A Practical Guide to Prevention of Money-Laundering Act, 2002

Prevention of Money-Laundering Act, 2002

Kiron Prabhakar Highlights • Section wise analysis of important provisions under the Prevention of MoneyLaundering Act, 2002 along with the related Rules and Regulations.

• Covers illustrative regulatory framework and bodies authorized under the Prevention of Money-Laundering Act, 2002.

• In-depth coverage of the manner of provisional attachment and disposal of confiscated property.

• Covers illustrative regulatory framework and bodies authorized under the Prevention of Money-Laundering Act, 2002

Bloomsbury India Professional

A Practical Guide to

Contents at a glance About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv PART A COMMENTARY Chapter 1

Introduction and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 2

Offence of Money-Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Chapter 3

Attachment, Adjudication and Confiscation . . . . . . . . . . . . . . . . . . . . 17

Chapter 4

Obligations of Banking Companies, Financial Institutions and Intermediaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Chapter 5

Summons, Searches and Seizures, etc. . . . . . . . . . . . . . . . . . . . . . . . . 47

Chapter 6

Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Chapter 7

Special Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Chapter 8

Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Chapter 9

Reciprocal Arrangement for Assistance in Certain Matters and Procedure for Attachment and Confiscation of Property . . . . . . 111

Chapter 10

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 PART B LEGISLATION

ACT Prevention of Money Laundering Act, 2002 [15 of 2003]. . . . . . . . . . . . . . . . . . . . . 143 RULES 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 . . . . . . . . . . . . . . . 213 Prevention of Money-Laundering (Receipt and Management of Confiscated Properties) Rules, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Prevention of Money-Laundering (Forms, Search and Seizure or Freezing and the Manner of Forwarding the Reasons and Material to the Adjudicating xiii

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Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. . . . . . . . 253 Prevention of Money-Laundering (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 . . . . . . . . . . . . . . . 279 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 . . . . . . . . . . . . 289 The Prevention of Money-Laundering (Manner of Receiving the Records Authenticated Outside India) Rules, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 The Prevention of Money-Laundering (Appeal) Rules, 2005 . . . . . . . . . . . . . . . . . . 303 The Prevention of Money-Laundering (Salaries, Allowances and Other Conditions of Service of the Employees of Adjudicating Authorities) Rules, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 The Prevention of Money-Laundering (Appointment and Conditions of Service of Chairperson and Members of Appellate Tribunal) Rules, 2007 . . . . . . . . 313 Prevention of Money-Laundering (Appointment and Conditions of Service and Chairperson and Members of Adjudicating Authorities) Rules, 2007. . . . . . . . . 325 The Prevention of Money-Laundering (Salaries, Allowances and Other Conditions of Service of the Employees of Appellate Tribunal) Rules, 2008 . . . . . . 333 Prevention of Money-Laundering (Issuance of Provisional Attachment Order) Rules, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Adjudicating Authority (Procedure) Regulations, 2013. . . . . . . . . . . . . . . . . . . . . . . 341 The Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013. . . . . . . . 363 The Prevention of Money-Laundering (Restoration of Confiscated Property) Rules, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 CIRCULARS AND IMPORTANT NOTIFICATIONS I.

RBI Master Circular dated July 01, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

II.

Notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465

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Table of contents About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii PART A COMMENTARY Chapter 1 Introduction and Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Chapter 2 Offence of Money-Laundering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.1 Offence of Money-Laundering (Section 3 of the PMLA). . . . . . . . . . . . . . . . . 13 2.2 Punishment for Money-Laundering (Section 4 of the PMLA). . . . . . . . . . . . . 14 2.3 FAQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Paragraph 2 (Part-A) of Schedule under PMLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Chapter 3 Attachment, Adjudication and Confiscation. . . . . . . . . . . . . . . . . . 17 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.1 Attachment of property involved in Money-Laundering . . . . . . . . . . . . . . . . . 18 3.2 Adjudicating authorities, composition, powers etc. . . . . . . . . . . . . . . . . . . . . . 21 3.3 Staff of adjudicating authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.4 Adjudication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.5 Vesting of property in central government . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.6 Management of the property confiscated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.7 Power regarding summons, production of documents and evidence etc.. . . . . 30 3.8 Rules relating to attachment, adjudication and confiscation. . . . . . . . . . . . . . . 31 3.9 FAQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Chapter 4

