or
vi. person carrying on such other activities as the Central Government may, by

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 notification, so designate, from time-totime;]

(sb) “precious metal” means gold, silver, platinum, palladium or rhodium or such other metal as
may be notified by the Central Government;
(sc) “precious stone” means diamond, emerald, ruby, sapphire or any such other stone as may
be notified by the Central Government;
(t) “prescribed” means prescribed by rules made under this Act;
(u) “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;
(v) “property” means any property or assets of every description, whether corporeal or
incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments
evidencing title to, or interest in, such property or assets, wherever located;
Explanation.—For the removal of doubts, it is hereby clarified that the term “property” includes
property of any kind used in the commission of an offence under this Act or any of the scheduled
offences;
(va) “real estate agent” means a real estate agent as defined in clause (88) of section 65 of the
Finance Act, 1994;]
(w) “records” include the records maintained in the form of books or stored in a computer or
such other form as may be prescribed;
(wa) “reporting entity” means a banking company, financial institution, intermediary or a
person carrying on a designated business or profession;.
(x) “Schedule” means the Schedule to this Act;
(y) “scheduled offence” means—
(i) the offences specified under Part A of the Schedule; or
(ii) the offences specified under Part B of the Schedule if the total value involved in such
offences is thirty lakh rupees or more; or (iii) the offences specified under Part C of the
Schedule;
(z) “Special Court” means a Court of Session designated as Special Court under sub-section (1)
of section 43;
(za) “transfer” includes sale, purchase, mortgage, pledge, gift, loan or any other form of transfer

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of right, title, possession or lien;
(zb) “value” means the fair market value of any property on the date of its acquisition by any
person, or if such date cannot be determined, the date on which such property is possessed by
such person.

(2) Any reference, in this Act or the Schedule, to any enactment or any provision thereof shall, in
relation to an area in which such enactment or such provision is not in force, be construed as a
reference to the corresponding law or the relevant provisions of the corresponding law, if any, in
force in that area.

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 4. WHAT IS MONEY LAUNDERING?

Money laundering is the processing of criminal proceeds to disguise their illegal origin, given
that the goal of a large number of criminal activities is to generate profit for an individual or a
group.
Examples of money laundering activities are as follows –
 Illegal arms sales,
 Smuggling,
 Drug trafficking and
 Prostitution Rings
 Embezzlement,
 Insider trading,
 Bribery
 Computer Fraud Schemes

The money so generated is tainted and is in the nature of ‘dirty money’. Money Laundering is the
process of conversion of such proceeds of crime, the ‘dirty money’, to make it appear as
‘legitimate’ money.

There are various definitions available which describe the phrase ‘Money Laundering’.

Financial Action Task Force on Money Laundering (FATF) defines money laundering as
“the processing of criminal proceeds to disguise their illegal origin in order to legitimize the ill-
gotten gains of crime.”

According to Section 3 of Prevention of Money Laundering Act, 2002 – “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.

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In Black's Law of Lexicon "the term laundering is referred to as investment or other transfer of
money flowing from racketeering, drug transactions and other sources (illegal sources) into
legitimate channels so that its original source cannot be traced."

Article 1 of the draft European Communities (EC) Directive of March 1990 defines it as –
“the conversion or transfer 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 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.”

Allied Laws connected with Anti -Money Laundering

1. Indian Penal Code,1860

2. Prevention of Corruption Act,1988
3. Right to Information Act,2005
4. Central Vigilance Commission Act, 2003
5. Lokayukta Acts of States………
6. The Right to Information Act, 2005
7. Smugglers and Foreign Exchange Manipulators Forfeiture of Property Act, 1976
8. The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,
1974 (COFEPOSA)
9. The Benami Transactions (Prohibition) Act, 1988 (Bill, 2011)
10. The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act,
1988

4.1. Why is money laundered?

There are several reasons why people launder money. These include:

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 hiding wealth: criminals can hide illegally accumulated wealth to avoid its seizure by
authorities;
 avoiding prosecution: criminals can avoid prosecution by distancing themselves from
the illegal funds;
 evading taxes: criminals can evade taxes that would be imposed on earnings from the
funds;
 increasing profits: criminals can increase profits by reinvesting the illegal funds in
businesses;
 becoming legitimate: criminals can use the laundered funds to build up a business and
provide legitimacy to this business.

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 5. MONEY LAUNDERING PROCESS AND METHODS

Money laundering is not a single act but is in fact a process that is accomplished in three basic
steps. These steps can be taken at the same time in the course of a single transaction, but they can
also appear in well separable forms one by one as well. The steps are explained hereunder –

1) Placement

The first stage is the physical disposal of cash. The launderer introduces his illegal profits into
the financial system. This placement is accomplished by depositing the cash in domestic banks
or in other types of formal or informal financial institutions. This is done by breaking up large
amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank

16
account, or by purchasing a series of monetary instruments (cheques, money orders, etc.). The
cash is usually siphoned off across borders for deposit in foreign financial institutions, or used to
buy high-value goods, such as artwork, aeroplanes, and precious metals and stones, that can then
be resold for payment by cheque or bank transfer.

2) Layering

The Second stage in money laundering is layering. The launderer engages in a series of
conversions or movements of the funds to distance them from their source. The funds might be
channelled through the purchase and sale of investment instruments such as bonds, stocks, and
traveller’s cheques or the launderer might simply wire the funds through a series of accounts at
various banks across the globe, particularly to those jurisdictions that do not cooperate in anti-
money laundering investigations. In some instances, the launderer might disguise the transfer as
payments for goods or services, thus giving them a legitimate appearance. A number of rotations
to slush funds are given through banks and this complex layer of financial transactions are
carried out to divorce the illicit proceeds from their source and mislead the investigating
agencies. The high-value goods and monetary instruments are resold and the proceeds are
invested in real estate and legitimate businesses, particularly in the leisure and tourism industries.
Shell companies i.e. paper companies/bogus companies) serve as front and are registered in
offshore havens. They are a common tool in the layering phase.

3) Integration

This is the stage where the funds are returned to the legitimate economy for later extraction.
Examples include investing in a company, purchasing real estate, luxury goods, etc. This is the
final stage in the process.The launderer makes it appear to have been legally earned and
accomplishes integration of the “cleaned” money into the economy. By this stage, it is
exceedingly difficult to distinguish legal and illegal wealth. It involves making the wealth
derived from crime appear legitimate.

The following methods show the means or medium using which, launderers carry out their
activities:

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a) Structuring ("Smurfing"): Smurfing is possibly the most commonly used money
laundering method. It involves many individuals who deposit cash into bank
accounts or buy bank drafts in amounts in small amounts to avoid the reporting
threshold.
b) Bank Complicity: Bank complicity occurs when a bank employee is involved in
facilitating part of the money laundering process.
c) Money Services and Currency Exchanges: Money services and currency
exchanges provide a service that enables individuals to exchange foreign currency
that can then be transported out of the country. Money can also be wired to
accounts in other countries. Other services offered by these businesses include the
sale of money orders, cashiers cheques, and traveller’s cheques.
d) Asset Purchases with Bulk Cash: Money launderers may purchase high value
items such as cars, boats or luxury items such as jewellery and electronics. Money
launderers will use these items but will distance themselves by having them
registered or purchased in an associate's name.
e) Electronic Funds Transfer: Also referred to as a telegraphic transfer or wire
transfer, this money laundering method consists of sending funds electronically
from one city or country to another to avoid the need to physically transport the
currency.
f) Postal Money Orders: The purchase of money orders for cash Allows money
launderers to send these financial instruments out of the country for deposit into a
foreign or offshore account.
g) Credit Cards: Overpaying credit cards and keeping a high credit balance gives
money launderers access to these funds to purchase high value items or to convert
the credit balance into cheques.
h) Casinos: Cash may be taken to a casino to purchase chips which can then be
redeemed for a casino cheque.
i) Refining: This money laundering method involves the exchange of small
denomination bills for larger ones and can be carried out by an individual who
converts the bills at a number of different banks in order not to raise suspicion.
This serves to decrease the bulk of large quantities of cash.

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 j) Legitimate Business / Co-mingling of Funds: Criminal groups or individuals may
take over or invest in businesses that customarily handle a high cash transaction
volume in order to mix the illicit proceeds with those of the legitimate business.
Criminals may also purchase businesses that commonly receive cash payments,
including restaurants, bars, night clubs, hotels, currency exchange shops, and
vending machine companies. They will then insert criminal funds as false revenue
mixed with income that would not otherwise be sufficient to sustain a legitimate
business.
k) Value Tampering: Money launderers may look for property owners who agree to
sell their property, on paper, at a price below its actual value and then accept the
difference of the purchase price "under the table". In this way, the launderer can, for
example, purchase a 2 million rupee property for 1 million rupee, while secretly
passing the balance to the seller. After holding the property for a period of time, the
launderer then sells it for its true value of 2 million rupees.
l) Loan Back: Using this method, a criminal provides an associate with a sum of
illegitimate money and the associate creates the paperwork for a loan or mortgage
back to the criminal for the same amount, including all of the necessary
documentation. This creates an illusion that the criminal's funds are legitimate. The
scheme's legitimacy is further reinforced through regularly scheduled loan
payments made by the criminal, and providing another means to transfer money.

5.1. Why is money laundering punishable?

The socio-economic effects of money laundering are crippling: Illicit funds generated from
criminal activities such as gun running, drug and human trafficking and other forms of organised
crime is laundered into clean currency, and in turn used to fund new criminal operations or
expand existing ones. This translates into more drug trafficking and dealing, more illegal
firearms, more violent crimes, and – most disconcertingly – more international terrorism.

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Left unchecked, money laundering can undermine the integrity of entire financial systems, and
embroil individual financial institutions in share-crippling financial scandals.

Moreover, the amounts of money generated from criminal activities and laundered throughout
the world amount several billions of dollars – up to as much as 5% of the global GDP. This gives
the beneficiaries of money laundering a lot of muscle, and certainly enough means to threaten
political stability worldwide.

In essence, regulatory compliance seeks to curb this criminal proliferation by holding financial
systems providers and banking institutions accountable for the financial activities of the clients
they deal with. Money laundering poses a very real threat to the reputation and financial well-
being of banks, law firms, accountants and asset management houses around the world, as these
institutions are often unwitting accomplices in the laundering of dirty money.

5.2. Fundamental laws of money laundering

The United Nations Global Programme against money laundering has identified ten fundamental
laws of money laundering. They are:

1. The more successful a money laundering apparatus is in imitating the patterns and
behaviour of legitimate transactions, the less the likelihood of it being exposed.
2. The more deeply embedded illegal activities are within the legal economy and the less
their institutional and functional separation, the more difficult it is to detect money
laundering.
3. The lower the ratio of illegal to legal financial flows through any given business
institution, the more difficult it is to detect money laundering.
4. The higher the ratio of illegal “services” to physical goods production in any economy,
the more easily money laundering can be conducted in that economy.
5. The more the business structure of production and distribution of non-financial goods and
services is dominated by small and independent firms or self-employed individuals, the
more difficult the job of separating legal from illegal transactions.
6. The greater the facility of using cheques, credit cards and other non-cash instruments for
effecting illegal financial transactions, the more difficult it is to detect money laundering.

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7. The greater the degree of financial deregulation for legitimate transactions, the more
difficult it is to trace and neutralize criminal money.
8. The lower the ratio of illegally to legally earned income entering any given economy
from outside, the harder the job of separating criminal from legal money.
9. The greater the progress towards the financial services supermarket and the greater the
degree to which all manner of financial services can be met within one integrated multi-
divisional institution, the more difficult it is to detect money laundering.
10. The greater the contradiction between global operation and national regulation of
financial markets, the more difficult the detection of money laundering

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 6. OVERVIEW OF THE PREVENTION OF MONEY LAUNDERING ACT, 2002

In India, before the enactment of the Prevention of Money Laundering Act 2002, the following
statutes addressed inadequately the issue of money laundering -
 The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,
1974
 The Income Tax Act, 1961
 The Benami Transactions (Prohibition) Act, 1988
 The Indian Penal Code and Code of Criminal Procedure, 1973
 The Narcotic Drugs and Psychotropic Substances Act, 1985
 The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act,
1988
This was not sufficient to tackle the growing menace of money laundering in India. In view of
the urgent need for the enactment of a comprehensive legislation inter alia 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 PML Bill was
introduced in the Lok Sabha on 4th August 1998, which ultimately was passed on 17th January
2003.

The Prevention of Money Laundering Act, 2002 (PMLA 2002) and the Rules notified thereunder
came into effect on July 1, 2005. The Act was amended by the Prevention of Money Laundering
(Amendment) Act, 2009 w.e.f. 01.06.2009. The Act was further amended by the Prevention of
Money-Laundering (Amendment) Act, 2012 w.e.f. 15-02-2013. It extends to the whole of India
including the state of Jammu & Kashmir.

The Prevention of Money Laundering Act, 2002 consists of ten chapters containing 75 sections
and one Schedule. Amendments were made to this Act vide The Prevention of Money laundering
(Amendment) Act, 2005(20 of 2005) and Prevention of Money laundering (Amendment) Act,
2009 (21 of 2009).

The following table provides an insight into the scheme of the Act:

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 Chapter Sections Title
No
I 1-2 Preliminary
II 3-4 Offence of Money Laundering

III 5-11 Attachment, Adjudication and

confiscation
IV 12-15 Obligation of the Banks, Financial
Institutions and Intermediaries.

V 16-24 Summons, Searches And Seizures, Etc.

VI 25-42 Appellate Tribunal

VII 43-47 Special Courts

VIII 48-54 Authorities

IX 55-61 Reciprocal, arrangements for assistance

in certain matters and procedure for
confiscation of property.
X 62-75 Miscellaneous

Schedule Part A Offences which are covered regardless of

the value

Schedule Part B Nil

Schedule Part C Offences involving cross border

transactions

Object of the Act

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The object 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 thereto.

Offence of and punishment for Money Laundering

Whoever 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 will be guilty of offence of money-laundering. (Sec.3)
Whoever commits the offence of money-laundering will be punishable with rigorous
imprisonment for a term which shall not be less than three years but which may extend to seven
years and will also be liable to fine which may extend to five lakh rupees. But if the proceeds of
crime involved in money laundering relates to any offence specified under paragraph 2 of Part A
of the Schedule i.e. offences specified under the Narcotic Drugs and Psychotropic Substances
Act, 1985, then the term of imprisonment may extend to ten years. (Sec.4)
Any person who willfully and maliciously gives false information and causes an arrest or a
search to be made under this Act shall on conviction be liable for imprisonment for a term which
may extend to two years or with fine which may extend to fifty thousand rupees or both.
(Sec.63(1))
If any person legally bound to give information relating to any offence of money laundering,
refuses to answer any question put forth by the authorities or give evidence or produce books of
accounts or other documents at a certain place or time, shall pay by way of penalty a sum which
shall not be less than five hundred rupees but which may extend to ten thousand rupees for each
such default or failure. (Sec.63(2))

Proceeds of Crimes
“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 [Section 2(1)(u)].

Scheduled Offences

24
The offences listed in the Schedule to the Prevention of Money Laundering Act, 2002 are
scheduled offences in terms of Section 2(1)(y) of the Act. The scheduled offences are divided
into two parts - Part A & Part C.
In part A, offences to the Schedule have been listed in 28 paragraphs and it comprises of
offences under Indian Penal Code, offences under Narcotic Drugs and Psychotropic Substances,
offences under Explosive Substances Act, offences under Unlawful Activities (Prevention) Act,
offences under Arms Act, offences under Wild Life (Protection) Act, offences under the Immoral
Traffic (Prevention) Act, offences under the Prevention of Corruption Act, offences under the
Explosives Act, offences under Antiquities & Arts Treasures Act etc.
Part ‘C’ deals with trans-border crimes, and is a vital step in tackling Money Laundering across
International Boundaries.
Prior to 15th February, 2013, i.e., the date of notification of the amendments carried out in
PMLA, the Schedule also had Part B for scheduled offences where the monetary threshold of
rupees thirty lakhs was relevant for initiating investigations for the offence of money laundering.
However, all these scheduled offences, hitherto in Part B of the Schedule, have now been
included in Part A of Schedule w.e.f 15.02.2013. Consequently, there is no monetary threshold
to initiate investigations under PMLA.

PMLA deals with

25
Scheduled Offences in Part A of PMLA, 2002 covers the followed enactments

1. The Indian Penal Code 1860

2. The Narcotics Drugs and Psychotropic Substances Act, 1985
3. The Explosive Substances Act, 1908
4. The Unlawful Activities (Prevention) Act, 1967
5. The Arms Act, 1959
6. The Wild Life (Protection) Act, 1972
7. The Immoral Traffic (Prevention) Act, 1956
8. The Prevention Of Corruption Act, 1988
9. The Explosives Act, 1884
10. The Antiquities and Arts Treasures Act, 1972
11. The Securities and Exchange Board Of India Act, 1992
12. The Customs Act, 1962
13. The Bonded Labour System (Abolition) Act, 1976
14. The Child Labour (Prohibition and Regulation) Act, 1986

26
 15. The Transplantation Of Human Organs Act, 1994
11. The Juvenile Justice (Care and Protection Of Children) Act,2000
12. The Emigration Act,1983
13. The Passport Act,1967
14. The Foreigners Act,1946
15. The Copyright Act,1957
21. The Trade Marks Act,1999
22. The Information Technology Act, 2000
23. The Biological Diversity Act,2002
24. The Protection Of Plant Varieties and Farmers’ Rights Act,2001
25. The Environment Protection Act,1986
26. The Water (Prevention and Control Of Pollution) Act,1974
27. The Air (Prevention And Control Of Pollution) Act,1981
28. The Suppression of Unlawful Acts Against Safety Of Maritime Navigation and Fixed
Platforms on Continental Shelf Act, 2002

Attachment of property involved in money laundering

According to Section 5 of the Act, where the Director or any other officer but not below the rank
of Deputy Director authorized by him, has reason to believe on the basis of material in his
possession that any person is in possession of any proceeds of money laundering or such person
has been charged of having committed a scheduled offence or such proceeds of crime are likely
to be concealed, transferred or dealt with in any manner, which may result in frustrating any
proceedings relating to confiscation of such proceeds of crime, then such officer may by order in
writing, provisionally attach such property for a period not exceeding 150 days from the date of
the order, in the manner provided in the Second Schedule of the Income Tax Act, 1961.
But no order of attachment should be made unless, in relation to the scheduled offence, a report
has been forwarded to a Magistrate under Sec.173 of the Code of Criminal Procedure, 1973 or a
complaint has been filed by a person, authorised to investigate the offence mentioned in the
Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the
case may be. Further apart from the above, any property of any person may be attached under
this section if the Director or any other officer not below the rank of Deputy Director authorised

27
by him has reason to believe (reasons to be recorded in writing) on the basis of the material in his
possession, that if the property involved in money laundering is not attached immediately, then
the non-attachment of the property is likely to frustrate any proceeding under the Act.
Every order of attachment will cease to have effect after the expiry of 150 days from the date of
the order or on the date of the order made by the Director, whichever is earlier.
The Director or any other officer who provisionally attaches the property should, within a period
of 30 days from such attachment, file a complaint, stating the facts of such attachment before the
Adjudicating Authority.

Following actions can be taken against the persons involved in Money Laundering:-
(a) Attachment of property under Section 5, seizure/ freezing of property and records under
Section 17 or Section 18. Property also includes property of any kind used in the commission of
an offence under PMLA, 2002 or any of the scheduled offences.
(b) Persons found guilty of an offence of Money Laundering are punishable with imprisonment
for a term which shall not be less than three years but may extend up to seven years and shall
also be liable to fine [Section 4].
(c) When the scheduled offence committed is under the Narcotics and Psychotropic Substances
Act, 1985 the punishment shall be imprisonment for a term which shall not be less than three
years but which may extend up to ten years and shall also be liable to fine.
(d) The prosecution or conviction of any legal juridical person is not contingent on the
prosecution or conviction of any individual.

