PMLA, 2002

Basics  It is the processing of criminal proceeds to disguise its illegal origin Stages of Money Laundering
 This act came into force on July 1, 2005 Placement  Layering  Integration

Offence of
Money Whosoever directly or indirectly including its shall be guilty of
Laundering  attempts to indulge or  concealment,  possession money-
 knowingly assists or any process or laundering
(Sec. 3) activity connected  acquisition  use
 knowingly is a party or with the PROCEEDS  projecting as untainted property or
 is actually involved in OF CRIME  claiming it as untainted property

PROCEEDS OF CRIME Means property of every description & includes

PROPERTY deeds & instruments evidencing title to property
 any PROPERTY derived by any person
 as a result of criminal activity relating to a  Offence under Part A of the Schedule
SCHEDULED OFFENCE SCHEDULED  Offence under Part B of the Schedule if value
OFFENCE involved in offence ≥ 1 crore
 Offence under Part C of the Schedule

Punishment for
Money Nature of Offence Rigorous Imprisonment Fine
Laundering
If proceeds of crime relate to offences under the Narcotic Drugs and Psychotropic Minimum – 3 Years No Limit
(Sec. 4) Substances Act, 1985 Maximum – 10 years

Other cases of Money Laundering Minimum – 3 Years No Limit

Maximum – 7 years

Obligations of REPORTING ENTITY

Person carrying on a designated business or

Financial Institution Intermediary Banking Company profession

 Financial institution as  Intermediary under SEBI Act  Person carrying on activities for playing game of chance
defined u/s 45-I(c) of RBI  Association registered under (including Casino)
Act & includes Forward Contracts (Regulation)  Registrar or Sub-registrar under Registration Act
 Chit fund company Act, 1952 or its members
 NBFC  Real estate agent, notified by CG
 Housing Finance Institution  Intermediary under PFRDA  Dealer in precious metals, notified by CG
 Authorised Person  Recognised stock exchange  Persons engaged in safekeeping of cash & liquid securities
 Department of Posts
 Payment system operator  Person carrying on activities notified by CG

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
Payment System
Includes debit or smart card operations, money transfer operations or similar operations

Verification of Modes of Identification  If Reporting entity uses mode (a), it shall

Identity by make other modes also available
Reporting Every Reporting Entity shall verify identity of its clients by
Entity a. Authentication under Aadhaar Act, if Banking Co.  The use of modes shall be voluntary choice of
b. Offline verification under Aadhaar Act clients
(Sec. 11A) c. Use of Passport
d. Any other official valid document notified by CG  If clause (a) or (b) is used, core-biometric or
Aadhaar number shall be stored
If other Reporting Entitles complies with standard of privacy, CG may
authorise them to use mode (a)
Reporting Maintenance of Records Time period for Maintaining Records
Entity to
maintain a. Record of all transactions so as to enable it to reconstruct individual  In point a, for 5 years from date of transaction
Records TRANSACTIONS
b. FURNISH to DIRECTOR information relating to transactions, their nature
(Sec. 12) & value  In point c, for 5 years after
c. Maintain record of documents evidencing IDENTITY of clients  End of business relation; or
Note - Every information shall be kept confidential  Closure of account
whichever is later
Note – CG may exempt any entity

CA Harsh Gupta PMLA, 2002

Access to  The DIRECTOR may call for from any reporting  Every reporting entity shall furnish to the Director such information
Information entity any record and any additional information
as he considers necessary
 Every information sought by the Director, shall be kept confidential
(Section 12A)
Enhanced Due Reporting entity shall prior to commencement of a  In case of failure of enhanced due diligence, the transaction shall
Diligence SPECIFIED TRANSACTION not be allowed
(Section 12AA)  Verify identity of the clients  In case of suspicion, increase future monitoring
 Examine financial position of the client  Maintain the records for 5 years
 Record the purpose of transaction
Power of Inquiry Audit Steps in case of Non-compliance
Director to
impose Fine
Director may make  If director is of the opinion, he If director finds any non-compliance, he may
INQUIRY with regard may direct reporting entity to  Issue a warning
(Sec. 13) to obligations of the get its records AUDITED
Reporting Entity  Direct entity to comply with specific instructions
 Expenses of audit shall be  Direct entity to send report at prescribed intervals
borne by CG
 Impose Penalty = 10,000 to 1,00,000
No Proceedings The reporting entity shall not be liable to any civil or criminal proceedings for furnishing information u/s 12
(Sec. 14)

