Anti-Money Laundering Cost and Management Audit 14.

MONEY LAUNDERING: It is a type of financial crime. It involves

1. hiding the money

2. earned through criminal activities (dirty money)
3. at such places where they’ll appear to be from a legitimate source.

Conversion of black money into white money. Conversion of tainted money (illegal) into untainted
(legal) money is called Money Laundering.

• Money laundering is a common issue around the globe.

• Financial crimes result in the deterioration of the administrative order and economic stability.
• In recent times, money laundering and terror financing have forced several governments and
regulators globally to focus on stopping the illegitimate flow of funds.
• The objective of these measures is to prevent financial crimes and ensure that the administrative
and economic stability of the nation is maintained.

Importance of Anti-Money Laundering

✓ fight money laundering and save hard-earned money of tax payer
✓ fight terrorist financing,
✓ Compliance with regulations that require financial institutions to monitor customers and
transactions and report suspicious activity.
✓ Protection of the brand reputation and shareholder value of the institutions
✓ Avoidance of civil and criminal penalties that could be levied because of noncompliance or
negligence.

Methods of Money Laundering : Money laundering involves three stages:

1. Placement
2. Layering
3. Integration

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Placement refers to how and where illegally obtained funds are placed.
✓ Injecting funds into the financial system by breaking it into the small parts, like
▪ Payments to cash-based businesses;
▪ payments for false invoices;
▪ smurfing - putting small amounts of money (below the AML threshold) into bank accounts;
▪ Moving money into trusts and offshore companies that hide beneficial owner’s 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.

✓ Spread into different alternative transactions (in order to hide the original funds) to different
accounts, various countries.
✓ It involves converting the illicit proceeds into another form and creating complex layers of
financial transactions to hide the funds origin and ownership.
✓ Criminals do this to hide the illegal 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.
✓ Combine in such way that original crime is very difficult to trace.
✓ This is sometimes done by investing in real estate or luxury assets
✓ It allows launderers and criminals to increase their wealth.

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Regulations, Compliance & AML:

Financial institutions must undertake the following measures to meet compliance requirements:

✓ Customer identification program / know your customer (KYC) ensure legitimacy

✓ Large currency transaction reporting (CTR). Requirements call for institutions to file a report
for transactions above a certain threshold made by a single customer during a business day.
✓ Suspicious activities monitoring and reporting. Regulatory agencies publish AML guidelines,
If an AML investigator uncovers behaviour that exceeds reporting thresholds and has no
apparent business purpose, they file a Suspicious Activity Report (SAR) / Suspicious
Transaction Report (STR).

Sanctions compliance: The Regulatory bodies, the FAFT on Money Laundering have requirements
for financial institutions to check transaction parties against lists of sanctioned individuals, companies,
institutions and countries.

Financial Action Task Force (FATF) and Crimes Network:

✓ The Financial Crimes Enforcement Network is now on mission “safeguard the financial
system from the abuses of financial crime, including terrorist financing, money laundering,
and other illicit activity.”
✓ Financial Action Task Force (FATF) mission is to devise and promote international
standards to prevent money laundering.
✓ FATF’S primary purpose is to ensure the stability of the international monetary system.
The IMF is concerned about the consequences money laundering and related crimes can
have on the integrity and stability of the financial sector and the broader economy.

Technology & Anti-Money Laundering:

The data and analytics is necessary to detect unusual activities for monitoring transactions, customers,
and entire networks of behaviours.

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As AI 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:
1. Suspicious activity monitoring – uncovers new schemes and detect increasingly sophisticated
financial crimes tactics.
2. Intelligent alert prioritization – preliminary alerts that warrant investigation and hibernate low-
value alerts.
3. Alert/case enrichment – to show AML investigators relevant images, prior cases, SARs, third-
party data, maps, transaction history, and more.
4. Automated SAR filings via natural language generation and processing to transform data into
language and stories.
5. Client risk rating – for empirical scoring of money laundering risk exposure.

PREVENTION OF MONEY-LAUNDERING ACT (PMLA), 2002:

✓ Purpose - to prevent money laundering.

✓ This act came into force on July 1, 2005
✓ Helps to provide for confiscation of property derived from, or involved in, money laundering.

Objectives of PMLA
a) to prevent and control money laundering
b) to confiscate and seize the property acquired from the laundered money
c) to deal with any other issue about money laundering in India.