Process of Adjudication
Section 8 deals with the process of adjudication. On receipt of a complaint from the Director or
any other officer who provisionally attaches any property or an application made by such officer
for retention of seized record or property, the Adjudicating Authority may, on reason to believe
that any person has committed an offence of money laundering or is in possession of proceeds of
crime, serve a notice of not less than thirty 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, the evidence on which he relies and other relevant information and
particulars and show cause why all or any of such property should not be declared to be the

28
properties involved in money laundering and confiscated by the Central Government. Where a
notice specifies any property as being held by a person on behalf of any other person, a copy of
such notice shall also be served upon such other person. Similar notice is required to be served
on all persons when more than one person holds such property jointly.
Where on conclusion of a trial for any scheduled offence, the person concerned is acquitted, the
attachment of the property or retention of the seized property or record and net income, if any,
shall cease to have effect.
Where the attachment of any property or retention of the seized property or record becomes final,
the Adjudicating Authority shall, after giving an opportunity of being heard to the person
concerned, make an order confiscating such property.

Maintenance of records
Obligations of baking companies, financial institutions and intermediaries are covered under
Chapter IV of the Prevention of Money Laundering Act, 2002.

Summons, Searches and Seizures

The power of the authorities to survey, search and seize property is covered under Chapter V of
the Prevention of Money Laundering Act, 2002.

Appellate Tribunal
Chapter IV of the Prevention of Money Laundering Act, 2002 deals with the establishment of the
Appellate Tribunal and appeals to be made to the Appellate Tribunal.
The Tribunal consists of a Chairperson and two other Members. The Chairman and one Member
of ATFP (Appellate Tribunal for Forfeited Property) holds additional charge of the post of
Chairman and Member of Tribunal under PMLA, 2002.

Nature of Offences under the Act

The offences under the Act will be cognizable and non-bailable.

Authorities under the Act

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The Director, Financial Intelligence Unit, India, under the Ministry of Finance, Department of
Revenue, will act as the Director to exercise the exclusive powers conferred under clause (b) of
sub-section (1) of section 12 and its proviso, section 13, sub-section (2) of section 26 and sub-
section (1) of section 50 of the Prevention of Money Laundering Act, 2002 and the said Director,
Financial Intelligence Unit, India, shall also concurrently exercise powers conferred by sub-
section (3) and sub-section (5) of section 26, section 39, section 40, section 41, section 42,
section 48, sub-section (2) of section 49, section 66 and section 69 of the aforesaid Act.

The Director, FIU-IND is the competent authority for the purpose of the provisions relating to
maintenance of records and filing of information. The Directorate of Enforcement is the
competent authority for the provisions relating to search, seizure, confiscation of property,
prosecution, etc.

6.1. Prevention of Money Laundering (Amendment) Act, 2009

The Prevention of Money Laundering Bill, 2008 was introduced in the Rajya Sabha on Obtober
17, 2008. The Bill was then referred to the Parliamentary Standing Committee on Finance
(Chairperson – Shri Ananth Kumar), which submitted its report on December 19, 2008. The Bill
was then again introduced in the Rajya Sabha on February 19, 2009 and passed by the Lok Sabha
on February 24, 2009. The Prevention of Money Laundering (Amendment) Act, 2009 came into
force from June 1, 2009.

Summary of the Standing Committee’s report

 The Committee believed that enacting the Bill was an essential step to strengthen the
country’s legal framework for preventing money laundering and counter financing of
terrorism.
 Apart from plugging other avenues generating illegal funds such as hawala, etc.,
international guidelines should be taken into account for effective enforcement of anti-
money laundering law.
 In order to comprehensively cover money transfer service providers, full fledged money
changers and international payment gateways, the definitions of “authorised person” and

30
 “payment system operator” need to be aligned with the definitions of the Payment and
Settlement System Act, 2007.
 The government should consider expanding the ambit of the law to cover Financial
Action Task Force (FATF) recommended Designated Non Financial Businesses such as
gold or gem dealers, lawyers, real estate agents, etc.
 Since it was difficult to track the transfer of funds and financing of terrorist activity in the
absence of bilateral agreements with other countries, the Committee recommended that
MoUs for mutual co-operation should be concluded with other countries.
 Enforcement agencies should strengthen their machinery to keep abreast of the emerging
trends of money laundering and terror funding. This includes having appropriate
software especially with regard to suspicious transactions, strong reporting instruments to
monitor transactions, quarterly audit to verify Know Your Customer information, etc.
 Inclusion of “prohibition of manipulative and deceptive devices, insider trading and
substantial acquisition of securities or control” may deprive investors of refund of shares.
The Bill should have a specific provision to make the proceeds from such offence not
liable to confiscation and to enable refund of such proceeds.
 An appropriate threshold may be fixed with regard to possession of counterfeit currency
to protect genuine bank dealings.
 Adequate safeguards should be put in place to ensure that the enforcement authorities use
their power of search and seizure in a judicious manner so that it does not result in any
undue harassment of individuals.
 Only a sitting or retired judge of the Supreme Court or High Court should be eligible for
appointment as Chairperson of the Appellate Tribunal. Other than Chartered
Accountants, similar professionals such as Company Secretaries should be eligible to
become members of the Tribunal.
 The government must take necessary steps to become a full fledged member of FATF to
enable sharing of information and multi-lateral intelligence.

Important changes brought out by the amendment Act of 2009

31
  New definitions of authorised person; designated business or profession; offence of cross
border implications; and Payment system operator was introduced.
 Changes were made in the definition of financial institution, non-banking financial
company and scheduled offence.
 Provisions with regard to attachment of property involved in money laundering and
search and seizure were amended.
 The age of retirement of Chairperson and Members of the Adjudicating Authority was
increased from 62 years to 65 years.
 Provision was made for mandatory consultation with the Chief Justice of India before
removal of the Chairperson or a Member of the Appellate Tribunal.
 Amendment was made with regard to provision for attachment, seizure and confiscation,
etc., of property in a contracting State or India.
 Certain offences added in Part A and Part B of the Schedule to the Act. Offences added
include those pertaining to insider trading and market manipulation as well as smuggling
of antiques, terrorism funding, human trafficking other than prostitution, and a wider
range of environmental crimes.
 A new category of offences which have cross-border implications was introduced as Part
C.

6.2 Prevention of Money Laundering (Amendment) Act, 2012

The following are the key amendments to the PMLA Act:

· Expanded the definition of offence of money laundering to include activities like

concealment, acquisition, possession and use of proceeds of crime.
· Removed the upper limit of fine of Rs. 5 Lakhs.
· Expanded the scope and duration of Attachment of property to 180 days
· Introduced the concept of Reporting Entity
· Increased the powers of the Director to call for records and conduct inquiries
· Provided that special courts can release property in case of decision by a foreign court
· Clarified that prosecution extends not only to individuals but to Companies as well

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 · Deleted the monetary threshold that applied to the offence of money-laundering

1. Offence of money-laundering definition expanded

The Act states that whoever indulges in any activity connected with proceeds of crime and
projects it as untainted property shall be guilty. The definition of the offence of money
laundering has be expanded to include further activities. By this amendment, the actions of
placement, layering and integration that are usually assumed to constitute money laundering are
included within the scope of the definition. [Section 3]

2. Upper limit for fine has been removed

The Act provided for a penalty of fine which may extend to five lakh rupees as punishment for
money-laundering. The 2012 amendment Act has removed the upper limit of such fine. After the
amendment, the quantum of fine proportionate to the gravity of the offence will be determined
by the court on a case to case basis. The limit of Rs.5 lakh is therefore deleted altogether.
The Standing Committee has also suggested that the courts could consider a percentage of the
amount of money laundered as fine for the offence. This would ensure that each offender has to
pay a fine according to the gravity of his offence. [Section 4]

3. Scope and duration of Attachment of property expanded - The Act provided that the
person from whom property is attached must have been charged of having committed a
scheduled offence. The 2012 amendment expands the scope of attachment by stating that any
proceeds of crime which are even likely to be concealed or transferred can be attached. Also that
if any proceeds are to be used for any purpose which will frustrate the confiscation of proceeds
of crime, then such property will also be attached. Further, the Act originally provided for
attachment of property for 150 days. It has bee has increased the same to 180 days. [Section 5]

4. The concept of Reporting Entity and Beneficial Owner introduced

The Act provided for banking companies, financial institutions and intermediaries to maintain
records of the transactions they sanction. The 2012 amendment Act has introduced a new
concept of “reporting entity” which would maintain records of various transactions sanctioned by

33
banking companies and financial institutions etc. Also that, these entities would identify their
clients and the client‟s beneficial owners [Clause 2 (1) (c) and (d)].
For this purpose, reporting entity has been defined in the amendment Act to include banking
companies, financial institutions, intermediaries and persons carrying on designated business or
profession [Clause (wa) of Section 2]. Further, persons carrying on designated business or
profession have also been defined to include persons carrying on activities for playing games of
chance, real estate agents and dealers of precious metal and precious stones etc. [Clause (sa) of
Section 2] This clearly shows that the amendment Act mandates many other categories of
persons to maintain records, unlike the mandate in the Principal Act. This expansion to other
categories of persons would ensure reporting of many such transactions which earlier would
have gone unnoticed. Also, a very significant step taken towards amending the Principal Act is
not only expanding the categories of persons required to maintain records but also the kind of
records that have to be maintained i.e. the maintenance of records of beneficial owner. The
FATF had released a Mutual Evaluation Report (“MER”) in June 2010, on the basis of findings
of which, India was admitted as a member of FATF. One of the deficiencies highlighted by MER
during evaluation of India was the lack of identification and verification of beneficial ownership
of legal persons. Since the original Act did not have any provision, the Government of India had
to prepare and submit an action plan to FATF stating that it would take appropriate measures to
bring the same within the ambit of law. After this, the 2012 amendment Act proposed that a
reporting entity should identify and maintain records of the “beneficial owner” of their clients. It
can therefore be clearly noticed that if beneficial owners are identified and their records are
maintained, the chances of money laundering would be strictly reduced.
On an analysis of the aforementioned sections, it can be noted that the amendment Act in its
present form does not impose any obligation on clients, and it casts responsibility only on the
reporting entities to ascertain “beneficial ownership. The Standing Committee, however, was of
the opinion that clients as well should be required to declare beneficial ownership while
undertaking transaction with the bank as considering the large volume of transactions, which
banks are required to deal with, it may not be practically possible for them to ascertain “the
beneficial owners”.
Also, the Standing Committee had recommended in their report that if the reporting entities are
not able to find the beneficial owner then there should be an obligation upon the reporting entity

34
to not to open the relevant client‟s account. It is worth noting that in spite of the standing
committee suggesting that, in those cases where beneficial owner cannot be identified, an
account should not be opened, the bill does not have any provision with regard to the same.
Therefore, currently no action will be taken even if beneficial owner is not identified in any case.
This renders the new provision otiose.
Further, the amendment Act provides that reporting entity has to report even an attempted
transaction. These are done in order to cut down suspicious transactions from the very beginning.
[Section 12]
5. Director’s power to call for records and conduct inquiries
In order to make sure that reporting entities comply with Section 12 requirements, the
amendment Act provides that the director will have the power to call for any records from
reporting entities and will also have the power to make inquiries for non-compliance of reporting
entities to the obligations cast upon them. [Section 12A]

6. Penalty for non-compliance by reporting entity, its designated director or any of its
employees
If a reporting entity or its designated director on the Board or any of its employees does not
comply with the obligations under the amendment Act, a monetary penalty extending upto one
lakh rupees for each failure can be imposed upon them. (Section 13)

7. Freezing of property
The Act provided for attachment of property after the charge sheet u/s 173 CrPC has been filed
in scheduled offence case and seizure of property after FIR u/s 157 CrPC has been filed in
scheduled offence case. However, in a number of situations it may not be practicable to file
charge sheet or FIR to attach or seize property as this may happen after a prolonged gap and
chances of disappearance of proceeds of crime cannot be ruled out. To obviate this problem, the
amendment Act provides for freezing such property, so that it can be seized or attached and
confiscated later. [Section 8 and Section 17A]
8. Burden of Proof on accused

35
The amendment Act states that in the proceedings relating to money laundering, the funds shall
be presumed to be involved in the offence, unless proven otherwise by the person charged with
the offence. [Section 24]
9. Release of the property by special court in case of decision by foreign court
The Act did not have any provision regarding release of property by a special court. Thus, the
amendment Act expands the powers of special courts by suggesting that where on conclusion of
trial in a criminal court outside India under the corresponding law of any other country, such
court finds that the offence of money-laundering has not taken place or the property in India is
not involved in money-laundering, the designated Special Court may on an application moved by
a concerned person order release of such property. This power is purely discretionary due to the
presence of the word “may” suggesting that the local court in India will still have power to
decide matters on its merits, even when the person is acquitted by an overseas court. The 2012
amendment Act introduces the concept of “corresponding law‟ to link the provisions of Indian
law with the laws of foreign countries [Clause (ia) of Section 2]. [Section 58A]

10. Clarification that prosecution extends to Companies as well

The Act did not clearly provide for the prosecution of companies and thus to remove doubts, the
amendment Act adds an explanation to Section 70 to state that a company can be prosecuted
irrespective of whether an individual has been prosecuted or not. Hence, prosecution or
conviction of legal person is not contingent on prosecution of any individual [Section 70]

11. No Monetary threshold applies to the offence of money-laundering - Schedule I

Part B of the Schedule in the Principal Act included only those crimes that are above Rs. 30 lakh
or more whereas Part A did not specify any monetary limit of the offence. The amendment
brings all the offences under Part A of the Schedule to ensure that the monetary thresholds do not
apply to the offence of money

36
 7. RULES UNDER THE PREVENTION OF MONEY LAUNDERING ACT, 2002

The following rules have been notified under the Prevention of Money Laundering Act, 2002 –

1) The Prevention of Money-laundering (the Manner of forwarding a copy of the Order

of Provisional Attachment of Property along with the Material, and copy of the
Reasons along with the Material in respect of Survey, to the Adjudicating Authority
and its period of Retention) Rules, 2005 - Notification No. GSR 442(E), dated 01-07-
2005

2) The Prevention of Money-Laundering (Receipt and Management of Confiscated

Properties) Rules, 2005 - Notification No.GSR 443(E), dated 01-07-2005

3) The Prevention of Money-laundering (Maintenance of Records of the Nature and

Value of Transactions, the Procedure and Manner of Maintaining and Time for
Furnishing Information and Verification and Maintenance of Records of the Identity
of the Clients of the Banking Companies, Financial Institutions and Intermediaries)
Rules, 2005 Prevention of Money-Laundering Rules, 2005 - Notification No. GSR
444 (E), dated 01-07-2005.

4) The Prevention of Money-laundering (Forms, Search and Seizure and the Manner of
Forwarding the Reasons and Material to the Adjudicating Authority, Impounding and
Custody of Records and the Period of Retention) Rules, 2005 - Notification No. GSR
445 (E), dated 01-07-2005.

5) The Prevention of Money-laundering (the Forms and the Manner of Forwarding a

Copy of Order of Arrest of a Person along with the Material to the Adjudicating
Authority and its period of Retention) Rules, 2005 - Notification No. GSR 446(E),
dated 01-07-2005.

37
 6) The Prevention of Money-laundering (the Manner of Forwarding a Copy of the Order
of Retention of Seized Property along with the Material to the Adjudicating Authority
and the period of its Retention) Rules, 2005 - Notification No. GSR 447(E), dated 01-
07-2005.

7) The Prevention of Money-laundering (Manner of Receiving the Records

authenticated Outside India) Rules, 2005 - Notification No. GSR 448(E), dated 1-7-
2005.

8) The Prevention of Money-laundering (Appeal) Rules, 2005 - Notification No. GSR

449(E), dated 1-7-2005.

9) The Prevention of Money-laundering (appointment and conditions of service of

chairperson and members of adjudicating authorities) Rules, 2007 - Notification
number GSR 520(E), dated 1-8-2007.

10) The Prevention of Money-laundering (appointment and conditions of service of

chairperson and members of Appellate Tribunal) Rules, 2007 - Notification number
GSR 519(E), dated 1-8-2007.

11) The Prevention of Money-laundering (Salaries, Allowances and other Conditions of

The employees of Appellate Tribunal) Rules,2008 - Notification number GSR
430(E), dated 5-6-2008

Notification of PMLA Rules

27.08.2013 - Notification No. 12/2013 - Amendment to Rules
12.11.2009 - Notification No. 13/2009 - Amendment to Rules
01.06.2009 - Notification for bringing the Prevention of Money Laundering (Amendment) Act,
2009 into force
24.05.2007 - Notification No. 4/2007 - Amendment to Rules

38
27.06.2006 - Notification No. 6/2006 - Dissemination of Information
13.12.2005 - Notification No. 15/2005 - Amendment to Rules
01.07.2005 - Notification No. 9/2005 - Rules for Record Keeping and Reporting
01.07.2005 - Notification No. 5/2005 - Powers of Director, FIU-IND

39
 8. OBLIGATIONS OF BANKING COMPANIES, FINANCIAL INSTITUTIONS
AND INTERMEDIARIES

Section 12 of the Prevention of Money Laundering Act, 2002 lays down the following
obligations on banking companies, financial institutions and intermediaries.

Every banking company, financial institution and intermediary should –

 maintain a record of all transactions, the nature and value of which may be prescribed,
whether such transactions comprise of a single transaction or a series of transactions
integrally connected to each other, and where such series of transactions take place within
a month;
 furnish information of such transactions to the Director;
 verify and maintain the records of the identity of all its clients.

Where the principal officer of a banking company or financial institution or intermediary, as the
case may be, has reason to believe that a single transaction or series of transactions integrally
connected to each other have been valued below the prescribed value so as to defeat the
provisions of this section, such officer should furnish information in respect of such transactions
to the Director within the prescribed time.

The records referred above should be maintained for a period of ten years from the date of
transactions between the clients and the banking company or financial institution or
intermediary, as the case may be.

(b) The records of all clients should be maintained for a period of ten years from the date of
cessation of transactions between the clients and the banking company or financial institution or
intermediary, as the case may be.

If the Director, in the course of any inquiry, finds that a banking company, financial institution or
an intermediary or any of its officers has failed to comply with the provisions contained in
section 12, then, without prejudice to any other action that may be taken under any other

40
provisions of this Act, he may, by an order, levy a fine on such banking company or financial
institution or intermediary which shall not be less than ten thousand rupees but may extend to
one lakh rupees for each failure. The Director shall forward a copy of the order passed above to
every banking company, financial institution or intermediary or person who is a party to the
proceedings.

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 9. MAINTENANCE OF RECORDS

"Records" include the records maintained in the form of books or stored in a computer or such
other form as may be prescribed. (Sec 2(1)(w) of PMLA, 2002)

Section 12 (1) (a) of the Act makes it mandatory for every banking company, financial institution
and intermediary to maintain a record of all transactions, the nature and value of which may be
prescribed, whether such transactions comprise of a single transaction or a series of transactions
integrally connected to each other, and where such series of transactions take place within a
month.

In exercise of the powers conferred under sub section (1) and (2) of Section 73 of the Act the
Central Government in consultation with the RBI notified vide Notification number 9/2005 dated
1st July, 2005, “The Prevention of Money-Laundering (Maintenance of Records of the nature
and value of transactions, the procedure and manner of maintaining and time of furnishing
information and verification and maintenance of records of the identity of clients of the banking
companies, financial institutions and intermediaries) Rules 2005”. Maintenance and retention of
records are covered under Rules, 3, 4, 5 and 6.

Records of transactions to be maintained

Rule 3 deals with the nature and value of transactions and its records to be maintained by every
banking company, financial institution or intermediary.

