Prevention of Money Laundering - In India and other countries

PREVENTION OF MONEY LAUNDERING

In India and other countries

Dr. Rajeev Babel, FCS Assisted by: Priyank Babel

Highlights • The Prevention of Money Laundering Act, 2002 • The Prohibition of Benami Property Transactions Act, 1988 • The Whistle Blowers Protection Act, 2014 • The Fugitive Offenders Act, 2018 • The Prevention of Corruption Act, 1988 • The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 • The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974

Contents at a glance About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Detailed table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Table of cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix Abbreviations used in this book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii Chapter 1

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1

Chapter 2

Definitons (Section 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1

Chapter 3

Meaning of Money Laundering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1

Chapter 4

Attachment, Adjudication and Confiscation (Sections 5 to 11). . . . . . 4.1

Chapter 5

Obligations of Banking Companies, Financial Institutions and Intermediaries (Sections 12 to 15) . . . . . . . . . . . . . . . . . . . . . . . . 5.1

Chapter 6

Summons, Searches and Seizures, etc. (Sections 16 to 24). . . . . . . . . 6.1

Chapter 7

Appellate Tribunal (Sections 25 to 43) . . . . . . . . . . . . . . . . . . . . . . . . 7.1

Chapter 8

Special Courts (Section 43 to 47) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1

Chapter 9

Authorities (Section 48 to 54). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1

Chapter 10

Reciprocal Arrangement for Assistance in Certain Matters and Procedure for Attachment and Confiscation of Property (section 55 to 61). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1

Chapter 11

Punishment for vexatious search (Section 62 to 75). . . . . . . . . . . . . 11.1

Chapter 12

Guidelines of Regulatory Authorities . . . . . . . . . . . . . . . . . . . . . . . . 12.1

Chapter 13

Financial Intelligence UnitIndia (FIU-IND) . . . . . . . . . . . . . . . . . . . 13.1

Chapter 14

Rules prescribed under the PML Act. . . . . . . . . . . . . . . . . . . . . . . . . 14.1

Chapter 15

Prevention of Money Laundering – International Scenario. . . . . . . . 15.1

Chapter 16

Anti-Money Laundering Legislations in Major Countries . . . . . . . . 16.1 OTHER RELATED ACTS

Chapter 17

The Prohibition of Benami Property Transactions Act, 1988 . . . . . . 17.1

Chapter 18

Whistle Blowers Protection Act, 2014. . . . . . . . . . . . . . . . . . . . . . . . 18.1

Chapter 19

The Fugitive Economic Offenders Act, 2018 (No. 17 of 2018) . . . . 19.1 ix

Prevention of money laundering in India and other countries

Chapter 20

Smugglers and Foreign Exchange Manipulators Act, 1976 (13 of 1976). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.1

Chapter 21

Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974) . . . . . . . . . . . . . . . . . . 21.1

Chapter 22

Prevention of Corruption Act, 1988 (49 of 1988). . . . . . . . . . . . . . . 22.1

x

Detailed table of contents About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Table of cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix Abbreviations used in this book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii Chapter 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 1.1 Overview of the PML Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 1.2 Rules framed under the PML Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Chapter 2

Definitons (Section 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1

Chapter 3 Meaning of Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1 How it works. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.1 Placement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.2 Layering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.3 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2 Punishment of Money Laundering (Section 3). . . . . . . . . . . . . . . . . . . . . . . .

3.3 Punishment for Money Laundering (Section 4) . . . . . . . . . . . . . . . . . . . . . . .

3.1 3.1 3.1 3.1 3.2 3.2 3.6

Chapter 4 Attachment, Adjudication and Confiscation (Sections 5 to 11). . . 4.1 4.1 Attachment of property involved in money-laundering (Section 5). . . . . . . . 4.1 4.2 Adjudicating Authorities, Composition, Powers etc. (Section 6). . . . . . . . . 4.10 4.3 Staff of Adjudicating Authorities (Section7). . . . . . . . . . . . . . . . . . . . . . . . . 4.13 4.4 Adjudication (Section 8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.13 4.5 Vesting of Property in Central Government (Section 9). . . . . . . . . . . . . . . . 4.17 4.6 Management of Property confiscated in this Chapter (Section 10). . . . . . . . 4.18 4.7 Powers of the Adjudicating Authority (Section 11) . . . . . . . . . . . . . . . . . . . 4.18 Chapter 5 5.1 5.2 5.3 5.4 5.5

Obligations of Banking Companies, Financial Institutions and Intermediaries (Sections 12 to 15) . . . . . . . . . . . .

Reporting Entity to Maintain Record Section 12 . . . . . . . . . . . . . . . . . . . . . .

Access to Information (Section 12A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Powers of Director to Impose Fine (Section 13). . . . . . . . . . . . . . . . . . . . . . .

No Civil or Criminal proceedings agsinst Reporting Entity, its Directors and Employees in certain cases (Section 14) . . . . . . . . . . . . . . . . .

Procedure and Manner of furnishing information by Reporting Entities Section 15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.1 5.1 5.4 5.4 5.5 5.5 xi