Money-Laundering [Section 3]
Where a 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 [Section 2(u)]

✓ any property derived or obtained,
✓ directly or indirectly, by criminal activity relating to a scheduled offense or

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✓ 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 or abroad.

Scheduled offence:
✓ Offence under Part A of the Schedule (Eg. Drugs, bombs, crimes, etc.)
✓ Offence under Part B of the Schedule if value involved in offence ≥ 1 crore
✓ Offence under Part C of the Schedule (Eg: Trans- border Crimes)

ATTACHMENT OF PROPERTY UNDER PMLA:

Attachment means the prohibition of

✓ transfer,
✓ conversion,
✓ disposition, or
✓ movement of property

by an order under PMLA.

This step is taken to ensure that the suspect doesn’t misappropriate the assets during the period in which
the trial goes on. The attached property will be confiscated after the guilty judgment from the Court
has been passed

Property has been defined as any property or assets of every description, whether corporeal or
incorporeal, movable or immovable, tangible or intangible, and includes deeds and instruments
evidencing title to, or interest in, such property or assets, wherever located.

When proceeds of Crime are situated outside India it becomes difficult for the authorities to attach
such property. In such a case the attachment and confiscation of equivalent assets in India may be
done.

Powers To Attach Property

✓ The director or
✓ Deputy director or above designation, authorized by the director

Procedure to attach property

Step 1: The concerned officer has to record (in writing) the reasons to believe that :

✓ Any person is in possession of any proceeds of crime AND

✓ Such Proceeds are likely to be concealed, transferred, or dealt in any manner give negative
impact on confiscation

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Step 2: Within 180 days from the date of attachment, the officer must forward the attachment order
along with the material in his possession to the Adjudicating Authority, where

✓ Officer must explain the facts of the case and the reasons for such attachment.
✓ The aggrieved person has the right to present his defence.
Step 3: On examination of the facts of the case, the AA may pronounce either of the following orders:

✓ the belief formed by the officer is not valid, and hence the proceedings for attachment of
property is invalidated.
✓ the attachment shall continue while the proceedings for the crime go on for the scheduled
offense, in the court.

ARREST [Section 19]

A person can be arrested if concerned authority, based on material in their possession:

✓ Has reason to believe that such a person has been guilty of an offense punishable under PMLA,
and
✓ The reason for such belief has been duly recorded in writing

Procedure of Arrest
After arresting such a person, the authority is bound to:
✓ Inform the arrested person about the grounds for his arrest
✓ Forward a copy of the arrest order along with the material in his possession to the Adjudicating
Authority.
✓ Produce such person, within twenty-four hours, before the Special Court or Judicial
Magistrate or a Metropolitan Magistrate.

Powers to Arrest

✓ the Director,
✓ Deputy Director,
✓ Assistant Director,
✓ or any other officer authorized on this behalf by the CG

BAIL [Section 45]

✓ An offense under PMLA shall be cognizable1 and non-bailable2.

1
Serious Offences against which the police can begin the investigation / arrest the accuse without a warrant (ie. Without
taking permission from a court). Generally, the offences in which there is an imprisonment of more than 3 years are
considered as Cognizable
2
Offence against which bail can be given only after the accused has been presented before a judge.

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✓ The provisions of PMLA do not provide for any right of seeking anticipatory bail.

SUMMON, SURVEY & SEARCH

Section 16 Section 17 Section 18

ENTER AND SURVEY A POWER OF SEARCH AND POWER TO SEARCH A
PROPERTY OR PREMISES SEIZURE BY THE AUTHORITY. PERSON.
•Officer believes that the •Aggrieved person on the •Authority got Reason to
survey will allow him the based information provided believe in writing
opportunity to inspect by him or possession •Any person has secreted
necessary records •In writing about his person or
•help verify proceeds of a •indulged in monetizing possession, ownership, or
crime or any transactions possession of any proceeds of control any record / proceeds
related to the proceeds which crime of crime.
might be found on the
premises

Retention of Records under PMLA [Section 21]:

Where any records have been seized u/s 17 or u/s 18 or frozen U/S 17(1A),
✓ the concerned officer must, within 180 days,
✓ produce such records before the AA (Adjudicating authority)
✓ who may decide whether such records are required for detection of money laundering
✓ the AA may:
o permits retention or continuation of freezing of such records beyond 180 days, or
o order to release such records

The person from whom records are seized or frozen shall be entitled to obtain copies of records.