The following records should be maintained –

1) all cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign
currency;
2) all series of cash transactions integrally connected to each other which have been valued
below rupees ten lakhs or its equivalent in foreign currency where such series of
transactions have taken place within a month;

42
3) all transactions involving receipts by non-profit organisations of value more than
rupees ten lakh, or its equivalent in foreign currency;
4) 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;
5) all suspicious transactions whether or not made in cash and by way of –
a. deposits and credits, withdrawals into or from any accounts in whatsoever name
they are referred to in any currency maintained by way of:
i. 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
ii. travellers cheques, or
iii. 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
iv. any other mode in whatsoever name it is referred to
b. credits or debits into or from any non-monetary accounts such as d-mat account,
security account in any currency maintained by the banking company, financial
institution and intermediary, as the case may be;
c. 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 –
i. payment orders, or
ii. cashiers cheques, or
iii. demand drafts, or
iv. telegraphic or wire transfers or electronic remittances or transfers, or
v. internet transfers, or
vi. Automated Clearing House remittances, or
vii. lock box driven transfers or remittances, or
viii. remittances for credit or loading to electronic cards, or
ix. any other mode of money transfer by whatsoever name it is called;

43
 d. loans and advances including credit or loan substitutes, investments and
contingent liability by way of –
i. subscription to debt instruments such as commercial paper, certificate of
deposits, preferential shares, debentures, securitized participation, inter
bank participation or any other investments in securities or the like in
whatever form and name it is referred to, or
ii. purchase and negotiation of bills, cheques and other instruments, or
iii. foreign exchange contracts, currency, interest rate and commodity and any
other derivative instrument in whatsoever name it is called, or
iv. letters of credit, standby letters of credit, guarantees, comfort letters,
solvency certificates and any other instrument for settlement and/or credit
support.
e. 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.

Information in the records

Apart from the records of transactions to be maintained, the records should also contain the
following information (Rule 4) –

1) The nature of the transaction(s);

2) the amount of the transaction and the currency in which it was denominated;
3) the date on which the transaction was conducted; and
4) the parties to the transaction.

Procedure and manner of maintaining information

Rule 5 lays down the procedure for maintaining information. Every banking company, financial
institution and intermediary should maintain information in respect of transactions with its
clients in accordance with the procedure and manner as may be specified by its Regulator, from
time to time.

44
Every banking company, financial institution and intermediary should evolve an internal
mechanism for maintaining such information in such form and at such intervals as may be
specified by its Regulator from time to time.

It is the duty of every banking company, financial institution and intermediary to observe the
procedure and manner of maintaining information as specified by its Regulators.

Preservation of records
According to Rule 6, all the records should be preserved for a period of 10 years from the date of
transactions between the client and the banking company, financial institution or intermediary as
the case may be.

Obligations of Reporting Entity

(i) Every reporting entity have to maintain a record of all transactions covered as per the nature
and value of which may be prescribed, in such manner as to enable it to reconstruct individual
transactions;
(ii) They shall furnish to the Director (FIU) 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;
(iii) They shall verify the identity of its clients in such manner and subject to such conditions as
may be prescribed;
(iv)They shall identify the beneficial owner, if any, of such of its clients, as may be prescribed;
(v) They shall maintain record of documents evidencing identity of its clients and beneficial
owners as well as account files and business correspondence relating to its clients for a period of
five years in case of record and information relating to transactions; and
(vi)They shall maintain the same 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, whichever is
later [Section 12].

Monetary Penalties for Non Maintenance of Records

45
Monetary penalties can be imposed on defaulting 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 one lakh rupees for each failure [Section 13(2)(d)].

46
 10. FURNISHING OF INFORMATION

Section 12 (1) (b) of the Prevention of Money Laundering Act, 2002, makes it mandatory for
every banking company, financial institution and intermediary to furnish information of
transactions to the Director within such time as may be prescribed. However, if the principal
officer of a banking company or financial institution or intermediary, as the case may be, has
reason to believe that a single transaction or series of transactions integrally connected to each
other have been valued below the prescribed value; such officer shall furnish information in
respect of such transactions to the Director within the prescribed time.

Procedure and manner of furnishing information

Rule 7 lays down the procedure and manner of furnishing information.

1) Every banking company, financial institution and intermediary, as the case may be,
should communicate the name, designation and address of the Principal Officer to the
Director. (Principal Officer is an officer designated by a banking company, financial
institution and intermediary for the purpose of Section 12 of PMLA, 2002.)
2) The Principal Officer should furnish the information referred to in rule 3 to the Director
on the basis of information available with the banking company, financial institution and
intermediary, as the case may be. A copy of such information should be retained by the
Principal Officer for the purposes of official record.
3) Every banking company, financial institution and intermediary may evolve an internal
mechanism for furnishing information referred to in Rule 3 in such form and at such
intervals as may be directed by its Regulators.
4) It is the duty of every banking company, financial institution and intermediary to observe
the procedure and the manner of furnishing information as specified by its Regulator.

Reports prescribed under PMLA, 2002

The Prevention of Money laundering Act, 2002 and the Rules there under requires every
reporting entity (banking company, financial institution and intermediaries) to furnish the
following reports:

47
  Cash Transaction reports (CTRs)

 Suspicious Transaction Reports (STRs)

 Counterfeit Currency Reports (CCRs)

 Non Profit Organisation reports (NPRs)

Due dates for furnishing information to the Director

Description Due Date

All cash transactions of the value of more than rupees ten lakhs or its 15th day of the
equivalent in foreign currency. succeeding month

All series of cash transactions integrally connected to each other which

have been valued below rupees ten lakhs or its equivalent in foreign
currency where such series of transactions have taken place within a
month

All transactions involving receipts by non-profit organisations of value

more than rupees ten lakh, or its equivalent in foreign currency

All cash transactions where forged or counterfeit currency notes or bank Not later than seven
notes have been used as genuine or where any forgery of a valuable working days from
security or a document has taken place for facilitating the transactions the date of occurrence
of such transaction

All suspicious transactions whether or not made in cash Not later than seven
working days on
being satisfied that
the transaction is
suspicious

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The fact of submitting information on all suspicious transactions to the Director should be kept
strictly confidential.

Cash transaction reports

Cash transaction reports refer to:

 All cash transactions of the value of more than rupees ten lakhs or its equivalent in
foreign currency.
 All series of cash transactions integrally connected to each other which have been valued
below rupees ten lakhs or its equivalent in foreign currency where such series of
transactions have taken place within a month.

Cash transaction reports received by FIU-IND over the years

Suspicious transaction reports

Suspicious transaction means a transaction whether or not made in cash which, to a person acting
in good faith:

49
 a. gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime;
or
b. appears to be made in circumstances of unusual or unjustified complexity; or
c. appears to have no economic rationale or bona fide purpose; or
d. Gives rise to a reasonable ground of suspicion that it may involve financing of the
activities relating to terrorism.

Transaction involving financing of the activities relating to terrorism includes transaction

involving funds suspected to be linked or related to, or to be used for terrorism, terrorist acts or
by a terrorist, terrorist organization or those who finance or are attempting to finance terrorism.

Examples of suspicious transactions for a banking company -

Identity of client
- False identification documents
- Identification documents which could not be verified within reasonable time
- Accounts opened with names very close to other established business entities
Background of client
- Suspicious background or links with known criminals
Multiple accounts
- Large number of accounts having a common account holder, introducer or
authorized signatory with no rationale
- Unexplained transfers between multiple accounts with no rationale
Activity in accounts
- Unusual activity compared with past transactions
- Sudden activity in dormant accounts
- Activity inconsistent with what would be expected from declared business
Nature of transactions
- Unusual or unjustified complexity
- No economic rationale or bonafide purpose
- Frequent purchases of drafts or other negotiable instruments with cash

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 - Nature of transactions inconsistent with what would be expected from declared
business
Value of transactions
- Value just under the reporting threshold amount in an apparent attempt to avoid
reporting
- Value inconsistent with the client’s apparent financial standing

Examples of suspicious transactions for an intermediary -

Identity of Client
- False identification documents
- Identification documents which could not be verified within reasonable time
- Non-face to face client
- Doubt over the real beneficiary of the account
- Accounts opened with names very close to other established business entities
Suspicious Background
- Suspicious background or links with known criminals
Multiple Accounts
- Large number of accounts having a common account holder, introducer or
authorized signatory with no rationale
- Unexplained transfers between multiple accounts with no rationale
Activity in Accounts
- Unusual activity compared to past transactions
- Use of different accounts by client alternatively
- Sudden activity in dormant accounts
- Activity inconsistent with what would be expected from declared business
- Account used for circular trading
Nature of Transactions
- Unusual or unjustified complexity
- No economic rationale or bonafide purpose
- Source of funds are doubtful

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 - Appears to be case of insider trading
- Investment proceeds transferred to a third party
- Transactions reflect likely market manipulations
- Suspicious off market transactions
Value of Transactions
- Value just under the reporting threshold amount in an apparent attempt to avoid
reporting
- Large sums being transferred from overseas for making payments
- Inconsistent with the clients apparent financial standing
- Inconsistency in the payment pattern by client
- Block deal which is not at market price or prices appear to be artificially
inflated/deflated

Suspicious transaction reports received by FIU-IND over the years

Counterfeit Currency reports

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The Prevention of Money-laundering Act, 2002, and rule thereunder require banking companies
to report 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.

Counterfeit Currency reports received by FIU-IND over the years

Preparation of reports

The reporting entities are required to submit reports to FIU-IND which is compliant with the
XML format specifications. Reporting entities which have necessary technical capabilities may
generate XML reports directly from their systems. The reporting format guide, 2011 also
specifies text file format specifications to assist in the extraction of data from the information
system of reporting entities before preparation of XML reports. Reporting entities are
encouraged to shift to the fixed width data structure version 2.0 before generating XML reports
at their end. FIU-IND has developed a Report Generation Utility to assist the reporting entities in
generation of XML reports.

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Submission of reports
With the implementation of Project FINnet (Financial Intelligence Network) by FIU-IND in
2010, the primary mode of submission of reports to FIU-IND will be through the FINnet
Gateway Portal. The FINnet Gateway Portal is designed as a comprehensive interface between
the reporting entities and FIU-IND. The user guide for the FINnet Gateway Portal provides
detailed documentation on using the portal. The broad features are:

 ‘Login’ Page to allow access to registered users using credentials provided by the user.
This page also has links to register a new user.

 ‘Home’ page to display summary of actionable items (unread messages, pending reports,
overdue reports etc.) and new content (Downloads, Discussions, FAQs, Events, Tips,
Alerts and Surveys).

 ‘Users’ module to view and manage the users of the reporting entity, FIU users and user
groups.

 ‘Profiles’ module to manage the profile information of the reporting entity, principal
officer and other users.

 ‘Reports’ module with facility to uploads report and view the upload history, rejected
reports, reports where additional information is required and overdue reports. A report
summary of reports submitted by the reporting entity is also provided.

 ‘Messages’ module which is a messaging system between authorised users and FIU users.

 ‘Resources’ module which is a comprehensive knowledge repository consisting of

Downloads, FAQs, Problems and Solutions, Discussion Forums, Surveys, Events, Alerts
and Tips.

All users of the reporting entities have to register on the FINnet Gateway Portal. After
registration, the authorised users will be given credentials for login. The authorised users can
upload the reports in prescribed XML reports using the reports module of the FINnet Gateway
Portal. Before uploading the hashed XML report file, Reporting Entities should ensure that all

54
errors detected by the utilities are rectified. On successful upload, the portal shall generate and
display a unique Batch ID.

The principal officer can attach the digital signature while uploading the file. If the submitted
batch is as per prescribed schema and if the file is uploaded with digital signature, the
submission of the report will be treated as complete and the status of the batch will be
‘Submitted’. The date of submission of the batch will be the date of upload.

If the file is uploaded without digital signature, the portal would generate a single page report
upload confirmation (RUC) form. The principal officer would be required to print the RUC form
and post it to FIU-IND after signing. The signed copy of the RUC form should be received by
FIU-IND within 10 days of upload. After confirmation, the date of upload would be taken as date
up submission. If the RUC form is not received at FIU-IND within 10 days, it will be treated as
non compliance with the reporting obligation. All reporting entities are encouraged to upload
reports with digital signature.

Reporting Entities are expected to submit reports in electronic form. However if the reporting
entity does not have the capability to generate report in electronic form, reports may be
submitted in manual paper-based forms. Reporting Entities should use the FIU-IND provided
PDF Form based utilities to capture data and print the report as per the specified format. The
paper based report should be duly signed by the Principal Officer and posted to FIU-IND.
However, Reporting Entities should make all reasonable efforts to send reports in electronic
rather than the paper based format.

Rule 8 of the Prevention of Money Laundering (Maintenance of records) Rules, 2005 (as
amended) specifies the time limits of various kinds of reports to be submitted to Director, FIU-
IND

8. Furnishing of information to the Director.—(1) 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.

55
(2) 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.

(3) 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.

(4) 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.

Description Due date

Cash Transaction reports (CTRs) Every month by the 15th day of the
succeeding month

Suspicious Transaction Reports (STRs) Not later than seven working days on
being satisfied that the transaction is
suspicious

Counterfeit Currency Reports (CCRs) Every month by the 15th day of the
succeeding month

Non-Profit Organisation Transaction Every month by the 15th day of the

reports (NTRs) succeeding month

56
Purchase and sale by any person of Every quarter by the 15th day of the
immovable property valued at fifty lakh month succeeding the quarter
rupees or more

Cross Border Wire Transfer Reports

All Reporting Entities are required to furnish to Director, FIU-IND the report of 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.

Report on sale/purchase of immovable property

All Reporting Entities are required to furnish to Director, FIU-IND the report on 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

Reporting Formats

Whether reporting entity has to file report in manual or electronic format?

Reports can be filed either in manual or electronic format. However, a reporting entity must
submit all reports to FIU-IND in electronic format if it has the technical capability to do so. The
required technical capability is defined as follows:

i) A personal computer with 32 MB memory RAM, 800 x 600 VGA video display,
Windows® 98/Me/NT/2000/XP; and

ii) An Internet connection.

It must be noted that every reporting entity has to ensure reporting by all its branches either in

57
manual or electronic format. Thus, a reporting entity has to adopt only one format for all its
branches

What are the forms in the manual format of Cash Transaction Report?
Cash Transaction Reports in manual format consists of following forms:
(i) Summary of Cash Transaction Reports
(ii) Cash Transaction Report
(iii) Annexure A- Individual Detail Sheet
(iv) Annexure B- Legal Person/ Entity Detail Sheet

What are the forms in the manual format of Suspicious Transaction Report?
Suspicious Transaction Reports in manual format consists of following forms:
(i) Suspicious Transaction Report
(ii) Annexure A- Individual Detail Sheet
(iii) Annexure B- Legal Person/ Entity Detail Sheet
(iv) Annexure C- Account Detail Sheet

What data files are required to be submitted in electronic reporting?

In case of electronic filing, the reporting formats consist of following six data files:
(i) ***CTL.txt Control File
(ii) ***BRC.txt Branch Data File
(iii) ***ACC.txt Account Data File
(iv) ***TRN.txt Transaction Data File
(v) ***INP.txt Individual Data File
(vi) ***LPE.txt Legal Person/Entity Data File

Note: The naming convention of the data files is as under

58
 *** Type of Report
(i) CBA CTR for a banking company
(ii) SBA STR for a banking company
(iii) CIN CTR for an intermediary
(iv) SIN STR for an intermediary

How to submit electronic reports?

FIU-IND is in the process of developing technological infrastructure to enable submission of
electronic return over a secure gateway. In the interim, the reporting entities exercising the
electronic option should submit the following to Director, FIU-IND:
One CD containing six data files in prescribed data structure with a prescribed
(i)
label.
(ii) Each CD should be accompanied by prescribed manual form in physical form duly
signed by the principal officer.

How to submit data files if the size of data files exceeds the capacity of one CD?
In case the size of data files exceeds the capacity of one CD, the data files should be compressed
by using Winzip 8.1 or ZipItFast 3.0 (or higher version) compression utility only to ensure quick
and smooth acceptance of the file.

What are the steps in preparation of data files?

(i) The records containing details of cash/suspicious transactions to be reported are
extracted in Transaction Data File (***TRN.txt).
(ii) The records containing details of bank accounts containing the cash/suspicious
transactions are extracted in Accounts Data File (***ACC.txt).
(iii) If the account is for Individuals, the records containing details of Individuals who are
account holders are extracted in Individual Data File (***INP.txt). The Relation Flag
should be set to “A”.

59
 (iv) If the account is for a Legal Person /Entity, the records containing details of Legal
Persons /Entities who are account holders are extracted in Legal Persons /Entities
Data File (***LPE.txt). The Relation Flag should be set to “A”.
(v) If the account is for a Legal Person /Entity, the records containing details of Directors/
Partner/ Members etc. of Legal Persons /Entities are appended to Individual Data File
(***INP.txt). The Relation Flag should be set to “C”.
(vi) The records containing details of authorised signatories if not an account holder are
appended to Individual Data File (***INP.txt) or Legal Persons /Entities Data File
(***LPE.txt) as the case may be. The Relation Flag should be set to “B”.
(vii) The records containing details of account introducers are appended to Individual Data
File (***INP.txt) or Legal Persons /Entities Data File (***LPE.txt) as the case may
be. The Relation Flag should be set to “D”.
(viii) The records containing details of account guarantors are appended to Individual Data
File (***INP.txt) or Legal Persons /Entities Data File (C***LPE.txt) as the case may
be. The Relation Flag should be set to “E”.
(ix) The records containing details of bank branches which have reported cash transactions
are extracted in Branch Data File (***BRC.txt).
(x) The report level details and summary of other five tables is entered in Control file.
(***CTL.txt).

What are the steps in validation of data files?

(i) There should be six data files with appropriate naming convention.
(ii) The data files should be as per specified data structure and business rules.
(iii) None of the mandatory fields should be left blank.
(iv) In case of CTR, month and year of report should be same in all data files. In case of
STR, date of report should be same in all data files.
(v) The summary figures in control file should match with the totals in other data files.

60
(vi) The primary key integrity should be validated as under:
a. [Branch Reference Number/Code] should be unique in Branch Data File
(***BRC.txt)
b. [Branch Reference Number/Code + Account Number] should be unique in
Account Data File (***ACC.txt).
(vii) The foreign key integrity should be validated as under:
a. All values of [Branch Reference Number/Code] in Account Data File
(***ACC.txt) should have a matching [Branch Reference Number/Code] value in
Branch Data File (***BRC.txt).
b. All values of [Branch Reference Number/Code + Account Number] in
Transaction Data File (***TRN.txt) should have matching [Branch Reference
Number/Code + Account Number] value in Account Data File (***ACC.txt).
c. All values of [Branch Reference Number/Code + Account Number] in
Individual Data File (C***INP.txt) should have matching [Branch Reference
Number/Code + Account Number] value in Account Data File (***ACC.txt).
d. All values of [Branch Reference Number/Code+ Account Number] in Legal
Person / Entity Data File (***LPE.txt) should have matching [Branch Reference
Number/Code + Account Number] value in Account Data File (***ACC.txt).
(viii) The data sufficiency should be validated as under:
a. All values of [Branch Reference Number/Code + Account Number] in
Account Data File (***ACC.txt) should have at least one matching [Branch
Reference Number/Code + Account Number] value in Transaction Data File
(***TRN.txt).
b. All values of [Branch Reference Number/Code+ Account Number] in
Account Data File (***ACC.txt) should have at least one matching [Branch
Reference Number/Code + Account Number] value in Individual Data File
(***INP.txt). (As account for legal person/entity would have individuals as
authorised signatories).
c. All values of [Branch Reference Number/Code + Account Number] in

61
 Account Data File (***ACC.txt) with Type of Account Holder = “B” (Legal
Person/Entity) should have at least one matching [Branch Reference Number/Code+
Account Number] value in Legal Person / Entity Data File (***LPE.txt).