Obligations of Banking Companies, Financial Institutions and Intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.1 Reporting entity to maintain records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.2 Access to information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.3 Powers of director to impose fine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.4 No civil or criminal proceedings against reporting entity, its directors and employees in certain cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 xv

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4.5 Procedure and manner of furnishing information by reporting entities . . . . . . 43 4.6 Rules relating to maintenance of records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4.7 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Chapter 5 Summons, Searches and Seizures, etc.. . . . . . . . . . . . . . . . . . . . . . . 47 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.1 Power of survey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 5.2 Search and seizure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.3 Search of person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 5.4 Power to arrest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 5.5 Retention of property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 5.6 Retention of records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.7 Presumption of the records or property in certain cases. . . . . . . . . . . . . . . . . . 64 5.8 Presumption in inter-connected transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 65 5.9 Burden of proof. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 5.10 Rules relating to power of authorities to summon, search and seizure etc.. . . . 67 5.11 FAQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Chapter 6 Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 6.1 Establishment of appellate tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.2 Appeals to appellate tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.3 Repealed sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 6.4 Procedure and powers of appellate tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 6.5 Distribution of business amongst the benches. . . . . . . . . . . . . . . . . . . . . . . . . . 80 6.6 Power of chairman of appellate tribunal to transfer cases. . . . . . . . . . . . . . . . . 81 6.7 Decision to be by majority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 6.8 Right of appellant to take assistance of authorised representative and of government to appoint presenting officers . . . . . . . . . . . . . . . . . . . . . . . . . . 82 6.9 Members etc., to be public servants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6.10 Civil court not to have jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 6.11 Appeal to high court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 6.12 Rules relating to appellate tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 6.13 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Chapter 7 Special Courts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 7.1 Definition of special courts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 7.2 Offences triable by special courts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 7.3 Offences to be cognizable and nonbailable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 7.4 Application of Code of Criminal Procedure, 1973 to proceedings before special court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 xvi

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7.5 Appeal and revision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 7.6 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Chapter 8 Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 8.1 Authorities under the Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 8.2 Appointment and powers of authorities and other officers. . . . . . . . . . . . . . . 100 8.3 Powers of authorities regarding summons, production of documents and to give evidence, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 8.4 Jurisdiction of authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 8.5 Power of central government to issue directions, etc . . . . . . . . . . . . . . . . . . . 104 8.6 Empowerment of certain officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 8.7 Certain officers to assist in inquiry, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 8.8 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Chapter 9

Reciprocal Arrangement for Assistance in Certain Matters and Procedure for Attachment and Confiscation of Property. . . . 111 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 9.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 9.2 Agreements with foreign countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 9.3 Letter of request to a contracting state in certain cases. . . . . . . . . . . . . . . . . . 113 9.4 Assistance to a contracting state in certain cases . . . . . . . . . . . . . . . . . . . . . . 114 9.5 Special court to release the property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 9.6 Letter of request of a contracting state or authority for confiscation or release the property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 9.7 Reciprocal arrangements for processes and assistance for transfer of accused persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 9.8 Attachment, seizure and confiscation, etc., of property in a contracting state or India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 9.9 Procedure in respect of letter of request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 9.10 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Chapter 10 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 10.1 Punishment for vexatious search (Section 62 of the PMLA) . . . . . . . . . . . . . 124 10.2 Punishment for false information or failure to give information, etc.