Attachment, Adjudication & Confiscation

Attachment of
Property
involved in
Money
Laundering
(Sec. 5)

Adjudication On receipt of complaint, AA may serve a NOTICE of ≥ 30 days on such After

(Sec. 8) person calling him to indicate  Considering the reply to the notice;
 Sources of his income, out of which property was acquired  Hearing he aggrieved person & director; and
 Evidence on which he relies  Taking into account all material on record
 Other relevant information; and
AA shall by an ORDER, record a finding whether the
 To show cause why such property should not be confiscated by CG property is involved in money-laundering or not

Where AA CONFIRMS THE ATTACHMENT, such attachment shall

a. continue during investigation for a period
On such confirmation,
– ≤ 365 days; or Director shall forthwith take
– Pendency of the proceedings relating to any offence under this Act before a the possession of the
Court property attached
b. Become final after an order of confiscation is passed by Special Court
Where Trial is conducted and Special Court finds that the offence of money laundering Where Trial cannot be conducted or
concluded
Has been committed Has NOT been committed
Special Court shall pass appropriate
It shall order CONFISCATION of property to It shall order RELEASE of such order regarding Confiscation or
CG property Release

Where the property is confiscated, Special Special Court shall not consider such claim, unless
Court may also direct CG to RESTORE such  the claimant acted in good faith &
property to a CLAIMANT with legitimate  has suffered loss despite taking reasonable precautions &
interest who may have suffered quantifiable  is not involved in money laundering
loss as a result of money-laundering

CA Harsh Gupta PMLA, 2002

Vesting of Where the Special Court or AA,
Property in CG  after giving SCN to any other person interested in the property attached
Where an order of confiscation has  is of the opinion that any encumbrance on the property has been created
(Sec. 9) been made, all the rights in such with a view to defeat the provisions of this Chapter,
property shall vest absolutely in CG
free from all encumbrances  it may declare such encumbrances to be void
 But this will not discharge the liability towards the person in whose favour
encumbrance was created

Management of
confiscated CG may by order appoint any officer (not
properties Administrator shall receive and Administrator shall also take measures, as
below Joint Secretary) as an manage the property CG may direct, to dispose of the property
(Sec. 10) ADMINISTRATOR

Powers of AA  discovery & inspection  receiving evidence on affidavits

(Sec. 11) AA shall have the following  enforcing attendance of any person  issuing commissions for examination of
powers of a Civil court
 compelling production of records witnesses

APPELLATE TRIBUNAL (AT)

Establishment
(Sec. 25) AT constituted under the Smuggler & Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 shall be AT in this Act

Appealable Orders Time period of Orders of AT

Appeal
 AT may confirm, Person aggrieved by
 Director or any person aggrieved modify or set aside the order of AT, may
by order of AA, may prefer an Within 45 days of
Appeal to AT receipt of order order appealed against Appeal to HC file an appeal to
appeal to AT HC within 60 days
+
(Sec. 26)  AT shall endeavour to (Sec. 42) + further extension
 Reporting Entity aggrieved by Further extension on dispose of appeal upto 60 days
order of Director, may prefer an sufficient cause
within 60 days
appeal to AT

Powers of AT  discovery & inspection  receiving evidence on affidavits

(Sec. 35) AT shall have the following  enforcing attendance of any person  issuing commissions for examination of
powers of a Civil court
 compelling production of records witnesses

Decision by If 2 members bench differ in opinion, they Civil Courts

Majority shall make a reference to Chairman, who not to have No civil court shall have jurisdiction to entertain any suit or
(Sec. 38) shall jurisdiction order any injunction in respect of any matter which the
 hear points himself; or Director, an AA or AT is empowered to determine.
(Sec. 41)
 refer the case to third member of AT

SPECIAL COURTS
Establishment
(Sec. 43) For trial of offence punishable u/s 4, CG (in consultation of Chief Justice of HC) shall designate Special Court(s)

 Offence punishable u/s 4 are triable by Special Court

Triable  Special Court may take cognizance of offence u/s 3, without trial Applicability CrPC shall apply as
Offences  If any court, other than Special Court, take cognizance of the scheduled offence, it of CrPC if Special Court is a
shall commit the case to the Special Court Court of Session
(Sec. 44) (Sec. 46)
 Special court while trying an offence shall hold trial in accordance with CrPC