What are the general guidelines for all data files?

(i) All Data Files should be generated in ASCII Format with ".txt" as filename extension.
(ii) Each Record (including last record) must start on new line and must end with a
newline character. Hex Values: "0D" & "0A".
(iii) All CHAR fields must be left justified.
(iv) If CHAR field has no data or less data with respect to defined length, then the entire
field (in case of no data) or the remaining field (in case of less data) has to be filled
with right justified blank characters (Spaces).
(v) All NUM fields must be right justified.
(vi) If NUM field has no data or less data with respect to defined length, then the entire
field (in case of no data) or the remaining field (in case of less data) has to be filled
with left justified zeroes.
(vii) If DATE field has no data then the entire field has to be filled with blank characters
(Spaces).
(viii) Fields with an asterisk (*) have to be compulsorily filled up.

What is a Data Quality Report?

Data Quality Report summarizes the errors in an electronic report such as data structure errors,
mandatory field validation errors, data integrity errors and data sufficiency errors.

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 11. IDENTITY OF CLIENTS

Section 12 of the Prevention of Money Laundering Act, 2002 and rules thereunder require every
reporting entity to verify and maintain the records of the identity of all its clients including
beneficial owners, in such manner as may be prescribed. Rules 9 and 10 of the Rules provide for
verification and maintenance of the records of the identity of clients.

It is mandatory for every banking company, financial institution and intermediary, at the time of
opening an account or executing any transaction with it, to verify the record of identity and
current address or addresses including permanent address or addresses of the client, the nature of
business of the client and his financial status. If it is not possible to verify the identity of the
client at the time of opening an account or executing any transaction, the banking company,
financial institution and intermediary are required to verify the identity of the client within a
reasonable time after the account has been opened or the transaction has been executed.
Every banking company, financial institution and intermediary, as the case may be, should
exercise ongoing due diligence with respect to the business relationship with every client and
closely examine the transactions in order to ensure that they are consistent with their knowledge
of the customer, his business and risk profile.

No banking company, financial institution or intermediary, as the case may be, should keep any
anonymous account or account in fictitious names.

Rule 9 of the Prevention of Money-laundering (Maintenance of Records of the Nature and Value
of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information
and Verification and Maintenance of Records of the Identity of the Clients of the Banking
Companies, Financial Institutions and Intermediaries) Rules, 2005 deals with the verification of
the identity of clients.

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“Client” means a person who engages in a financial transaction or activity with a banking
company, or financial institution or intermediary. The term also includes a person on whose
behalf the person that engages in the transaction or activity is acting.

“Transaction” includes deposit, withdrawal, exchange or transfer of funds in whatever currency,

whether in cash or by cheque, payment order or other instruments or by electronic or other non-
physical means.

Documents required for verification of an individual

1. One certified copy of an officially valid document containing details of his/her identity
and address;
2. One recent photograph; and
3. Such other documents including the ones related to the nature of business and financial
status of the client, as may be required by the banking company or the financial
institution or the intermediary.

Officially valid document includes the passport, the driving license, the Permanent Account
Number (PAN) Card, the Voter's Identity Card issued by the Election Commission of India or
any other document as may be required by the banking company, or financial institution or an
intermediary.

Documents needed for the verification of a Company:

1. Certificate of incorporation;
2. Memorandum and Articles of Association;
3. A resolution from the Board of Directors and power of attorney granted to its managers,
officers or employees to transact on its behalf; and
4. An officially valid document in respect of managers, officers or employees holding an
attorney to transact on its behalf.

Documents needed for the verification of a Partnership Firm:

1. Registration certificate;

64
 2. Partnership deed; and
3. An officially valid document in respect of the person holding an attorney to transact on
its behalf.

Documents needed for the verification of a Trust:

1. Registration certificate;
2. Trust deed; and
3. An officially valid document in respect of the person holding an attorney to transact on
its behalf.

Documents needed for the verification of an Association of Persons (AOP) or a Body of

Individuals (BOI):
1. Resolution of the managing body of such an association or a body of individuals;
2. Power of attorney granted to (the authorized person) to transact on its behalf;
3. An officially valid document in respect of the person holding an attorney to transact on
its behalf; and
4. Such information as may be required by the banking company or the financial institution
or the intermediary to collectively establish the legal existence of such an association or a
body of individuals.

Where the client is a juridical person, the banking company, financial institution and
intermediary, as the case may be, should verify that any person purporting to act on behalf of
such client is so authorised and verify the identity of that person.

The regulator should issue guidelines incorporating the requirements of Rule 9 and prescribe
enhanced measures to verify the client’s identity taking into consideration type of client, business
relationship or nature and value of transactions.
Every banking company, financial institution and intermediary as the case may be, should
formulate and implement a Client Identification Programme to determine the true identity of its
clients.

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Maintenance of records of identity of clients
Rule 10 require records of identity of the clients to be maintained.

 Every banking company or financial institution or intermediary, as the case may be,
should maintain records of the identity of its clients.
 The records of the identity of clients should be maintained in hard and soft copies in a
manner as may be specified by its regulator from time to time.
 The records of the identity of clients should be maintained for a period of ten years from
the date of cessation of the transactions between the client and the banking company or
financial institution or intermediary, as the case may be.

Know Your Customer Guidelines

The objective of KYC guidelines is to prevent banks from being used, intentionally or
unintentionally, by criminal elements for money laundering or terrorist financing activities. It
was introduced in the late 1990s in the United States. The US government became very strict
after 9/11 and all regulations for KYC were finalised before 2002. The US has made changes in
its major legislations -- Bank Secrecy Act, USA Patriot Act, et cetera - to make KYC norms
really effective for the banking sector.
Taking a leaf out of the US book, the Reserve Bank of India too directed all banks to implement
KYC guidelines for all new accounts in the second half of 2002. For existing accounts, imposing
KYC norms was a little difficult, so the RBI issued guidelines for it at the end of 2004.

For the purpose of KYC policy, a ‘Customer’ is defined as:

a. a person or entity that maintains an account and/or has a business relationship with the
bank;
b. one on whose behalf the account is maintained (i.e. the beneficial owner);
c. beneficiaries of transactions conducted by professional intermediaries such as Stock
Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and
d. Any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, say, a wire transfer or issue of a high value
demand draft as a single transaction.

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In order to prevent identity theft, identity fraud, money laundering, terrorist financing, etc., the
RBI had directed all banks and financial institutions to put in place a policy framework to know
their customers before opening any account. This involves verifying customers' identity and
address by asking them to submit documents that are accepted as relevant proof. Mandatory
details required under KYC norms are proof of identity and proof of address. Passport, voter's ID
card, PAN card or driving license are accepted as proof of identity, and proof of residence can be
a ration card, an electricity or telephone bill or a letter from the employer or any recognised
public authority certifying the address. Some banks may even ask for verification by an existing
account holder. Though the standard documents which are accepted as proof of identity and
residence remain the same across various banks, some variations are permitted, which differ
from bank to bank. So, all documents shall be checked against banks requirements to ascertain if
those match or not before initiating an account opening process with any bank. Thus opening a
new bank account is no longer an easy task.

To prevent the possible misuse of banking activities for anti-national or illegal activities, the RBI
has given various directives to banks:
1. Strengthening the banks' 'Internal Control System' by allocating duties and
responsibilities to their staff and periodically monitoring them.
2. Before giving any finance at branch level, making sure that the person has no links with
notified terrorist entities and reporting any such 'suspect' accounts to the government.
3. Regular 'Internal Audit' by internal and concurrent auditors to check if the KYC
guidelines are being properly adhered to by the banks.
Most important, banks must keep a keen watch on all banking transactions and identify
suspicious ones. Such transactions will be immediately reported to the bank's head office and
authorities and norms shall also be laid down for freezing such accounts. In 2004, the RBI had
come up with more specific guidelines regarding KYC. These were divided into four parts:

Customer Acceptance Policy:

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Every bank should develop a clear Customer Acceptance policy laying down explicit criteria for
Acceptance of customers. The Customer Acceptance policy must ensure that explicit guidelines
are in place on the following aspects of customer relationship in the bank:-
1. No account is opened in anonymous or fictitious benami name.
2. Not to open an account or close an existing account where the bank is unable to apply
appropriate customer due diligence measures.
3. Necessary checks before opening a new account so as to ensure that the identity of the
customer does not match with any person with known criminal background or with
banned entities such as individual terrorists or terrorist organisations etc.
4. Bank should prepare a profile for each new customer based on risk categorization.
It is important to bear in mind that the adoption of customer acceptance policy and its
implementation should not become too restrictive and must not result in denial of banking
services to general public especially to those who are financially or socially disadvantaged.

Customer Identification Procedure (CIP):

The policy approved by the Board of banks should clearly spell out the Customer Identification
Procedure to be carried out at different stages i.e. while establishing a banking relationship;
carrying out a financial transaction or when the bank has a doubt about the authenticity/veracity
or the adequacy of the previously obtained customer identification data. Customer Identification
means identifying the customer and verifying his/her identity by using reliable, independent
source documents, data or information.

Monitoring of Transactions:
Ongoing monitoring of transactions is an essential element of effective KYC procedures. Banks
should pay special attention to all complex, unusually large transactions and all unusual patterns
which have no apparent economic or visible lawful purpose. Very high account turnover
inconsistent with the size of the balance maintained may indicate that funds are being washed
through the account. High-risk accounts have to be subjected to intensified monitoring.

Risk management:

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The Board of directors of the bank should ensure that an effective KYC programme is put in
place by establishing appropriate procedures and ensuring their effective implementation. It
should cover proper management oversight, systems and controls, segregation of duties, training
and other related matters. Responsibility should be explicitly allocated within the bank for
ensuring that the bank’s policies and procedures are implemented effectively. Banks should, in
consultation with their boards, devise procedures for creating risk profiles of their existing and
new customers and apply various anti money laundering measures keeping in view the risks
involved in a transaction, account or banking/business relationship.
Banks internal audit and compliance function have an important role in evaluating and ensuring
adherence to the KYC policies and procedures. As a general rule, the compliance function should
provide an independent evaluation of the bank’s own policies and procedures, including legal
and regulatory requirements. Banks should ensure that their audit machinery is staffed
adequately with individuals who are well-versed in such policies and procedures.
Concurrent/Internal Auditors should specifically check and verify the application of KYC
procedures at the branches and comment on the lapses observed in this regard. The compliance
in this regard should be put up before the Audit Committee of the Board on quarterly intervals.

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 12. CLIENT DUE DILIGENCE

• “Client due diligence” means due diligence carried out on a client

• Mandatory for every reporting entity, at the time of opening an account or executing any
transaction with it –
– to verify the record of identity and current address or addresses including
permanent address or addresses of the client,
– the nature of business of the client and
– his financial status

Know Your Customer (KYC) Norms/Guidelines

KYC means “Know Your Customer”. It is a process by which banks obtain information about
the identity and address of the customers. This process helps to ensure that banks’ services are
not misused. The KYC procedure is to be completed by the banks while opening accounts and
also periodically update the same.

KYC requirements for opening a bank account

To open a bank account, one needs to submit a ‘proof of identity and proof of address’ together
with a recent photograph.

Banks are required to classify the customers into ‘low’, ‘medium’ and ‘high’ categories
depending on their AML risk assessment.

E-KYC refers to electronic KYC

E-KYC is possible only for those who have Aadhaar numbers. While using e-KYC service, you
have to authorise the Unique Identification Authority of India (UIDAI), by explicit consent, to
release your identity/address through biometric authentication to the bank branches/business
correspondent (BC). The UIDAI then transfers your data comprising name, age, gender, and
photograph of the individual, electronically to the bank/BC. Information thus provided through

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e-KYC process is permitted to be treated as an ‘Officially Valid Document’ under PML Rules
and is a valid process for KYC verification.

Documents to be given as ‘Proof of Identity’ and ‘Proof of Address’

The Government of India has notified six documents as ‘Officially Valid Documents (OVDs) for
the purpose of producing proof of identity. These six documents are Passport, Driving Licence,
Voters’ Identity Card, PAN Card, Aadhaar Card issued by UIDAI and NREGA Card. You need
to submit any one of these documents as proof of identity. If these documents also contain your
address details, then it would be accepted as as ‘proof of address’. If the document submitted by
you for proof of identity does not contain address details, then you will have to submit another
officially valid document which contains address details.

Highlights of KYC Norms/Guidelines prescribed by RBI

 Aadhaar card is now accepted as a proof of both, identity and address

 No introduction necessary while opening a bank account
 It is possible to transfer an account from one branch to another branch of the same bank.
There is no need for KYC exercise again to transfer a bank account from one branch to
another branch of the same bank. However, if there is a change of address, then one
would have to submit a declaration about the current address.
 If you have opened an account with a bank, which is KYC compliant, then for opening
another account with the same bank, furnishing of documents is not necessary.
 Full KYC exercise is necessary for Credit/Debit/Smart/for purchaser of Gift Cards and
also in respect of add-on/ supplementary cards.
 KYC exercise needs to be done for all those who want to make domestic remittances of
Rs. 50,000 and above and all foreign remittances.
 Demand Draft/Payment Order/Travellers Cheques for Rs.50,000/- and above can be
issued only by way of debiting the customer's account or against cheques

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 All customers who do not have accounts with the banks (known as walk-in customers)
have to produce proof of identity and address while purchasing third party products from
banks if the transaction is for Rs.50,000 and above
 Banks are required to periodically update KYC records. This is a part of their ongoing
due diligence on bank accounts. The periodicity of such updation would vary from
account to account or categories of accounts depending on the bank’s perception of risk.
Periodical updation of records also helps prevent frauds in customer accounts
 Different periodicities have been prescribed for updation of KYC records depending on
the risk perception of the bank. KYC is required to be done at least every two years for
high risk customers, at least every eight years for medium risk customers and ten years
for low risk customers. This exercise would involve all formalities normally taken at the
time of opening the account
 If one does not provide your KYC documents at the time of periodic updation bank has
the option to close your account.

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 13. ROLE OF FINANCIAL INTELLIGENCE UNIT- INDIA

Finance Intelligence Units (FIUs) are specialised 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.

The definition of an FIU has been formalized by the Egmont Group of FIUs as –
“A central, national agency responsible for receiving, (and as permitted, requesting), analysing
and disseminating to the competing authorities, disclosures of financial information:
i) Concerning suspected proceeds of crime and potential financing of terrorism, or
ii) Required by national legislation or regulation in order to combat money laundering and
terrorism financing.”

Financial Intelligence Unit – India (FIU-IND) was set by the Government of India vide O.M.
dated 18th November 2004 as the central national agency responsible for receiving, processing,
analyzing and disseminating information relating to suspect financial transactions. FIU-IND is
also responsible for coordinating and strengthening efforts of national and international
intelligence, investigation and enforcement agencies in pursuing the global efforts against money
laundering and related crimes. FIU-IND is an independent body reporting directly to the
Economic Intelligence Council (EIC) headed by the Finance Minister. For administrative
purposes, FIU-IND is under the control of the Department of Revenue, Ministry of Finance.

FIU-IND in order to achieve its mission of providing quality financial intelligence for
safeguarding the financial system from the abuse of money laundering, terrorist financing and
other economic offences, has set three strategic objectives as under:
 Combating money laundering, financing of terrorism and other economic offences;
 Deterring money laundering and financing of terrorism;
 Building and strengthening organisational capacity.

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The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them
and, as appropriate, disseminate valuable financial information to intelligence/enforcement
agencies and regulatory authorities.

The functions of FIU-IND are –

 Collection of Information: Act as the central reception point for receiving Cash
Transaction reports (CTRs) and Suspicious Transaction Reports (STRs) from various
reporting entities;
 Analysis of Information: Analyze received information in order to uncover patterns of
transactions suggesting suspicion of money laundering and related crimes.
 Sharing of Information: Share information with national intelligence/law enforcement
agencies, national regulatory authorities and foreign Financial Intelligence Units.

 Act as Central Repository: Establish and maintain national data base on cash
transactions and suspicious transactions on the basis of reports received from reporting
entities.

 Coordination: Coordinate and strengthen collection and sharing of financial intelligence

through an effective national, regional and global network to combat money laundering
and related crimes.

 Research and Analysis: Monitor and identify strategic key areas on money laundering
trends, typologies and developments.

FIU-IND is a multi disciplinary body headed by the Director with a sanctioned strength of 74
personnel. These are being inducted from different organizations namely Central Board of Direct
Taxes (CBDT), Central Board of Excise and Customs (CBEC), Reserve Bank of India (RBI),
Securities Exchange Board of India (SEBI), Department of Legal Affairs and Intelligence
agencies.

FIU-IND is not a regulatory authority. Its prime responsibility is to gather and share financial
intelligence in close cooperation with the regulatory authorities including RBI, SEBI and IRDA.

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FIU-IND will process and analyse received financial information disseminate actionable
intelligence in appropriate cases to relevant enforcement agencies.

FIUs exchange information with other FIUs on the basis of reciprocity or mutual agreement and
consistent with procedures understood by the requested and requesting party. An FIU requesting
information should disclose, to the FIU that will process the request, at a minimum the reason for
the request, the purpose for which the information will be used and enough information to enable
the receiving FIU to determine whether the request complies with its domestic law.

Organisation structure of FIU-IND

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 14. AUTHORITIES UNDER PMLA

The Director, Financial Intelligence Unit, India, under the Ministry of Finance, Department of
Revenue, will act as the Director to exercise the exclusive powers conferred under clause (b) of
sub-section (1) of section 12 and its proviso, section 13, sub-section (2) of section 26 and sub-
section (1) of section 50 of the Prevention of Money Laundering Act, 2002 and the said Director,
Financial Intelligence Unit, India, shall also concurrently exercise powers conferred by sub-
section (3) and sub-section (5) of section 26, section 39, section 40, section 41, section 42,
section 48, sub-section (2) of section 49, section 66 and section 69 of the aforesaid Act.

The Director, FIU-IND is the competent authority for the purpose of the provisions relating to
maintenance of records and filing of information. The Directorate of Enforcement is the

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competent authority for the provisions relating to search, seizure, confiscation of property,
prosecution, etc.

The Investigating Officers under the Act

The Investigating Officers have the powers:-

(a) to provisionally attach 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
[Section 5];
(b) to conduct survey of a place [Section 16];
(c) to conduct search of building, place, vessel, vehicle or aircraft & seize/freeze records &
property [Section 17];
(d) to conduct personal search [Section 18];
(e) to arrest persons accused of committing the offence of Money Laundering [Section 19];
(f) to summon and record the statements of persons concerned [Section 50].

Powers of Authority during Survey

An authority during the survey may—

(i) place marks of identification on the records inspected by him and make or cause to be made
extracts or copies therefrom;
(ii) make an inventory of any property checked or verified by him; and
(iii) record the statement of any person present in the place which may be useful for, or relevant
to, any proceeding under this Act [Section 16].

Powers of officers / authority during search and seizure

Authorised officer may —

(a) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect
that such records or proceeds of crime are kept;

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(b) break open the lock of any door, box, locker, safe, almirah or other receptacle where the keys
thereof are not available;
(c) seize any record or property found as a result of such search;
(d) place marks of identification on such record or properties if required or make or cause to be
made extracts or copies therefrom;
(e) make a note or an inventory of such record or property;
(f) examine on oath any person, who is found to be in possession or control of any record or
property, in respect of all matters relevant for the purposes of any investigation under this Act;
and
(g) where it is not practicable to seize such record or property, the officer authorized may make
an order to freeze such property, whereupon the property shall not be transferred or otherwise
dealt with, except with the prior permission of the officer making such order [Section 17].