(Section 63 of the PMLA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 10.3 Cognizance of offences (Section 64 of the PMLA). . . . . . . . . . . . . . . . . . . . . 126 10.4 Code of Criminal Procedure, 1973 to apply (Section 65 of the PMLA). . . . . 126 10.5 Disclosure of information (Section 66 of the PMLA). . . . . . . . . . . . . . . . . . . 127 10.6 Bar of suits in civil courts (Section 67 of the PMLA). . . . . . . . . . . . . . . . . . . 128 10.7 Notice, etc., not to be invalid on certain grounds (Section 68 of the PMLA). 128 xvii

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10.8 10.9 10.10 10.11

Recovery of fine or penalty (Section 69 of the PMLA) . . . . . . . . . . . . . . . . . 128 Offences by companies (Section 70 of the PMLA). . . . . . . . . . . . . . . . . . . . . 129 PMLA to have overriding effect (Section 71 of the PMLA). . . . . . . . . . . . . . 130 Continuation of proceedings in the event of death or insolvency (Section 72 of the PMLA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 10.12 Power to make rules (Section 73 of the PMLA). . . . . . . . . . . . . . . . . . . . . . . 132 10.13 Rules to be laid before parliament (Section 74 of the PMLA). . . . . . . . . . . . 136 10.14 Power to remove difficulties (Section 75 of the PMLA). . . . . . . . . . . . . . . . . 136 10.15 FAQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 PART B LEGISLATION ACT Prevention of Money Laundering Act, 2002 [15 of 2003]. . . . . . . . . . . . . . . . . . . 143 Chapter I Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Chapter II Offence of Money-Laundering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Chapter III Attachment, Adjudication and Confiscation. . . . . . . . . . . . . . . . . . . 150 Chapter IV Obligations of Banking Companies, Financial Institutions and Intermediaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Chapter V Summons, Searches and Seizures, etc.. . . . . . . . . . . . . . . . . . . . . . . . 162 Chapter VI Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Chapter VII Special Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Chapter VIII Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 Chapter IX Reciprocal Arrangement for Assistance in Certain Matters and Procedure for Attachment and Confiscation of Property. . . . . . . . . . . . . . . . 185 Chapter X Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 RULES 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. . . . . . . . . . . . 213 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Manner of forwarding a copy of the order of Provisional (i) attachment of property along with the material. . . . . . . . . . . . . . . . . . . . . 221 (ii) Manner of forwarding a copy of the reasons along with the material in respect of survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 (iii) Acknowledgement of receipt by the Adjudicating Authority . . . . . . . . . . 222 (iv) Period of retention of a by the Adjudicating Authority. . . . . . . . . . . . . . . 223

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Prevention of Money-Laundering (Receipt and Management of Confiscated Properties) Rules, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 (i) Receipt of Confiscated property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 (ii) Management of confiscated property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 (iii) Assistance to Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 (i) Procedure relating to search. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 (ii) Procedure relating to seizure or freezing. . . . . . . . . . . . . . . . . . . . . . . . . . 249 (iii) Applicability of the provisions of the Code of Criminal Procedure, 1973. . . 250 (iv) Impounding of records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 (v) Custody of records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 (vi) Manner of forwarding a copy of the reasons and the material relating to search, seizure and freezing to the Adjudicating Authority. . . 251 (vii) Acknowledgement of receipt of the copy of the reasons and the material by the Adjudicating Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . 251 (viii) Period of retention of copy of the reasons and material by the Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 (ix) Forms and records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 (x) Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. . . . . 253 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 (i) Records containing information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 (ii) Procedure and manner of maintaining information. . . . . . . . . . . . . . . . . . 271 (iii) Procedure and manner of furnishing information. . . . . . . . . . . . . . . . . . . 272 (iv) Furnishing of information to the Director. . . . . . . . . . . . . . . . . . . . . . . . . 272 (v) Client due diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 (vi) Functions and obligations of the Central KYC Records Registry. . . . . . . 277 (vii) Maintenance of the records of the identity of clients. . . . . . . . . . . . . . . . . 278 (viii) Furnishing of Report to Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 (ix) Expenses for audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 (x) Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278