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Chapter 6 Summons, Searches and Seizures, etc. (Sections 16 to 24). . . . . . . 6.1 6.1 Power of Survey (Section 16). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 6.2 Search and Seizure (Section 17). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 6.3 Search of Persons (Section 18). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 6.4 Power to Arrest (Section 19). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 6.5 Retention of Property (Section 20). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13 Retention of Records (Section 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.14 6.6 6.7 Presumption as to records or property in certain cases (Section 22). . . . . . 6.14 Presumption in inter-connected transactions (Section 23) . . . . . . . . . . . . . . 6.15 6.8 6.9 Burden of Proof (Section 24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.15 Chapter 7 Appellate Tribunal (Sections 25 to 43). . . . . . . . . . . . . . . . . . . . . . . 7.1 7.1 Appellate Tribunal (Section 25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 7.2 Appeals to Appellate Tribunal (Section 26) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 7.3 Omitted Sections (Section 27 to 34). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 7.3.1 Composition, etc., of Appellate Tribunal (Section 27) . . . . . . . . . . . 7.5 7.3.2 Qualifications for appointment: (Section 28) . . . . . . . . . . . . . . . . . . 7.5 7.3.3 Term of office: (Section 29). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 7.3.4 Conditions of service: (Section 30). . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 7.3.5 Vacancies: (Section 31). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 7.3.6 Resignation and removal: (Section 32). . . . . . . . . . . . . . . . . . . . . . . 7.5 7.3.7 Member to act as Chairperson in certain circumstances: (Section 33). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 7.3.8 Staff of Appellate Tribunal: (Section 34). . . . . . . . . . . . . . . . . . . . . . 7.5 7.4 Procedure and Powers of Appellate Tribunal (Section 35). . . . . . . . . . . . . . . 7.5 7.5 Form of Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 7.6 Distribution of Business amongst Benches (Section 36) . . . . . . . . . . . . . . . 7.11 Power of Chairman to transfer cases (Section 37) . . . . . . . . . . . . . . . . . . . . 7.11 7.7 Decision to be by majority (Section 38). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.12 7.8 7.9 Right of appellant to take assistance of authorized representative and of Government to appoint presenting officers (Section 39). . . . . . . . . . 7.12 7.10 Members, etc., to be public servant (Section 40) . . . . . . . . . . . . . . . . . . . . . 7.12 7.11 Civil court not to have jurisdiction (Section 41). . . . . . . . . . . . . . . . . . . . . . 7.12 7.12 Appeal to High Court (Section 42). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.12 Chapter 8 Special Courts (Section 43 to 47) . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.1 Special Courts (Section 43). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.2 Offences trabale by Special Courts (Section 44). . . . . . . . . . . . . . . . . . . . . . .

8.3 Offences to be cognizable and non-bailable (Section 45). . . . . . . . . . . . . . . .

8.4 Application of the Code of Criminal Procedure, 1973 to proceedings before Special Court (Section 46). . . . . . . . . . . . . . . . . . . . . . . .

8.5 Appeal and Revision (Section 47). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

8.1 8.1 8.1 8.4 8.7 8.8

Detailed table of contents

Chapter 9 Authorities (Section 48 to 54). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.1 Authorities under the Act (Section 48). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.2 Apoointment of Power of Authorities and other Officers (Section 49). . . . . .

9.3 Powers of authorities regarding summons, production of documents and to give evidence, etc. (Section 50). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.4 Jurisdiction of Authorities (Section 51) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Power of Central Government to issue directions, etc. (Section 52) . . . . . . .

9.5 9.6 Empowerment of Certain Officers (Section 53). . . . . . . . . . . . . . . . . . . . . . .

9.7 Certain Officers to assist in inquiry (Section 54) . . . . . . . . . . . . . . . . . . . . . .

9.2 9.3 9.4 9.4 9.4

Chapter 10

10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9

Reciprocal Arrangement for Assistance in Certain Matters and Procedure for Attachment and Confiscation of Property (section 55 to 61) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Definitions (Section 55) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Agreements with foreign countries (Section 56). . . . . . . . . . . . . . . . . . . . . .

Letter of request to a contracting State in certain cases (Section 57). . . . . .

Assistance to a contracting State in certain cases (Section 58). . . . . . . . . . .

Special Court to relase the property (Section 58A). . . . . . . . . . . . . . . . . . . .

Letter of request of a contracting State or authority for confiscation or release the property (Section 58B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reciprocal arrangements for processes and assistance for transfer of accused persons (Section 59) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Attachment, seizure and confiscation, etc. of property in a contracting State or India (Secton 60). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Procedure in respect of letter of request (Section 61). . . . . . . . . . . . . . . . . .

9.1 9.1 9.1

10.1 10.2 10.2 10.2 10.3 10.3 10.3 10.4 10.5 10.6

Chapter 11 Punishment for vexatious search (Section 62 to 75). . . . . . . . . . . 11.1 11.1 Punishment for vexatious search (Section 62) . . . . . . . . . . . . . . . . . . . . . . . 11.1 11.2 Punishment for false information or failure to give information, etc.

(Section 63). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 11.3 Congnizance of Officences (Section 64). . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 11.4 Code of Criminal Procedure, 1973 to apply (Section 65). . . . . . . . . . . . . . . 11.3 11.5 Disclosure of information (Section 66). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 11.6 Bar of suits in civil cours (Section 67). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6 11.7 Notices, etc., not to be invalid on certain grounds (Section 68). . . . . . . . . . 11.6 11.8 Recovery of fine or penalty (Section 69). . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6 11.9 Offences by Companies (Section 70). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7 11.10 Act to have overriding effect (Section 71) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7 11.11 Continuation of proceddings in the event of death or insolvency (Section 72). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 11.12 Power to make rules (Section 73). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9 11.13 Rules to be laid before Parliament (Section 74). . . . . . . . . . . . . . . . . . . . . 11.11 xiii

