 Anti Money Laundering (AML), also known as anti-money laundering, is the execution of

transactions to eventually convert illegally obtained money into legal money.

 Money laundering is a type of financial crime. It involves taking criminally obtained proceeds
(dirty money) and disguising their origins so they’ll appear to be from a legitimate source.
 AML refers to the activities financial institutions perform to achieve compliance with legal
requirements to actively monitor for and report suspicious activities.
 The United States was one of the first nations to enact anti-money laundering legislation when it established the
Bank Secrecy Act (BSA) in 1970. The Financial Crimes Enforcement Network is now the designated
administrator of the BSA with a mission to “safeguard the financial system from the abuses of financial crime
including terrorist financing, money laundering, and other illicit activity.”

 In 1989, multiple countries and organizations formed the global Financial Action Task Force (FATF). It
mission is to devise and promote international standards to prevent money laundering. Shortly after the 9/11
attacks on the US, FATF expanded its mandate to include AML and combating terrorist financing

 The International Monetary Fund (IMF) is another important organization. With 189 member countries, it
primary purpose is to ensure the stability of the international monetary system.
Money laundering often accompanies activities like smuggling, illegal arms sales, embezzlement, insider
trading, bribery, and computer fraud schemes. It’s also common with organized crime including human,
arms or drug trafficking, and prostitution rings.

Money laundering involves three stages:

 Placement.
 Layering, and
 Integration.
Placement refers to how and where illegally obtained funds are placed. Money is often placed via
Payments to cash-based businesses; payments for false invoices; “smurfing,” which means putting
small amounts of money (below the AML threshold) into bank accounts or credit cards; moving
money into trusts and offshore companies that hide beneficial owners’ identities; using foreign bank
accounts, and aborting transactions shortly after funds are lodged with a lawyer or accountant.

Layering refers to separating criminal funds from their source. It involves converting the illicit
proceeds into another form and creating complex layers of financial transactions to disguise the funds’
origin and ownership. Criminals do this to obfuscate the trail of their illicit funds so it will be hard for
AML investigators to trace the transactions.

Integration refers to the re-entry of the laundered funds into the economy in what appears to be
normal, legitimate business or personal transactions. This is sometimes done by investing in real
estate or luxury assets. It allows launderers and criminals to increase their wealth.
Technology & Anti-Money Laundering:

A successful anti-money laundering program involves using data and analytics to detect unusual activities. This is done by
monitoring transactions, customers, and entire networks of behaviors.
As Artificial Intelligence technologies like Machine Learning become more prevalent, these next-gen AML technologies will
automate many manual processes-helping to effectively identify financial crimes risks.
These techniques can be used for:
 Suspicious activity monitoring
 Intelligent alert prioritization
 Alert/case enrichment
 Automated SAR filings
 A holistic entity view
 Alert scoring
 Client risk rating
 Intelligent customer segmentation
 Peer-based anomaly detection
 Rare-event detection
 Automated manual processes
 Prevention of Money-Laundering Act (PMLA), 2002

Prevention of Money Laundering Act, 2002 (PMLA) was enacted to fight against the
criminal offence of legalizing the income/profits from an illegal source. The Prevention of
Money Laundering Act, 2002 enables the Government or the public authority to confiscate
the property earned from the illegally gained proceeds. In simple words, money laundering
means converting illegally earned money into legitimate money.
Objectives of the Prevention of Money Laundering Act, 2002

 Prevent money-laundering.
 Combat/prevent channelising of money into illegal activities and economic crimes.
 Provide for confiscating property derived from, or involved/used in, money laundering.
 Penalise the offenders of money laundering offences.
 Appointing an adjudicating authority and appellate tribunal for taking charge of money
laundering matters.
 Provide for matters connected and incidental to the acts of money laundering.
Common Forms of Money Laundering

 Hawala
 Bulk cash smuggling
 Fictional loans
 Cash-intensive businesses
 Round-tripping
 Trade-based laundering
 Shell companies and trusts
 Real estate
 Gambling
 Fake invoicing
 The Enforcement Directorate in the Department of Revenue, Ministry of Finance, the Government of India is
responsible for investigating the offences of money laundering under the PMLA.
 Financial Intelligence Unit – India (FIU-IND) under the Department of Revenue, Ministry of Finance is an
independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
FIU-IND is the central national agency responsible for receiving, processing, analysing, and disseminating the
information relating to suspect financial transactions.
 Coordinating and strengthening the efforts of national and international intelligence,
 Investigations for pursuing the global efforts against money laundering and related crimes.