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Prevention of Money-Laundering (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 . . . . . . . . . . . . . 279 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 (i) Manner of forwarding a copy of the order of arrest and the material to the Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 (ii) Acknowledgment of receipt of the copy of the order of arrest and the material by the adjudicating authority. . . . . . . . . . . . . . . . . . . . . . . . . 286 (iii) Period of retention of a copy of the order of arrest and the material by the adjudicating authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 (iv) Forms of Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 (v) Interpretation of Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288 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. . . . . . . . . . . . 289 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 (i) Manner of forwarding a copy of the order of retention of seized property along with the material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 (ii) Acknowledgement of receipt of the copy of the order of retention of seized property and material by the Adjudicating Authority. . . . . . . . . 296 (iii) Period of retention of copy of the order and material by the Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 (iv) Interpretation of Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 The prevention of Money-Laundering (Manner of Receiving the Records Authenticated Outside India) Rules, 2005. . . . . . . . . . . . . . . . . . . . . . . . 299 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 (i) Manner of authentication of records received from outside India. . . . . . . 301 (ii) Interpretation of Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 The Prevention of Money-Laundering (Appeal) Rules, 2005. . . . . . . . . . . . . . . . 303 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 Form of Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 (i) (ii) Order of the Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 (iii) Service of notice, requisitions or orders . . . . . . . . . . . . . . . . . . . . . . . . . . 310

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The Prevention of Money-Laundering (Salaries, Allowances and Other Conditions of Service of the Employees of Adjudicating Authorities) Rules, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 (i) Staff of the Adjudicating Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 (ii) Conditions of Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 The Prevention of Money-Laundering (Appointment and Conditions of Service of Chairperson and Members of Appellate Tribunal) Rules, 2007. . . . . 313 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 (i) Qualifications for Appointment as Chairperson. . . . . . . . . . . . . . . . . . . . . 322 (ii) Method of Appointment as Chairperson . . . . . . . . . . . . . . . . . . . . . . . . . . 322 (iii) Qualifications for Appointment as Member. . . . . . . . . . . . . . . . . . . . . . . . 323 (iv) Method of Appointment as Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 (v) Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 (vi) Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 Prevention of Money-Laundering (Appointment and Conditions of Service and Chairperson and Members of Adjudicating Authorities) Rules, 2007. . . . . . . . 325 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 (i) Qualifications for appointment as Member. . . . . . . . . . . . . . . . . . . . . . . . 330 (ii) Method of Appointment of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 (iii) Appointment of Chairperson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 (iv) Salary and allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 (v) Medical fitness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 (vi) Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 (vii) Seniority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 (viii) Contribution to Provident Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 (ix) Accommodation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 (x) Other conditions of service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 (xi) Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 The Prevention of Money-Laundering (Salaries, Allowances and other Conditions of Service of the Employees of Appellate Tribunal) Rules, 2008. . . . 333 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 (i) Staff of the Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 (ii) Conditions of Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334

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Prevention of Money-Laundering (Issuance of Provisional Attachment Order) Rules, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 (i) Manner of issuance of provisional attachment order. . . . . . . . . . . . . . . . . 338 (ii) Service of provisional attachment order on corporate bodies, societies and trust etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 (iii) Interpretation of Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340 Adjudicating Authority (Procedure) Regulations, 2013. . . . . . . . . . . . . . . . . . . . 341 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 (i) Application and Complaint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 (ii) Receipt of papers/documents by Adjudicating Authority . . . . . . . . . . . . . 360 (iii) Registration and cause list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 (iv) Custody of the records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 (v) Service of summons and notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 (vi) Inspection of records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 (vii) Copying of records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 (viii) Dress for chairperson, member of Adjudicating Authority and representative of parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 (ix) Examination and deposition of witness. . . . . . . . . . . . . . . . . . . . . . . . . . . 361 (x) Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362 The Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013. . 363 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 (i) Procedure relating to possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 (ii) Manner of taking possession of movable property . . . . . . . . . . . . . . . . . . 372 (iii) Manner of taking possession of immovable property. . . . . . . . . . . . . . . . 373 (iv) Mode of serving of notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 (v) Confirmed attached property in the custody of court. . . . . . . . . . . . . . . . . 374 (vi) Confirmed attached property hypothecated or mortgaged or pledged to bank, financial institutions, etc. . . . . . . . . . . . . . . . . . . . . . . . . 375 (vii) Maintenance of registers for confirmed attached property . . . . . . . . . . . . 375 (viii) Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 The Prevention of Money-Laundering (Restoration of Confiscated Property) Rules, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 Bare Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 xxii

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(i) (ii)

Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 Manner for restoration of confiscated property. . . . . . . . . . . . . . . . . . . . . 379

CIRCULARS AND IMPORTANT NOTIFICATIONS I.