Time limit for retention of records or property seized during search & seizure

The property / record may, if seized be retained or if frozen may continue to remain frozen for a
period not exceeding 180 days from the day on which such property or record were seized or
frozen, unless the Adjudicating Authority under PMLA permits retention of such record or
property beyond the period of 180 days [Sections 20 & 21].

Powers of Authorities regarding issuing summons, enforcing production of documents and

to give evidence etc.

(i) The Director, Additional Director, Joint Director, Deputy Director or Assistant Director of the
Directorate of Enforcement have the power to summon any person whose attendance he
considers necessary whether to give evidence or to produce any records during the course of any
investigation or proceeding under this Act.
(ii) All the persons so summoned are bound to attend in person or through authorised agents, as
such officer may direct, and are bound to state the truth upon any subject respecting which they
are examined or make statements, and produce such documents as may be required.

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(iii) Such proceedings are deemed to be judicial proceedings within the meaning of section 193
and section 228 of the Indian Penal Code (45 of 1860) [Section 50].

Retention of record impounded during the proceedings conducted under the PMLA, 2002

Authorities empowered to issue summons may impound and retain in his custody for such
period, as he thinks fit, any records produced before him in any proceedings under this Act :
Provided that an Assistant Director or a Deputy Director cannot—
(a) impound any records without recording his reasons for so doing; or
(b) retain in his custody any such records for a period exceeding three months, without obtaining
the previous approval of the Director [Section 50].

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 15. DIRECTORATE OF ENFORCEMENT

The Directorate of Enforcement in the Department of Revenue, Ministry of Finance is

responsible for investigating the cases of offence of money laundering under Prevention of
Money Laundering Act, 2002.

Financial Intelligence Unit - India (FIU-IND) under the Department of Revenue, Ministry of
Finance is the central national agency responsible for receiving, processing, analyzing and
disseminating information relating to suspect financial transactions to enforcement agencies and
foreign FIUs.

The Directorate of Enforcement, with its Headquarters at New Delhi is headed the Director of
Enforcement. There are two Special Directors, one Additional Director and two Deputy
Directors at Head Office. There is a Legal Wing at Headquarters Office headed by the Additional
Director (Prosecution). In addition, there is one Special Director posted at Mumbai.

There are ten Zonal Offices of the Directorate at Ahmedabad, Bangalore, Chandigarh, Chennai,
Cochin, Delhi, Hyderabad, Kolkata, Lucknow and Mumbai. The Zonal Offices are headed by the
Deputy Directors.

The Directorate has eleven Sub Zonal Offices at Bhubaneswar, Calicut, Guwahati, Indore,
Jaipur, Jalandhar, Madurai, Nagpur, Patna, Srinagar and Varanasi, which are headed by the
Assistant Directors.

The main functions of the Directorate are as under

i. To enforce Foreign Exchange Management Act 1999 and Prevention of money
Laundering Act 2002.
ii. To collect and develop intelligence relating to violation of the provisions of Foreign
Exchange Management Act and Prevention of money Laundering Act 2002.

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 iii. To conduct searches of suspected persons, conveyances and premises and seize
incriminating materials (including Indian and foreign currencies involved).
iv. To enquire into and investigate suspected violations of provisions of Foreign Exchange
Management Act and Prevention of money Laundering Act 2002.
v. To adjudicate cases of violations of Foreign Exchange Management Act penalties
departmentally and also for confiscating the amounts involved in violations.
vi. To realize the penalties imposed in departmental adjudication.
vii. To attach and confiscate properties involved in the act of Money laundering.
viii. To arrest the person suspected to be involved in the act of money laundering.
ix. To prosecute the person involved in the act of money laundering.

In addition to the above functions relating to the Foreign Exchange Management Act, the
Directorate also processes and recommends cases for detention of habitual offender under the
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,1974
(COFEPOSA), which provides interalia for detention of a person with a intention of preventing
him from acting in a manner prejudicial to the conservation and augmentation of exchange.

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 16. NOTIFICATIONS/GUIDELINES ISSUED BY VARIOUS AUTHORITIES

A. Reserve Bank of India (RBI)

Dec 01, 2014 : ‘Know Your Customer’ (KYC) Guidelines /Anti-Money Laundering Standards
(AML) / Obligation of NBFCs under Prevention of Money Laundering Act (PMLA),
2002 Obligation of NBFCs – Amendment to Prevention of Money-laundering
(Maintenance of Records) Rules 2013
Nov 27, 2014 : Know Your Customer (KYC) Norms /Anti-Money Laundering (AML)
Standards/ Combating of Financing of Terrorism (CFT)/Obligation of Payment
System Operators under Prevention of Money Laundering Act (PMLA), 2002
Obligation of Payment System Operators – Amendment to Prevention of Money-
Laundering (Maintenance of Records) Rules 2013
Nov 27, 2014 : Anti-Money Laundering (AML)/ Combating of Financing of Terrorism (CFT)
Standards

Nov 26, 2014 : StCBs/CCBs - Anti-Money Laundering (AML) / Combating of Financing of

Terrorism (CFT) – Standards
Nov 13, 2014 : Anti-Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards - Primary (Urban) Co-operative Banks
Nov 05, 2014 : Anti-Money Laundering (AML)/ Combating of Financing of Terrorism (CFT) -
Standards
Oct 31, 2014 : RRBs/StCBs/CCBs - Know Your Customer (KYC) Norms /Anti-Money
Laundering (AML) Standards/ Combating of Financing of Terrorism (CFT)
guidelines – clarifications on periodic updation of low risk customers, non-
requirement of repeated KYC for the same customer to open new accounts and partial
freezing of KYC non-compliant accounts
Oct 22, 2014 : Know Your Customer (KYC) Norms /Anti-Money Laundering (AML) Standards/
Combating of Financing of Terrorism (CFT) guidelines – clarifications on periodic
updation of low risk customers, non-requirement of repeated KYC for the same

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 customer to open new accounts and partial freezing of KYC non-compliant accounts-
Primary (Urban) Co-operative banks (UCBs)
Oct 21, 2014 : Know Your Customer (KYC) Norms /Anti-Money Laundering (AML) Standards/
Combating of Financing of Terrorism (CFT) guidelines – clarifications on periodic
updation of low risk customers, non-requirement of repeated KYC for the same
customer to open new accounts and partial freezing of KYC non-compliant accounts
Sep 16, 2014 : 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 (PMLA), 2002 Obligation of banks – Client Due Diligence
measures - UCBs
Sep 09, 2014 : RRBs/StCBs/CCBs - KYC Norms / AML Standards / CFT / Obligation of banks
under PMLA, 2002 – Client Due Diligence measures
Sep 04, 2014 : 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 (PMLA), 2002 Obligation of banks – Client Due Diligence
measures
Sep 03, 2014 : Anti-Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards
Aug 05, 2014 : 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 (PMLA), 2002 Obligation of banks - Amendment to
Prevention of Money-laundering (Maintenance of Records) Rules 2013
Aug 01, 2014 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -
Standards
Aug 01, 2014 : Know Your Customer (KYC) norms/Anti-Money Laundering (AML)
standards/Combating of Financing of Terrorism (CFT) - Unique Customer
Identification Code for NBFC Customers in India (UCIC)
Jul 31, 2014 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) –
Standards – Primary (Urban) Co-operative Banks
Jul 28, 2014 : RRBs/StCBs/CCBs - Anti-Money Laundering (AML) / Combating of Financing of
Terrorism (CFT) - Standards

83
Jul 22, 2014 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -
Standards
Jul 21, 2014 : Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Standards/
Combating of Financing of Terrorism (CFT)/ Obligation of Authorised Persons under
Prevention of Money Laundering Act (PMLA), 2002 – Money Changing Activities –
Recognising E-Aadhaar as an ‘Officially Valid Document’ under PML Rules
Jul 21, 2014 : RRBs/StCBs/CCBs – KYC/AML/CFT - Obligation of Banks under PMLA, 2002
– Amendment to Prevention of Money-Laundering (Maintenance of Records) Rules
2013
Jul 21, 2014 : Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Standards/
Combating of Financing of Terrorism (CFT)/ Obligation of Authorised Persons under
Prevention of Money Laundering Act (PMLA), 2002 – Money Transfer Service
Scheme – Recognising E-Aadhaar as an ‘Officially Valid Document’ under PML
Rules
Jul 14, 2014 : Know Your Customer (KYC) Norms / Anti-Money Laundering (AML) Standards
/Combating of Financing of Terrorism (CFT) / Obligation of NBFCs under
Prevention of Money Laundering Act (PMLA), 2002 Recognising E-Aadhaar as an
'Officially Valid Document' under PML Rules
Jul 10, 2014 : Know Your Customer (KYC) Norms / Anti-Money Laundering (AML) Standards
/Combating of Financing of Terrorism (CFT) / Obligation of NBFCs under
Prevention of Money Laundering Act (PMLA), 2002- Clarification on proof of
Address
Jul 03, 2014 : Know Your Customer (KYC) Norms /Anti-Money Laundering (AML) Standards/
Combating of Financing of Terrorism (CFT)/Obligation of Payment System
Operators under Prevention of Money Laundering Act (PMLA), 2002 – Clarification
on Proof of Address
Jul 02, 2014 : Know Your Customer (KYC) / Anti-Money Laundering (AML) / Combating of
Financing of Terrorism (CFT) Guidelines - Unique Customer Identification Code
(UCIC) – Extension of Time – Primary (Urban) Cooperative Banks (UCBs)

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Jul 01, 2014 : Master Circular on Know Your Customer (KYC) Norms/Anti-Money Laundering
(AML) Measures/Combating of Financing of Terrorism (CFT) / Obligations of banks
under Prevention of Money Laundering Act (PMLA), 2002
Jul 01, 2014 : Master Circular – Know Your Customer (KYC) norms / Anti-Money Laundering
(AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks
under PMLA, 2002
Jul 01, 2014 : RRBs/StCBs/CCBs Master Circular – Know Your Customer (KYC) norms / Anti-
Money Laundering (AML) standards / Combating of Financing of Terrorism (CFT) /
Obligation of Banks under PMLA, 2002
Jul 01, 2014 : Master Circular – 'Know Your Customer' (KYC) Guidelines – Anti Money
Laundering Standards (AML) -'Prevention of Money Laundering Act, 2002 -
Obligations of NBFCs in terms of Rules notified thereunder’
Jun 26, 2014 : Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating of
Financing of Terrorism (CFT) Guidelines - Unique Customer Identification Code
(UCIC) for banks’ customers in India
Jun 25, 2014 : Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/
Combating the Financing of Terrorism (CFT)/ Obligation of Authorised Persons
under Prevention of Money Laundering Act (PMLA), 2002 – Money Transfer Service
Scheme - Change in period of maintenance and preservation of records
Jun 25, 2014 : Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/
Combating the Financing of Terrorism (CFT)/ Obligation of Authorised Persons
under Prevention of Money Laundering Act (PMLA), 2002 – Money Changing
Activities - Change in period of maintenance and preservation of records
Jun 16, 2014 : StCBs - 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 (PMLA), 2002 – Harmonization of KYC norms
for Foreign Portfolio Investors (FPIs)
Jun 12, 2014 : RRBs/StCBs/CCBs - 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 (PMLA), 2002 –
Clarification on Proof of Address

85
Jun 10, 2014 : 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 (PMLA), 2002 – Clarification on Proof of Address -
Primary (Urban) Co-operative Banks (UCBs)
Jun 04, 2014 : Know Your Customer (KYC) Norms /Anti-Money Laundering (AML) Standards/
Combating of Financing of Terrorism (CFT)/Obligation of PSOs under Prevention of
Money Laundering Act (PMLA), 2002 – Amendment to Section 13(2)
May 29, 2014 : Know Your Customer (KYC) Norms / Anti-Money Laundering (AML)
Standards /Combating of Financing of Terrorism (CFT) / Obligation of NBFCs under
Prevention of Money Laundering Act (PMLA), 2002 - Amendment to Section 13(2)
May 26, 2014 : 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 (PMLA), 2002 – Harmonization of KYC norms
for Foreign Portfolio Investors (FPIs) – Primary (Urban) Cooperative Banks (UCBs)
Apr 03, 2014 : 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 (PMLA), 2002 – Harmonization of KYC norms for
Foreign Portfolio Investors (FPIs)
Mar 19, 2014 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -
Standards
Mar 18, 2014 : Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT) –
Standards
Mar 13, 2014 : Anti-Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards
Mar 13, 2014 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) –
Standards – Primary (Urban) Co-operative Banks
Mar 13, 2014 : RRBs/StCBs/CCBs - 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 (PMLA), 2002 – Recognising e-Aadhaar as an
‘Officially Valid Document’ under PML Rules

86
Mar 06, 2014 : Know Your Customer (KYC) Norms /Anti-Money Laundering (AML)
Standards/ Combating Financing of Terrorism (CFT)/Obligation of banks under Prevention of
Money Laundering Act (PMLA), 2002 – Recognising e-Aadhaar as an ‘Officially Valid
Document’ under PML Rules – Primary (Urban) Cooperative Banks (UCBs)

Mar 05, 2014 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -

Standards

Mar 04, 2014 : 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 (PMLA), 2002 –Recognising E-Aadhaar as an
‘Officially Valid Document’ under PML Rules
Feb 18, 2014 : 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 (PMLA), 2002 – Amendment to Section 13(2)
– Primary (Urban) Cooperative Banks (UCBs)
Jan 20, 2014 : Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards /
Combating the Financing of Terrorism (CFT) Obligation of Authorised Persons under
Prevention of Money Laundering Act, (PMLA), 2002, as amended by Prevention of
Money Laundering (Amendment) Act, 2009 Money changing activities
Jan 09, 2014 : RRBs/StCBs/CCBs- 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 (PMLA),
2002 – Amendment to Section 13(2)
Jan 07, 2014 : Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards
Jan 01, 2014 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -
Standards
Dec 31, 2013 : 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 (PMLA), 2002 – Amendment to Section 13(2)

87
Dec 10, 2013 : RRBs/StCBs/CCBs - Anti-Money Laundering (AML) / Combating of Financing
of Terrorism (CFT) - Standards
Dec 06, 2013 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) –
Standards – Primary (Urban) Co-operative Banks
Nov 29, 2013 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -
Standards
Oct 29, 2013 : RRBs/StCBs/CCBs - KYC/AML Standards/Combating Financing of
Terrorism/Obligation of Banks under PMLA, 2002 - ‘At par’ cheque facility extended
to Cooperative Banks/RRBs by Scheduled Commercial Banks
Oct 25, 2013 : KYC Norms/AML Standards/Combating Financing of Terrorism/Obligation of
PSOs under PMLA, 2002 – e-KYC Service of UIDAI – Recognising on-line Aadhaar
authentication (electronic verification process) to be accepted as an ‘Officially Valid
Document’ under PML Rules
Oct 22, 2013 : UCBs - KYC/AML Standards/Combating Financing of Terrorism/Obligation of
Banks under PMLA, 2002 – ‘At par’ cheque facility extended to Cooperative Banks
by SCBs
Sep 13, 2013 : Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards
Sep 10, 2013 : KYC Norms /AML Standards/Combating Financing of Terrorism/Obligation of
Banks under PMLA, 2002 – e-KYC Service of UIDAI – Recognising on-line
Aadhaar authentication (electronic verification process) to be accepted as an
‘Officially Valid Document’ under PML Rules - RRBs/StCBs/CCBs
Sep 05, 2013 : KYC/AML Standards/Combating Financing of Terrorism/Obligation of Banks
under PMLA, 2002 – Information sought by Banks from Customers – UCBs
Sep 04, 2013 : AML Standards/Combating Financing of Terrorism CFT Standards - Cross
Border Inward Remittance under Money Transfer Service Scheme
Sep 04, 2013 : AML Standards/Combating Financing of Terrorism CFT Standards - Money
Changing Activities
Sep 03, 2013 : KYC Norms/AML Standards/Combating Financing of Terrorism/Obligation of
Banks under PMLA, 2002 – Information sought by Banks from Customers

88
Sep 02, 2013 : KYC Norms/AML Standards/Combating Financing of Terrorism
(CFT)/Obligation of Banks under PMLA, 2002 - e-KYC Service of UIDAI –
Recognising on-line Aadhaar authentication to be accepted as an ‘Officially Valid
Document’ under PML Rules
Jul 31, 2013 : KYC/AML Standards/Combating Financing of Terrorism/Obligation of Banks
under PMLA, 2002 – Simplifying Norms for Periodical Updation of KYC -UCBs
Jul 25, 2013 : RRBs/StCBs/DCCBs - KYC Norms /AML Standards/Combating Financing of
Terrorism/Obligation of banks under PMLA, 2002 - Simplifying Norms for
Periodical Updation of KYC
Jul 23, 2013 : KYC Norms AML Standards/Combating Financing of Terrorism/Obligation of
banks under PMLA, 2002 - Simplifying norms for Periodical Updation of KYC
Jul 23, 2013 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -
Standards
Jul 09, 2013 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) –
Standards – Primary (Urban) Co-operative Banks
Jul 05, 2013 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -
Standards

Jul 01, 2013 : Master Circular on Know Your Customer (KYC) Norms/Anti-Money Laundering
(AML) Measures/Combating of Financing of Terrorism (CFT) / Obligations of banks
under Prevention of Money Laundering Act (PMLA), 2002
Jul 01, 2013 : Master Circular – 'Know Your Customer' (KYC) Guidelines – Anti Money
Laundering Standards (AML) -'Prevention of Money Laundering Act, 2002 -
Obligations of NBFCs in terms of Rules notified thereunder’
Jul 01, 2013 : Master Circular – Know Your Customer (KYC) norms / Anti-Money Laundering
(AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks
under PMLA, 2002
Jun 06, 2013 : Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating of
Financing of Terrorism (CFT) Guidelines - Unique Customer Identification Code
(UCIC) for banks’ customers in India – Primary (Urban) Co-operative Bank

89
Jun 04, 2013 : Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating of
Financing of Terrorism (CFT) Guidelines - Unique Customer Identification Code
(UCIC) for banks’ customers in India
May 31, 2013 : KYC/AML/CFT Guidelines - Unique Customer Identification Code for banks’
customers in India
May 09, 2013 : Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards
Feb 22, 2013 : KYC norms/AML Standards/CFT Standards – Obligation of Authorised Persons
under PMLA, 2002
Jan 31, 2013 : RRBs/StCBs/DCCBs - KYC Norms /AML Standards/Combating of Financing of
Terrorism/Obligation of banks under PMLA, 2002
Jan 29, 2013 : 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 (PMLA), 2002
Jan 28, 2013 : Know Your Customer (KYC) Norms/Anti-Money Laundering (AML)
Measures/Combating of Financing of Terrorism (CFT) / Obligations of banks under
Prevention of Money Laundering Act (PMLA), 2002
Jan 22, 2013 : KYC norms /AML Standards/CFT/Obligation of banks under Prevention of
Money Laundering Act (PMLA), 2002
Jan 18, 2013 : KYC Norms/AML Standards/Combating Financing of Terrorism/Obligation of
banks under PMLA, 2002
Jan 10, 2013 : AML standards/CFT) Standards - Cross Border Inward Remittance under Money
Transfer Service Scheme
Jan 10, 2013 : AML standards/CFT) Standards - Money changing activities
Jan 08, 2013 : Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards
Dec 28, 2012 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) -
Standard
Dec 19, 2012 : KYC norms /AML Standards/CFT)/Obligation of banks under PMLA, 2002
Dec 13, 2012 : KYC norms /AML Standards/CFT/Obligation of banks under PMLA, 2002

