ANTI-MONEY LAUNDERING

In India, before the enactment of the Prevention of Money Laundering

Act 2002, a number of statutes addressed scantily the issue of money
laundering. These statutes were
o The Conservation of Foreign Exchange and Prevention of
Smuggling Activities Act, 1974
o The Income Tax Act, 1961
o The Benami Transactions (Prohibition) Act, 1988
o The Indian Penal Code and Code of Criminal Procedure, 1973
o The Narcotic Drugs and Psychotropic Substances Act, 1985
o The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic
Substances Act, 1988
India has criminalised money laundering under both the Prevention of
Money Laundering Act, 2002 (PMLA), as amended in 2005 and 2009,
and the Narcotic Drugs and Psychotropic Substances Act, 1985
(NDPS Act), as amended in 2001.

PMLA (PREVENTION OF MONEY LAUNDERING

ACT)

Brought into force from 1st July, 2005; amended in 2009 and 2013
Main Components of PMLA
Money laundering, predicate offences, proceeds of crime
ML: the processing ofcriminal proceeds to disguise their
illegal origin in order to legitimize the ill-gotten gains of crime
(FATF)
Investigation and prosecution for ML offences
Intelligence: FIU
Obligations of the financial sector entities
Powers to seek additional information
Penalty for non compliance
Director has powers of civil court
Disclosures only to specified agencies
Immunity from civil or criminal proceedings
Penalties for non-compliance

ACTS AND OFFENCES WHICH ATTRACT PMLA

An offence which is the offence of Cross Border implications
and is specified in Part A of Schedule under PMLA, or
The offences against property under Chapter XVII of the
Indian Penal Code is applicable, involving cross border
implications.
Offences under The Indian Penal Code, 1860 relating to
Cheating, Counterfeiting of Government stamps, Dishonest
or Fraudulent removal or Concealment of Property to prevent
distribution among creditors, dishonestly or fraudulently
preventing debt being available for creditors, Dishonest or
Fraudulent execution of deed of transfer containing false
statement of consideration
Offences under the Narcotic Drugs and Psychotropic
Substances Act, 1985
Offences under the Prevention of Corruption Act, 1988;

ACTS AND OFFENCES WHICH ATTRACT PMLA

contd..

Offences under the Securities and Exchange Board of India Act,

1992 including offences relating to
Prohibition of manipulative and deceptive devices,
Insider Trading and substantial Acquisition of securities or
control
Offences under the Customs Act, 1962 relating to evasion of
duty or prohibitions;
Offences under the Emigration act, 1983
Offences under the Foreigners act, 1946
Offences under the Antiquities and Arts Treasures Act, 1972
Offences Under The Copyright Act, 1957, including
Offence of infringement of copyright or other rights conferred
by Copyright Act.
Knowing use of infringing copy of computer programme

ACTS AND OFFENCES WHICH ATTRACT PMLA

contd..

Offences under the Trade Marks Act, 1999 including

Application of false trademarks, trade descriptions, etc.
Selling goods or providing services to which false trademark
or false trade description is applied.
Falsely representing a trade mark as registered.
Abetment in India of acts done out of India.
Offences under The Information Technology Act, 2000,
including
Breach of confidentiality and privacy,
Offence or contravention committed outside India.
Offences under the Suppression of Unlawful Acts Against
Safety of Maritime Navigation and Fixed Platforms on
Continental Shelf Act, 2002

PUNISHMENT UNDER PMLA

Section 4 of PMLA prescribes the Punishment for Money-Laundering
as under:
Rigorous Imprisonment for a term
which shall not be less than Three years, but
which may extend to 7 years/10 years, and
shall also be liable to fine.
In certain cases, the offences under Narcotic Drugs and
Psychotropic Substances Act, 1985 are punishable with rigorous
imprisonment upto 10 years. The fine under PMLA is without any
limit and the same may be commensurate to the nature and extent
of offence committed and the money laundered.
Arrests : Under Section 19 of PMLA, the appropriate authority
under the Act has the power to arrest any person provided there is
reason to believe that such person has been guilty of any offence
punishable under PMLA.

PUNISHMENT UNDER PMLA contd..