RBI Master Circular dated July 01, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . 383

II.

Important Notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 Notification Appointing the Adjudicating Authority (Vide G.S.R. 437(E), dated 1st July, 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 Notification Specifying the New Delhi Bench (Vide G.S.R. 438(E), dated 1st July, 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 Notification Establishing an Appellate Tribunal (Vide G.S.R. 439(E), dated 1st July, 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 Notification Appointing The Director, Financial Intelligence Unit (Vide G.S.R 440(E), dated 1st July, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466 Notification Appointing Director of Enforcement (Vide G.S.R 441(E), dated 1st July, 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466 Notification Designating Courts of Sessions as Special Courts (Vide S.O 841(E), dated 1st July, 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466 Notification Designation Courts of Sessions as Special Courts (Vide S.O 1901(E), dated 3rd November, 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471 Notification Designating Courts of Sessions as Special Courts (Vide S.O 309(E), dated 2nd March, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474

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PART A COMMENTARY

1

A Practical Guide to Prevention of Money-Laundering Act, 2002

2

Chapter 1

Chapter 1

Introduction and Definitions

Chapter 1

Introduction and Definitions Synopsis

Introduction .............................................................................................................. 3 DefinItions ............................................................................................................... 5

“The clampdown on money laundering and corruption is the common responsibility of all the countries in the world.”

- Wang Zhaowen, spokesman for the Bank of China

INTRODUCTION Money is a means of making payment for goods and services which is prevalent in a modern day economy. It is also used to conduct transactions where funds are required to be borrowed and then returned upon their successful completion.

Based on the aforesaid definition, it is an integral part of any society and actually woven into its fabric because of its easy acceptability. Having said that, because of universality, it is also subject to misuse.

This misuse of money can be varied, from petty theft, to international crime. As far as money is concerned, there are no limits to which persons can go to meet their requirements, and this often gives rise to small scale and large scale corruption. As society has progressed due to technical innovations, the greed for various symbols of prosperity has also grown in leaps and bounds. This has created immense pressure on various individuals to own these “fruits” of technology. Further, the media through advertising, has fuelled this need to buy these creature comforts even if the funds are not available. This creates a mindset which does not distinguish between the right and wrong kind of money as long as it is accessible. Hence, all ways and means, fair and foul, come into play and this consequently gives rise to various crimes linked to ill-gotten money.

Amongst these crimes, a rampant one is that of money laundering. A basic definition of money laundering is where origins of money arise from one source but is projected to emanate from another. In practical terms, this would mean that the genesis of funds garnered through illegal means, would be cloaked in a manner wherein these funds would seem to be acquired in a legal manner.

3

A Practical Guide to Prevention of Money-Laundering Act, 2002

Chapter 1

The terminology “money laundering” owes it origins to the mafia in the United States of America. These mafia organisations owned Laundromats or laundries for washing dirty clothes. It is noteworthy that these laundries were innocuous businesses and the payment for the use of these laundries was in cash. Members of the mafia gangs earned a lot of money from various criminal activities including gambling, drug trafficking, bootlegging and operating brothels. These funds were required to be legitimised and one of easiest methods was to acquire legitimate organisations like these Laundromats and route these illegal finances through these establishments. One of the better known names in this business was Al Capone who operated this business in the late twenties and early thirties of the twentieth century. However, it is extremely ironical that Al Capone, was finally arrested and subsequently convicted in a case related to not paying his taxes where the Internal Revenue Service caught up with him.

It was only in 1982, in the United States of America that the term money laundering came to be recognised in its current form. The United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in 1988 also understood the global nature of this kind of offence and gave due importance to this type of crime.

The hawala and hundi systems of South Asia were the methods which allowed people to operate their financial transactions without accessing any formal banking systems. But with the passage of time, what began as a simple means of transacting and which was a hall mark of an underdeveloped economic system, began to be exploited by certain persons using nefarious means to earn money.

In India the Hawala system helped to convert illegal money into legal tender.