INTERCONNECTED TRANSACTIONS [Section 23]

Where any transaction proved to be involved in money-laundering, it may be presumed that any
inter-connected transactions are also associated with money-laundering.

Presumptions & Onus of Proof: The presumptions are absolute, and the onus to prove the same
otherwise lies on such a person. Following are the responsibilities of a person accused under the Act:

1. Any person accused of an offense under Section 3 of PMLA, whose property is attached and
proceeded against for confiscation, shall discharge the onus of proof (Section 24) vested in him
by disclosing
✓ the sources of his income, earnings, or assets,
✓ out of which or means by which he has acquired the property attached,
✓ to discharge the burden that the property does not constitute proceeds of crime.

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2. Where a transaction of acquisition of property is part of inter-connected transactions, the onus of

establishing that the property acquired is not connected to the activity of money-laundering, is on
the
✓ person in ownership,
✓ control, or
✓ possession of the property.

3. Under the Act, a person accused or being investigated for money laundering is required to give a
truthful statement if such person is summoned(called) by the Director.

Powers under the Act

The Director (or Additional Director, Joint Director, Deputy Director, or Assistant Director) has the
following powers under the Act:
✓ to summon any person whose attendance he considers necessary whether to give evidence or
to produce any records during any investigation or proceeding.
✓ To record statements of all such persons who are summoned and produce such documents as
may be required under section 50(3) of the Act.
✓ To collect evidence about the proceeds of crime in the hands of the persons suspected

OFFENSES OF CROSS-BORDER IMPLICATIONS [Part C of the Schedule to PMLA]

PMLA may apply to offenses of willful attempt to evade tax under Black Money Act and accordingly,
PMLA may apply to such offenses. UN Security Council Resolution 1373 obliges countries to freeze
without delay the funds or other assets of persons :
✓ who commit,
✓ or attempt to commit,
✓ terrorist acts,
✓ or participate in or
✓ facilitate the commission of terrorist acts;
✓ entities owned or controlled directly or indirectly by such persons; and
✓ persons and entities acting on behalf of or at the direction of,
✓ such persons and entities,
✓ including funds or other assets derived or generated from property owned or controlled,
✓ directly or indirectly,
✓ by such persons and associated persons and entities.

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INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING

AND

THE FINANCING OF TERRORISM & PROLIFERATION

The FATF Recommendations:

ANTI-MONEY LAUNDERING (AML) / COUNTERFEITING TERRORISM (CFT)

POLICIES AND COORDINATION

1. Assessing risks and applying a risk-based approach: Countries should :

✓ identify, assess, and understand the money laundering and terrorist financing risks for the
country.
✓ take action, including designating an authority or mechanism to coordinate actions to assess
risks and
✓ ensuring the risks are mitigated effectively.

2. National cooperation and coordination:

✓ Countries should have national AML/CFT/CPF policies
✓ These risks and policies should be regularly reviewed.
✓ Countries should ensure that policy-makers, the financial intelligence unit (FIU) and
operational levels, have effective mechanisms , cooperation and coordination and information
exchange within themselves so ensure the compatibility of AML/ CFT/CPF

MONEY LAUNDERING AND CONFISCATION

3. Money laundering offense:

Countries should classify the crime of money laundering as a serious offense, including the widest
range of penalties / prosecution for such offenses.

4. Confiscation and provisional measures:

Countries should, enable their competent authorities to freeze or seize and confiscate the following:

a. Property laundered,
b. proceeds from, or means used in money laundering,
c. Property allocated for use in the financing of terrorism, terrorist acts or terrorist organizations,
or
d. Property of corresponding value

TERRORIST FINANCING AND FINANCING OF PROLIFERATION:

5. Terrorist financing offense:

✓ Countries should criminalize terrorist financing based on the Terrorist Financing Convention.
✓ Countries should ensure that such offenses are designated as money laundering offenses.

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✓ Countries should implement targeted financial sanctions

o relating to the prevention and suppression of terrorism and terrorist financing [in
accordance with United Nations Security Council resolutions]
o the prevention, suppression, of the proliferation of weapons of mass destruction and its
financing

6. Non-profit organisations:
✓ Countries should review the adequacy of laws and regulations that relate to non-profit
organizations that the country has identified as being vulnerable to terrorist financing abuse.
✓ Countries should apply focused and proportionate Cost and Management Audit.

PREVENTIVE MEASURES:

7. Financial institution secrecy laws:

Countries should ensure that financial institution secrecy laws do not constrain the implementation of
the FATF Recommendations.