Attachment, Adjudication and Confiscation
Under Section 5 of PMLA, the appropriate authority may,
by order in writing, provisionally attach property for a
period not exceeding 180 days from the date of the order,
in such manner as may be prescribed.
Attachment of third party properties
Under PMLA, even the property of any person may be
attached under Section 5(1) 2nd Proviso, if the
designated officer has reason to believe that the property
in possession of such person is involved in MoneyLaundering, and the non attachment will frustrate any
proceedings under the Act

LEGAL FRAMEWORK UNDER PMLA

Reporting
Entities
(Banks,
Financial
Institution,
Obligation
u/s
Intermediaries)
12 of PMLA
Maintain
Information
Furnish
Information
STR
CTR
CCR
NTR
Client /BO
Identification
Appoint PO &
DD

Financial
Intelligence
Unit- India (FIUIND)
Central national
agency to
receive,
process, analyze
and disseminate
financial
intelligence to
Intelligence and
Law
Enforcement
Agencies
(IAs/LEAs)
included/notifie
d u/s 66 of
Feedback
PMLA

Intelligence and
Law
Enforcement
Agencies
(Domestic)
IAs/LEAs
included/notifie
d u/s 66 of
PMLA
Tax
Authorities
(CBDT & CBEC)
IB/ NIA
CEIB
SFIO/MCA
CBI
ED
State Police
Deptt.

LEGAL OBLIGATIONS UNDER PMLA

PMLA and the Rules impose obligations on

banking companies

financial institutions

intermediaries of the securities market

maintain records

furnish information

verify identity of clients

to

UAPA The Unlawful Activities(Prevention)

Act
Under UAPA, Central Govt. is empowered to freeze, seize or
attach funds and other financial assets or economic resources
held by:

On behalf of or at the direction of the individuals or

entities listed in the schedule to the order

Any other person engaged in or suspected to be

engaged in terrorism

It prohibits any individual or entity from making any funds,

financial assets or economic resources or related services
available for the benefit of the individuals or entities listed in
the schedule to the order

AML - 3D APPROACH
Deterring

Detecting

Disrupting

Adherence to KYC Norms

Activity Indicators
Transaction Monitoring

Reporting transactions

12

AML FRAMEWORK IN BANKS

Know Your
Customer
(KYC)
AML
Framework
Transaction
Monitoring

Due diligence measures

Basic
Enhanced
Name Screening
Account opening stage
Legacy customers
Screening of Cross Border
Transactions
Pre defined rules based on
product , customer and
transaction risk
Identification of unusual
transactions
Confirmation of Suspicion

Training
FIU
Reporting
*
Regulator
y
Interface
Updates
to Senior
Mgmt
Audit

* Includes STR, CTR, CCR, NTR &

CCR

13

INTERNATIONAL FRAMEWORK - FIU

Established by the G-7 Summit that was held in Paris
in 1989
An inter-governmental body / Post 09/11
Purpose - Development and promotion of policies,
both at national and international levels,
o to combat money laundering and terrorist
financing.
o 34 countries, India is being one of the observer
status
o Published 40 + 9 recommendations
o Political level commitment to comply with FATF
recommendations

INTERNATIONAL FRAMEWORK - FIU

FATF (Financial Action Task Force) recommendations
are international standards on AML/CFT
Countries are assessed on these standards (by FATF,
IMF, World Bank)
R 29 of FATF specifically relates to FIUs
Egmont Group of FIUs (since 1995):
139 countries
sets operational standards

FIU - INDIA
FIU-India is the central national agency of India
responsible for
Receiving,
processing,
analysing
and
disseminating information of suspect financial
transactions.
Coordinating and strengthening efforts of
national
and
international
intelligence,
investigation and enforcement agencies in
combating money laundering and related
crimes.

FIU-INDIA - FRAMEWORK
Reporting Entities
Banking Company
Financial
Institutions
Intermediaries

Regulators
RBI

Regulators

SEBI
IRDA

RBI
SEBI
IRDA

Intel./Law Enf. Agencies

IB
NIA
CEIB
CBDT-DGIT/CCIT
CBECDGDRI/DGCEI
ED
EOW of Police
EOW of CBI

Foreign FIU

FIUIND

Intel./Law Enforcement
IB
NIA
CEIB
CBDT-DGIT/CCIT
CBECDGDRI/DGCEI
ED
EOW of Police
EOW of CBI

Foreign FIU

ENTITIES SUBMITTING REPORTS TO FIU

Banking
Companies
Public sector
banks
Private Indian
banks
Private foreign
banks
Co-operative
banks
Regional rural
banks

Financial
Institutions
Insurance
companies
Hire purchase
companies
Chit fund
companies
Housing finance
institutions
Non-banking
financial companies
Payment system
operators*
Authorized money
changers
India Post

Intermediaries
Stock brokers ; Sub-brokers
Share transfer agents
Registrars to issue
Merchant bankers
Underwriters
Portfolio managers
Investment advisers
Depositories and DPs
Custodian of securities
Foreign institutional investors
Venture capital funds
Mutual funds
Intermediary regulated by
FMC
Intermediary regulated by
PFRDA
Recognized stock
exchanges

DNFBP
Casino
Registrar or
Sub-registrar
Real Estate
Agent
Dealer in
precious metals,
precious stones
and other high
value goods
Private Locker
operators
(upon notification
by the Central
Govt.)

