Anti-Money Laundering Laws in India

The successive governments in India, since independence, being aware of the ground realities,
have been at various times, proactive in the formulation of laws and legal mechanisms to counter
the effects of money laundering and break the existing networks.
In India, before the enactment of the Prevention of Money Laundering Act 2002, a number of
statutes addressed scantily the issue in question. These statutes were 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.
Money Laundering is a global menace that cannot be contained by any nation alone. The
Prevention of Money Laundering (Amendment) Bill 2011 was necessitated in view of India
being an important member of the Financial Action Task Force and to bring prevention of money
laundering legislation on par with global norms. The said Bill is still pending for approval in the
Parliament.
The major pieces of legislation preceding the Prevention of Money Laundering Act, 2002 or the
PMLA, inter alia, which directly or indirectly aim to curb and combat money laundering
activities are noted and listed in the following manner:

The Prevention of Money Laundering Act, 2002

The Prevention of Money Laundering Act, 2002 or the PMLA is an Act of the Parliament of
India enacted to prevent money-laundering and to provide for confiscation of property derived
from money-laundering.
The PMLA and the Rules notified there under came into force with effect from July 1, 2005. The
Act and Rules notified thereunder impose obligation on banking companies, financial
institutions, and intermediaries to verify identity of clients, maintain records and furnish
information in prescribed form to the competent authorities formed and appointed in that regard
[e.g., Financial Intelligence Unit – India (FIU-IND)]. The Act was subsequently amended in the
years 2005, 2009 and 2012.

The Objectives
The PMLA seeks to combat acts pertaining to money laundering in India and in view of this, it
mainly has three main objectives:

 To prevent and control money laundering

 To confiscate and seize the property obtained from the laundered money; and
 To deal with any other issue connected with money laundering in India.

Key Concepts in the PMLA

The PMLA, it may be reiterated, is the most exhaustive piece of legislation meant to identify acts
and practices pertaining to money laundering and combat the effects thereof. Within its ambit, a
number of concepts have been defined, described and dealt with in detail, which would have a
direct reference to money laundering activities.
Some of such key-concepts are discussed hereinafter in the following manner.

Money-laundering
The concept of money laundering is described under section 3 of the PMLA, in a manner to
include those activities whereby there are ‘attempts to indulge or assist other person’ or become
‘involved in any activity connected with the proceeds of crime and projecting it as untainted
property’ are said to be activities which may be acts of money laundering.ii) Proceeds of crime:
This is one of the most important terms to be understood insofar as the aim is to understand the
scope of the term money laundering within the PMLA. This term is defined within the PMLA to
describe properties and assets acquired out of a criminal activity.

Beneficial Owners
Activities given effect with the ulterior motive to launder money, usually operate under a veil,
which makes it necessary to have the veil lifted out of monetary transactions and identify the
movement of money, and also identify the persons benefitting out of such transactions. Which is
why, the term beneficial owner has been used in many places throughout the PMLA.
The term ‘beneficial owner’ is defined under section 2(1) clause (fa) of the PMLA to mean a
person who ultimately owns or controls a client regarding a reporting entity, or someone on
whose behalf a transaction is effected and who is meant to reap the ulterior benefits out of such
transactions.
In addition to the aforementioned definition of ‘beneficial owners’ provided within the PMLA,
additional description are provided under the MASTER DIRECTION ON KYC NORMS ISSUED
BY RBI FOR REGULATED ENTITIES[2], to identify beneficial owners in respect of myriad
situations.
In accordance with the RBI regulations as such, the following provisions may be taken note of.

