Prevent Money Laundering Act 2002 Guide

PREVENTION
OF
MONEY LAUNDERING ACT, 2002
Dr. K.I.PAVAN KUMAR
VEDHA INSTITUTE OF PROFESSIONAL STUDIESVIJAYAWADA, HYDERABAD- 8008999595, 9440442585
VEDHA INSTITUTE OF PROFESSIONAL
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How to earn bad money
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Smuggling
Abducting /kidnapping
Gambling
Fraud
Prostitution
drug trafficking
Committing any other crime
VEDHA INSTITUTE OF PROFESSIONAL STUDIES
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BAD MONEY

2

Converting bad into Good
the applicant within a
short time period
surrenders the policy,
requests the return of the
cash value

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Converting bad into Good
Launderer deposits bad money into the bank and
bank in turn provides the same money as loan.

LOAN-BACK
Scheme First
Money
Laundering
technique

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INTRODUCTION
• Came into force w.e.f. 1st July 2005
• It extends to whole of india
• Intends to fight against all sorts of economic
crimes/ white collar offences
• It aims at combating canalization of money
into illegal activities, provides for attachment
and seizure of property and records. Stringent
punishments (rigorous imprisonment up to 10
years and fine up to 5 lakh)
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PUNISHMENT

ATTACHMENT OF
TAINTED PROPERTY
ADJUDICATING
AUTHORITY (AA)

APPELLATE
AUTHORITY
SPECIAL COURTS
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Key
WORDS

Money-laundering (Sec 3): Attempting to indulge or
assist other person or actually involved in any activity
connected with the proceeds of crime and projecting it
as untainted property.

• INDULGER/ Laundromats

•
PLACING LEVERAGING AND
INTEGRATING
/Laundromates
• s
ASSISTING/ Laundromats

COMMITTING/Laundroar

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Key
WORDS

The subject matter of our study is this process. That
which is forbidden under the Act.

• LAUNDERING - To disguise the source/nature - by channeling through an
intermediate agent. “Dirty Money” into “Clean Money”. Method of
Laundering is vary complex and sophisticated.
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Key
WORDS

Sec 2(1)(l) – FINANCIAL INSTITUTION

• "Financial Institution" means a financial institution as defined in
clause (c) of section 45-I of the Reserve Bank of India Act, 1934
and includes a chit fund company, a co-operative bank, a housing
finance institution, an authorized person, a payment system
operator and a non-banking financial company;
• As per Section 45-I (c) of the Reserve Bank of India Act, 1934, the
functions of Financial Institution includes:
• (i) The financing:
• (ii) The acquisition of shares, stock, bonds, debentures or
securities issued by a Government or local authority or other
marketable securities of a like nature:
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Key
WORDS
•
•
•

•

Sec 2(1)(l) – Financial Institution....
continued

(iii) Letting or delivering of any goods to a hirer under a hire-purchase agreement as
defined in clause (c) of section 2 of the Hire-Purchase Act, 1972:
a male who supervises
& directs other.
(iv) The carrying on of any class of insurance business;
(v) Managing, conducting or supervising, as foreman, agent or in any other capacity, of
chits, hundies as defined in any law which is for the time being in force in any State, or
any business, which is similar thereto;
(vi) Collecting, s
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–
–

for any purpose or
under any scheme or arrangement by whatever name called,
monies in lump sum or otherwise,
by way of subscriptions or
by sale of units, or other instruments or in any other manner and s036222222222
awarding prizes or gifts,
whether in cash or kind, or
disbursing monies in any other way, to persons from whom monies are collected or to any
other person.

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Key
WORDS

•

•

Sec 2 [ra]: Offence of Cross Border
Implications

(i) 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 remits the proceeds
of such conduct or part thereof to India; or
(ii) 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.
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Key WORDS

Sec 2(1)(n) – Intermediary

• "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 and 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);
• Intermediary thus includes following persons registered under Section 12 of SEBI
Act:• Stock brokers, Sub-brokers, Share transfer agents, Bankers to an issue, Trustees
to trust deed, Registrars to issue, Merchant bankers, Underwriters, Portfolio
Managers, Investment advisers, Depositories and Depository Participants,
Custodian of securities, Foreign institutional investors, Credit rating agencies,
Venture capital funds, Collective investment schemes including mutual funds.