The scheduled offences are separately investigated by agencies mentioned under respective acts, for example, the
local police, CBI, customs departments, SEBI, or any other investigative agency, as the case may be.
Actions that can be Initiated Against the Person Involved in Money Laundering

 Seizure/freezing of property and records and attachment of property obtained with the proceeds of crime.
 Any person who commits the offence of money laundering shall be punishable with –
 Rigorous imprisonment for a minimum term of three years and this may extend up to seven years.
 Fine (without any limit).
The offense of Money-Laundering:

The definition of “Money-Laundering” is comprehensive enough to cover most of the instances of

converting black money into white
Money-laundering has been defined in PMLA under section 3, wherein a person shall be guilty of the
offense of money-laundering if such person is found to have:
¤ directly or indirectly:
¤ Attempted to indulge or
¤ Knowingly assisted or
¤ Knowingly is a party or
Is involved in one or more of the following processes or activities connected with proceeds of crime, namely:
¤ Concealment; or
¤ Possession; or
¤ Acquisition; or
¤ Use; or
¤ Projecting as untainted property; or
¤ Claiming as untainted property.
Proceeds of crime
Under Section 2(u) of the PMLA, the term ‘proceeds of crime’ is defined as any property acquired or
attained, directly or indirectly, by some individual by performing any crime or wrongdoing pertaining to a
scheduled offence, or the value of any such property (or, where such property is taken or held outside the
country, then the property equivalent in value held within the country). Later, modifications were made to
the Section, and the term ‘or abroad’ was added to the definition of ‘proceeds of crime’.

Property

Under Section 2(v) of the PMLA, the term ‘property’ means any property or assets of every description,
whether corporeal or incorporeal, movable or immovable, tangible or intangible, and incorporates deeds
and instruments evidencing title to, or interest in, such property or assets.
Reporting entity
Under Section 2(wa) of the PMLA, the term ‘reporting entity’ means a banking company, any financial institution, an
intermediary, or an individual conducting a designated business or profession.

Value
Under Section 2(zb) of the PMLA, the term ‘value’ is defined as the market value of a particular property on the date
it was bought by an individual, or if the date cannot be specified, the date on which such property is owned by the
individual.

Contracting state
Under Section 55(a) of the PMLA, the term ‘contracting state’ is defined as any nation or location outside India with
respect to which pacts have been embodied by the Central Government with the government of such a nation by
means of a treaty or otherwise.
Adjudicating authorities (Section 6)

Under Section 6 of the PMLA, the Central Government is entrusted with the authority to appoint an adjudicating
authority to exercise jurisdiction, powers and authority conferred

by or under this Act. An adjudicating authority must consist of a bench of:

 A chairperson, and

 Two other members, out of which one individual shall have experience in the field of law, administration,
finance or accountancy.
Adjudication (Section 8)

If any complaint is filed under Section 5(5) or an application is made under Section 17(4) or Section 18(10), the
individual allegedly said to have been guilty of committing the offence of money laundering will be served with a
notice of not less than 30 days asking him to submit proof the sources from where the income, earnings, or assets
were obtained and to provide a reasonable justification for why the property must not be impounded.

After hearing from the side of the party accused of the crime, the adjudicating authority will record its findings as to
whether all or any of the properties are involved in money laundering or not. In case the adjudicating authority
reaches a decision that the property in question is involved in money laundering, he shall state the reason and confirm
it in writing about the attachment of the property, and in case if the property is already attached, it will continue until
the order of trial becomes final. Then, if the individual is found guilty by the court, the attached property will vest in
the Central Government.
Vesting of property in the hands of Central Government (Section 9)

The court passes an order that the property obtained through money laundering has to be
confiscated, all the rights and titles to the said property will lie in the hands of the Central
Government, free from any encumbrances.

Further, if the special court or the adjudicating authority becomes aware that any hindrances on
the property or lease-hold interest have been created with a view to vanquish the clauses of the
Act, it may proclaim that such hindrances or lease-hold interests are void. And if it is declared
void, all the property will be vested in the hands of the Central Government free from any
hindrance or lease-hold interest.
Reporting entity to maintain records (Section 12)

Under Section 12, the financial institutions, banks and intermediaries have the following obligations to observe:

 To maintain records of all transactions and amount as stated in the rules, irrespective of the fact that such
transactions were carried on in one go or there were series of transactions that had an internal connection to each
other when such series occur within a span of thirty days.
 To inform the director about any transaction within the allotted time.
 To verify the identity of the clients in the manner thus prescribed.
 To keep a record of all the documentation relating to identity of the clients and the beneficial owners, along with
keeping record of account files and business transactions relating to the clients.
Power of directors to levy fine (Section 13)

Under Section 13, the director has the power to call for records from the bank, financial
institutions, and intermediaries. Further, if the director, after a thorough investigation, discovers
that the bank, financial institutions, and intermediary have not adhered to the conditions imposed
under Section 12, he can levy a charge or fine ranging from ₹10,000 to ₹100,000.
No civil or criminal suit can be filed against the reporting entity (Section 14)

Under Section 14, no civil or criminal suit can be filed against any bank, financial institution, or intermediary that
provides information to the authority.