“Hawala” literally means for a transaction between two persons, a third party is used to transfer the funds involved in that transaction.

Given the vastness of this kind of criminal activity and the outreach globally where cross border transactions were multiplying at a rapid rate, certain international measures were put into place. Amongst these were: Financial Action Task Force on Money Laundering (FATF) is an intergovernmental organization that provides support to fight and remove money laundering. The FATF came into being in 1989.

The Convention against Transnational Organized Crime was legislated in 2000. It is also called the Palermo Convention. It has provisions of the existing international law on money laundering.

The United Nations Convention against Corruption was formalized in 2003. Its primary objective is to reduce cross-border corruption and misuse of power which may result in money laundering and related criminal activities.

In India too, there were certain legislative measures which included – •

4

The Income Tax Act, 1961

Chapter 1

Introduction and Definitions

•

The Indian Penal Code and Code of Criminal Procedure, 1973

•

The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974

•

The Narcotic Drugs and Psychotropic Substances Act, 1985

•

The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988

The Benami Transactions (Prohibition) Act, 1988 • However these legislations did not categorically address money laundering in its true sense as a crime and did not enunciate the penal consequences which could result from such an activity.

Therefore, the Prevention of Money Laundering Bill was introduced in the Lok Sabha on 4th August, 1998 and which was cleared on 17th January 2003. However The Prevention of Money-Laundering Act, 2002 (PMLA 2002) and the Rules became the law of the land on July 1, 2005. Subsequently, there have been numerous amendments which will be dealt in the subsequent chapters.

DEFINITIONS In this chapter the definitions under the PMLA are examined at length. Section 2 of the PMLA sets out the definitions which are stated as under: (a) “Adjudicating Authority” means an Adjudicating Authority appointed under sec 6(1) of the Act; (b)

“Appellate Tribunal” means the Appellate Tribunal established under sec 25 of the Act;

(c)

“Assistant Director” means an Assistant Director appointed under sec 49(1) of the Act;

(d)

“Attachment” means prohibition of transfer, conversion, disposition or movement of property by an order issued under Chapter III of the Act;

(da)

“authorised person” means an authorised person as defined in sec 2(c) of the Foreign Exchange Management Act, 1999 (42 of 1999) and the relevant extract states as under:

Section 2(c) “authorised person” means an authorised dealer, money changer, off-shore banking unit or any other person for the time being authorised.......to deal in foreign exchange or foreign securities; (e)

“Banking company” means a banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution which primarily

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A Practical Guide to Prevention of Money-Laundering Act, 2002

Chapter 1

includes the State Bank of India and other notified banks and as referred to greater detail in sec 51 of that Act; (f)

“Bench” means a Bench of the Appellate Tribunal as incorporated under the Act;

(g)

“Chairperson” means the Chairperson of the Appellate Tribunal;

(h)

“Chit fund company” means a company managing, conducting or supervising, as foreman, agent or in any other capacity, chits as defined in sec 2 of the Chit Funds Act, 1982 (40 of 1982).

The definition of a chit as per the aforesaid Chit Funds Act means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical instalments over a definite period and that each such person shall, in his turn, as determined by a lot by auction or by tender or in such other manner as may be specified in the chit agreement be entitled to a prize amount.

Explanation.- A transaction is not a chit within the meaning of this clause, if in such a transaction (i) Some alone, but not all, of the subscribers get the prize amount without any liability to pay future subscriptions; or (ii) All the subscribers get the chit amount by turns with a liability to pay future subscriptions;

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(i)

“co-operative bank” shall have the same meaning as assigned to it in clause (dd) of sec 2 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (47 of 1961) and this clause of the aforesaid Deposit Insurance and Credit Guarantee Corporation Act states that a co-operative bank means a State Co-operative bank, a Central cooperative bank and a primary co-operative bank respectively;

(j)

“Deputy Director” means a Deputy Director appointed under subsection (1) of sec 49 of the Act;

(ja)

“Designated business or profession” means carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino or such other activities as the Central Government may, by notification, so designate, from time to time;

(k)

“Director” or “Additional Director” or “Joint Director” means a Director or Additional Director or Joint Director, as the case may be, appointed under sub-section (1) of sec 49 of the Act;

(l)

“Financial institution” means a financial institution as defined in clause (c) of sec 45-I of the Reserve Bank of India Act, 1934 (2 of 1934) and includes a chit fund company, a co-operative bank, a

Chapter 1

Introduction and Definitions

housing finance institution and an authorised person, a payment system operator and a non-banking financial company.