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Key WORDS

Sec 2(1)(s) – PERSON

• "person" includes-–
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–
–
–

(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 judicial 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 subclauses;
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STRUCTURING DEPOSITS
METHODS of LAUNDERING ……1

• Also known as SMURFING.
• breaking up large amounts into
smaller& less-suspicious amounts, like
below $10,000(in US), 10,00,00/-(In
India) above which, report the single or
integrally connected transactions, to
the govt. (through PAN/bank shall
maintain records 2005 amend Act Rule
3(b) etc).
• then is deposited in bank accounts by
multiple people (SMURFS) or by one
person in an extended period of time.
INDIAN CONTEXT:
• Detailed instructions are in Know Your
Customer (KYC) norms , Anti-Money
Laundering (AML) standards,
Combating the Financing of Terrorism
(CFT), for foreign Transactions Money
Transfer Service Scheme etc
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BANKS AND LAUNDERING ……2
Role of OVERSEAS BANKS

Launderers send money through various "offshore accounts" in countries that allow anonymous
banking ex: Bahamas, Bahrain, the Cayman Islands, Hong Kong, Antilles, Panama and Singapore.
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Alternative to banking
system & LAUNDERING ……3
•

alternative banking systems that allow for undocumented deposits,
withdrawals and transfers. These are trust-based systems, that leave no
paper trail. This includes the hawala system

In hawala system, money is transferred via a network of hawala brokers.
(1) A customer (A, left-hand side) approaches a hawala broker (X) in one city and
gives a sum of money (red arrow) that is to be transferred to a recipient (B, righthand side) in another, usually foreign, city. Along with the money, he usually
specifies something like a password that will lead to the money being paid out to
the intended party. (2b) The hawala broker X calls another hawala broker M in the
recipient's city, and informs M about the agreed password. Then, the intended
recipient (B), who also has been informed by A about the password, now
approaches M and tells him the agreed password. If the password is correct,
then M releases the transferred sum to B, usually minus a small commission. X now
basically owes M the money that M had paid out to B; thus M has to trust X's
promise to settle the debt at a later date.
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METHODS of LAUNDERING ….4
SHELL COMPANIES

• These are fake companies that exist for no other reason than to
launder money. They take in dirty money as "payment" for
supposed goods or services but actually provide no goods or
services; they simply create the appearance of legitimate
transactions through fake invoices and balance sheets.
INVESTING in LEGITIMATE BUSINESSES

• This method typically works in one of two ways:
– The launderer can combine his dirty money with the company's
clean revenues -- in this case, the company reports higher revenues
from its legitimate business than it's really earning; or
– the launderer can simply hide his dirty money in the company's
legitimate bank accounts in the hopes that authorities won't
compare the bank balance to the company's financial statements.
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OTHER PARAMETERS OF LAUNDERING
NON-COOPERATIVE COUNTRIES & TERRITORIES. (NCCT)

• ‘Non-Cooperative Countries & Territories’
implies to countries or territories that may not
be
willing or accommodating to the
recommendations drawn up by different
agencies to combat money laundering. As of
June 2013 there 14 countries placed on the
NCCT list.

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PROCESS/STAGES of MONEY LAUNDERING

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STEP 1: PLACEMENT

• The first and initial stage of money laundering is Placement. The launderer,
legitimize his illegal or ‘black money’ tries to get the funds into a bank or a
financial institution. This is usually and preferably carried out in a country or
territory where there are weak or ineffective anti-money laundering laws.
What are the most common ways for Placement?
– Deposit cash into one or more bank accounts in broken up amounts in
several branches in one financial institution or different financial
institutions.
– Purchase money orders, bank drafts and other financial instruments.
– Exchange the funds into foreign currencies through a private foreign
exchange dealer.
– Exchange large denominations for smaller ones.
– Cash purchase of a security or a form of an insurance contract.
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STEP 2: LAYERING

• At this point the funds are converted to other institutions, thus further
segregating the funds from the criminal activities. Generally launderer
chooses an offshore financial or business center.
• How does the launderer further segregate his funds from its illegal origin?
– Purchase other securities, insurance contracts or other easily transferable
– investment instruments and then sold yet through another institution.
– Transfer through cheque, money order or bearer bond.
– Wire or remit the funds to various accounts and jurisdictions and disguise
the transfer as a payment for goods or services.

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STEP 3: INTEGRATION

• In this final stage of money laundering, money
gets integrated with the legitimate economy. This
involves:
– Purchase of assets, properties and luxury goods.