Company as a customer
Pursuant to the provisions of the section 3(a) (ii), in the event the customer is a company, the
beneficial owner is the natural person/s, who, whether acting alone or together, or through one or
more juridical person, has/ have a controlling ownership interest or who exercise control through
other means.
And in pursuance of the above provisions the following concepts used bear the meanings
attributed in the following manner.
The term “Controlling ownership interest” refers to the ‘ownership of/ entitlement to more than
25 per cent of the shares or capital or profits’ of the concerned company.
The term “Control” means and includes the right to appoint majority of the directors or to control
the management or policy decisions including by virtue of their shareholding or management
rights or shareholders agreements or voting agreements. Where the customer is a partnership
firm, the beneficial owner is the natural person(s), who, whether acting alone or together, or
through one or more juridical person, has/ have ownership of/ entitlement to more than 15 per
cent of capital or profits of the partnership. Where the customer is an unincorporated association
or body of individuals, the beneficial owner is the natural person(s), who, whether acting alone
or together, or through one or more juridical person, has/ have ownership of/ entitlement to more
than 15 per cent of the property or capital or profits of the unincorporated association or body of
individuals.
And the term “Central KYC Records Registry” (CKYCR) means and includes an entity defined
under Rule 2(1)(aa) of the Rules, to receive, store, safeguard and retrieve the KYC records in
digital form of a customer.

Payment System
The term payment system has been defined as a system that enables payment to be effected
between a person making a payment (designated as a ‘payer’ in the PMLA) and a beneficiary,
involving clearing, payment, or settlement service or all of them. It includes the systems enabling
credit card, debit card, smart card, money transfer or similar operations.

Adjudicating Authority
The Adjudicating Authority is the authority appointed by the central government through
notification to exercise its jurisdiction, powers, and authority conferred under the PMLA. It
decides whether any of the property attached or seized is involved in money laundering. The
Adjudicating Authority shall not be bound by the procedure laid down by the Code of Civil
Procedure, 1908, but shall be guided by the principles of natural justice and subject to the other
provisions of PMLA. The Adjudicating Authority shall have powers to regulate its own
procedure. Presumption in inter-connected transactions Where money laundering involves two or
more inter-connected transactions and one or more such transactions is or are proved to be
involved in money laundering, then for the purposes of adjudication or confiscation, it shall be
presumed that the remaining transactions form part of such inter-connected transactions.

Non-Profit Organizations
“Non-profit organisations” (NPO) means any entity or organisation that is registered as a trust or
a society under the Societies Registration Act, 1860 or any similar State legislation or a company
registered under Section 25 of the Companies Act, 1956.

Reporting Entities
The PMLA further has provisions pertaining to certain units known as ‘reporting entities’ within
its ambit. Within clause (wa) of section 2(1), reporting entities include banking company,
financial institution, intermediary or a person who may be carrying out a business or profession
specifically designated within the PMLA.

Designated Business or Profession

Within the ambit of the PMLA, certain businesses and professions and the persons associated
therewith are also included within the meaning of a ‘reporting entity’. Such persons include the
followings

 A person carrying on activities for playing games of chance for cash or kind, and
includes such activities associated with casino;
 A Registrar or Sub-Registrar appointed under Section 6 of the Registration Act, 1908,
as may be notified by the Central Government.
 Real estate agent, as may be notified by the Central Government.
 Dealer in precious metals, precious stones and other high value goods, as may be
notified by the Central Government.
 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
 Person carrying on such other activities as the Central Government may, by
notification, so designate, from time to time.
The above description is mentioned under the Section 2(1)(s) of the PMLA.

Procedure under the PMLA

Obligations of the Reporting Entities

The reporting entities are tasked under the provisions of the PMLA to perform the major
activities mandated by the law. In their specific capacities are obligated to perform certain
functions, which concisely include the followings:
 1. Maintenance of records;
2. Furnish information pertaining to such records;
3. Verification of identity of its clients by carrying out due diligence procedures;
4. Identification of beneficial owner, in respect of the transactions undertaken with its
various clients.
The aforesaid obligations in detail are provided under section 12 of the PMLA.
In addition to the above-mentioned obligations, it is also the duty of the reporting entities to
provide access to necessary information as and when called for by a director (appointed under
the provisions of the PMLA).
The necessary provisions in this regard occur under section 12A of the PMLA.
For all the obligations which are to be shouldered by a reporting entity, the PMLA specifically
gives exclusions to reporting entities against any kind of civil or criminal proceedings. Such
exclusion or exemption also extends to the directors and/or employees of the concerned reporting
entity.