90
Nov 15, 2012 : KYC/AML standards /CFT)/Obligation of Authorised Persons under Prevention
of Money Laundering Act
Oct 09, 2012 : KYC/AML/CFT Guidelines - Unique Customer Identification Code – Primary
(Urban) Co-operative Banks
Sep 24, 2012 : KYC norms/AML standards/CFT Obligation of Authorised Persons under PMLA
2002, as amended by PML Amendment Act, 2009 – Money changing activities
Sep 13, 2012 : KYC/AML/CFT - Risk Categorization and Updation of Customer Profiles –
Primary UCBsSep 06, 2012 : Anti- Money Laundering (AML) / Combating of
Financing of Terrorism (CFT) - Standards
Aug 23, 2012 : AML /CFT Standards – Cross Border Inward Remittance under MTSS
Aug 23, 2012 : AML /CFT Standards - Money changing activities
Jul 26, 2012 : KYC Norms/AML Standards/Combating Financing of Terrorism -Risk
Categorisation and Updation of Customer Profiles
Jul 02, 2012 : Master Circular – Know Your Customer (KYC) norms / Anti-Money Laundering
(AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks
under PMLA, 2002
Jul 02, 2012 : Master Circular on Know Your Customer (KYC) Norms/Anti-Money Laundering
(AML) Measures/Combating of Financing of Terrorism (CFT) / Obligations of banks
under Prevention of Money Laundering Act (PMLA), 2002
Jul 02, 2012 : Master Circular – 'Know Your Customer' (KYC) Guidelines – Anti Money
Laundering Standards (AML) -'Prevention of Money Laundering Act, 2002 -
Obligations of NBFCs in terms of Rules notified thereunder’
Jun 11, 2012 : Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating of
Financing of Terrorism (CFT) Guidelines - Unique Customer Identification Code
(UCIC) for banks’ customers in India
Jun 11, 2012 : Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating of
Financing of Terrorism (CFT) - Risk Categorization and Updation of Customer
Profiles
Jun 08, 2012 : Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating of
Financing of Terrorism (CFT) - Risk Categorization and Updation of Customer
Profiles

91
Jun 08, 2012 : Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating of
Financing of Terrorism (CFT) Guidelines - Unique Customer Identification Code
(UCIC) for banks’ customers in India
Apr 17, 2012 : Anti-Money Laundering (AML) / Combating the Financing of Terrorism (CFT)
Standards - Money changing activities
Apr 17, 2012 : AML/CFT Standards - Cross Border Inward Remittance under MTSS
Apr 11, 2012 : Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards
Apr 04, 2012 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) –
Standards
Mar 21, 2012 : NBFCs - KYC Norms/AML Standards/Combating Financing of
Terrorism/Obligation of banks under PMLA, 2002- Assessment and Monitoring of
Risk
Mar 14, 2012 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) –
Standards
Mar 05, 2012 : UCBs - KYC Norms/AML Standards/Combating Financing of
Terrorism/Obligation of banks under PMLA, 2002- Assessment and Monitoring of
Risk
Feb 29, 2012 : KYC Norms /AML Standards/Combating Financing of Terrorism/Obligation of
Authorised Persons under (PMLA, 2002 - Assessment and Monitoring of Risk -
Cross Border Inward Remittance under MTSS
Feb 29, 2012 : KYC Norms/AML Standards/Combating Financing of Terrorism/Obligation of
Authorised Persons under (PMLA), 2002 - Assessment and Monitoring of Risk –
Money Changing Activities
Feb 27, 2012 : Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) –
Standards – Primary (Urban) Co-operative Banks
Feb 15, 2012 : Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism
(CFT) Standards - Money changing activities
Feb 15, 2012 : Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism
(CFT) Standards - Cross Border Inward Remittance under Money Transfer Service
Scheme

92
Feb 09, 2012 : Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT)-
Standards
Dec 30, 2011: KYC Norms/AML Standards/CFT/Obligation of Banks under PMLA 2002 –
Assessment and Monitoring of Risk
Dec 22, 2011: KYC Norms/AML Standards/CFT – Obligation of Authorised Persons under
PMLA, 2002
Dec 22, 2011: 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 (PMLA), 2002- Assessment and Monitoring of
Risk
Dec 19, 2011: 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 (PMLA), 2002- Assessment and Monitoring of
Risk
Oct 28, 2011: KYC Guidelines – AML standards – Prevention of Money Laundering Act
(PMLA), 2002 – Obligations of NBFCs – Revised reporting format
Sep 22, 2011: Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT)
Standards
Sep 19, 2011: Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism
(CFT) Standards - Cross Border Inward Remittance under Money Transfer Service
Scheme
Sep 19, 2011: Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism
(CFT) Standards - Money changing activities
Sep 19, 2011: Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism
(CFT) Standards - Cross Border Inward Remittance under Money Transfer Service
Scheme
Sep 19, 2011: Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism
(CFT) Standards - Money changing activities
Sep 15, 2011: Know Your Customer (KYC) Norms/ Anti- Money Laundering (AML) Standards/
Combating the Financing of Terrorism (CFT)

93
Aug 18, 2011: Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT) -
Standards
Aug 03, 2011: Anti- Money Laundering (AML) / Combating of Financing of Terrorism (CFT) –
Standards
July 28, 2011: RRBs -Anti-Money Laundering AML / Combating Financial Terrorism –
Standards
July 27, 2011: AML / Combating Financing of Terrorism – Standards
July 01, 2011: 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
July 01, 2011: Master Circular on Know Your Customer (KYC) Guidelines / Anti-Money
Laundering (AML) Standards / Prevention of Money Laundering Act, 2002 –
Obligations of NBFCs
May 20, 2011: Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism
(CFT) Standards - Cross Border Inward Remittance under Money Transfer Service
Scheme
May 20, 2011: Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism
(CFT) Standards - Money changing activities
April 08, 2011: Anti-Money Laundering (AML) standards/Combating the Financing of
Terrorism (CFT) Standards - Cross Border Inward Remittance under Money Transfer
Service Scheme
April 08, 2011: Anti-Money Laundering (AML) standards/Combating the Financing of
Terrorism (CFT) Standards - Money changing activities
April 08, 2011: KYC Norms/AML Standards/Combating Financing of Terrorism/Obligation of
Authorised Persons under PMLA, 2002, as amended by Prevention of Money
Laundering (Amendment) Act, 2009- Cross Border Inward Remittance under MTSS
April 08, 2011: KYC Norms/AML Standards/Combating Financing of Terrorism/Obligation of
Authorised Persons under PMLA, 2002, as amended by Prevention of Money
Laundering (Amendment) Act, 2009- Money changing activities
April 01, 2011: Anti-Money Laundering (AML) / Combating of Financial Terrorism (CFT) –
Standards

94
March 24, 2011: Anti-Money Laundering (AML) / Combating of Financial Terrorism (CFT) –
Standards
March 17, 2011: Anti-Money Laundering (AML) / Combating of Financial Terrorism (CFT) –
Standards
Feb 18, 2011: KYC Norms /AML Standards/Combating Financing of Terrorism/Obligation of
banks under PMLA, 2002
Feb 14, 2011: Know Your Customer (KYC) Norms/ Anti- Money Laundering (AML) Standards/
Combating of Financing of Terrorism (CFT)
Feb 02, 2011: StCBs/DCCBs - KYC Norms / AML Standards/Combating Financing of
Terrorism /Obligation of banks under PMLA, 2002
Jan 18, 2011: Anti-Money Laundering (AML) / Combating of Financial Terrorism (CFT) –
Standards
Jan 17, 2011: RRBs - Anti-Money Laundering (AML) / Combating of Financial Terrorism
(CFT) – Standards
Jan 12, 2011: RRBs - KYC Norms/AML Standards/Combating Financing of
Terrorism/obligation of banks under PMLA 2002
Jan 11, 2011: Anti-Money Laundering (AML) / Combating of Financial Terrorism (CFT) –
Standards
Dec 30, 2010: KYC Norms /AML Standards/Combating Financing of Terrorism/Obligation of
banks under PMLA, 2002
Oct 04, 2010: Know Your Customer (KYC) Norms/ Anti- Money Laundering (AML) Standards/
Combating of Financing of Terrorism (CFT)
Sep 22, 2010: NBFCs - KYC Norms/AML Standards/Combating Financing of Terrorism, July
01, 2010 : Master Circular – 'Know Your Customer' (KYC) Guidelines – Anti Money
Laundering Standards (AML) -'Prevention of Money Laundering Act, 2002 -
Obligations of NBFCs in terms of Rules notified thereunder’
Aug 09, 2010: NBFCs - KYC Norms/Anti-Money Laundering Standards
Jul 01, 2010: Master Circular – Know Your Customer (KYC) norms / Anti-Money Laundering
(AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks
under PMLA, 2002

95
Jun 15, 2010: Know Your Customer Norms/AML Standards/Combating Financing of Terrorism
/Obligation of Banks under PMLA, 2002
Jun 10, 2010: KYC Norms/AML Standards/Combating Financing of Terrorism
(CFT)/Obligation of banks under PMLA, 2002
Jun 09, 2010: KYC Norms/AML Standards/Combating Financing of Terrorism/Obligation of
banks under PMLA, 2002Apr 30, 2010: Know Your Customer (KYC) Norms/ Anti-
Money Laundering (AML) Standards/Combating of Financing of Terrorism (CFT)
Apr 23, 2010: NBFCs - Prevention of Money-laundering Amendment Rules, 2009 – Obligation
of Banks/FIs
Apr 23, 2010: SCBs/AIFIs - Prevention of Money-laundering Amendment Rules, 2009 –
Obligation of Banks/FIs
Jan 12, 2010: Prevention of Money-laundering Rules - Amendment – Obligation of Banks/FIs
Dec 02, 2009: NBFCs - KYC Norms/AML Standards/Combating Financing of Terrorism
Sep 18, 2009: Combating financing of terrorism- Unlawful Activities (Prevention) Act, 1967-
Obligation of banks
Sep 11, 2009: Know Your Customer (KYC) norms / Anti-Money Laundering (AML)
standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under
PMLA, 2002
Jul 01, 2009: Master Circular – Know Your Customer (KYC) norms / Anti-Money Laundering
(AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks
under PMLA, 2002
05.08.2008 - Obligations of NBFCs under PMLA and Counterfeit Currency Report
01.07.2008 - Master Circular-KYC norms/AML standards/CFT obligation of Banks under
PMLA, 2002
01.07.2008 - Master Circular-KYC norms/AML standards/CFT obligation of Banks under
PMLA, 2002
25.06.2008 - Obligations of State and Central Cooperative Banks under PMLA and Counterfeit
Currency Report
18.06.2008 - Obligations of Regional Rural Banks under PMLA and Counterfeit Currency
Report
22.05.2008 - Obligations of Banks under PMLA and Counterfeit Currency Report

96
28.02.2008 - KYC Norms/AML Standards/Combating Financing of Terrorism (CFT)-State and
District Central Cooperative Banks
27.02.2008 - KYC Norms/AML Standards/Combating Financing of Terrorism (CFT)-Regional
Rural Banks
25.02.2008 - KYC Norms/AML Standards/Combating Financing of Terrorism (CFT)-Primary
(Urban) Cooperative Banks
18.02.2008 - KYC Norms/AML Standards/Combating Financing of Terrorism (CFT)-Scheduled
Commercial Banks
20.04.2007 - Compliance Function in Banks
13.04.2007 - KYC Norms/AML Guidelines/Combating Financing of Terrorism- Wire Transfers
16.11.2006 - Compliance Function in Banks
26.06.2006- Amendments to Anti-Money Laundering Guidelines for Authorised Money
Changers
21.03.2006 - Prevention of Money Laundering Act, 2002 – Obligation of Primary (Urban)
Cooperative Banks
09.03.2006 - Prevention of Money Laundering Act, 2002 – Obligation of Regional Rural Banks
03.03.2006 - Prevention of Money Laundering Act, 2002 – Obligation of State and District
Central Cooperative Banks
15.02.2006 - Prevention of Money Laundering Act, 2002 – Obligation of Scheduled Commercial
Banks Excluding RRBs
25.01.2006 - Financial inclusion by Extension of Banking Services – Scheduled Commercial
Banks Including RRBs
02.12.2005 - Anti-Money Laundering Guidelines for Authorized Money Changers
21.11.2005 - Credit Card Operations of Banks - Commercial Banks/NBFCs (Excluding RRBs)
11.10.2005 - KYC for Persons Authorized by NBFCs to collect public Deposit on Behalf of
NBFCs
23.08.2005 - KYC Guidelines – AML Standards - Scheduled Commercial Banks (Excluding
RRBs)
23.08.2005 - KYC guidelines – AML Standards - State and District Central Cooperative Banks
23.08.2005 - KYC Guidelines – AML Standards - Regional Rural Banks
23.08.2005 - KYC Guidelines – AML Standards – Primary (Urban) Cooperative Banks

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21.02.2005 - KYC Guidelines – AML Standards – NBFCs, Miscellaneous NBCs, and Residuary
NBCs
18.02.2005 - KYC Guidelines – AML Standards - State and District Central Cooperative Banks
18.02.2005 - KYC Guidelines – AML Standards - Regional Rural Banks
15.12.2004 - KYC Guidelines – AML Standards - Primary (Urban) Cooperative Banks
29.11.2004 - KYC Guidelines – AML Standards -Commercial Banks

B. Securities and Exchange Board of India (SEBI)

1. 24th January 2013: SEBI Circular On Guidelines On Identification Of Beneficial

Ownership
2. 31st Dec 2010- AML/CFT- Master Circular
3. June 14 2010: Anti Money Laundering/Combating Financing of Terrorism Standards-
Additional Requirements/Clarifications
4. Sept 01 2009 Anti Money Laundering/Combating Financing of Terrorism Standards
Additional Requirements/Clarifications.
5. ISD/AML/CIR-1/2008 dated December 19, 2008 on Anti Money Laundering (AML)
Standards/Combating Financing of Terrorism (CFT)/Obligations of Securities Market
Intermediaries under Prevention of Money Laundering Act, 2002 and Rules Framed
There-under- Master Circular on AML/CFT
6. MRD/DoP/Cir- 05/2007 dated- April 27, 2007 Permanent ACCOUNT NUMBER (PAN)
TO BE THE SOLE IDENTIFICATION NUMBER FOR ALL TRANSACTIONS IN
THE SECURITIES MARKET
7. SEBI’s Circular ISD/CIR/RR/AML/2/06 dated 20th Mar 2006 on Obligations of
Intermediaries Under PMLA
8. SEBI’s Circular ISD/CIR/RR/AML/1/06 dated 18th Jan 2006 on Guidelines for Anti
Money Laundering Measures

C. Insurance Regulatory and Development Authority (IRDA)

98
1. IRDA/SDD/GDL/CIR/019/02/2013 - AML/CFT guidelines-Procedures for
Determination of Beneficial Ownership dated 05-02-2013
2. IRDA/F&I/CIR/AML/028/01/2012 – AML/CFT guidelines dated 27 January 2012
3. IRDA/F&I/CIR/AML/231/10/2011 - AML/CFT Guidelines-Cash Acceptance Threshold
dated 5 October 2011
4. IRDA/F&I/CIR/AML/151 /07/2011 - Prevention of Money Laundering dated 5 July 2011
5. IRDA/F&I/CIR/AML/ 145 /07/2011 - Reporting Formats under clause 3.2 of Master
Circular 2010 on AML/CFT guide dated 4 July 2011
6. Circular No: IRDA/F&I/CIR/AML/180/11/2010 - Anti Money Laundering/Counter-
Financing of Terrorism (AML/CFT) Guidelines dated 12th November 2010
7. Circular No: IRDA/F&I/CIR/AML/158/09/2010 - Master Circular on Anti-Money
Laundering / Counter-Financing of Terrorism dated 24th Sept 2010
8. Circular No: IRDA/F&I/CIR/AML/99/06/2010 - Anti Money Laundering (AML)
Guidelines dated 16th June 2010
9. Circular No: IRDA/F&I/CIR/AML/ 80 /05/2010 - Prevention of Money Laundering
dated 13th May 2010
10. Circular No: IRDA/ F&I/CIR/AML/ 33 /09/2009 - The Prevention of Money Laundering
(Amendment) Act, 2009 dated 9th Sept 2009
11. Circular No: 30/IRDA/AML/CIR/AUG-09 - Anti Money Laundering (AML) guidelines
dated 24th Aug 2009
12. Circular No: 022/IRDA/Master AML/Nov-08 - Master Circular on Anti-Money
Laundering Programme for Insurers dated 2nd Dec 2008
13. Circular No: 043/IRDA/LIFE/AML/MAR-06 dated 31/03/06

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 17. FINANCIAL ACTION TASK FORCE ON MONEY LAUNDERING (FATF)

The Financial Action Task Force (FATF), also known by its French name, Groupe d'action
financière (GAFI), is an intergovernmental organization founded in 1989 on the initiative of
the G7. The purpose of the FATF is to develop policies to combat money laundering and
terrorism. The FATF Secretariat is housed at the headquarters of the OECD in Paris.

In response to mounting concern over money laundering, the Financial Action Task Force on
Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989.
Recognising the threat posed to the banking system and to financial institutions, the G-7 Heads
of State or Government and President of the European Commission convened the Task Force
from the G-7 member States, the European Commission and eight other countries. (G-7 is a
forum created by France in 1975, for the government of seven major economies namely Canada,
France, Germany, Italy, Japan, the United Kingdom and the United States. In 1997, the group
added Russia, thus becoming the G8.)

The Task Force was given the responsibility of examining money laundering techniques and
trends, reviewing the action which had already been taken at a national or international level, and
setting out the measures that still needed to be taken to combat money laundering. In April
1990, less than one year after its creation, the FATF issued a report containing a set of Forty
Recommendations, which provide a comprehensive plan of action needed to fight against money
laundering.

In 2001, the development of standards in the fight against terrorist financing was added to the
mission of the FATF. In October 2001 the FATF issued the Eight Special Recommendations to
deal with the issue of terrorist financing. The continued evolution of money laundering
techniques led the FATF to revise the FATF standards comprehensively in June 2003. In
October 2004 the FATF published a Ninth Special Recommendations, further strengthening the
agreed international standards for combating money laundering and terrorist financing - the 40+9
Recommendations.

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During 1991 and 1992, the FATF expanded its membership from the original 16 to 28 members.
In 2000 the FATF expanded to 31 members, and has since expanded to its current 36 members.
India became member of the FATF in 2010.

Nine Special Recommendations of FATF

1. Take immediate steps to ratify and fully implement the 1999 United Nations Convention
for the Suppression of the Financing of Terrorism, as well as United Nations resolutions
relating to the prevention and suppression of the financing of terrorist acts, particularly
United Nations Security Council Resolution 1373;
2. Criminalize the financing of terrorism, terrorist acts and terrorist organizations;
3. Freeze without delay funds or other assets of terrorists and those who finance terrorism
and terrorist organizations;
4. Require that financial institutions or other entities subject to anti-money laundering
obligations report their suspicions to the competent authorities, when they suspect that
funds may be linked, related to or are to be used for financing terrorism, terrorist acts or
terrorist organizations;
5. Afford other countries the greatest possible assistance in connection with criminal, civil
or administrative inquiries, investigations or proceedings in this area;
6. Ensure that they do not provide safe havens for individuals being sought for financing
terrorist, terrorist acts or terrorist organizations
7. Institute supervisory measures applicable to individuals or legal entities that provide a
service for the transmission of money or value, including transmission through an
informal money or value transfer system or network, particularly “Hawala” networks;
8. Require financial institutions, including money remitters, to include accurate and
meaningful originator information (name, address and account number) on fund transfers
and related messages that are sent, and;
9. Give particular attention to non-profit organizations, such as charitable organizations, that
can be used or exploited by terrorist organizations.