Prevention of money laundering in India and other countries

11.14 Power to remove difficulties (Section 75). . . . . . . . . . . . . . . . . . . . . . . . . . 11.11 11.15 Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.12 Chapter 12 Guidelines of Regulatory Authorities. . . . . . . . . . . . . . . . . . . . . . . 12.1 12.1 Reserve Bank of India (RBI). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.2 Insurance and Regulatory Development Authority of India (IRDAI). . . . . 12.46 12.3 Securities and Exchange Board of India (SEBI). . . . . . . . . . . . . . . . . . . . . 12.67 12.4 National Housing Bank (NHB). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.90 Chapter 13 Financial Intelligence UnitIndia (FIU-IND). . . . . . . . . . . . . . . . . 13.1 13.1 Overview, functions and Organisation Structure. . . . . . . . . . . . . . . . . . . . . 13.2 13.1.1 Overview of FIU-IND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 13.1.2 Functions of FIU-IND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 13.1.3 Organisation Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4 13.2 Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4 13.2.1 Failure to have effective internal system in place for alerts, detecting and reporting suspicious transactions.. . . . . . . . . . . . . . . 13.4 13.2.2 There was a failure on the part of the Bank to put in place mechanism for detecting & reporting suspicious transactions.. . . . 13.5 13.2.3 The PMLA aims at prevention of laundering of the proceeds of crime. Even attempted transaction are required to be reported points to the high level of expectation the law has from the bank. It is not enough for the Bank to lay down a policy; it is equally important to implement it.. . . . . . . . . . 13.7 13.2.4 Section 12 of the PMLA and its relevant rules imposes certain obligations on Banking companies, which include identification and verification of the identity of their customers and furnishing to the Director, FIU-IND reports of specified transactions including cash transactions over threshold limit, suspicious transactions and counterfeit currency transactions etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.8 13.3 Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.10 13.3.1 Merely a show cause notice do not a cause of action to file a petition under Article 226 of the Constitution of India. . . . . . . . 13.10 13.3.2 All cash transactions are to be reported in CTR and if any cash transaction is suspicious in nature then irrespective of its value, the same is also to be reported in Suspicious Transaction Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.12 13.3.3 The act of filing STR will not absolve the party of its compliance liability of filing CTR. . . . . . . . . . . . . . . . . . . . . . . . . 13.17

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Detailed table of contents

Chapter 14 Rules prescribed under the PML Act. . . . . . . . . . . . . . . . . . . . . . . 14.1 14.1 The Prevention of Money Laundering (Appeal) Rules, 2005. . . . . . . . . . . . 14.3 14.2 Prevention of Money-laundering (Appointment and Conditions of service of Chairperson and Members of Adjudicating Authorities) Rules, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.7 14.3 Prevention of Money-Laundering (Forms, Search and Seizure or Freezing and the manner of forwarding the reasons and material to the Adjudicating Authority, Impounding and Custody of Records and the period of retention) Rules, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . 14.10 14.4 Prevention of Money-Laundering (Issuance of Provisional Attachment Order) Rules, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.23 14.5 Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. . . 14.26 14.6 Prevention of Money-Laundering (Manner of Receiving the Records authenticated outside India) Rules, 2005 . . . . . . . . . . . . . . . . . . . 14.47 14.7 Prevention of Money-Laundering (Receipt and Management of Confiscated Properties) Rules, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.48 14.8 Prevention of Money-Laundering (Restoration of Confiscated Property) Rules, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.51 14.9 Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties confirmed by the Adjudicating Authority) Rules, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.53 14.10 Prevention of Money-Laundering (The Forms and the Manner of Forwarding a Copy of Order of Arrest of a Person along with the Material to the Adjudicating Authority and its Period of Retention) Rules, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60 14.11 Prevention of Money-Laundering (The Manner of forwarding a copy of the order of Provisional Attachment of Property along with the Material, and Copy of the Reasons along with the Material in respect of Survey, to the Adjudicating Authority and its Period of Retention) Rules, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.65 14.12 Prevention of Money-Laundering (The Manner of Forwarding a Copy of the Order of Retention of Seized Property along with the Material to the Adjudicating Authority and the Period of its Retention) Rules, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.71 Chapter 15 Prevention of Money Laundering – International Scenario . . . . 15.1 15.1 Financial Action Task Force (FATF-AML/CFL Standards). . . . . . . . . . . . . 15.2 15.2 Egmont Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.23 15.2.1 About Egmont Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.23 15.2.2 Structure and Organization of the Egmont Group of Financial Intelligence Units:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.24 xv

Prevention of money laundering in India and other countries

15.2.3 15.2.4 15.2.5 15.2.6

15.3

15.4 15.5 15.6 15.7 15.8 15.9

Heads of Financial Intelligence Units. . . . . . . . . . . . . . . . . . . . . .

Egmont Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Intelligence Units (FIUs). . . . . . . . . . . . . . . . . . . . . . . .

Money Laundering and the Financing of Terrorism. . . . . . . . . . .

15.2.6.1 Important instruments and international standards on Money Laundering and Financing of Terrorism: . . . .

Asia/Pacific Group on Money Laundering (AGP) . . . . . . . . . . . . . . . . . . .

15.3.1 In 1995 an Asia-Pacific regional office. . . . . . . . . . . . . . . . . . . . .

15.3.2 The APG has grown considerably since 1997. . . . . . . . . . . . . . . .

15.3.3 The APG has five primary functions. . . . . . . . . . . . . . . . . . . . . . .

Caribbean Financial Action Task Force (CFATF). . . . . . . . . . . . . . . . . . . .

WOLFSBERG Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Inter-Governmental Action Group against Money Laundering in West Africa (GIABA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Eastern and Southers Africa Anti-Money Laundering Group (ESAAMLG). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Middle East and North Africa Financial Task Force (MENAFATF) . . . . .

Basel Committee of Banking Supervision . . . . . . . . . . . . . . . . . . . . . . . . .

15.25 15.25 15.25 15.26 15.26 15.28 15.28 15.28 15.28 15.29 15.30 15.31 15.32 15.33 15.33

Chapter 16 Anti-Money Laundering Legislations in Major Countries . . . . . 16.1 16.1 Unites States of America (USA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.1 16.1.1 Bank Secrecy Act, 1970. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 16.1.2 The Money Laundering Control Act, 1986. . . . . . . . . . . . . . . . . . . 16.3 16.1.3 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, 2001 (USA PATRIOT Act) . . . . . . . . . . . . . . . . . . . 16.3 16.1.4 Financial Crimes Enforcement Network (FinCEN) . . . . . . . . . . . . 16.8 16.2 United Kingdom (UK) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.10 16.2.1 Sanctions and Anti Money Laundering Act 2018. . . . . . . . . . . . . 16.10 16.2.2 Criminal Finances Act, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.13 16.2.3 Proceeds of Crime Act, 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.14 16.2.4 Serious Crime Act, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.15 16.2.5 Australia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.16 OTHER RELATED ACTS Chapter 17

The Prohibition of Benami Property Transactions Act, 1988 . . . 17.1

Chapter 18

Whistle Blowers Protection Act, 2014 . . . . . . . . . . . . . . . . . . . . . . 18.1