Monetary Penalties on Reporting Entity

Notwithstanding the protection of law according to reporting entities, it may also be noted that
the reporting entities are also subject to vigilance and for obligatory violations, such reporting
entities may also get penalised.
In accordance with the provisions of Section 13(2)(d), it may be noted that reporting entities may
get penalised for non-maintenance of records or non-submission of information sought from such
reporting entity. As such, 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 instance of failure.

Burden of Proof
The offence of money laundering as noted under section 3 of the PMLA is considered an
aggravating one, and an accusation under the same shifts the onus of proof on the person accused
of having committed the offence, as such.
Following the provisions as noted above, In the case of a person charged with the offence of
money-laundering under section 3, the Authority or Court shall, unless the contrary is proved,
presume that such proceeds of crime are involved in money-laundering; and (b) In the case of
any other person the Authority or Court, may presume that such proceeds of crime are involved
in money-laundering.

Presumption of inter-connected transactions

In cases where money laundering was effected by involvement of two or more inter-connected
transactions and one or more such transactions is or are proved to be involved in money
laundering, then for the purposes of adjudication or confiscation, it shall be presumed that the
remaining transactions form part of such inter-connected transactions.
The relevant provision in this regard occur under section 23 of the PMLA.
Essentially, under PMLA, the burden of proof lies on the person who claims that the proceeds of
crime alleged to be involved in Money-Laundering, are not involved in Money-Laundering. The
presumption against the accused or any 3rd party is good enough to discharge the onus of the
authorities under PMLA.
Even in the case of Records, and Properties, which are found in the possession or control of any
person in the course of a survey or search under the Act (Section 16, Section 17 and Section 18
of PMLA), under a presumption is raised that such records or property belongs to such person,
and the contents of such records are true, and further that signatures and any part of such records
in hand-writing of a particular person or in the hand-writing of such person, the presumptions as
to the records in property are absolute, and the onus to prove the same otherwise, lies on such
person. It is clear that, a person accused of an offence under Section 3 of PMLA, whose property
is attached and proceeded against for Confiscation, shall discharge the onus of proof (Section 24)
vested in him by disclosing the sources of his Income, Earnings or Assets, out of which or means
by which he has acquired the property attached, to discharge the burden that the property does
not constitute proceeds of crime.
Where a transaction of acquisition of property is part of inter-connected transactions, the onus of
establishing that the property acquired is not connected to the activity of Money-Laundering, is
on the person in ownership, control or possession of the property, though not accused of a
Section 3 offence under PMLA, provided one or more of the interconnected transactions is or are
proved to be involved in Money-Laundering.

Attachment
Defined under section 2 clause 1(d), the term attachment refers to the procedure for transfer,
conversion, disposition or movement of property in pursuance of an order passed in accordance
with chapter III of the PMLA.

Kinds of Penalties under the PMLA

The PMLA is a piece of criminal legislation, where presumption of guilt has precedence and the
burden of proof lies on the person accused of a violation. Following this there are certain
penalties which are prescribed within the provisions of the PMLA.
The PMLA prescribes that any person found guilty of money-laundering shall be punishable
with rigorous imprisonment from three years to seven years and where the proceeds of crime
involved relate to any offence under paragraph 2 of Part A of the Schedule (Offences under the
Narcotic Drugs and Psychotropic Substance Act, 1985), the maximum punishment may extend to
10 years instead of 7 years.
Powers of attachment of tainted property Appropriate authorities, appointed by the Govt of India,
can provisionally attach property believed to be “proceeds of crime” for 180 days. Such an order
is required to be confirmed by an independent Adjudicating Authority.