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 18. CASES RELATED TO MONEY LAUNDERING

i. Money laundering case – Hasan Ali and associates

The adjudicating authority under the Prevention of Money Laundering Act (PMLA) on
November 3rd 2011, confirmed attachment of flats in posh areas of Mumbai, Pune and Delhi and
luxury Porsche and Mercedes cars owned by alleged hawala operator Hasan Ali Khan and his
associate Kashinath Tapuria. The authority under PMLA headed by P K Misra prima facie
accepted the evidence and ordered, "The director of enforcement or any officer authorized by
him in this regard will forthwith take over possession of the provisionally attached property.”
Accepting for the time being Enforcement Directorate's argument that these properties were
bought using funds obtained through money laundering, the three-member authority said, "We
come to the conclusion that properties attached are involved in money laundering. We therefore,
confirm the attachment order of June 30, 2011." The provisional attachment will continue to hold
good during pendency of the proceedings relating to any of the scheduled offences alleged
against the accused, the authority said.
The properties of Hasan Ali Khan and his wife Rheema Khan which will be out of bounds for
them till adjudication of the case includes a flat in Pune's Koregaon Park valued at Rs 8.64 crore,
another at Mumbai's Peddar Road worth Rs 6 crore, a Porsche Cayenne car valued at Rs 65.5
lakh and three Mercedes cars valued at Rs 77 lakh. Kashinath Tapuria, an associate of Khan, will
see attachment of a flat owned by his firm R M Investment and Trading Company. The authority
confirmed attachment of a Prithviraj Road flat in New Delhi, which has been valued by ED at Rs
27 crore.
What clinched the case for ED was a letter from UBS AG, Zurich, addressed to Khan,
mentioning that "Khan can withdraw $6 billion out of total balance of $8,000,453,000 and
balance amount of $2,000,453,000 will remain bound with UBS until January 15, 2007".
The authority noted that the documents produced by ED counsel included large number of
transfer instructions from the account of Khan in UBS AG, Zurich, to various accounts of his
own and associates and companies controlled by them and located in US, UK,
UAE, Singapore, Hong Kong and Switzerland. "The total amounts of these transactions run into
billions of dollars," the authority said.

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 ii. German money laundering case
German prosecutors indicted five men, including four German banking executives, on charges of
laundering $150 million for a former Russian telecommunications minister in one of the highest-
level criminal probes of a Russian official outside Russia. The indictments follow a six-year
investigation into allegations that four current or former Commerzbank AG executives and a
Danish lawyer assisted former Russian telecommunications minister Leonid Reiman in selling
telecommunications assets he allegedly controlled in offshore companies, while concealing who
the true owner was. From 1996 to 2001, the German bank held the telecom assets in trust for a
Danish lawyer, Jeffrey Galmond. Prosecutors contend Mr. Galmond acted as a front for Mr.
Reiman, who, they say, had converted telecom businesses from state ownership to that of a
number of foreign companies that Mr. Reiman allegedly set up and controlled after the collapse
of communism in the 1990s. In January 2008, Commerzbank accepted a Frankfurt civil-court
verdict that ordered the bank to pay €7.3 million ($9.6 million), including a €1 million fine and
the confiscation of €6.3 million of profits derived from illegal activity. The ruling found
Commerzbank's annual reports between 1996 and 2001 failed to accurately disclose that assets
the bank claimed to own were held in trust on behalf of Mr. Galmond.

iii. Russian money laundering scandal

This scandal became public during the summer of 1999, with media reports of $7 billion in
suspect funds moving from two Russian banks through a U.S. bank to thousands of bank
accounts throughout the world. Two Russian banks deposited more than $7 billion in
correspondent bank accounts at a New York bank. After successfully gaining entry for these
funds into the U.S. banking system, the Russian banks transferred amounts from their New York
bank correspondent accounts to commercial accounts at the bank that had been opened for three
shell corporations. In February 2000, guilty pleas were submitted by a bank employee and
spouse and the three corporations for conspiracy to commit money laundering, operating an
unlawful banking and money transmitting business in the United States.

iv. Operation Wire Cutter

The U.S. Customs Service, in conjunction with the Drug Enforcement Administration (DEA)
and Colombian Departamento Administrativo de Seguridad, arrested 37 people in January 2002

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as a result of a two-and-one-half-year undercover investigation of Colombian peso brokers and
their money laundering organizations. These people are believed to have laundered money for
several Colombian narcotics cartels. Laundered monies were subsequently withdrawn from
banks in Colombia in Colombian pesos. Investigators seized more than $8 million in cash, 400
kilos of cocaine, 100 kilos of marijuana, 6.5 kilos of heroin, nine firearms, and six vehicles.

v. Wire Remittance Company

Both a wire remittance company and a depository institution filed SARs outlining the movement
of about $7 million in money orders through the U.S. account of a foreign business. The wire
remittance company reported various persons purchasing money orders at the maximum face
value of $500 to $1,000 and in sequential order. They received amounts ranging from $5,000 to
$11,000. The foreign business identified by the wire remittance company also was identified as a
secondary beneficiary. The money orders cleared through a foreign bank’s cash letter account at
the U.S. depository institution.

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 19. THE ADJUDICATING AUTHORITY PROCEDURE REGULATIONS

Adjudicating Authority

The Adjudicating Authority is the authority appointed by the central government. It decides
whether any of the property attached or seized is involved in money laundering. The
Enforcement Directorate (ED) carries out investigations. The ED is also empowered to attach
property of entities involved in money laundering. The investigation begins with filing an
Enforcement Case Information Report (ECIR), which is comparable with an FIR. The
Adjudicating Authority under PMLA then decides whether the attachment is valid or not. The
courts take the final call on punishment and confiscation of property from the money launderers.

18.1 THE ADJUDICATING AUTHORITY (PROCEDURE) REGULATIONS, 2013

In exercise of the powers conferred by sub-section (15) of section 6 of the Prevention of Money-
Laundering Act, 2002 (15 of 2003), the Adjudicating Authority, in supersession of the
Adjudicating Authority Regulations, 2006, except as respects things done or omitted to be done
before such supersession, makes the following regulations regulating its procedure, namely the
Adjudicating Authority (Procedure) Regulations, 2013

Important Definitions
1) Unless the context otherwise requires

(a) “Act” means the Prevention of Money-laundering Act, 2002 (15 of 2003);
(b) “application” means an application filed under sub-section (4) of section 17 or sub-
section (10) of section 18 of the Act and includes a miscellaneous application;
(c) “Bench” means a Bench of the Adjudicating Authority constituted by the Chairperson
of the Adjudicating Authority;
(d) “complaint” means a complaint made under sub-section (5) of section 5 of the Act;
(e) “Form” means a Form appended to these regulations.

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(2) The words and expressions used herein and not defined in these regulations but defined in the
Prevention of Money-laundering Act, 2002 shall have the meanings assigned to them in that Act.

Highlights of Adjudication Authority Guidelines

 Applications, complaints, pleading, affidavit and other papers shall be filed before the
Adjudicating Authority in the manner prescribed in Sec 3 (1)
 The complainant or the applicant, as the case may be, shall file a soft copy in CD form,
along with the Complaint or Application (Sec 3(3))
 The attestation of document annexed to a complaint or application or reply shall be made
at the end of the document (Sec (5))
 Every pleading, original application, miscellaneous application, original complaint and
papers shall be received in the office hours on the working days and the officer in charge
of the receiving branch shall issue receipt thereof in Form 1
 The receiving branch shall immediately, on receipt of an or complaint or application
other pleading or papers, affix the date and stamp of the Adjudicating Authority on all
pages on the main or first copy and on the first page of each other copy of the application
or complaint or other pleading or papers.
 The Official authorised by the Adjudicating. Authority to receive the complaint or
application under the Act, shall immediately enter in the receipt register and shall put
serial number (receipt number) on the application or complaint, as the case may be
(Sec(8))
 The Registrar or Administrative Officer or any officer authorised by the Chairperson of
the Adjudicating Authority oh examining the complaint or application, as the case may
be, shall direct registration. (Sec 9(1))
 A daily cause list in Form 2 containing cases fixed for hearing on a day by the
Adjudicating Authority shall be prepared under the signature of Registrar or
Administrative Officer in triplicate and shall be pasted on the previous working day on
the notice board of the Adjudicating Authority

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 The Registrar shall have the custody of records of the Adjudicating Authority and shall
exercise such other functions including weeding out of old records as may be assigned to
him under these regulations by the Chairperson. (Sec11(1))
 The function of the Registrar shall be as follows
(a) all complaints and applications and miscellaneous applications as well as the other
documents;
(b) endorse on such complaints and applications-the date of receipt;
(c) check whether the complaints or applications are barred by limitation;
(d) fix the date of hearing of the complaint and application subject to the directions of the
Chairperson or Senior Member or Member of the Bench, as the case may be, and
direct the issue of notices therefor;
(e) bring on record legal representatives, in case of death of any party, to proceedings;
(f) verify the service of notice or other processes and to ensure that the parties are properly
served;
(g) requisition on the direction of Adjudicating Authority records from the custody of any
authority;
(h) allow inspection of records of the Adjudicating Authority;
(i) return the documents filed by any authority on orders of the Bench;
(j) certify and issue copies of the orders of the Adjudicating Authority to the parties;
(k) grant certified copies of documents filed in the proceedings to the parties, in accordance
with these regulations;
(l) ensure that remand reports are submitted in time whenever called for by the Bench by
issuing necessary reminders to the authority concerned.

 Every summon or notice shall be issued in Form 3 or Form 4 or Form 5 or Form 6, as the
case may be, signed by the Registrar or Administrative Officer Section(13(1))
 Every summon and notice shall be served in the same manner as provided in Order V of
Schedule 1 of the Civil Procedure Code, 1908 (5 of 1908), and the provisions of that
Order shall apply, mutatis mutandis, to the proceedings before the Adjudicating
Authority (Section 13(2))

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 Notwithstanding anything in sub-regulation (2), a summon or notice may be
communicated through electronic mode as provided in section 13 of the Information
Technology Act, 2000 (21 of 2000) and transmission of such communication shall be
regarded as valid service. (Section 13(3))
 If any summon or notice is returned unserved, the complainant or applicant shall take
steps for service of summon or notice, as ordered, failing which, the matter shall be
placed before the Bench hearing the case. (Section 14)
 The reply shall be filed by the defendants on or before the date fixed for hearing, with a
copy delivered to the complainant or applicant, as the case may be (Section 15)
 Inspection of records, upon the application in Form 7 shall be allowed under the orders of
the Chairperson of the Adjudicating Authority, or the Registrar or the Administrative
Officer, as the case may be. (Section16)
 Fees for inspection of records- (1)Fees for inspecting records and registers of the
Adjudicating Authority shall be-
(a) one hundred rupees for the first hour of inspection or part thereof; and
(b) fifty rupees for every additional hour of inspection or part thereof.
Fees for inspection shall be recovered in advance in cash.
 Fees for Copying - Fees for supply of certified copies of the documents shall be charged
at the rate of twenty rupees for a full page or part thereof, irrespective of whether the
copy is typed or xeroxed. (Section 18)
 Maintenance of application for inspection - Every application for inspection of records
shall be maintained by the officer authorised by the Chairperson of the Adjudicating
Authority and he shall obtain therein the signatures of the persons making such
inspection.
 The provisions of the Code of Civil Procedure, 1908 (5 of 1908) relating to the issuing of
commissions for examination of witnesses and documents shall, as far as may be
applicable, apply in the matters of summoning and enforcing attendance of any person as
witness and issuing a commission for examination of such witness. (Section 21)
 The deposition of the witness whenever necessary shall be recorded in Form 8. A
Certificate of attendance, if requested for, will be issued in Form 9. (Section 22)

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 The witness called by the applicant shall be numbered consecutively as P.Ws and those
by the defendant or any other persons not being applicants as D.Ws. and any witness
examined at the instance of the complainants shall be numbered consequently as CWs,
and the witness called by the Adjudicating Authority shall be numbered as A.Ws (Section
23)
 The Adjudicating Authority may, if it considers necessary, direct the concerned party for
the payment of expenses to the witness, as the case may be.(Section 24)
 The order supported by reasons recorded shall be pronounced in open court and on the
date fixed in that behalf. Every sheet of the order shall bear the signature of the
Chairperson and Members constituting the Bench. (Section 26)
 An application for a copy shall be filed in the Form 12 by the parties along with required
copying fee. (Section 29)

List of Forms prescribed under the Guidelines

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110
111
112
113
114
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18.2 THE PREVENTION OF MONEY-LAUNDERING (ISSUANCE OF PROVISIONAL
ATTACHMENT ORDER) RULES, 2013

In exercise of the powers conferred by sub-section (1) read with clause (aa) of subsection (2) of
section 73 of the Prevention of Money-laundering Act, 2002 (15 of 2003), the Central
Government hereby makes the following rules relating to the issuance and service of provisional
attachment order, namely:—
1. Short title and commencement.—(1) These rules may be called the Prevention of Money-
laundering (Issuance of Provisional Attachment Order) Rules, 2013.
(2) They shall come into force on the date2 of their publication in the Official Gazette.
2. Definitions.—(1) In these rules, unless the context otherwise requires,—
(a) “Act” means the Prevention of Money-laundering Act, 2002 (15 of 2003);
(b) “Adjudicating Authority” means an Adjudicating Authority appointed under sub-section (1)
of section 6 of the Act;
(c) “Authorized Officer” means an officer not below the rank of Deputy Director authorized by
the Director for the purpose of section 5 of the Act;
(d) “corresponding law” shall have the same meaning as assigned to it in clause (ia) of sub-
section (1) of section 2 of the Act;
(e) “Director” means the Director appointed under sub-section (1) of section 49 of the Act;
(f) “Proceeds of Crime” shall have the same meaning as assigned to it in clause (u) of sub-
section (1) of section 2 of the Act;
(g) “Provisional Attachment Order” means an order passed under subsection (1) of section 5 of
the Act;
(h) “Schedule” means the Schedule to the Act; and
(i) “section” means a section of the Act.

(2) All other words and expressions used and not defined in these rules, but defined in the Act,
shall have the meanings respectively assigned to them in the Act.

3. Manner of issuance of provisional attachment order.—(1) Where the Director or any

officer authorised in this behalf has reason to believe on the basis of material in his possession

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that the proceeds of crime or the property involved in money-laundering has to be provisionally
attached, the said officer shall make a provisional attachment order.
(2) The authorized officer shall endorse a copy of the provisional attachment order to all
concerned including the persons in possession of the properties and the Adjudicating Authority.
(3) The service of provisional attachment order shall be served in the following manner:—
(a) by delivering or tendering the provisional attachment order to the owner or person; or
(b) if it cannot be delivered to such owner or person, by delivering it to the person duly
authorised by such owner or person; or
(c) if the owner or person is absent from his residence at the time when service of the provisional
attachment order is being effected on him, and there is no likelihood of his being found at the
residence within a reasonable time and he has not duly authorised any person to accept the
service on his behalf, service may be made on any adult member in the family of such owner or
person who is residing with him; or
(d) if the service cannot be effected as provided in clauses (a) to (c), the serving officer shall
affix one of the duplicate of the provisional attachment order at some conspicuous part of the
premises in which the person or owner resides or is known to have last resided or carried on
business or personally works or has worked for gain and that the written report thereof shall be
witnessed by two persons.
(4) If the provisional attachment order cannot be served under clause (a) or clause (b) or clause
(c) or clause (d) of sub-rule (3), then by publishing it in a leading newspaper (both in vernacular
and in English) having wide circulation in the area or jurisdiction in which the person resides or
is known to have last resided or carried on business or personally works or last worked for gain.
(5) Notwithstanding anything contained above, the provisional attachment order to the owner or
person, in addition to and simultaneously may be sent by speed post with proof of delivery at the
address of his place of residence or his last known place of residence or the place where he
carried on, or last carried on, business or personally works or last worked for gain.

4. Service of provisional attachment order on corporate bodies, societies and trusts etc.—
(1) (a) The provisional attachment order on corporate bodies, societies and trust etc. shall be
effected by serving it on the secretary, local manager or the principal officer of the corporate

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bodies, societies and trust etc., or by letter sent by speed post addressed to the chief officer of
such bodies in India, in which case the service shall be deemed to have been effected;
(b) If the service cannot be effected as provided in clause (a), the serving officer shall affix one
of the duplicate of the provisional attachment order at some conspicuous part of the premises in
which the office of the corporate body, society and trust etc. carries on business or have last
carried on bus iness
(2) If the provisional attachment order cannot be served under sub-rule (1), then by publishing it
in a leading newspaper (both in vernacular and in English) having wide circulation in the area or
jurisdiction where the corporate body, society and trust etc. carries on business or have last
carried on business.
5. Interpretation.—If any question arises relating to the interpretation of these rules, the matter
shall be referred to the Central Government and in this regard, the decision of the Central
Government shall be final.

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 20. OVERVIEW OF THE BENAMI TRANSACTIONS (PROHIBITION) BILL, 2011

Benami transactions are transactions conducted in the name of a person who does not pay any
consideration for the underlying asset, but merely lends his name while the real title remains
vested in the true owner.
The Benami Transactions (Prohibition) Bill, 2011 was introduced by the Ministry of Finance in
the Lok Sabha on August 18, 2011 to enact a new legislation to prohibit Benami transactions.
This Bill is to replace the existing Benami Transactions (Prohibition) Act, 1988. The Bill has
been referred to the Parliamentary committee on 13th September, 2011.

The Benami Transactions (Prohibition) Act, 1988 was enacted to prohibit benami transactions
and the right to recover property held benami. The Act provides that —
(a) all the properties held benami shall be subject to acquisition by such authority in such manner
and after following such procedure as may be prescribed;
(b) no amount shall be payable for the acquisition of any property held benami;
(c) the purchase of property by any person in the name of his wife or unmarried daughter for
their benefit would not be benami transaction;
(d) the securities held by a depository as registered owner under the provisions of the
Depositories Act, 1996 or participant as an agent of a depository would not be benami
transactions.
The Benami Transactions (Prohibition) Act, 1988 comes under the purview of the Department of
Revenue, Ministry of Finance, Government of India.

Drawbacks of the earlier Act

The Act was inadequate to deal with benami transactions as the Act, -
(i) does not contain any specific provision for vesting of confiscated property with the
Central Government;

(ii) does not have any provision for an appellate mechanism against an action taken by the
authorities under the Act, while barring the jurisdiction of a Civil Court;

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 (iii) does not confer the powers of the Civil Court upon the authorities for its implementation.

(iv) Unfortunately, in the last 18 years, Rules have not been prescribed by the government for
the purposes of sub-section (1) of Section 5, with the result that the government is not
in a position to confiscate properties acquired by the real owner in the name of his
benamidars.

(v) The Act contains only 9 sections.

History of benami transactions in India

Benami transactions were noticed as early as the year 1778 in Mr. Justice Hyde’s notes after the
establishment of British rule in India. In 1854 the committee on a review of cases in Gopeekrist
Gosain Vs. Gungapersuad, (1854) 6 MLA 53, held that benami transaction is a custom of the
country and must be recognized till otherwise ordered by law. In 1882 sections 81 and 82 of
Indian Trusts Act gave legislative recognition to the practice of benami transactions and the
courts were bound to enforce it.
Some of the factors accounting for the origin of benami are –
 The Joint Hindu Family system and a desire to make secret provisions.

 Fraud on creditors.

 Desire to evade taxes.

 Desire to avoid certain political and social risks.