Chapter 19

The Fugitive Economic Offenders Act, 2018 (No. 17 of 2018). . . 19.1

xvi

Detailed table of contents

Chapter 20

Smugglers and Foreign Exchange Manipulators Act, 1976 (13 of 1976). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.1

Chapter 21

Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974). . . . . . . . . . . . . . . . . . 21.1

Chapter 22

Prevention of Corruption Act, 1988 (49 of 1988) . . . . . . . . . . . . . 22.1

xvii

Table of cases Aasma Mohammed Farooq v Union of India, W.P. (C) No. 12494 of 2018 CM. Nos. 48492 & 48493 of 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.15 Abdul Gani v State of Maharashtra, Criminal Application No. 2556 of 1989. . . . . 21.13 Abdul Salam alias Thiyyan v Union of India, CRL Appeal No. 271 of 1990 . . . . . 21.12 Abdullah Ali Balsharaf v Directorate of Enforcement, W.P. (C) NO. 3531 of 2018 CM NOS. 13961, 19484, 39904 & 51202 OF 2018, High Court of Delhi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7, 3.2, 6.9 Afroz Mohmad Hasanfatta v Deputy Director, Criminal Misc.

Application (for regular bail) No. 17000 of 2014 . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 Allahabad Bank v Director, Financial Intelligence Unit-India, FPAPMLA-551/DLI/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.12 Arun Sharma v Union of India, CRWP NO. 971 OF 2016. . . . . . . . . . . . . . . . . . . . . 6.12 Attorney General For India v Amratlal Prajivandas, Transfer Petition (C) No. 17 of 1978. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.2 Bank of India v Deputy Director, Directorate of Enforcement, Mum., FPA-PMLA nos. 2155 & 2173 (Mum.) of 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Bhim Singh & Anr v Kan Singh (And Vice Versa) 1980 AIR 727, 1980 SCR (2) 628. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.9, 17.25 Biswanath Bhattacharya v Union of India, Civil Appeal Nos. 772 & 773 of 2014. . . . . 20.8 Central Bureau of Investigation v V.C. Shukla, CRL. A. NO. 000247000256/1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.15 Champdan V Industries Ltd. (2009) 9 SCC 466. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.11 Chellamuthu v Deputy Director, Prevention of Money Laundering Act, Directorate of Enforcement, Mumbai, C.M.A. (MD) NOS. 104 to 110 of 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.18 Chhagan Chandrakant Bhujbal v Union of India, Criminal Writ Petition No. 3931 of 2016 Criminal Application No. 463 of 2016, High Court of Bombay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9, 11.7 Competent Authority And Administrator Safema/NDPS v Mithu Bawa Padhiyar, Special Civil Application Nos. 11079 & 11080 of 2000. . . . . . . . . . . 20.8 Competent Authority v M. Khader Moideen, W.P NO. 19184 of 2011. . . . . . . . . . . 20.9 D.S.P v K. Ibasagarain [2006] 1 SCC 420. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.17 Dehati Stapana Nyas (TLHPDF) v Directorate of Enforcement, L.P.A.NO. 120 of 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.12 xix

Prevention of money laundering in India and other countries

Directorate of Enforcement v Surajpal, CRL. REV.P. No. 67 of 2017 CRL. M.A. NOS. 1023 & 1025 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 Dr. Subramanian Swamy v Director, Central Bureau of Investigation, Writ Petition (CIVIL) Nos. 38 of 1997 and 21 of 2004. . . . . . . . . . . . . . . . . . . 22.32 Dropti Devi v Union of India, Writ Petition (CRL.) No. 65 of 2010. . . . . . . . . . . . . 21.4 Farida Begum Biswas v Union of India (2015) SCC Online Del. 11834. . . . . . . . . 13.12 Gautam Jain v Union of India, Criminal Appeal No. 2281 of 2014 Writ Petition (Criminal) No. 203 of 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.4 Gautam Kundu v Manoj Kumar, Assistant Director, Criminal Appeal No. 1706 of 2015, Supreme Court of India. . . . . . . . . . . . . . . . . . . . . . . . . . 3.5, 3.6 Gopeekrist Gosain v Gungapersuad (1854) 6 MLA 53 . . . . . . . . . . . . . . . . . . . . . . 17.11 Gorkha Security Services v Govt. (NCT of Delhi) (2014) 9 SCC 105. . . . . . . . . . . 13.11 Harbans Lal v M.L. Wadhawan, Special Leave Petition (Criminal) No. 2466 of 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.8 HDFC Bank Ltd. v Director, FIU, FPA-PMLA-826, 865 MPPMLA-1742 & 2160 (DELHI) 2015 (Stay) 2290 . . . . . . . . . . . . . . . . . . . . . . 5.2 Indian Bank v Deputy Director, Directorate of Enforcement, Chennai, FPA-PMLA-1812/CHN/2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 J. Sekar v Union of India, W.P.(C) NOS. 5320 OF 2017. . . . . . . . . . . . . . . . . . . . . . . 7.2 Jagati Publications Ltd. v Joint Director, Directorate of Enforcement, Delhi P-PMLA-389/DELHI/2013 (STAY) & others FPAPMLA-435/Delhi/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 Jignesh Kishorebhai Bhajiawala v State of Gujarat, Criminal Misc.