CUSTOMER DUE DILIGENCE (CDD) AND RECORD-KEEPING:

8. Customer due diligence / KYC3:

✓ Financial institutions (FI) should be prohibited from keeping anonymous accounts or accounts
in fictitious names.
✓ FI are required to undertake (CDD) measures when:
(I) Establish business relations;
(ii) Carryout occasional transactions: above the applicable designated threshold or
(iii)That are wire transfers(check point 16);
(iv) There is a suspicion of money laundering or terrorist financing; or
(v) The FI has doubts about the adequacy of previously obtained CDD.
✓ The principle that financial institutions should conduct CDD should be set out in law.

If the FI is unable to conduct CDD / KYC for a particular customer / transaction, it should:
✓ not open the account,
✓ not allowed to commence business relations or perform the transaction; or
✓ should terminate the existing business relationship; and should consider making a suspicious
transactions report about the customer

9. Record-keeping:
✓ FI should maintain the records for all customers and transactions (both domestic and
international) for at least five years.

3
CDD / KYC includes: (a) verifying customer‘s identity; (b) verifying the beneficial owner, (c) Obtain information on the
purpose and intended nature of the business relationship, (d) Conducting ongoing due diligence on the business
relationship and scrutiny of transactions are undertaken.

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✓ FI should be required to keep all records obtained through CDD measures and make them
available in case required by the competent authorities

ADDITIONAL MEASURES FOR SPECIFIC CUSTOMERS AND ACTIVITIES

10. Politically exposed persons (PEPs):

✓ FI should be required to conduct CDD on the politically exposed persons (PEPs) (whether
foreign or domestic)
✓ FI should establish the source of wealth and source of funds of such persons and
✓ Conduct enhanced on-going monitoring of the business relationship.
✓ The requirements for all types of PEP should also apply to family members or close associates
of such PEPs.

11. Money or value transfer services (MVTS): Countries should take measures to ensure that
✓ persons that provide money or value transfer services are licensed or registered; and
✓ are subject to effective systems for monitoring and ensuring compliance with the relevant
measures called for in the FATF Recommendations.
✓ Countries should identify unregistered / unlicensed MVTS and to apply appropriate sanctions/
penalties.
✓ Every MVTS provider should maintain a list of its agents.
✓ Countries should take measures to ensure that MVTS providers that use agents include them in
their AML/CFT programs and monitor them for compliance with these programs.

12. New technologies: Countries and financial institutions should identify and assess new products
and new business practices which facilitate the money laundering or terrorist financing risks

13. Wire transfers:

Countries should ensure that financial institutions must

✓ disclose accurate originator information
✓ disclose beneficiary information,
✓ disclose transaction information,
✓ take appropriate measures (like freezing transactions) on the wire transfers which lack required
originator and/or beneficiary information, and.
✓ prohibit conducting transactions with designated persons and entities

RELIANCE, CONTROLS, AND FINANCIAL GROUPS:

14. Reliance on third parties: Where FI relies on a third party for any information on a transaction,
the ultimate responsibility for CDD remains with the FI relying on the third party. Hence the FI
should:
✓ obtain the necessary information concerning CDD from the third party.

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✓ get an assurance that the third party is regulated, supervised, or monitored, and has measures in
place for compliance with CDD and recordkeeping

15. Internal controls and foreign branches and subsidiaries: Financial institutions should be
required:
✓ To implement programs against money laundering and terrorist financing.
✓ Implement group-wide programs, policies and procedures for sharing information within the
group for AML/CFT purposes.
✓ Ensure that their foreign branches and majority-owned subsidiaries apply AML/CFT measures.

16. Higher-risk countries: Financial institutions should be required to apply enhanced due diligence
measures w.r.t. transactions with persons from countries called for by the FATF.

REPORTING OF SUSPICIOUS TRANSACTIONS

17. Reporting of suspicious transactions: FI should report the suspicions transactions to the financial
intelligence unit (FIU).