Such benami transactions abused and defrauded public revenues and creditors. The Parliament
for the first time intervened in 1976 when it introduced section 281A in the Income-tax Act,
1961 barring the institution of suit in relation to benami properties. But this too did not stop
benami transactions and its consequences, this time the Parliament totally prohibited the benami
transactions and made it an offence also, prohibiting all suits, claims and actions based upon
benami transaction. The Parliament also in order to stop the abuse and fraud by the benami
transaction property without compensation repealed section 82 of Indian Trusts Act and section
281A of the Income tax Act along with other consequential repeal. The Law Commission was
requested to examine the subject on benami transactions in all its ramifications. The Law
Commission submitted its 57th Report. To implement the recommendations of the Law

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Commission President promulgated the Benami Transaction (Prohibition of the Right to Recover
Property) Ordinance, 1988 on 19th May, 1988 by which it barred all suits and defences based
upon benami transactions. This Ordinance was converted into an Act by introduction of a Bill in
the Parliament.
To implement the recommendations of the Fifty-seventh Report of the Law Commission in
Benami Transactions, the President promulgated the Benami Transactions (Prohibition of the
Right to Recover Property) Ordinance, 1988, on the 19th May, 1988. The Ordinance provided
that no suit, claim or action to enforce any right in respect of any property held benami shall lie
and no defence based on any right in respect of any property held benami shall be allowed in any
suit, claim or action. It however, made two exceptions regarding property held by a coparcener in
a Hindu undivided family for the benefit of the Coparceners and property held by a trustee or
other person standing in a fiduciary capacity for the benefit of another person. It also repealed
section 82 of the Indian Trusts Act, 1882, section 66 of the Code of Civil Procedure and section
281A of the Income-tax Act, 1961.
The provisions of the Ordinance received a mixed response from the press and the public. There
had been criticism also that the Ordinance was a half-hearted measure and had not tackled the
problem effectively and completely. It was, therefore, felt that the Bill to replace the Ordinance
may be brought out as a comprehensive law on benami transactions touching all aspects and
accordingly, the Law Commission was requested to examine the subject in all its ramifications.
The Law Commission submitted its 130th Report titled "Benami Transactions – a Continuum"
and made certain recommendations.
The Law Commission recommended the inclusion of the following provisions in the Bill to
replace the Ordinance, namely –
(i) benami transactions should cover all kinds of property;

(ii) Entering into a benami transaction after the commencement of the new law should be
declared as an offence. However, an exception should be made for transactions
entered into by the husband or father for the transfer of properties in the name of the
wife or unmarried daughter for their benefit.

(iii) Voluntary organisations should be authorised to file complaints about the entering
into of benami transaction and the District Judges should be designated as Tribunals.

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 Even Gram Nayalayas recommended by the Law Commission may also be utilised
for this purpose.

(iv) As both the benamidar and the true owner are equal participants to a criminal transaction,
prohibit the true owner’s right to recover property held benami. As such, the
Commission has suggested that the properties should be acquired from him by
resorting to a procedure analogous to Chapter XXA of the Income-tax Act, 1961.It
has been suggested that the same action has to be taken when a benamidar retransfers
the property back to the true owner for an apparent or no consideration to circumvent
the provisions of the Ordinance.

(v) In addition to section 82 of the Indian Trusts Act, 1882, as provided in the Ordinance,
sections 81 and 94 of that Act should also be omitted.

(vi) Appointment of an authority, like the Charity Commissioner, for supervising private
trusts should be provided for.

The Bill was passed by both the Houses of Parliament and it received the assent of the
President of 5th September 1988 and became the Benami transaction (Prohibition) Act, 1988
(45 of 1988).

Main objective and important provisions of the Benami Transactions (Prohibition) Bill,
2011
The main objective of the Bill is to prohibit holding property in benami and restrict right to
recover or transfer property held benami and also to provide a mechanism and procedure for
confiscation of property held benami.

Some of the important provisions of the Bill are –

(i) It prohibits benami transactions by any person, except in the case of benami transactions
entered into in the name of spouse, brother or sister or any lineal ascendant or descendant;
(ii) It provides that Benami property arising out of prohibited Benami transaction is liable to
confiscation by the Central Government and such property shall vest absolutely in the Central
Government without paying any compensation;

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(iii) It prohibits right of the benamidar to recover property held benami;
(iv) It provides that the Initiating Officer, the Approving Authority and the Administrator shall
be the authorities for the purposes of the Bill;
(v) It provides that the Adjudicating Authority and the Appellate Tribunal established under the
Prevention of Money-Laundering Act, 2002 shall respectively be the Adjudicating Authority and
the Appellate Tribunal for the purposes of the Bill and any person aggrieved by an order of
Adjudicating Authority may prefer an appeal to the Appellate Tribunal;
(vi) It provides that any party aggrieved by any decision or order of the Appellate Tribunal may
file an appeal to the High Court on any question of law;
(vii) It enables the Central Government, in consultation with the Chief Justice of the High Court,
to designate one or more Courts of Session as Special Court or Special Courts for the purpose of
the Bill;
(viii) It provides penalty for entering into prohibited benami transactions and for furnishing any
false documents in any proceeding under the Bill;
(ix) It provides for transfer of any suit or proceeding in respect of a benami transaction pending
in any Court (other than High Court) or Tribunal or before any authority to the Appellate
Tribunal as provided in the Bill;
(x) It also proposes to make consequential amendments in the Prevention of Money-Laundering
Act, 2002.

Overview of the Benami Transactions (Prohibition) Bill, 2011

The Bill consists of 47 clauses under 8 chapters and one Schedule.

The Schedule consists of amendments made to the Prevention of Money Laundering Act, 2002.

Important definitions -
“Benami property” means any property which is the subject matter of a Benami transaction;
(clause 2(f))
“Benami transaction” means,—
(A) a transaction or arrangement—

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 (a) where a property is transferred to, or is held by, a person for a consideration provided,
or paid by, another person; and
(b) the property is held for the immediate or future benefit, direct or indirect, of the
person providing the consideration, except when the property is held by—
(i) a karta, or a member of a Hindu undivided family, as the case may be, and the
property is held for his benefit or benefit of other members in the family; or
(ii) a person standing in a fiduciary capacity for the benefit of another person
towards whom he stands in such capacity and includes a trustee, executor, partner,
agent, director of a company or legal adviser, a depository or a participant as an
agent of a depository under the Depositories Act, 1996 and any other person as
may be notified by the Central Government for this purpose;
(B) a transaction or arrangement in respect of a property carried out or made in a fictitious name;
or
(C) a transaction or arrangement in respect of a property where the owner of the property is not
aware of, or, denies knowledge of, such ownership; (clause 2(g))
{Under the Benami Transactions (Prohibition) Act, 1988, benami transaction means any
transaction in which property is transferred to one person for a consideration paid or provided
by another person}

“Benamidar” means a person or a fictitious person, as the case may be, in whose name the
benami property is transferred or held and includes a name lender; (clause 2(h))
“Beneficial owner” means a person, whether his identity is known or not, for whose benefit the
benami property is held by a benamidar. (Clause 2(i))
“Property” means property of any kind, whether movable or immovable, tangible or intangible,
and includes any right or interest in such property and where the property is capable of
conversion into some other form, then the property in such converted form. (Clause 2(p))
{Under the Benami Transactions (Prohibition) Act, 1988, property means property of any
kind, whether movable or immovable, tangible or intangible, and includes any right or interest
in such property.}

Prohibition of benami transaction – (Chapter II)

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No person should enter into any benami transaction. But this will not apply to a benami
transaction entered into by an individual in the name of his spouse, brother or sister or any lineal
ascendant or descendant. (Clause 3)
(lineal ascendant will include father, mother, grandfather and grandmother while lineal
descendant will include children and grandchildren)
{Under the Benami Transactions (Prohibition) Act, 1988, benami transaction does not cover
transactions entered into by a person in the name of his wife or unmarried daughter only.}
The Central Government has the right to confiscate any property which is the subject matter of
benami transaction. (Clause 4)
The Bill prohibits the right of any person to recover the property that is held benami. It also
prohibits re-transfer of property by benamidar to the beneficial owner. (Clause 5 & 6)

Authorities – (Chapter III)

Following are the authorities –
(i) the Initiating Officer – means an Assistant Commissioner of Income-tax as defined in
clause (9A) of section 2 of the Income-tax Act, 1961;
(ii) the Approving Authority – means a Joint Commissioner of Income-Tax as defined in
clause (28C) of section 2 of the Income-tax Act, 1961;
(iii) the Administrator – means an Income-Tax Officer as defined in clause (25) of section 2
of the Income-tax Act, 1961.
The above-mentioned authorities will have the powers of a civil court under the Code of Civil
Procedure Code, 1908 with regard to discovery, inspection, summons, production of documents,
receiving evidence, etc.
{Under the Benami Transactions (Prohibition) Act, 1988, there is no mention on the
authorities.}
The authorities have the power to impound books of account or other documents for any inquiry
and can retain the same only for a period of three months from the date of attachment made by
the Adjudicating Authority. On expiry of the period of three months, the documents or books
should be returned to the person from whom it was impounded unless the Approving Authority
or Adjudicating Authority permits retention of such books of account and other documents
beyond the said period.

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Attachment, Adjudication and Confiscation - (Chapter IV)
The Initiating Officer can within a period of 90 days from the date of issue of notice to the
person involved in prohibited benami transaction pass an order for provisional attachment of
property till the date of order made by the Adjudicating Authority. (Clause 13)
(Adjudicating Authority” means the Adjudicating Authority appointed under sub-section (1) of
section 6 of the Prevention of Money-Laundering Act, 2002.)

The Adjudicating Officer, after hearing the person whose property is attached, may make an
order for the confiscation of the property held benami. (Clause 15)
No order for attachment should be passed after the expiry of one year from the end of the month
in which the reference was received from the Initiating officer under Clause 13.
Once an order of confiscation has been made under all the rights and title in such property shall
vest absolutely in the Central Government free of all encumbrances and no compensation will be
payable in respect of such confiscation.
The Administrator will have the power to receive and manage the property so confiscated.
{Under the Benami Transactions (Prohibition) Act, 1988, it is only mentioned that all
properties held benami will be subject to acquisition by such authority and procedure as
prescribed. It also mentions that no amount will be payable for the acquisition of any
property.}

Appellate Tribunal – (Chapter V)

The Appellate Tribunal established under section 25 of the Prevention of Money-Laundering
Act, 2002 shall be the Appellate Tribunal for the purposes of this Act also.
Any person aggrieved by the order of the Adjudicating Authority can appeal to the Appellate
Tribunal within 45 days from the date of such order. The Appellate Tribunal should as far as
possible hear and decide the appeal within a period of 2 years from the last date of the month in
which the appeal is filed.
Rectification of mistakes apparent on the face of the record should be done within a period of
one year from the end of the month in which the order was passed by the Appellate Tribunal or
the Adjudicating Authority.

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Any person aggrieved by the order of the Appellate Tribunal can appeal to the High Court within
120 days from the date of communication of the order.

Special Courts – (Chapter VI)

The Central Government, in consultation with the Chief Justice of the High Court can designate
one or more Courts of Session as Special Court or Special Courts for trial of an offence
punishable under the Bill for such area or areas or for such case or class or group of cases as may
be specified in the notification.
The Special Court shall not take cognizance of any offence punishable under this Act except
upon a complaint in writing made by (i) the authority; or (ii) any officer of the Central
Government or State Government authorised in writing in this behalf by the Central Government
by a general or special order made in this behalf by that Government.
Every trial should be conducted as expeditiously as possible and conclude the trial within six
months from the date of filing of the complaint.
The Code of Criminal Procedure, 1973 will apply to the proceedings before the Special Court.

Offences and penalties – (Chapter VII)

Any person who enters into benami transactions, or abets or induces another person to enter into
such transactions shall be punishable with an imprisonment for six months to two years and also
liable to a fine of upto 25 per cent of the fair market value of the property held in benami.
(Clause 27)
Any person who willfully gives false information shall be liable to an imprisonment of three
months to two years and a fine of upto 10 per cent of the fair market value of the property.
(Clause 28)
Prior sanction of the Approving Authority is required for initiating prosecution under Clause 27.

Miscellaneous – (Chapter VIII)

An offence under this Bill is non-cognizable and bailable.
Where a person dies during the course of any proceeding under this Bill, any proceeding taken
against the deceased before his death shall be deemed to have been taken against the legal heir

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and may be continued against the legal heir from the stage at which it stood on the date of the
death of the deceased.

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 21. OVERVIEW OF THE WHISTLEBLOWERS’ PROTECTION ACT, 2011

The Whistle Blowers Protection Bill, 2011 was passed by the Lok Sabha on 27th December,
2011. The Bill as passed by the Lok Sabha was finally passed by the Rajya Sabha on 21st
February, 2014 and received the assent of the President on 9th May, 2014. As the Bill was taken
up on the last day of the last Session of the 15th Lok Sabha, the official amendments to the Bill
(aimed at safeguarding against disclosures affecting sovereignty and integrity of India, security
of the State, etc.) were not moved. The proposed amendments are of crucial nature and,
therefore, the Act can be brought into force only after necessary amendments are carried out.
Rules under the Act can be notified only after the Act is brought into force.

The Act provides for adequate safeguards against victimization of the person making disclosure
on any allegation of corruption or willful misuse of power or willful misuse of discretion against
any public servant. It is also provided that if the Competent Authority is of the opinion that either
the complainant or public servant or the witnesses, etc. need protection, the Competent Authority
shall issue appropriate directions to the concerned Government authorities (including police)
which shall take necessary steps, through its agencies, to protect such complainant or public
servant or persons concerned.
 The Whistleblowers Protection Act, 2011, which provides a mechanism for protecting the
identity of whistleblowers — a term given to people who expose corruption
 Whistleblowers may make complaints about corruption (as defined in the Prevention of
Corruption Act, 1983), willful misuse of power or discretion which may lead to
demonstrable loss to the Government or wrongful gain to any person including a public
servant; and commission of or attempts to commit offences recognized under law by any
public Servant to the competent authority
 Authorities are competent to receive whistleblower complaints include
o The Prime Minister at the Centre and the Chief Minister in the States against
Ministers of the Union or the States respectively; ‐
o The respective Chairpersons of the House against members of Parliament or the
State Legislatures (other than those who may be Ministers); ‐

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 o The High Court in relation to any judge or judicial officer or arbitrator in the
States (judges of the High Courts and the Supreme Courts are not covered by this
law as the Judicial Standards and Accountability Bill is pending.
o The Central Vigilance Commission or such other authority as the Central
Government may notify for all other public authorities and public sector
undertakings at the Union level; and
o The State Vigilance Commission or such other authority as the State Government
may notify in due course to receive complaints against public authorities and state
level public sector undertakings
 As per the law, a person can make a public interest disclosure on corruption before a
competent authority —— which is at present the Central Vigilance Commission (CVC).
The government, by notification, can appoint any other body also for receiving such
complaints about corruption, the Act says.
 The Act, however, lays down punishment of up to two years in prison and a fine of up to
Rs 30,000 for false or frivolous complaints.
 The Act says that every disclosure shall be made in good faith and the person making the
disclosure shall provide a personal declaration stating that he reasonably believes that the
information disclosed by him and the allegation contained therein is substantially true
 The definition of ‘disclosure’ has also been amended to include wilful misuse of power or
discretion, which leads to a demonstrable loss to the government or a demonstrable gain
to a public servant or any third party. The definition of competent authority to which a
complaint can be made has also been expanded.
 Disclosures can be made in writing or by email or email message in accordance with the
procedure as may be prescribed and contain full particulars and be accompanied by
supporting documents, or other material, the Act states
 No action shall be taken on a disclosure if it does not indicate the identity of the
complainant or public servant or if “the identity of the complainant or public servant is
found to be incorrect”.
 Information related to national security has been kept out of the purview of the Act. The
Act is not applicable to Jammu and Kashmir, the armed forces and the Special Protection

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Group mandated to provide security to the Prime Minister and former prime ministers,
among others.

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22. PROFESSIONAL OPPORTUNITIES UNDER PREVENTION OF MONEY
LAUNDERING ACT, 2002

1. As a consultant providing
a. His vast expertise in handling huge quantitative data for verification of the exact
nature of transactions.
b. Building effective AML programs for the financial organisations to protect them
from the potential threats.
c. Assist reporting entities in preparation of transactions reports under the PML Act
2. As the trusted partner of the government,
a. Ensuring implementation of the Act in letter and spirit.
b. KYC AUDIT
3. KYC audit
a. Customers due diligence procedures to confirm identity of Client from the records
produced by him.
b. Systems audit for checking Identity from external database.
c. Formulating and implementing the programme of KYC which is to be forwarded
to Director in PMLA [Rule 9 sub rule (7) of the PML maintenance of records of
the nature and value … rules].
4. Risk Advisory services (RAS), identifying the risk & its mitigating controls in the
systems for proper internal control environment.
5. Management Advisory service (MAS), creating proper administrative and organisation
structure to ensure the loop free information
6. Evaluating the adequacy of AML software
7. Internal audit, adherence to Rule 3 [PML maintenance of records of the nature and value
… rules] for vetting the transactions at specified limits.
8. Appearance before the Enforcement Directorate as a matter of authorised representation
9. Consultants to the Enforcement Directorate and Adjudicating Authority
10. Authorized representation - A person preferring an appeal to the Appellate Tribunal may
use the assistance of an authorized representative (as defined in S 288(2) of the Income

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 Tax Act,1961) to present his case before the Appellate Tribunal. (Section 39(1) of the
Prevention of Money-laundering Act, 2002)
11. Member to Appellate Tribunal Act -A practicing Chartered Accountant can become a
member of ‘Appellate Tribunal’, which hears appeals against the orders of the
Adjudicating Authority and authorities. (Section 28(2) of the Prevention of Money-
laundering Act, 2002)
12. Assisting the enforcement of PMLA, 2002 – Sec 54 of the PMLA, 2002 requires the
assistance of Chartered Accountants for inquiry and other related services namely
1. Attachment
2. Survey
3. Search
4. Seizure

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 23. USEFUL WEBSITES

Financial Intelligence Unit- India - http://www.fiuindia.gov.in/

FIInet Gateway - https://finnet.gov.in/

Directorate of Enforcement - http://www.directorateofenforcement.gov.in/

Ministry of Finance - http://www.finmin.nic.in/

Insurance Regulatory and Development Authority - http://www.irdaindia.org/

Reserve Bank of India - http://www.rbi.org.in/

Securities and Exchange Board of India - http://www.sebi.gov.in/

Financial Action Task Force on Money Laundering (FATF) - http://www.fatf-gafi.org

Asia/Pacific Group on Money Laundering (APG) - http://www.apgml.org/

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 24. ABOUT THE AUTHOR

Mr. Rajkumar Adukia is an eminent consultant, writer, and speaker. He is a rank holder from
Bombay University and did his graduation from Sydenham College of Commerce & Economics.
A Chartered Accountant, Company secretary and Cost and Management Accountant, he was
among the top rank holders in the courses. Mr. Adukia also holds a degree in law. He has been
involved in the activities of the Institute of Chartered Accountants of India (ICAI). In addition to
being a Council Member of the ICAI, he is actively involved in various committees of ICAI. He
is currently the Chairman of Committee for Co-operatives and NPO Sectors and Ind AS (IFRS)
Implementation Committee. He is also the convenor of the Study Group on Indian Economy,
ICAI.

He has been coordinating with various professional institutions, associations’ universities,

University Grants Commission and other educational institutions and has actively participated
with accountability and standards-setting organizations in India and at the international level.

Based on his rich experience, he has written numerous articles on varied topics and has
travelled across 70 countries for his presentations on accounting (IFRS), Finance (Taxation),
Financial Planning, Real Estate, Commercial, Economic and Labour Laws, International Trade,
Forensic Audit, Internal Audit, Corporate Governance, Corporate Social Responsibility,
Climate Change and Carbon Credits Mechanism etc. His authoritative articles appear in
financial papers like Business India, Financial Express, Economic Times and professional and
business magazines. He has written over a 100 books on vast range of topics. His books are
known for their practicality and for their proactive approaches to meeting practice needs.

Mr. Adukia is a frequent speaker at seminars and conferences organized by the Institute of
Chartered Accountants of India, various chambers of Commerce, income tax offices and other
professional and industry associations. He has extensive experience as a speaker, moderator
and panelist at workshops and conferences held for both students and professionals across the
country and abroad.

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