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The Prevention of Money Laundering Act, 2002
Enforcement Directorate
Ahmedabad, 21st Feb 2015
Money Laundering…..
Process by which illegal funds and assets are converted into legitimate funds and assets.
The Need for Money Laundering Act
Part of International/National commitment to fight terrorism, Organized Crime Syndicates, major economic offenders by targeting their financial resources.
PMLA, 2002 fills the gap in the Criminal Justice System where attachment of proceeds of crimes was very difficult in the existing Major Criminal Acts.
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The FATF
Established by the G-7 Summit in Paris in July 1989 to examine measures to combat money laundering.
An inter-governmental body whose purpose is to establish international standards and promote national and international policies to combat money laundering (ML) and terrorist financing (TF).
Membership of FATF
The 36 members(34 countries and 2 regional bodies) of the FATF and the members of EIGHT FATF-style regional bodies (FSRBs) have all directly committed to implement the FATF standards.
The Gulf Cooperation Council is a member of the FATF.
The European Union is a member of the FATF.
The role of the FATF
40+9 Recommendations (the FATF standards) Establish international standards to combat
money laundering and terrorist financing.
Mutual evaluation system Assess compliance with the FATF standards.
Typologies work Study methods and techniques of money
laundering (ML) and terrorist financing (TF).
Objectives of FATF Standards
Provide a comprehensive set of measures to enable all countries to implement effective anti-money laundering (AML) / counter-terrorist financing (CFT) systems that will protect the world-wide financial system from misuse by organised crime and terrorist financiers.
Foster good governance and longer term economic development.
Overview of the standards
The 40 Recommendations
Legal systems: criminalisation of money laundering, international cooperation.
Comprehensive set of preventative measures to be taken by financial institutions and non-financial businesses and professions (customer due diligence, record keeping).
Institutional framework and other measures (reporting of suspicious transactions, compliance, regulation and supervision, sanctions).
International cooperation: mutual legal assistance, extradition, information sharing.
Overview of the standards (continued)
The 9 Special Recommendations on Terrorist Financing
Ratify United Nations instruments.Criminalise terrorist financing.Freeze and confiscate assets.Report suspicious transactions.International cooperation.Protect against abuse of alternative remittance
systems and abuse of non-profit organisations.Ensure originator information on wire transfersDetect cash couriers.
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FATF issued revised Recommendation in Feb 2012 .The new recommendations are 40 in numbers and subsumes the earlier 40+9 recommendations
Parliamentary History of the Law.
The PML bill, 1998 was introduced in Lok Sabha on 04-08-1998.
Referred to Standing committee on finance on 05-08-1998.
The committee submitted its report on 04-03-1999.
The bill was presented in Rajya Sabha on 08-03-1999.
Parliamentary History of the Law.
The PML, Bill 1999 was presented in Lok Sabha on 29-10-1999.
The PML, Bill 1999 was passed in Lok Sabha on 02-12-1999.
Rajya Sabha referred the bill to Select committee.
The committee finalised its report on 24th July, 2000.
The present act after being passed by both the houses received
the assent of the president on 17th January, 2003.
Preamble to PMLA 2002
“An Act to prevent money laundering and to provide for confiscation of property derived from, or involved in money laundering and for matters connected or incidental thereto”
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PMLA 2002: Key ConceptsOffence of Money Laundering – attempt
to indulge or knowingly assist or knowingly is a party or is actually involved in any process or activity connected to proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property .
Proceeds of Crime - Assets obtained as a result of Criminal activity related to Scheduled Offence
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2. PLACEMENT
3.LAYERING
4.INTEGRATION
• The last stage in the laundering process.
• Occurs when the laundered proceeds are distributed back to the criminal.
• Creates appearance of legitimate wealth.
• Involves distancing the money from its criminal source:
• movements of money into different accounts
• movements of money to different countries
• Increasingly difficult to detect
• Initial introduction of criminal proceeds into the stream of commerce
• Most vulnerable stage of money laundering process
1.Predicate Crimes
• Corruption and Bribery • Fraud• Organized crime• Drug and human trafficking• Environmental crime• Terrorism• Other serious crimes…
Money Laundering Cycle
Simple Bribe and Money Laundering Transaction
Company A
• Needs to generate $1 million for bribe to Minister.
• Uses invoices from company in Country 2
Country 1
Country 2
Company Bank Account
Country 3
Company owned by Minister’s cousin
Country 1
$500,000 - Purchase of Real Estate
PMLA Administered by:
Financial Intelligence Unit for verification of identity of clients, maintenance of records and reporting
Enforcement Directorate for investigation of and prosecution for money-laundering offences
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Scheduled offence
Investigation by Police/CBI/NCB/ Forest Deptt.