The aforesaid sec 45-I(c) as reproduced in greater detail states that a financial institution means any non-banking institution which carries on as its business or part of its business any of the following activities, namely: (i)

the financing, whether by way of making loans or advances or otherwise, of any activity other than its own:

(ii)

the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature:

(iii)

letting or delivering of any goods to a hirer under a hirepurchase agreement as defined in clause (c) of sec 2 of the Hire-Purchase Act, 1972:

(iv)

the carrying on of any class of insurance business;

(v)

managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto;

(vi)

collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lumpsum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business,– (a)

agricultural operations;

(aa)

industrial activity; or

(b)

the purchase or sale of any goods (other than securities) or the providing of any services; or

(c)

the purchase, construction or sale of immovable property, so that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property by other persons;

Explanation.– For the purposes of this clause, ‘‘industrial activity’’ means any activity specified in sub-clauses (i) to (xviii) of clause (c) of sec 2 of the Industrial Development Bank of India Act, 1964 and is stated hereunder:

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(i)

the manufacture, preservation or processing of goods;

(ii)

shipping;

(iii)

mining included development of mines;

(iv)

the hotel industry;

(v)

the transport of passengers or goods by road or by water or by air or by ropeway or by lift];

(vi)

the generation, storage or distribution of electricity or any other form of energy;

(vii) the maintenance, repair, testing or servicing of machinery or equivalent of any description or vehicles or vessels or motor boats or trailers or tractors; machinery or equivalent of any description or vehicles or vessels or motor boats or trailers or tractors; (viii) assembling, repairing or packing any article with the aid of machinery or power; (ix)

the setting up of, or development of, an industrial area or an industrial estate;

(x)

fishing or providing shore facilities for fishing or maintenance thereof;

(xi)

providing special or technical knowledge or other services for the promotion of industrial growth;

(xii) providing engineering, technical, financial management, marketing or other services or facilities for industry; (xiii) service industry such as altering, ornamenting, polishing, finishing, oiling, washing, cleaning or otherwise treating or adapting any article or substance with a view of its use, sale, transport, delivery or disposal; (xiv) providing medical, health or other allied services; (xv)

providing services relating to information technology, telecommunication or electronics;

(xvi) leasing, sub-leasing or giving on hire or hire purchase of industrial plants, equipments, machinery or other assets including vehicles, ships and aircraft; (xvii) such other activity as the Central Government may, having regard to the objects of this Act, by notification in the Official Gazette, specify in this behalf; or

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Chapter 1

Introduction and Definitions

(xviii) the research and development of any concept, technology design, process or product whether in relation to any of the matters aforesaid, including any activities specified under this sub-clause; (xvii) or any other matter.

Explanation.— The expression “processing of goods” includes any art or process for producing, preparing or making an article by subjecting any material to a manual, mechanical, chemical electrical or any other like operation; (m)

“housing finance institution” shall have the meaning as assigned to it in clause (d) of sec 2 of the National Housing Bank Act, 1987 (53 of 1987) which states that every institution, whether incorporated or not, which primarily transacts or has as one of its principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly is a housing finance institution;

(n)

“intermediary” means a stock-broker, sub-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and any other intermediary associated with securities market and registered under sec 12 of the Securities and Exchange Board of India (“SEBI”) Act, 1992 (15 of 1992). Section 12 prescribes the requirement of obtaining a certificate of registration from SEBI in accordance with the regulations prescribed under the Securities and Exchange Board of India (“SEBI”) Act;

(na)

“investigation” includes all the proceedings under this Act conducted by the Director or by an authority authorised by the Central Government under this Act for the collection of evidence;

(o)

