Major amendments under Anti money laundering laws- Introduction
Money laundering is the process of concealing the source of money obtained by illicit means. It is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source. Major amendments under Anti money laundering laws have been introduced in India.
There are three stages to a transaction of money-laundering:
- The first stage is Placement, where the criminals place the proceeds of the crime into normal financial system.
- The second stage is Layering, where money introduced into the normal financial system is layered or spread into various transactions within the financial system so that any link with the origin of the wealth is lost.
- The third stage is Integration, where the benefit or proceeds of crime are available with the criminals as untainted money
The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering. It came into force in 2005. PMLA defines money laundering offence and provides for the freezing, seizure, and confiscation of the proceeds of crime.
As per section 3 of the PMLA, money laundering means “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 including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering.”
Major Amendment provisions
- The new definition would include therein the activities like concealment, acquisition, possession and use the proceeds of crime as criminal activities
- It has removed the existing limit of Rs.5 lakhs fine under the Act. Now, there is an unlimited fine penalty
- Insertion of explanation to the definition of “proceeds of crime” under Section 2(u) of the PMLA- the proceeds of crime not only include property derived or obtained through scheduled offence but also the property derived or obtained as a result of any criminal activity relatable to the scheduled offence
- The explanation (ii) added to the Section 3 of the PMLA, introduces a new concept that the offence of money laundering would continue till the benefits are enjoyed by the person concerned from the tainted property, thereby making the offence of money laundering in India a continuing offence.
- RBI, SEBI and IRDA have been brought under the PMLA, and therefore the provisions of this act are applicable to all financial institutions, banks, mutual funds, insurance companies, and their financial intermediaries.
- Omission of proviso provided under Sections 17(1) and 18(1) of the PMLA– The impact of deleting the proviso from Sections 17(1) And 18(1) of the PMLA, is that the authorized officer under the PMLA can enter any property for purpose of conducting search and seizure, and the search of any person, even in absence of any reporting of the scheduled offence to a Magistrate or court.
- Insertion of explanation to the provision of “Offences to be cognizable and non-bailable” under Section 45(2) of the PMLA- the expression “Offences to be cognizable and non-bailable” shall mean and shall be deemed to have always meant that all offences under this Act shall be cognizable offences and non-bailable offences notwithstanding anything to the contrary contained in the Code of Criminal Procedure, 1973 (2 of 1974)
- It has provided for provisional attachment and confiscation of property of any person involved in such activities.
- PMLA empowers the authorities to attach and confiscate assets of equivalent value in India or abroad where the asset constituting the proceeds of crime is taken and held abroad and cannot be forfeited.
Is there a corporate criminal liability or only liability for natural persons?
Under PMLA, both natural and legal persons may be prosecuted for the offence of money laundering. Sec 70 of the Act recognizes corporate criminal liability- it states that where a company contravenes PMLA or its rules, every person who was in charge of or responsible for the actions/business of the company at the time of the contravention was committed, as well as the company, shall be deemed guilty and liable to be prosecuted under PMLA.
A company may be prosecuted irrespective of whether the prosecution/conviction is contingent on the prosecution or conviction of any individual.
Complying with AML regulations
To comply with the AML regulations, there are several practical and proactive steps businesses should take.
First, you should have an AML policy in place which details the requirements on the business and how it is to comply with its obligations. This typically includes:
- Who the business’s appointed Money Laundering Reporting Officer is.
- Information about reporting obligations, including the procedure for submitting suspicious activity reports (SAR).
- AML compliance programme, to include monitoring, due diligence, and other relevant regulatory obligations.
- AML training plan.
Penalty Provision (India)
The maximum penalty for commission of money laundering is rigorous imprisonment for a minimum period of three years which may extend upto seven years with a fine which can be levied as the court may deem fit.
Steps taken to strengthen AML regime in India
- The enactment of the Fugitive Economic Offenders Act, 2018, whereby all assets of an individual (as against the assets from proceeds of crime), against whom an arrest warrant has been issued for committal of certain offences of which the value exceeds INR 1billion are confiscated
- The enactment of the Companies (Significant Beneficial Owner) Rules, 2018 by the Companies (Amendment) Act, 2017.
- In 2018, new offences under the POCA, 1988 were added to the list of schedule offences under PMLA.
- PMLA Act and rules- Acts and Rules | Department of Revenue | Ministry of Finance | Government of India (dor.gov.in)
- The RBI MD – Reserve Bank of India – Master Directions (rbi.org.in)
- The SEBI AML guidelines- SEBI | Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules framed there under