Application No. 7970 of 2017, High Court of Gujarat . . . . . . . . . . . . . . . . . . . . 3.10 Joseph Massey & Ors v Union of India, W.P.(C)No. 199/2016 & CM No. 839/ 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.10 Kalpana Jayendra Thakkar v Union of India, Special Civil Application No. 1404 of 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.7 Kedari Lal v State of M.P., Criminal Appeal No. 782 of 2011. . . . . . . . . . . . . . . . . 22.16 L. Chandra Kumar v. Union of India [1997] 3 SCC 261. . . . . . . . . . . . . . . . . . . . . . . 1.3 LICIL Antony v State of Kerala, Criminal Appeal No. 872 of 2014. . . . . . . . . . . . . 21.4 M. Krishna Reddy v State Deputy Superintendent of Police [1992] 4 SCC 45. . . . 22.17 Madhu Garg v Union of India, Criminal Appeal Nos. 821 and 822 of 2004. . . . . . . 21.8 Marwadi Shares & Finance Ltd. v Securities and Exchange Board of India Appeal No. 85 of 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Master Pavitra Agarwal Joint Director, Directorate of Enforcement, Hyd. MP-PMLA-3184 (HYD.) of 2017 Stay & 3185 (HYD.) of 2017. . . . . . . . . . . . . 4.8 Meena Jayendra Thakur v Union of India, CRL. APPEAL NO. 368 OF 1996,. . . . 21.10 xx

Table of cases

Meenakshi Mills. Madurai v The Commissioner of Income-Tax, Madras [1956] S.C.R. 691. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.10 Metal & Alloys Industries v Union of India, Writ Petition No. 1338 of 1991. . . . . . 21.5 Moin Akhtar Qureshi, v Union of India, W.P.(CRL) NO. 2465 OF 2017 . . . . . . . . . 11.3 Mrs. Satbir Kaur v Administrator, Union Territory of Delhi, Criminal Writ No. 180 of 1986. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3 Ms. Kiran Mazumdar v Deputy Director, Directorate of Enforcement, Mumbai, MP-PMLA-3464 & 3465 (MUM.) 2017 (STAY) FPAPMLA 1772 (MUM.) 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16 Mukut Bihari v State of Rajasthan [2012] 11 SCC 642. . . . . . . . . . . . . . . . . . . . . . 22.12 Mulchand Sampatraj Shah v Assistant Collector of Customs, Criminal Application No. 3091 OF 1990. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.5 Muthoot Finance Ltd v The Director, FIU-India, New Delhi, FPAPMLA-457/DLI/2013 & MP-PMLA-1007/DLI/ 2014. . . . . . . . . . . . . . . . . . . 13.15 Naresh Grover v Joint Director, Directorate of Enforcement, Lucknow, MP-PMLA NO. 3982 (LKW) of 2017 (Stay) & 4957, 4986 (LKO) of 2018 Misc FPA-PMLA No. 1982 (LKW) of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Navdeep Singh v Assistant Director, Directorate of Enforcement, CRM-M NO. 31871 OF 2017 (O & M), High Court of Punjab and Haryana. . . . 3.3 Nikesh Tarachand Shah v Union of India, Writ Petition (Criminal) Nos. 67, 103, 144 and 152 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 Pareena Swarup v Union of India, Writ Petition (Civil) No. 634 of 2007. . . . . . . . . . 1.2 Parur Central Bank Ltd. v A.C. Chacko (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.23 Raj Kumar Goel v Directorate of Enforcement,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 Rajbhushan Omprakash Dixit v Union of India, W.P. (CRL) No. 363 of 2018 CRL. M.A. NO. 2151 of 2018, High Court of Delhi . . . . . . . . . . . . . 3.7, 6.12 Ram Prakash Arora v State of Punjab AIR 1973 SC 498. . . . . . . . . . . . . . . . . . . . . 22.12 Ramachandrasa Jeevanasa Bakale v State of Karnataka, Writ Petition No. 14 (H.C.) of 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3 Rohit Tandon v Enforcement Directorate, Criminal Appeal Nos. 18781879 of 2017, Supreme Court of India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3, 8.4 Rose Valley Hotels & Entertainments Ltd. v Secretary, Department of Revenue, Ministry of Finance, WP (C) Nos. 6014,6020,6022,6023,6024,6026 of 2015 ,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 S.K.V. Chalapathy v Joint Director, Directorate of Enforcement, Bang.

FPA-PMLA-449/BNG/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7

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Sardar Govindrao Mahadik & Anr v Devi Sahai & Ors, 1982 AIR 989, 1982 SCR (2) 186 ).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.23 Sayed Mohammed Masood v Nilkanth Shelke, Criminal Bail Application No. 1779 OF 2013, High Court of Bombay. . . . . . . . . . . . . . . . . . . . 3.7 Sharad T. Parikh v Competent Authority, FPA No. 85 (BOM.) of 1996. . . . . . . . . 20.10 Shobha Suresh Jumani v Appellate Tribunal, Forfeited Property, Criminal Appeal No. 501 OF 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.9 Shri Anant R. Kulkarni v Y.P. Education Society (2013) 6 SCC 515. . . . . . . . . . . . 13.11 Siddhi Vinayak Logistic Ltd. v Deputy Director, Directorate of Enforcement, Mumbai, MP-PMLA-4107 (MUM.) of 2017 & 4249, 4251, 4254 (MUM.) of 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Sowkath Ali v Union of India, Writ Petition No. 45 of 2000. . . . . . . . . . . . . . . . . . . 21.6 Sri Rammanik vTin Cowri Rai, B.L.R 63,67,68 FB (1869). . . . . . . . . . . . . . . . . . . 17.23 SRJ Infratech Pvt. Ltd. v Director Directorate of Enforcement 2016 SCC Online Del. 221 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.12 Standard Chartered Bank v Deputy Director, Directorate of Enforcement, Mumbai FPA-PMLA Nos. 1604, 1711, 1760 and 1761 (Mum.) of 2017. . . . . . . . . . 4.6 Star Union-Dai-Ichi Life Insurance Co. Ltd v FIU-New Delhi. . . . . . . . . . . . . . . . 13.17 State of Andhra Pradesh v Kesavapatnam China Swamy, Criminal Appeal No. 89 of 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.11 State of Karnataka v Selvi J. Jayalalitha, Criminal Appeal Nos. 300 to 319 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.15 State of Kerala v C.P. Rao [2011] 6 SCC 450. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.12 State of Punjab v Madan Mohan Lal Verma, Criminal Appeal No. 2052 of 2010. . . . . 22.11 State of U.P. v Amarmani Tripathi [2005] 8 SCC 21. . . . . . . . . . . . . . . . . . . . . . . . . 6.18 Sumita Dey Bhattacharya v Union of India, W.P. (CRL.) No.2118 of 2014 . . . . . . . 21.7 T. Subramanian v State of T.N.AIR 2006 SC 836 . . . . . . . . . . . . . . . . . . . . . . . . . . 22.12 Thahira Haris v Government of Karnataka, Criminal Appeal Nos. 723-724/2009 . . . . . 21.4 Union of India v Abdul Sattar, F.M.A.T. NO. 3723 OF 1983. . . . . . . . . . . . . . . . . . . 21.5 Union of India v Amrit Lal Manchanda, Criminal Appeal Nos. 223 and 224 of 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.11 Union of India v Hassan Ali Khan, Criminal Appeal No.1883 of 2011. . . . . . . . . . . 6.16 Union of India v Sneha Khemka, CRIMINAL APPEAL NO. 954 OF 1997. . . . . . 21.12 Vinayak Narayan Deosthali v C.B.I., Criminal Appeal No. 335 of 2005. . . . . . . . . 22.18 Whirlpool Corpn. v Registrar of Trade Marks [1998] 8 SCC 1. . . . . . . . . . . . . . . . . . 7.4 Winston Tan v Union of India, Civil Appeal No. 7207 of 2012. . . . . . . . . . . 20.8, 20.11 Yogesh Mittal v State of NCT of Delhi, W.P. (CRL) 3464 of 2017 CRL. M.A. No. 20399 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 xxii