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Suspicious transactions & Banks Role
• The Prevention of Money laundering Act, 2002 and
the Rules there under require every banking company
to furnish details of suspicious transactions whether
or not made in cash. Suspicious transaction means a
transaction whether or not made in cash which, to a
person acting in good faith– (a) Gives rise to a reasonable ground of suspicion that it
may involve the proceeds or crime; or
– (b) Appears to be made in circumstances of unusual or
unjustified complexity; or
– (c) Appears to have no economic rationale or bonafide
purpose.
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Obligations of Banking Companies, Financial
Institutions and Intermediaries
Section 12(1)
• Every banking company, financial institution and intermediary shall– (a) 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;
– (b) furnish information of transactions referred to in clause (a) to the
Director within such time as may be prescribed;
– (c) verify and maintain the records of the identity of all its clients, in such
manner as may be prescribed:
– Provided that where the principal officer of a banking company 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 shall furnish information
in respect of such transactions to the Director within the prescribed time.
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Illustration of Integrally connected cash transaction

DATE

MODE

Dr. (in Rs.)

Cr. (in Rs.)

Balance (in Rs.)
BF-8,00,000.00

02/04/2013

Cash

5,00,000.00

3,00,000.00

6,00,000.00

07/04/2013

Cash

40,000.00 2,00,000.00

7,60,000.00

08/04/2013

Cash

Monthly Summation

4,70,000.00

1,00,000.00

10,10,000.00

3,90,000.00

6,00,000.00

the debit transactions are integrally connected cash transactions because total cash
debits during the calendar month exceeds Rs.10 lakhs. However, the debit transaction
taken place on 02/04 & 08/04/2008 should be reported. But, the debit transaction dated
07/04/2008 should not be reported by the non banking financial company, as transaction
is less than Rs.50,000/-.
ii) All the credit transactions in the above example would not be treated as
integrally connected, as the sum total of the credit transactions during the month
does not exceed Rs.20 lakh and hence no credit transaction should not be reported by
NBFC.
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Section 12(1)

• all Banking Companies, Financial Institutions And
Intermediaries are required to maintain such record of all
transactions, for a period of 10 years, in such manner as
to enable it to reconstruct individual transactions, and
furnish to the concerned Authorities under the Act, all
information relating to such transactions,
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whether attempted or executed;
the nature and value of such transactions;
verify the identity of its clients and
the beneficial owner, if any; and
maintain record of documents evidencing identity of its
clients and beneficial owners as well as account files and
business correspondence relating to its clients.
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Section 13(2)
• If the Director, after such inquiry [U/s 13(1)]as he deems fit, finds
that a banking company, financial institution or an intermediary
or any of its officers has failed to comply with the provisions, then
he may by an order, levy a fine which shall not be less than
10,000/- but may extend to Rs. 1,00,000/- for each failure.
• The Director shall forward a copy of the order passed under subsection(2) to every banking company, financial institution or
intermediary or person who is a party to the proceeding under
[section 13(3)]
• The banking companies, financial institutions, intermediaries and
their officers shall not be liable to any civil proceedings against
them for furnishing information under the Act. [Sect 14]
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Know your customer …1
• 1. What is KYC?
• KYC is an acronym for “Know your Customer”, a term
used for customer identification process.
• It involves making reasonable efforts to determine true
identity and beneficial ownership of accounts, source of
funds, the nature of customer’s business,
reasonableness of operations in the account in relation
to the customer’s business, etc which in turn helps the
banks to manage their risks prudently.
• The objective of the KYC guidelines is to prevent banks
being used, intentionally or unintentionally by criminal
elements for money laundering.
• KYC has two components - Identity and Address. While
identity remains the same, the address may change and
hence the banks are required to periodically update their
records.
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Know your customer …2
2. Is there any legal backing for verifying identity of clients?
• Yes. Reserve Bank of India has issued guidelines to banks under Section
35A of the Banking Regulation Act, 1949 and Rule 7 of Prevention of
Money-Laundering Rules, 2005. Any contravention thereof or noncompliance shall attract penalties under Banking Regulation Act.