18. Tipping-off and confidentiality: Financial institutions, their directors, officers, and employees
should be protected by law from criminal and civil liability for breach of any restriction on
disclosure of information, if they report their suspicions in good faith to the FIU

DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS

19. DNFBPs: customer due diligence: The customer due diligence and record-keeping requirements
should also be applicable to designated non-financial businesses and professions (DNFBPs) when
they engage in financial transactions equal to or above the applicable designated threshold.
Following are examples of DNFBPs:
a. Casinos
b. Real estate agents
c. Dealers in precious metals and dealers in precious stones
d. Lawyers, notaries, other independent legal professionals, and accountants – when they carry
out following transactions / activities:
o Buying and selling of real estate;
o Managing client money, securities, or other assets;
o Management of the bank, savings, or securities accounts;
o The organization of contributions for the creation, operation, or management of companies;
o Creation, operation, or management of legal persons or arrangements, and buying and
selling of business entities.

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TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND

ARRANGEMENTS
20. Transparency and beneficial ownership of legal persons: Countries should ensure that there is
adequate, accurate, and up-to-date information on the beneficial ownership and control of legal
persons.

OPERATIONAL AND LAW ENFORCEMENT

21. Financial intelligence units (FIUs): Countries should establish a financial intelligence unit (FIU)
that serves as a national centre for the receipt and analysis of suspicious transaction reports; and
other information relevant to money laundering, terrorist financing.

SANCTIONS
22. Sanctions: Countries should ensure that there is a range of effective, proportionate, and dissuasive
sanctions, whether criminal, civil, or administrative, available to deal with natural or legal persons.

INTERNATIONAL COOPERATION:
23. International instruments: Countries should take immediate steps to become a party to and
implement fully the
✓ Vienna Convention, 1988;
✓ the Palermo Convention, 2000;
✓ the United Nations Convention against Corruption, 2003; and
✓ the Terrorist Financing Convention, 1999.

24. Mutual legal assistance: Countries should assist (by way treaties) each other in combating
terrorism and enhance cooperation in this regard. Eg.
4. Countries should ensure that they have the authority to take action in response to requests by
foreign countries to identify, freeze, seize and confiscate property laundered.
5. Countries should also take all possible measures to ensure that they do not provide safe havens
for individuals charged with the financing of terrorism, terrorist acts, or terrorist organizations.

GUIDANCE FOR A RISK-BASED APPROACH FOR THE ACCOUNTING / AUDITING

PROFESSION

25. Risk identification and assessment

✓ Accountants should take appropriate steps to identify and assess the risk of the client by:.
o performing client and engagement acceptance processes
✓ They should keep the documents safe and up-to-date
✓ Money Laundering (ML) / Terrorist Financing (TF) risks can be organized into three categories:
o Country/geographic risk - A client may be at higher risk when features of their business
are connected to a higher risk country
o client risk – the client may itself be highly risky when it has PEPs involved in its
business, and

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o transaction/service and associated delivery channel risk – Accountant must refrain from
entering into certain transactions while performing services like Use of pooled client
accounts or safe custody of client money or assets without justification
✓ Identification of the ML/TF risks associated with certain clients or categories of clients, and
certain types of work will allow accountants to determine and implement reasonable and
proportionate measures and controls to mitigate such risks.

Documentation of risk assessments:

✓ Accountants must always document the ML/TF risks (for clients, countries, geographic areas,
services, transactions, or delivery channels).
✓ Each of the risks could be assessed using indicators such as low risk, medium risk, and/or high
risk.
✓ A risk assessment of this kind should not only be carried out for each specific client and service
on an individual basis, but also to assess and document the risks on a firm-wide basis, and to
keep risk assessment up-to-date through monitoring of the client relationship.
✓ The written risk assessment should be made accessible to all professionals having to perform
AML/CFT duties.

Risk mitigation:

✓ Accountants should have policies, controls, and procedures that enable them to effectively
manage and mitigate the risks that they have identified (or that have been identified by the
country).
✓ They should monitor the implementation of those controls and enhance or improve.
✓ The policies, controls, and procedures should be approved by senior management,
✓ Targeted training must be organised for increased awareness.

Initial and on-going CDD:

✓ Accountants should design CDD procedures to identity and verify each client / reliable source
of documents, Identify the beneficial owner.
✓ Accountants should perform varying levels of work according to the risk level.
✓ Changes in ownership or control of clients should lead to review or repeat of client
identification and verification procedures.
✓ Public information sources may assist with this on-going review .
✓ The procedures that need to be carried out differs from apparent ownership by the use of
nominees and complex structures.

Politically exposed persons (PEP):

✓ Accountants should identify whether a client is PEP or a family member or close associate of a
PEP.

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✓ If the client or the beneficial owner is a PEP or a family member or close associate of a PEP,
Accountants should perform the following additional procedures:
(a) Obtain senior management approval for establishing such business relationships;
(b) Take reasonable measures to establish the source of wealth and source of funds; and
(c) Conduct enhanced on-going monitoring of the business relationship.