Abbreviations used in this book AA

Adjudicating Authority

AM

Administrative Members (AMs)

AML

Anti-money Laundering

CAP

Customer Acceptance Policy

CBDT

Central Board of Direct Taxes

CBS

Core Banking Solution

CCR

Counterfeit Currency Report

CDD

Customer Due Diligence

CEO

Chief Executive Officer

CFATF

Caribbean Financial Action Task Force

CFT

Combating Financing of Terrorism

CG

Central Government

CIT

Chief Commissioner of Income-tax.

CIP

Customer Identification Procedures

CPC

Code of Civil Procedure, 1908

CSC

Clients of special category

CTF

Counter-Terrorism Financing

CTR

Cash Transaction Report

CWTR

Cross-border Wire Transfer Report

DOE

Directorate of Enforcement

ECOWAS

Economic Community of West African States

ED

Enforcement Directorate

EDD

Enhanced Due Diligence

EIC

Economic Intelligence Council

EFT

Electronic Fund Transfer

ESAAMLG

Eastern and Southern Africa Anti-Money Laundering Group

FATF

Financial Action Task force

FCRA

Foreign Contribution (Regulation) Act, 2010 xxiii

Prevention of money laundering in India and other countries

FEO

Fugitive Economic Offender

FIU-IND

Financial Intelligence Unit-India

FMV

Fair Market Value

FPI

Foreign Portfolio Investors

FSRB

FATF-Style Regional Bodies

FT

Financial Terrorism

GAABA

Governmental Action Group against Money Laundering in West Africa

HFC

Housing Finance Companies

ILS

Indian Legal Service

IMF

International Monetary Fund

IO

Initiating Officer

IPO

Indian Penal Code

IRDAI

Insurance and Regulatory Development of India

IRS

Indian Revenue Service

ITO

Income-tax Officer

IT Act

Income-tax Act, 1961

JM

Judicial Members

KYC

Know Your Customer

LIC

Life Insurance Corporation of India

MCTR

Manual Cash Transaction Report

MEA

Ministry of External Affairs

MENAFATF

Middle East and North Africa Financial Task Force

MHA

Ministry of Home Affairs

ML

Money Laundering

MLM

Multi-level Marketing

NABARD

National Bank for Agriculture and Rural Development

NGO

Non-Government Organisations

NHB

National Housing Bank

NPO

Non-Profit Organisations

NTR

Non Profit Organization Transaction Reports

OVD

Officially Valid Document

xxiv

Abbreviations used in this book

PBPT

Prohibition of Benami Property Transactions

PEP

Politically Exposed Persons

PFI

Public Financial Institution

PIS

Portfolio Investment Scheme

PMLA

Prevention of Money-Laundering Act, 2002

PML

Prevention of Money Laundering

PO

Principal Officer

Principal Act

Benami Transactions (Prohibition) Act, 1988

RBI

Reserve Bank of India

RI

Rigorous Imprisonment

SCN

Show Cause Notice

SCRA

Securities Contracts (Regulation) Act, 1956

SEBI

Securities and Exchange Board of India

SHG

Self Help Groups

SME

Small & Medium Establishments

STR

Suspicious Transactions Report

UAPA

Unlawful Activities (Prevention) Act, 1967

UCB

Urban Cooperative Banks

UCIC

Unique Customer Identification Code

UIDAI

Unique Identification Authority of India

UNSCR

United Nations Security Council Resolutions

UNSCR

United Nations’ Security Council Resolutions

UNODC

United Nations Office on Drugs and Crime

USA

United States of America

UK

United Kingdom

xxv

Chapter 1

Introduction Synopsis 1.1 1.2

1.1

Overview of the PML Act .......................................................................... 1.1 Rules framed under the PML Act............................................................... 1.1

OVERVIEW OF THE PML ACT

The Prevention of Money Laundering Act, 2002 came into force with effect from 1st July, 2005. The Act was amended by the Prevention of Money Laundering (Amendment) Act 2009 w.e.f. 01.06.2009. The Act was further amended by the Prevention of Money Laundering (Amendment) Act, 2012 w.e.f. 15-02-2013. It extends to the whole of India including the state of Jammu & Kashmir.

The object behind the enactment of the Act is mentioned in the Preamble to the Act which states that it is an Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and to punish those who commit the offence of money laundering.

The Act is divided into ten chapters consisting of total 75 sections.

The Directorate of Enforcement in the Department of Revenue, Ministry of Finance is responsible for investigating the cases of offence of money laundering under Prevention of Money Laundering Act, 2002. Financial Intelligence Unit India (FIU-IND) under the Department of Revenue, Ministry of Finance is the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs.