3. Is there any procedure specified for Customer Identification?
• Customer identification means identifying the customer and verifying
his/her identity by using reliable, independent source documents, data
or information. Banks have been advised to lay down 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.
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Schedule of offences
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•

•
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•

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.
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PUNISHMENTS UNDER THE ACT

Section 4 of the Act provide punishing of rigorous imprisonment ranging from 3 years to
seven years and fine which may extend to`5 lakh for indulging in money laundering
activity or process. (special courts has jurisdiction)
Where the proceeds of crime involved in money laundering relates to any offence specified
under paragraph 2 of Part A of the schedule the maximum imprisonment can extend to 10
years instead of 7 years.
Under paragraph 2 of Part A of the Schedule to the Act certain offences under various
sections of the Narcotic Drugs Psychotropic Substances Act (NDPS), 1985 have been
included for which maximum imprisonment extend to 10 years.
In order to prevent the process of money laundering activities Director or any other officer
not below the rank of Deputy Director appointed under section 49 of the Act has power to
order in writing to attach property provisionally for a period not exceeding 150 days from
the date of order where he has reasons to believe that on the basis of material in his
possession, that –
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Section 19

ARRESTS

• the Appropriate Authority under the Act
(Director) has the power to arrest any person
provided that such authority on the basis of
the material in his possession has reason to
believe that such person has been guilty of any
offence punishable under PMLA.
• After the arrest, the person arrested has to be
informed about the grounds for his arrest.
• It is also required that the person so arrested
shall, within 24 hours, be produced before the
Judicial Magistrate or a Metropolitan
Magistrate, as the case may be, having
jurisdiction.
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Attachment
Section 5
• if the authority [Where the Director, or any other officer not below the rank of
Deputy Director] as specified under the Section, has reason to believe (the
reason for such belief to be recorded in writing), on the basis of material in
their possession, that• Any person is in possession of any Proceeds of Crime; and
• 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,
• may, by order in writing, provisionally attach such property for a period not
exceeding 90 days from the date of the order, in such manner as may be
prescribed.
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Attachment
Section 5

• However, Provided that no such order of attachment
shall be made unless, in relation to an offence under:
• (i) Paragraph 1 of Part A and Part B of the Schedule, a
report has been forwarded to a Magistrate under
section 173 of the Code of Criminal Procedure, 1973 or
• (ii) Paragraph 2 of Part A of the Schedule, a police
report or a complaint has been filed for taking
cognizance of an offence by the Special Court
constituted under sub-section (1) of section 36 of the
Narcotic Drugs and Psychotropic Substances Act, 1985.

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Section 5

Attachment

• (2) after attachment under sub-section (1), forward a
copy of the order, along with the material in his
possession, referred to in that sub-section, to the
Adjudicating Authority, in a sealed envelope, in the
manner as may be prescribed and such Adjudicating
Authority shall keep such order and material for such
period as may be prescribed.
• (3) However, nothing in Section shall prevent the
person interested (3rd party)in the enjoyment of the
immovable property attached from such enjoymen.t

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Adjudicating Authorities
Section 6
• (1) The Central Government shall, appoint one or more Adjudicating
Authorities to exercise jurisdiction, powers and authority conferred by
or under this Act.
• (2) An Adjudicating Authority shall consist of a Chairperson and two
other Members:
– Provided that one Member each shall be a person having experience in the
field of law, administration, finance or accountancy.

• (3) A person shall, however, not be qualified for appointment as
Member of an Adjudicating Authority,-(a) in the field of law, unless he—
– (i) is qualified for appointment as District Judge; or
– (ii) has been a member of the Indian Legal Service and has held a post in
Grade I of that service;

(b) in the field of finance, accountancy or administration unless he
possesses such qualifications, as may be prescribed.
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Section 6 (5)
•
•

•

•

Adjudicating Authorities

(a) the jurisdiction of the Adjudicating Authority may be exercised by Benches
thereof;
(b) a Bench may be constituted by the Chairperson of the Adjudicating Authority
with one or two Members as the Chairperson of the Adjudicating Authority may
deem fit;
(c) the Benches of the Adjudicating Authority shall ordinarily sit at New Delhi and
at such other places as the Central Government may, in consultation with the
Chairperson, by notification, specify;
(d) the Central Government shall, by notification, specify the areas in relation to
which each Bench of the Adjudicating Authority may exercise jurisdiction.

Section 6 (7)
If at any stage of the hearing of any case or matter it appears to the Chairperson or a
Member that the case or matter is of such a nature that it ought to be heard by a Bench
consisting of two Members, the case or matter may be transferred by the Chairperson or, as
the case may be, referred to him for transfer, to such Bench as the Chairperson may deem
fit.