Complaint (Chargesheet) filed in the Jurisdictional Court
Intelligence from FIU/Other sources
Investigation by ED
Provisional attachment
of Property
Complaint to court
Adjudicating Authority
Confirmation of Prov. Attachment
Confiscation of Tainted property
Special court
Conviction for MLConviction in Scheduled offence
Flow of Events
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Scheduled Offences
Schedule to PMLA has 156 Offences under 28 criminal acts Indian Penal Code (IPC)Narcotic Drugs And Psychotrophic
Substances Act (NDPS)Unlawful Activities (Prevention) Act
(UAPA)Explosive Substances Act
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Scheduled Offences
• Arms Act Wild life Protection Act• Immoral Traffic Act• Prevention of Corruption Act• The Explosive Act• SEBI Act• Customs Act• Bonded Labour System (Abolition) Act• Child Labour (Prohibition and regulation)Act• Trans Plantation of Human Organ Act• The Juvenile Justice Act• The Emigration Act• The Passports Act• The Foreigners Act
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• The Copyright Act• The Trade Marks Act• The Information Technology Act• The Biological Diversity Act• The Protection of Plant Varieties And Farmers Right Act• The Environmental Protection Act• The Water (Prevention and Control of Pollution) Act• The Air (Prevention and Control of Pollution) Act
PMLA: A multi-agency perspective
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PMLA
IPC & Other Acts
NDPSSEBI Act
Respective Acts
Customs / DRI
ATS
NCB
ED
SEBI
Police/CBI
CBI/ACB
Other
Legal Obligation under PMLA towards FIU
PMLA impose obligations on following reporting entities:
banking companiesfinancial institutionsintermediaries of the securities marketPersons carrying on designated business or
profession to
maintain recordsfurnish informationverify identity of clients
Section 12
“Banking Company” under PMLA includes: All nationalized banks, private Indian
banks and private foreign banks All co-operative banks viz. primary co-
operative banks, state co-operative banks and central (district level) co-operative banks
State Bank of India and its associates and subsidiaries
Regional Rural Banks
“Financial Institution” under PMLA includes:
Financial Institutions as defined in Section 45-I of the RBI Act namely EXIM Bank, NABARD, NHB, SIDBI, IFCI Ltd., IDFC Ltd., IIBI Ltd. and TFCI Ltd.
Insurance companies Hire Purchase companies Chit fund companies as defined in the
Chit Funds Act.
“Intermediary” under PMLA includes persons registered under Section 12 of the Securities and Exchange Board of India (SEBI) Act, 1992:
• 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• Custodian of securities• Foreign institutional investors• Credit rating agencies• Venture capital funds• Collective investment schemes
including mutual funds
Persons carrying on designated business or profession under PMLA includes
(i) a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
(ii) a Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908 (16 of 1908) as may be notified by the Central Government;
(iii) real estate agent, as may be notified by the Central Government; (iv) dealer in precious metals, precious stones and other high value
goods, as may be notified by the Central Government; (v) person engaged in safekeeping and administration of cash and
liquid securities on behalf of other persons, as may be notified by the Central Government; or
(vi) person carrying on such other activities as the Central Government may, by notification, so designate, from time-to-time;
Salient FeaturesEffective provisions for attachment and confiscation of
proceeds of crimeProvisions for Overseas investigations and attachment
of properties abroadSpecial Courts set up by Government across the
Country for prosecutionProvision for disclosure by banks, financial institutions
and intermediaries – Financial Intelligence Unit (FIU)Burden of proof on accused to prove that proceeds of
crime are untaintedStatements recorded by ED Officers admissible as
evidence
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Trade Based Money Laundering
There are three main methods by which criminal organisations and terrorist financiers move money for the purpose of disguising its origins and integrating it into the formal economy.
• use of the financial system; • physical movement of money (e.g. through the use of cash couriers); • through the physical movement of goods through the trade system..
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Trade based money laundering•Trade-based money laundering is defined as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins.
•In practice, this can be achieved through the misrepresentation of the price, quantity or quality of imports or exports. Moreover, trade-based money laundering techniques vary in complexity and are frequently used in combination with other money laundering techniques to further obscure the money trail.
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Examples of Trade-BasedMoney Laundering
• over- and under-invoicing of goods and services;• multiple invoicing of goods and services;• falsely described goods and services.
• Cash for high-value ordersItems priced well over or under market value
Mismatch between customer and items ordered
Business transfers made for no apparent reason
Third-party financing
Packaging inconsistent with contents
Routing is circuitous or economically illogical.
Size or weight of goods is inconsistent with contents
Indicators and TrendsIndicators and TrendsTrade-Based Money Laundering
Home Country Foreign Country
1$ Million is moved from exporter to importer
Company I Company E
Exporter Ships 1 million widgets @ $1 each whereas actual price is $2 each
Importer remits payment for 1 million widgets @ $1 each
Company I can sell extra widgets and can distribute 1 million as per direction of company E
Under voicing of Goods
Mechanics of a Black Market Peso Exchange Agreement
Drug CartelD
rugs
Peso broker
USDollars
Pesos Pesos
Colombian Importer
Good
s
Use of Gold Bullion
USColombi
a
Cartel smuggles drugs into the US from Colombia
Proceeds from drug sales used to purchase gold bullion Gold is recast
into hardware
Cartel re-exports gold bullion into the US from Colombia
The “hardware” is exported to Colombia