1.2

RULES FRAMED UNDER THE PML ACT

Following rules have been framed under the PML Act. â—?

The Prevention of Money-Laundering (Appeal) Rules, 2005.

â—?

The Prevention of Money-Laundering (Appointment and Conditions of Service of Chairperson and Members of Adjudicating Authorities) Rules, 2007.

1.1

Prevention of money laundering in India and other countries

Chapter 1

●

The Prevention of Money-Laundering (Forms, Search and Seizure or Freezing and the Manner of Forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005.

●

The Prevention of Money-laundering (Issuance of Provisional Attachment Order) Rules, 2013.

●

The Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.

●

The Prevention of Money-Laundering (Manner of Receiving the Records Authenticated Outside India) Rules, 2005.

●

The Prevention of Money-Laundering (Receipt and Management of Confiscated Properties) Rules, 2005.

●

The Prevention of Money- laundering (Restoration of Confiscated Property) Rules, 2016.

●

The Prevention of Money-laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013.

●

The Prevention of Money-Laundering (The Forms and the Manner of Forwarding a Copy of Order of Arrest of a Person along with the Material to the Adjudicating Authority and its Period of Retention) Rules, 2005.

●

The Prevention of Money-Laundering (The Manner of Forwarding a Copy of the Order of Provisional Attachment of Property along with the Material, and Copy of the Reasons along with the Material in respect of Survey, to the Adjudicating Authority and its Period of Retention) Rules, 2005.

●

The Prevention of Money-Laundering (The Manner of Forwarding a Copy of the Order of Retention of Seized Property along with the Material to the Adjudicating Authority and the Period of its Retention) Rules, 2005.

Each of the Rules have been separately mentioned in detail in the book.

Case Law: Pareena Swarup v Union of India, Writ Petition (Civil) No. 634 of 2007, September 30, 2008, the Petitioner, a member of Bar Council, filed instant writ petition in the Supreme Court, by way of a public interest litigation seeking to declare various sections of PML Act, more particularly those relating to constitution of adjudicating authority and Tribunal, as ultra vires of Constitution.

The petitioner has highlighted the following defects in the Adjudicating Authority Rules, 2007 and the Appellate Tribunal Rules, 2007: ●

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Rule 3(3) of Adjudicating Authority Rules, 2007 does not explicitly specify the qualifications of member from the field of finance or accountancy.

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Introduction

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Rule 4 of Appellate Tribunal Rules, 2007 which provided for Method of Appointment of Chairperson do not give adequate control to Judiciary.

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Rule 6(1) of Appellate Tribunal Rules, 2007 which defines the Selection Committee for recommending appointment of Members of the Tribunal, would undermine the constitutional scheme of separation of powers between judiciary and executives.

●

Rule 32(2) of PMLA which provides for removal of Chairperson/Members of Tribunal under PMLA does not provide adequate safety to the tenure of the Chairperson/Members of the Tribunal.

●

Rule 6(2) of Appellate Tribunal Rules is vague to the extent that it provides for recommending names after “inviting applications thereof by advertisement or on the recommendations of the appropriate authorities.”

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Section 28(1) of PMLA, which allows a person who “is qualified to be a judge of the High Court” to be the Chairperson of the Tribunal, should be either deleted or the Rules may be amended to provide that the Chief Justice of India shall nominate a person for appointment as Chairperson of Appellate Tribunal under PMLA “who is or has been a Judge of the Supreme Court or a High Court” failing which a person who “is qualified to be a judge of the High Court.”

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The qualifications for Legal Member of the Adjudicating Authority should exclude “those who are qualified to be a District Judge” and only serving or retired District Judges should be appointed. The Chairperson of the Adjudicating Authority should be the Legal member.

●

As regards the above defects in the rules, on the request of this Court, Mr. K.K. Venugopal, learned senior counsel, Mr. Gopal Subramaniam, learned ASG as well as Ms. Pareena Swarup who has filed this PIL suggested certain amendments in the line of the constitutional provisions as interpreted by this Court in various decisions.

●

The Apex Court expressed that It is necessary that the Court may draw a line which the executive may not cross in their misguided desire to take over bit by bit and judicial functions and powers of the State exercised by the duly constituted Courts. While creating new avenue of judicial forums, it is the duty of the Government to see that they are not in breach of basic constitutional scheme of separation of powers and independence of the judicial function. We agree with the apprehension of the petitioner that the provisions of Prevention of the Money Laundering Act are so provided that there may not be independent judiciary to decide the cases under the Act but the Members and the Chairperson to be selected by the Selection Committee headed by Revenue Secretary. It is to be noted that this Court in the case of L. Chandra Kumar v. Union of India [1997] 3 SCC 261 has

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laid down that power of judicial review over legislative action vested in the High Courts under Article 226 as well as in this Court under Article 32 of the Constitution is an integral and essential feature of the Constitution constituting part of the its structure. The Constitution guarantees free and independent judiciary and the constitutional scheme of separation of powers can be easily and seriously undermined, if the Legislatures were to divest the regular courts of their jurisdiction in all matters, entrust the same to the newly created Tribunals which are not entitled to protection similar to the constitutional protection afforded to the regular Courts. The indepen- dence and impartiality which are to be secured not only for the Court but also for Tribunals and their members, though they do not belong to the ‘Judicial Service’ are entrusted with judicial powers. The safeguards which ensure independence and impartiality are not for promoting personal prestige of the functionary but for preserving and protecting the rights of the citizens and other persons who are subject to the jurisdiction of the Tribunal and for ensuring that such Tribunal will be able to command the confidence of the public. Freedom from control and potential domination of the executive are necessary pre-conditions for the independence and impartiality of judges. To make it clear that a judiciary free from control by the Executive and Legislature is essential if there is a right to have claims decided by Judges who are free from potential domination by other branches of Government. With this background, let us consider the defects pointed out by the petitioner and amended/ proposed provisions of the Act and the Rules. ●

Mr. Gopal Subramaniam has informed this Court that the suggested actions have been completed by amending the Rules. Even otherwise, according to him, the proposed suggestions formulated by Mr. K.K. Venugopal would be incorporated on disposal of the above writ petition.