KEY REQUIREMENTS FOR EFFECTIVE AML

KYC and AML policy framework
Adequate and accurate information on customers and their
activities
Employee awareness and training
Technology to enable processes and methodologies to
capture customer details, generate alerts, collect and
analyse information
Knowledge of indicators, rules and parameters to assess
various types of risks and detect suspicious transactions
Adherence to KYC-AML policy Ongoing Evaluation

ANTI-MONEY LAUNDERING
MEASURES
Observing
Rules for
Bankers

Compliance
with Laws

Money
Laundering
Prevention

Identifying
Irregular /
Suspicious
Transactions

Customer due
Diligence

MEASURES TO DETER MONEY

LAUNDERING
Board and management oversight of AML risks
Appointment a senior executive as principal officer
with adequate authority and resources at his
command
Systems and controls to identify, assess & manage
the money laundering risks
Make a report to the Board on the operation and
effectiveness of systems and control
Appropriate documentation of risk management
policies, their application and risk profiles

MEASURES TO DETER MONEY

LAUNDERING
Appropriate measures to ensure that ML risks are
taken into account in daily operations, development
of new financial products, establishing new
business relationships and changes in the
customer profile
Screening of employees before hiring and of those
who have access to sensitive information
Appropriate quality training to staff
Quick and
transactions

timely

reporting

of

suspicious

CHALLENGES IN IMPLEMENTATION
Software solutions and mindset of bankers need to be one
step ahead of the launderer (gets smarter every day).
To catch a crook, think like one
Ocean of data that is made up of millions of transactions daily,
complex customer relationships,
diverse monetary instruments,
numerous transaction channels and
international reach
Each factor involving a suspicious transaction may be
insignificant but together they may raise suspicion

CHALLENGES IN IMPLEMENTATION
Protecting legitimate and innocent customers even while
some of their transactions may raise suspicion.
It is like subjecting ourselves to frisking at Airport Security
Checks
Millions of other genuine passengers are frisked for the
sake of my safety
Similarly I am frisked for the safety of other genuine
passengers
Similar is the situation under AML too

CHALLENGES IN IMPLEMENTATION
Dependence only on pre-defined rules tend to be an
ineffective tool.
Detection of odd suspicious behaviour Needle in a
haystack.
Absence of uniform identification documents coupled with
centralised validation mechanism
Unwieldy number of false positive alerts
Detection of suspicious account conduct through account
behavioural analysis
Technology alone is not sufficient - Acquiring full knowledge
of different, new and emerging techniques of money
laundering is important

AML IMPLEMENTATION BALANCING

ACT
Regulatory
safeguards

Customer
convenience

Comply with regulations

But take care of genuine customers
Sensitise the staff
Educate the customers on need for AML
Seek information tactfully without offending the
customer

SCANNING OF CUSTOMERS WITH SANCTION

LISTS
As per RBI/FIU guidelines, banks should ensure that -

the name of the proposed customer does not appear in

the following lists of individuals and entities:
o Al Qaida Sanctions List (Individuals, groups and entities
associated with the Al Qaida) under UNSCR
o 1988 Sanctions List (Individuals, groups and entities
associated with the Taliban) under UNSCR
o Lists under UAPA - Unlawful Activities (Prevention) Act,
1967
o OFAC (Office of Foreign Assets Control) list
o SDN (Specially Designated Nationals) list
o NIA (National Investigating Agency) list

SCANNING OF CUSTOMERS WITH SANCTION

LISTS
As per RBI/FIU guidelines, banks should also
scan all existing accounts to ensure that
no account is held by or linked to any of the
entities or individuals included in the above
lists.
In case any match with the list is found, full
details of accounts bearing resemblance
with any of the individuals/ entities in the list
should immediately be intimated to RBI and
FIU-India.

MAINTENANCE OF RECORDS UNDER

PMLA
As per PML Rules, Banks are required to maintain and
preserve for at least five years the records pertaining
to
Identification of the customer and
His address (e.g. copies of documents like passports,
identity cards, driving licenses, PAN card, utility bills
etc.)
obtained
While opening the account and
during the course of business relationship,
after the business relationship is ended.

MAINTENANCE OF RECORDS UNDER

PMLA
As per PML Rules, Banks are required to maintain and
preserve for at least five years the Record of
All the transactions
eg. Nature, Amount, Date, Currency and parties to the
transaction
between the bank and the client
from the date of transaction
both domestic or international

THE WAY FORWARD

Be convinced that AML is here to stay
Dont just comply; comply in spirit
Think beyond the narrow; not just as a compliance
requirement
Adopt a strategic approach of Compliance + Business
Use AML solution for effective compliance and beyond
Educate and sensitise staff
Free banks from integrity and reputation threats
In the process, make our country an honourable financial
hub in the global market

Thanks