Offence to be No person accused of offence punishable with imprisonment of > 3 years under Part A
Cognizable & of Schedule shall be released on BAIL unless
Non-Bailable
1. Public Prosecutor has been given an opportunity to oppose such release; and
(Sec. 45) 2. Court is satisfied that he is not guilty & he is not likely to commit any offence while
on bail
Appeal & HC shall exercise
Exception – A person < 16 years; woman; sick; infirm or accused of money-laundering all powers
Revision
of sum < 1 crore may be released on Bail regarding appeal &
(Sec. 47) revision
Special Court shall not take COGNIZANCE OF OFFENCE u/s 4 except upon a complaint in
writing by –
a. Director b. Officer of CG or State Govt.
Note – No police officer shall investigate an offence under this Act, unless on order of CG

RECIPROCAL ARRANGEMENT
Agreements
with Foreign CG may enter into an agreement with  Enforcing the provisions of this Act
Countries foreign Govt. for  Exchange of information for prevention of offence under this Act

CA Harsh Gupta PMLA, 2002

  On application of Investigating Officer Special Court may issue a LETTER OF REQUEST to a court or authority
Letter of in the contracting state to
Request to a  that an evidence is required for
investigation; &  examine the facts & circumstances of the case;
Contracting
State  such evidence may be available in the  take steps specified in the letter of request; &
contracting state  forward all evidence so collected to Special Court
Assistance to a  Where letter of request is received by CG from a court or authority in a contracting state
Contracting
State  CG may forward such letter of request to the Special Court or Authority under this Act
Disclosure of The DIRECTOR MAY furnish to – If the Director is of the opinion,
Information 1. any officer or authority performing any functions under any law relating  that the provisions of any other law are
to imposition of any tax, duty or cess or to dealings in foreign exchange, contravened,
or prevention of illicit traffic in the narcotic drugs and psychotropic  then the Director SHALL share the
substances; or information with the concerned agency for
necessary action.
2. such other officer or authority performing functions as CG may specify
any information obtained by such Director

RECOVERY OF FINE & PENALTY

Punishment for
Vexatious Any officer who, without reasons recorded in writing  Imprisonment upto 2 years, or
shall be liable for
Search  searches any building or place; or  Fine upto 50,000, or
 detains or searches or arrest a person  both

Any person who wilfully gives false information If any person,

Punishment for causing an arrest or search, shall be liable for 1. being legally bound, refuses to answer any question before an authority
False  Imprisonment upto 2 years, or 2. refuses to sign a statement
information  Fine upto 50,000, or 3. to whom summon is issued, omits to attend or produce books of
 both account
(Sec. 63) [

he may be liable to Penalty = 500 to 10,000 for each failure

Cognizance of  No Court shall take cognizance of the offences mentioned hereinabove, except with previous sanction of CG
Offences
 CG shall give sanction within 90 days
Recovery of
Fine or Penalty Where fine or penalty is not paid within 6 months, the Director shall have the powers of Tax Recovery Officer

Offence by  If contravention is committed by Further, if it is proved that offence committed Company means any body
Companies company, every person in charge as with consent of any director, manager, corporate & includes firm or other
well as company shall be guilty secretary or other officer, such officer shall association of individuals
also be guilty
Exception – If he proves that offence was Director in relation to firm means
committed without his knowledge partners
Continuation of
Proceedings on any property has been any appeal has been After passing of a decision any appeal has been
death or attached under section 8 and preferred to AT, and - by AT and no appeal has preferred to the High
insolvency no appeal has been preferred; been preferred to the High Court, and -
and Court; and

such person dies or is such person dies or is such person dies or is such person dies or is
adjudicated an insolvent adjudicated an insolvent adjudicated an insolvent adjudicated an insolvent
before preferring an appeal to during the pendency of before preferring an appeal during the pendency of
AT the appeal, to the High Court the appeal,

legal representatives or the legal representatives or legal representatives or the legal representatives or
official assignee/ receiver may the official assignee/ official assignee/ receiver the official assignee/
prefer an appeal to AT receiver can continue the may prefer an appeal to receiver can continue the
appeal before AT the High Court appeal before High Court

CA Harsh Gupta PMLA, 2002