For convenience, let us refer the doubts raised by the petitioner and amended/proposed provisions as well as the remarks of the department in complying with the same.

S. No.

Issues

Amended/Proposed provision

Remarks

1.

Rule 3(3) of Adjudicating Authority Rules, 2007 does not explicitly specify the qualifications of member from the field of finance or accountancy.

Rule 3(3) of Adjudicating Authority Rules, 2007 have been amended to specify the ‘academic qualification’ for the Member from the field of finance and accounting by inserting a sub-clause (b) as follows: “(b) From among such persons, the Selection Committee shall have due regard to the academic

Action completed.

Amended Rule as per Annexure A.

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Introduction

qualifications of chartered accountancy or a degree in finance, economics or accountancy or having special experience in finance or accounts by virtue of having worked for at least two years in the finance or revenue department of either the Central Government or a State Government or being incharge of the finance, or accounting wing of a corporation for a like period.�

2.

Rule 4 of Appellate Tribunal Rules, 2007 which provided for Method of Appointment of Chairperson do not give adequate control to Judiciary.

Rule 4 of Appellate Tribunal Rules, 2007 has been amended to unambiguously provide that the appointment of Chairperson shall be made on the recommendation of the Chief Justice of India.

Action completed.

Amended Rule as per Annexure B.

3.

Rule 6(1) of Appellate Tribunal Rules, 2007 which defines the Selection Committee for recommending appointment of Members of the Tribunal, would undermine the constitutional scheme of separation of powers between judiciary and executives.

Rule 6(1) of Appellate Tribunal Rules, 2007 has been amended to provide that the Chairperson of Appellate Tribunal is appointed on the recommendation of the CJI and the composition of the Selection Committee to select Members of the Tribunal has been amended to provide for a Judge of the Supreme Court, nominated by the Chief Justice of India, to be the Chairperson of the Selection Committee.

Action completed.

Amended Rule as per Annexure C.

4.

Rule 32(2) of PMLA which provides for removal of Chairperson/Members of Tribunal under PMLA does not provide adequate

Appropriate amendment to the Statute Draft Bill is is being proposed to unambiguously under provide that Chairperson/Members preparation. appointed in consultation with Chief Justice of India, shall not be removed without mandatory consultation with Chief Justice of India.

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safety to the tenure of the Chairperson/members of the Tribunal.

5.

Rule 6(2) of Appellate Tribunal Rules is vague to the extent that it provides for recommending names after “inviting applications thereof by advertisement or on the recommendations of the appropriate authorities.”

Rule 6(2) of the Appellate Tribunal Rules, 2007 may be amended to delete the words “or on recommendation of the appropriate authorities”, a proposal endorsed by ASG, Shri Gopal Subramaniam.

May be deleted.

6.

Section 28(1) of PMLA, which allows a person who “is qualified to be a judge of the High Court” to be the Chairperson of the Tribunal, should be either deleted or the Rules may [be amended to provide that the Chief Justice of India shall nominate a person for appointment as Chairperson or Appellate Tribunal under PMLA “who is or has been a Judge of the Supreme Court or a High Court” failing which a person who “is qualified to be a judge of the High Court.”

There are several Acts under which Judges and those ‘qualified to be a judge’ are equally eligible for selection like for Chairman under NDPS Act and SAFEMA; Judicial member under Administrative Tribunal Act; Chairperson under FEMA etc. The eligibility criteria, for appointment as a judge of a High Court, provided in the Constitution of India under Article 217(2)(b), is that the person should have been “for at least 10 years as an advocate of a High Court...” Furthermore, since appointment of Chairperson of the Tribunal under PMLA is to be made on the recommendation of CJI, it is expected that an independent person would be appointed to head the Appellate Tribunal.

There is no requirement to amend either the Statute or the Rules.

7.

The qualifications for 1.

Legal Member of the Adjudicating

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Persons ‘qualified to be a district There is no Judge’ are treated at par with requirement District Judges for the purposes to amend

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Introduction

Authority should exclude “those who are qualified to be a District Judge” and only serving or retired District Judges should be appointed. The Chairperson of the Adjudicating Authority should be the Legal member.

2.

3.

4.

of qualification for appointment either the as member in ATFE under Statute or FEMA; as President of District the Rules.

Forum under Consumer Protection Act, 1986 etc. The eligibility criterion, for appointment as a District Judge, provided in the Constitution of India under Article 233(2), is that the person should have been an advocate “for not less than seven years”.

PMLA is a specialized and new Act and District Judges may not be available with experience in related issues whereas Advocates or officers of Indian Legal Service, who are eligible to be District Judges, may often have greater knowledge of its provisions and working.

The Adjudicating Authority is a body of experts from different fields to adjudicate on the issue of confirmation of provisional attachment of property involved in money laundering. The functions of Adjudicating Authority are civil in nature to the extent that it does not decide on the criminality of the offence nor does it have power to levy penalties or impose punishment.

Adjudication is a function which is performed by Executives under many statutes. The Competent Authority under NDPS/SAFEMA have been conducting Adjudication proceedings routinely since 1978 and in the last four years i.e. 2004-2008, Competent Authority has taken 1374 new cases, issued 275 SCNs, forfeited 162 properties and disposed of 30 properties 1.7

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5.

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without any judicial objections.

Similar adjudications are done by Custom Authorities under Custom Act or by Authorities under FEMA/FERA. The Adjudicating Authority, being a body of experts from different fields, with a role as described in para 3 above, appointment of its Chairperson should be left to the recommendation of the Selection Committee.

The Supreme Court held that the amended/proposed provisions, as mentioned above 9, are in tune with the scheme of the Constitution as well as the principles laid down by this Court, we approve the same and direct the respondent-Union of India to implement the above provisions, if not so far amended as suggested, as expeditiously as possible but not later than six months from the date of receipt of copy of this judgment. The writ petition is disposed of accordingly.

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