“Member” means a Member of the Appellate Tribunal and includes the Chairperson;

(p)

“money-laundering” has the meaning assigned to it in sec 3 of the Act;

(q)

“non-banking financial company” shall have the same meaning as assigned to it in clause (f) of sec 45-I of the Reserve Bank of India Act, 1934 (2 of 1934) and includes a person carrying on designated business or profession which states that an organisation which is, (i)

a financial institution which is a company;

(ii)

a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner;

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A Practical Guide to Prevention of Money-Laundering Act, 2002

(iii)

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such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify; are non-banking financial companies;

(r)

“notification” means a notification published in the Official Gazette;

(ra)

“offence of cross border implications”, means— (i)

any conduct by a person at a place outside India which constitutes an offence at that place and which would have constituted an offence specified in Part A, Part B or Part C of the Schedule, had it been committed in India and if such person remits the proceeds of such conduct or part thereof to India; or

(ii)

any offence specified in Part A, Part B or Part C of the Schedule which has been committed in India and the proceeds of crime, or part thereof have been transferred to a place outside India or any attempt has been made to transfer the proceeds of crime, or part thereof from India to a place outside India.

Explanation—Nothing contained in this clause shall adversely affect any investigation, enquiry, trial or proceeding before any authority in respect of the offences specified in Part A or Part B of the Schedule to the Act before the commencement of the Prevention of Moneylaundering (Amendment) Act, 2009. (rb)

“payment system” means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them.

Explanation—For the purposes of this clause, “payment system” includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations; (rc)

“payment system operator” means a person who operates a payment system and such person includes his overseas principal.

Explanation—For the purposes of this clause, “overseas principal” means,—

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(A)

in the case of a person, being an individual, such individual residing outside India, who owns or controls or manages, directly or indirectly, the activities or functions of payment system in India;

(B)

in the case of a Hindu undivided family, Karta of such Hindu undivided family residing outside India who owns or controls

Chapter 1

Introduction and Definitions

or manages, directly or indirectly, the activities or functions of payment system in India; (C)

(s)

in the case of a company, a firm, an association of persons, a body of individuals, an artificial juridical person, whether incorporated or not, such company, firm, association of persons, body of individuals, artificial juridical person incorporated or registered outside India or existing as such and which owns or controls or manages, directly or indirectly, the activities or functions of payment system in India;

“person” includes;— (i)

an individual,

(ii)

a Hindu undivided family,

(iii)

a company,

(iv)

a firm,

(v)

an association of persons or a body of individuals, whether incorporated or not,

(vi)

every artificial juridical person, not falling within any of the preceding sub-clauses, and

(vii) any agency, office or branch owned or controlled by any of the above persons mentioned in the preceding sub-clauses; (t)

“prescribed” means prescribed by rules made under this Act;

(u)

“proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property;

(v)

“property” means 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;

(w)

“records” include the records maintained in the form of books or stored in a computer or such other form as may be prescribed;

(x)

“Schedule” means the Schedule to this Act;

(y)

“scheduled offence” means— (i)

the offences specified under Part A of the Schedule of this Act; or

(ii)

the offences specified under Part B of the Schedule of this Act if the total value involved in such offences is thirty lakh rupees or more; or

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A Practical Guide to Prevention of Money-Laundering Act, 2002

(iii)

(2)

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the offences specified under Part C of the Schedule of this Act;

(z)

“Special Court” means a Court of Session designated as Special Court under sub-section (1) of sec 43 of the Act;

(za)

“transfer” includes sale, purchase, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien;

(zb)

“value” means the fair market value of any property on the date of its acquisition by any person, or if such date cannot be determined, the date on which such property is possessed by such person.

Any reference, in this Act or the Schedule, to any enactment or any provision thereof shall, in relation to an area in which such enactment or such provision is not in force, be construed as a reference to the corresponding law or the relevant provisions of the corresponding law, if any, in force in that area.

Summing up, it can be said that the PMLA has tried to address the need for a stricter legal framework for tackling this heinous crime of money laundering which can only be compared to termites which slowly eat and destroy without being discovered until sometimes the situation is too late to remedy.

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