SUSPICIOUS ACTIVITY/TRANSACTION REPORTING, TIPPING-OFF, INTERNAL

CONTROLS, AND HIGHER-RISK COUNTRIES

Suspicious transaction reporting and tipping

✓ Accountants to report suspicious and specific transactions.

✓ The accountant should also periodically assess the adequacy of their system for identifying and
reporting suspicious activity or transactions.

✓ Accountants should review CDD if they have a suspicion of ML/TF.

Internal controls and governance:

✓ Senior management must create a culture of compliance, ensuring that staff adheres to the firm’s
policies, procedures, and processes designed to limit and control risks.

✓ The nature and extent of the AML/CFT controls should be appropriate w.r.t. the risks involved.
Examples of internal controls surrounding AML / CFT are:

1. Designating an individual, at the management level responsible for managing AML/CFT

compliance;
2. Designing policies and procedures that focus on the firm’s higher risk, services, products,
clients, and geographic locations;
3. Ensuring that adequate controls are in place before new services are offered; and
4. Ensuring adequate controls for accepting higher-risk clients or providing higher-risk services,
such as management approval.
5. Performing a regular review / compliance of the firm‘s policies and procedures to ensure that
they remain fit for purpose;
6. Providing senior management with a regular report of compliance initiatives, identifying
compliance deficiencies, corrective action is taken, and STRs filed;
7. Providing for appropriate training to be given to all relevant staff;

Nominee arrangements

A nominee director is a person (appointed to the Board of Directors) who represents the interests
and acts by instructions issued by another person, usually the beneficial owner.

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A nominee shareholder is a person who holds shares on behalf of another person who is the beneficial
owner. The shares may be held in trust or through a custodial agreement.

There are legitimate reasons for accountants to act as nominee directors / shareholders like
6. the settlement and safekeeping of shares in listed companies.
However, nominee director and nominee shareholder arrangements can be misused
7. to hide the identity of the true beneficial owner of the legal person

In such a case, the nominee arrangements must be subject to following controls:

8. The supervisor should be aware about the undisclosed nominee arrangements.
9. Undisclosed nominee arrangements must be identified and addressed
10. Mode of identification of undisclosed nominee arrangements - onsite and offsite inspections
and examination of the policies, procedures, controls, and client records of the accountant, CDD
process and ongoing monitoring by the accountant.

Anti-Money Laundering Laws & Regulations in brief

1. The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body is
responsible for setting global standards on anti-money laundering and combating the financing
of terrorism.

2. In 2010, India became the 34th nation member of the Financial Action Task Force.

3. India has prohibited money laundering under the Prevention of Money Laundering Act, 2002
(PMLA) and also in the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act)
(amended in 2001).

4. Under PMLA, the Financial Intelligence Unit of India (FIU-IND) was formed in 2004
o to receive, analyse, process and disseminate information relating to suspect financial
transactions.
o To coordinate and strengthens efforts of national investigation, international
intelligence, and enforcement agencies in pursuing the global efforts against money
laundering and financing of terrorism.

5. In 2005, the Enforcement Directorate (ED) was introduced by the Government of India to
utilize exclusive powers related to the investigation and prosecution under PMLA.

6. The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
- The is aimed to retain foreign exchange within the nation.

7. The Benami Transactions (Prohibition) Act, 1988: A Benami transaction is a transaction in

which property is transferred to one person by another person and, the identity of the persons

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Anti-Money Laundering Cost and Management Audit 14.17

involved is concealed. This Act was passed in 1988. It is to constrain Benami transactions and
the right to recover property held by Benami.

8. The Indian Penal Code, 1860 and Code of Criminal Procedure, 1973: The Indian Penal
Code, 1860 is the primary substantive law that regulates several criminal activities and also
prescribes penalties for them. The Code of Criminal Procedure, 1973 on the other hand is a part
of procedural law that specify procedures to be followed in criminal cases. Several offences
under the Indian Penal Code have been recognised as being scheduled offences within the
meaning explained in the PMLA.

9. The Narcotic Drugs and Psychotropic Substances Act, 1985: Its objectives is to stop and
restrict the transport and vending of narcotic and psychotropic substances. The NDPS Act, by
working against practices involving drug trading and trafficking puts a direct restriction on the
flow of money into illegitimate activities.

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