Procedure and the manner in which information can be furnished. by the reporting entities
(Section 15)

Under Section 15, the Central Government along with the Reserve Bank of India (RBI) lay down the procedure and
manner in which information can be furnished to the reporting entity in order to enforce the laws laid down in the Act.
Power of survey (Section 16)

Section 16 of the PMLA deals with the power of surveys. It states that an authority has the capacity to enter any
property or premises if they have reasons to believe that an offence of money laundering has been committed or if
they believe that carrying out an investigation will give him an opportunity to look into the requisite records that
might aid in determining whether any illegal activity was conducted under the Act or not. The authority has to
mention the reason for carrying out the proceedings in writing, along with recording any statement of any individual
present at the place of investigation if it is beneficial to the proceedings under the Act.
Search and seizure (Section 17)

Section 17 of the PMLA has provisions regarding the power of the officials to search for and seize any property
acquired through the offence of money laundering. Any director, joint director, or deputy director may entrust an
officer subordinate to him to perform the following activity:

 To get and search into any building, place, vessel, vehicle or aircraft where the authority reckons that any records
of such activities are reserved.
 To smash open any type of lock on any door, box, locker, safe, almirah where the keys are not accessible.
 To seize any property obtained through such an investigation.
 To mark the records on the property thus obtained via investigation or to make an extract or copies of the
document.
 To make a note on the inventory of records of the property.
 To inspect and survey if any individual is on oath or is in possession or control of any record or property, in
matters relating to any inquiry carried on under the PMLA.
Moreover, in matters relating to a scheduled offence, a search can be carried out only after a report has been sent to
a magistrate or if a complaint is filed by any authority that has been entrusted with the power to make inquiries in
matters relating to a scheduled offence before a magistrate. In matters where the property cannot be seized, the
authority has the power to make an order to freeze such property. After a property is searched and seized or frozen
as per the order, the officer must forward a copy of the reasons so recorded, along with any material in his hands,
to the adjudicating authority in a sealed envelope in a manner described in the Act.
Search of persons (Section 18)

Section 18 that has provisions on the authority to search an individual states that if any authorised official has
grounds to believe that any person has suppressed any person or anything under his custody, ownership, or control,
any activity of a crime that may be helpful or relevant to any proceedings under the PMLA, the person in power will
have the capacity to search such an individual and seize records of any such property.
Power to arrest (Section 19)

Section 19, which deals with the power to arrest a person, states that any director, deputy director, assistant director,
or any other officer has the power to arrest a person on behalf of the central Government by general or special order.
An individual can be arrested by the concerned authority if such authority had on the basis of the proof has reason to
believe that-
 The individual is guilty of an offence punishable under the PMLA, and
 The reason for such a belief has been duly recorded in writing.

Steps to be followed by the authority after arrest

After the arrest, the authority has to follow the following measures:
 To inform the arrested individual about the reasons for the arrest.
 To share a copy of the detention order along with the material in his possession to the adjudicating authority.
 To produce the individual held guilty of the offence of money laundering in front of the special court or judicial
magistrate or a metropolitan magistrate as the case may be within 24 hours of the arrest.
Retention of property (Section 20)

Under Section 20 of the PMLA, any property that is expropriated during the investigation may persist to be in the
possession of the official in power, or in case if such a property is frozen, it may persist to remain frozen for a period
not going beyond 180 days from the date the official expropriated or froze the property in question. Further, once the
property is frozen or seized for 180 days, it will be given back to the individual from whom it was confiscated or
frozen; however, the adjudicating authority has the authority to keep possession or allow to continue to freeze the
property even after 180 days if they have reasons to believe that the property is prima facie involved in money
laundering. Furthermore, after the order of seizure has been passed, the court or the adjudicating authority has to
release all property other than the one having its involvement in the money laundering case.
Retention of records (Section 21)

Under Section 21 of the PMLA, if the investigating officer believes that there is a rationale to prolong the 180 days
term for seizure or freezing of records, he can do so under the PML Act. However, it must be noted that the copies of
the records can be acquired on request. Further, on expiration of 180 days, the records must be returned to the
individual from whom they were seized or the court or adjudicating authority ordered to freeze them; however, after
passing an order of seizure, the adjudicating authority has the power to order the release of the records to the
individual from whom such records were confiscated. Further, when an order for releasing the record has been made,
the director or the officer in authority has the power to hold back the release of records for a period of 90 days from
the date of the order if they have reasons to believe that such a record is important for making an appeal.
Inter-connected transactions (Section 23)

Section 23 deals with presumptions relating to inter-connected transactions. It states that when the offence of money
laundering has two or more inter-connected transactions and one or more transactions are shown to have their
involvement in money laundering, then for the matter of adjudicating or confiscating the property, it will be
presumed that the rest of the transactions carried on are inter-connected transactions.

Presumptions & Onus of Proof (Section 24)

Section 24 of PMLA has provisions relating to presumptions and onus of proof. In this Section, the burden of proof
lies with the individual who states that the proceeds of the crime alleged to be involved in money-laundering, are not
so involved. The presumption against the accused or third party is good enough to detonate the onus of the officials
under the PML Act. It must be noted that, the presumptions are absolute, and the burden to ascertain the same
otherwise lies on such a person.