The Authorities – PMLA

Section 48 of the PMLA lays down the provision on the authorities holding competence under
the Act. The authorities are as follows.

 Director or Additional Director or Joint Director,

 Deputy Director,
 Assistant Director, and
 such additional directors/officers whose appointment may be deemed necessary under
the provisions of the PMLA.
Special Court and Appellate Tribunals

Special Courts
Section 43 of Prevention of Money Laundering Act, 2002 (PMLA) says that the Central
Government, in consultation with the Chief Justice of the High Court, shall, for trial of offence
punishable under Section 4 of the PMLA, by notification, designate one or more Courts of
Session as Special Court or Special Courts for such area or areas or for such case or class or
group of cases as may be specified in the notification.
Section 43 and the relevant subsequent provisions in this regard.

Trial under Special Courts formed under the PMLA

Special courts formed under the provisions of the PMLA are empowered to take cognisance of
complaints made by an authority authorised in this behalf under the PMLA. And even if the
proceedings under the provisions of the PMLA are being conducted by a court other than a
special court under the PMLA, then the proceedings could be committed to the special courts
formed under the PMLA.
The relevant provisions under the PMLA occur under section 44 of the PMLA.

Appellate Tribunals
An Appellate Tribunal under the PMLA is a body which may be appointed by the (union)
Government of India. It is given the power to hear appeals against the orders of the Adjudicating
Authority, and any other authority under the PMLA.
Orders of the tribunal can be appealed in appropriate High Court (for that jurisdiction) and
finally to the Supreme Court.

Procedure of Appellate Tribunals

The appellate tribunals formed under the provisions of the PMLA to adjudicate upon orders of
the special courts, are not bound to follow the procedural requirements of the Code of Civil
Procedure.

Procedure of appeal to the Appellate Tribunals

Section 26 of the PMLA lays down the procedures pertaining to the filing of appeals to appellate
tribunals. The provisions therein specifically permit a ‘person aggrieved by an order made by the
Adjudicating Authority under this Act, may prefer an appeal to the Appellate Tribunal’.
Subsequently, appeals may also be preferred by reporting entities ‘aggrieved by any order of the
Director made under sub-section (2) of section 13, may prefer an appeal to the Appellate
Tribunal’.
Further, it is stipulated that appeals as such are to be filed within a period of forty-five days from
the date on which a copy of the order made by the Adjudicating Authority or Director is received
and it shall be in such form and be accompanied by such fee as may be prescribed. This is also
subject to the provision that the Appellate Tribunal may after giving an opportunity of being
heard entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that
there was sufficient cause for not filing it within that period. Once an appeal is received by the
Appellate Authority, the authority may give an opportunity of being heard to each concerned
party and subsequently pass such orders thereon as it thinks fit, confirming, modifying or setting
aside the order appealed against.

Representation
An appellant filing an appeal before an appellate tribunal may represent his case in person or
take the assistance of an authorised representative.
The relevant provision in this regard occur under section 39 of the PMLA.

Appeals to High Courts

In the event there are grievances against orders passed by an appellate tribunal, the aggrieved
party may take a further appeal against such order to the high court of competent jurisdiction.

Offences – Cognisable and Non-Bailable

The offences under the PMLA are to be treated as cognisable and non-bailable. The specific
provisions in relation thereto occur under section 45 of the PMLA.

Bar on Civil Proceedings

Section 67 of the PMLA specifically lays down that suits cannot be brought in any civil court to
set aside or modify any proceeding taken or order made under PMLA, 2002 and no prosecution,
suit or other proceeding shall lie against the Government or any officer of the Government for
anything done or intended to be done in good faith under the PMLA, 2002

Scheduled Offence
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 various pieces of
legislations relating to criminal activities which includes – 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, and so on. 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.