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Section 6 (7)

Adjudication Authorities

• The Chairperson and every Member shall hold
office as such for a term of five years from the
date on which he enters upon his office.
• Chairperson or member – may resign- in writing
to Central Government.
• CentralGovt may remove any person with a
notice

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Section 8

Adjudication Process

• On receipt of a complaint, if the Adjudicating Authority has
reason to believe that any person has committed an offence
under section 3, it may 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 under sub-section (1) of
section 5, or, seized under section 17 or section 18, the evidence
on which he relies and other relevant information and
particulars, and to show cause why all or any of such properties
should not be declared to be the properties involved in moneylaundering and confiscated by the Central Government.
• If property is held by more than one person then notice shall be
on all persons.
• The parties shall be heard and relevant material to be sought. Un
till such time he shall enjoy possession of the goods ceased.
• If the accused is acquitted the property and documents ceased
shall be returned.
• If proved guilty, order of confiscation order shall be passed in
favor of Central Government.

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Section 9

Adjudication Process

Vesting of property in Central Government

• Where an order of confiscation has been made, all the
rights and title in such property shall vest absolutely in
the Central Government free from all encumbrances.
• where the Adjudicating Authority, after giving an
opportunity of being heard to any other person
interested in the property attached or seized, it may, by
order, declare all encumbrance or lease-hold interest to
be void.
• Central government may pass necessary orders in
management of such confiscated property. In this
pursuit may appoint any number of managers it deem
fit [Section 10]
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Power regarding summons, production of documents and evidence,

Section 11
•

•
•
•
•
•
•
•
•

•

(1) The Adjudicating Authority shall, for the purposes of this Act, have the same powers as are
vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the
following matters, namely:-(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company or a
financial institution or a company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed.
(2) All the persons so summoned shall be bound to attend in person or through authorised agents,
as the Adjudicating Authority may direct, and shall be bound to state the truth upon any subject
respecting which they are examined or make statements, and produce such documents as may be
required.
(3) Every proceeding under this section shall be deemed to be a judicial proceeding within the
meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860).
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Section 24

Burden of Proof

When a person is accused of having committed
the offence under section 3, the burden of
proving that proceeds of crime are untainted
property shall be on the accused.

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Section 26

APPELLETE TRIBUNAL

Appeal to Appellate Tribunal
• the Director or any person aggrieved by an order made by the
Adjudicating Authority under this Act, may prefer an appeal to the
Appellate Tribunal.
• Any banking company, financial institution or intermediary aggrieved by
any order of the Director may prefer an appeal to the Appellate Tribunal.
• Every appeal preferred shall 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.
• On receipt of an appeal, the Appellate Tribunal may, after giving the
parties to the appeal an opportunity of being heard, pass such orders
thereon as it thinks fit, confirming, modifying or setting aside the order
appealed against.
• Appeal shall be disposed off as expeditiously as possible.

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Section 35

•
•
•
•
•
•
•
•
•
•
•

PROCEDURE APPELLETE TRIBUNAL

(1) The Appellate Tribunal shall not be bound by CPC but shall be guided by the
PRINCIPLES of NATURAL JUSTICE and has powers to regulate its own procedure.
However, it has powers namely:(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) requisitioning any public record or document or copy of such record or document
from any office;
(e) issuing commissions for the examination of witnesses or documents;
(f) reviewing its decisions;
(g) dismissing a representation for default or deciding it ex parte;
(h) setting aside any order of dismissal of any representation for default or any order
passed by it ex parte; and
(i) any other matter, which may be, prescribed by the Central Government.
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Section 41

No civil court shall have jurisdiction

• No civil court shall have jurisdiction to
entertain any suit or proceeding in respect of
any matter which the Director, an Adjudicating
Authority or the Appellate Tribunal is
empowered by or under this Act to determine
and no injunction shall be granted by any
court or other authority in respect of any
action taken or to be taken in pursuance of
any power conferred by or under this Act.
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Section 42

APPEAL to HIGH COURT

• Any person aggrieved by any decision or order of the Appellate Tribunal
may file an appeal to the High Court within sixty days from the date of
communication of the decision or order of the Appellate Tribunal to him
on any question of law or fact arising out of such order: Provided that
the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to
be filed within a further period not exceeding sixty days.

Section 43

SPECIAL COURTS

The Central Government, in consultation with the Chief Justice of the High Court, shall, for
trial of offence punishable under section 4 (more than 3 years but less than 7 years), by
notification, designate one or more Courts of Session as Special Court or Special Courts or
such area or areas or for such case or class or group of cases as may be specified in the
notification.
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Section 45

OFFENCES TO BE COGNIZABLE
AND NON-BAILABLE

• Conditions for release of accused on bail:
• Notwithstanding anything contained in the Code of Criminal Procedure,
1973, no person accused of an offence punishable for a term of
imprisonment of more than 3years under Part A of the Schedule shall
be released on bail or on his own bond unless
• (i) The Public Prosecutor has been given an opportunity to oppose the
application for such release; and
• (ii) where the Public Prosecutor opposes the application, the court is
satisfied that there are reasonable grounds for believing that he is not
guilty of such offence and that he is not likely to commit any offence
while on bail.
• However, if the accused is of less than 16 years age or is woman or sick
he may be granted bail subject to conditions.

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LETS START NOW

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What is Money – Laundering?
Is your answer same if question is
“Money Laundering” does not mean just siphoning of fund.
Comment on this statement explaining the significance and aim
of the Prevention of Money Laundering Act, 2002.

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• 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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What are Proceeds of crime?

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• Section 2(1)(u) defines "proceeds of crime" as
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

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What is Payment System?

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• In terms of clause (rb) of section 2 "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. It
includes the systems enabling credit card operations,
debit card operations, smart card operations, money
transfer operations or similar operations

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What is the punishment for the
offence of money laundering?

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• Chapter II comprises of Sections 3 and 4.
• Section 3 deals with the offence of money laundering. Section 4 provides
for the punishment for Money-Laundering.
• Whoever commits the offence of money-laundering shall be punishable
with rigorous imprisonment for a term which shall not be less than three
years but which may extend to seven years and shall also be liable to fine
which may extend to five lakh rupees.
• But where the proceeds of crime involved in money-laundering relate to
any offence specified under paragraph 2 of Part A of the Schedule, the
maximum punishment may extend to ten years instead of seven years

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Enumerate the obligations of banking companies under the
Prevention of Money Laundering Act, 2002

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•

Section 12 of Prevention of Money Laundering Act, 2002 provides for the obligations
of Banking Companies, Financial Institutions and Intermediaries of securities market.
Every banking company, financial institution and intermediary shall:

•

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

•

(b) Furnish information of the above transactions to the Director appointed for the
purpose of this Act within the prescribed time;

•

(c) Verify and maintain the records of the identity of all its clients, in the prescribed
manner. If the principal officer of a banking company or financial institution or
intermediary 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 shall furnish information in respect
of such transactions to the Director within the prescribed time
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How the trials under PMLA are conducted in special
courts? Is the offence under PMLA are bailable?

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• Sections 43 – 47 deals with provision relating to Special Courts.
Section 43 empowers the Central Government (in consultation with
the Chief Justice of the High Court) for trial of offence of money
laundering, to notify one or more Courts of Sessions as Special Court
or Special Courts for such area or areas or for such cases or class or
group of cases as may be specified in the notification to this effect.
Section 44 clearly provides for the offences triable by Special Courts. It
overrides the provisions of the Code of Criminal Procedure, 1973 and
provides that –
• 1. the scheduled offence and the offence punishable under section 4
shall be triable only by the Special Court constituted for the area in
which the offence has been committed;
• 2. a Special Court may, upon a complaint made by an authority
authorised in this behalf under this Act take cognizance of the offence
for which the accused is committed to it fortrial. The requirement of
police report of the facts which constitute an offence under this Act is
no more applicable
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Explain the term "Offence of Money Laundering" within
the meaning of the Prevention of Money Laundering
Act, 2002. State the punishment for the offence of
money laundering?

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• Offence of Money Laundering: Section 2 of the Prevention of Money
Laundering Act, 2002 defines the term “scheduled offence", which
accordingly 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.
• (iii) The offences specified under Part C of the Schedule (Amendment Act,
2009)
• These Schedule to the Act gives a list of all the above offences.
Punishment for the Offence of Money Laundering Section 4 of the said act
provides for the punishment for Money-Laundering. Whoever commits
the offence of money-laundering shall be punishable with:
• (i) Rigorous imprisonment for a term which shall not be less than three
years, but may be extended to seven years, and
• (ii) Shall also be liable to fine which may extend to five lakh rupees.
• But, where the proceeds of crime involved in money-laundering relates to
any offence specified under paragraph 2 of Part A of the Schedule, the
maximum punishment may extend to ten years instead of seven years

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Prevent Money Laundering Act 2002 Guide

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