pml

2. FACULTY PROFILE
Name :Dr. Veada
Educational Qualification : BA, LLB., LLM., PhD (Law)
Teaching experience -12 + years
Current status : Assistant Professor, Jain Online.

3. Overview of the Prevention of
Money Laundering Act, 2002
Unit – 12
Dr. Veada

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

5. • What is Money Laundering?
• Money laundering is defined as the process through which an
illegal fund, such as black money, is obtained from illegal
activities and disguised as legal money, eventually portrayed as
white money.
• The money laundered is passed on through various channels or
phases of conversions and transfers to make it legal and
eventually reach a legally acceptable institution, like a bank.

6. • Objectives of the Prevention of Money Laundering Act, 2002
• The Prevention of Money Laundering Act, 2002, was introduced to
combat the issue of money laundering. Some of its objectives are as
follows:
• Prevent money-laundering.
• Combat/prevent channelising of money into illegal activities and
economic crimes.
• Provide for confiscating property derived from, or involved/used in,
money laundering.

7. • Penalise the offenders of money laundering offences.
• Appointing an adjudicating authority and appellate tribunal for
taking charge of money laundering matters.
• Provide for matters connected and incidental to the acts of
money laundering.

8. • Common Forms of Money Laundering
• Below are some of the common methods of money laundering:
• Hawala
• Bulk cash smuggling
• Fictional loans
• Cash-intensive businesses
• Round-tripping

9. • Trade-based laundering
• Shell companies and trusts
• Real estate
• Gambling
• Fake invoicing

10. • Proceeds of Crime
• ‘Proceeds of Crime’, means and includes, any property
obtained or is derived directly or indirectly as a result of criminal
activity relating to a Scheduled Offence
• List of Offences
• Under PMLA, the commission of any offence, as mentioned in
Part A and Part C of the Schedule of PMLA will attract the
provisions of PMLA. Some of the Acts and offences, which may
attract PMLA, are enumerated below:

11. • Part A enlists offences under various acts such as: Indian Penal
Code, Narcotics Drugs and Psychotropic Substances Act, Prevention
of Corruption Act, Antiquities and Art Treasures Act, Copyright Act,
Trademark Act, Wildlife Protection Act, and Information Technology
Act.
• Part B specifies offences that are Part A offences, but the value
involved in such offences is Rs 1 crore or more.
• Part C deals with trans-border crimes and reflects the dedication to
tackle money laundering across global boundaries.

12. • Method of Operation
• The first stage is when the money derived through crime is
introduced into the formal financial system called ‘placement‘.
• In the second stage, the money so introduced into the system is
layered and spread over various transactions with a view to clear the
tainted origin of the money and is called ‘layering‘.
• In the third and the final stage, the money enters the financial system
in such a way that original association with the crime is sought to be
cleared so that the money can then be used by the offender or
person receiving it as clean money and this is called ‘integration‘.

13. • Money laundering vis-à-vis syphoning of funds
• Mere earning money or obtaining any property by committing a
crime does not amount to money laundering, though it may
amount to syphoning of funds.
• Obtaining or deriving any property by committing a crime which
amounts to a Scheduled offence and then projecting or claiming
such money or property as untainted property amounts to
money laundering.

14. Measures for prevention of Money
laundering
• Statutory framework
• Before the Prevention of Money Laundering Act of 2002 (PMLA) was
passed in India, the main statutes that included measures to address
the issue of money laundering were:
• The Income Tax Act, 1961
• The Conservation of Foreign Exchange and Prevention of Smuggling
Activities Act, 1974 (COFEPOSA)
• The Smugglers and Foreign Exchange Manipulators Act, 1976
(SAFEMA)

15. • The Narcotic Drugs and Psychotropic Substances Act, 1985
(NDPSA)
• The Benami Transactions (Prohibition) Act, 1988
• The Prevention of Illicit Traffic in Narcotic Drugs and
Psychotropic Substances Act, 1988
• The Foreign Exchange Management Act, 2000, (FEMA)

16. Prevention of Money Laundering Act
(PMLA) 2002
• The Prevention of Money Laundering Bill was introduced in
1998 and passed in 2002 in response to the urgent need for the
adoption of comprehensive legislation for the prevention of
money laundering and related activities, confiscation of
proceeds of crime, the establishment of agencies and
mechanisms for coordinating measures for combating money
laundering, etc. Taking effect on July 1st, 2005, the Act was put
into law.

17. • The objective of the Act
• To prevent money laundering.
• To provide for confiscation of property derived from, or involved
in, money laundering.
• For matters connected therewith or incidental thereto.
• It forms the core of the legal framework put in place by India to
combat money laundering.

18. • Its salient features include:
• Defines Money laundering.
• Expanded the reach of the Act by adding many more crimes
under various legislations: It lists specific offenses that would
fall under this Act’s purview under the IPC, the Narcotic Drugs
and Psychotropic Substances Act, the Arms Act, the Wild Life
(Protection) Act, the Immoral Traffic (Prevention) Act, and the
Prevention of Corruption Act.

19. • In instances of cross-border money laundering, it enables the
Central Government to implement the UN Convention against
Corruption’s provisions by returning the confiscated property to
the requesting nation.
• It aims to include certain financial institutions in the Act’s
reporting requirements, including Full Fledged Money
Changers, Money Transfer Services, and Master Card.

20. • Procedure Relating to Seizure and Freezing
• Officer or Authority may freeze or seize any record or property found as a result
of the search.
• If it is not practicable to seize any record or property, the officer may make an
order to freeze the property. After such order, the property cannot be transferred
or dealt with without permission of the officer. The order shall be served on the
person concerned – section 17(1 A) of Prevention of Money Laundering Act.
• The officer can hand it over to the person from whom goods were seized, for safe
custody. Seizure memo shall be prepared [rule 4].
• Seizure memo will be in prescribed form II.
• Code of Criminal Procedure will apply to the search and seizure [rule 5].

21. • Forwarding Copies of Report of Search, Seizure and Freezing
• The authority will prepare an index of copy of reasons recorded for search, along
with the ‘material’ in his possession and send it to Adjudicating Authority in sealed
envelope.
• ‘Material’ means material in possession of authority after search and seizure. It
includes report forwarded to Magistrate or police report lodged – rule 2(1 )(k).
• Sealed envelope will be marked ‘confidential’. The sealed envelope will be kept in
an outer envelope, which will be marked ‘confidential’. Proper records will be
maintained by authority.
• The Adjudicating Authority will issue an acknowledgement in prescribed form IV
[rule 9].
• These will be retained for at least 10 years [rule 10].

22. • Retention of Seized Property
• Property seized under section 17 or 18 of Prevention of Money Laundering Act or
frozen under section 17(1A) of the Prevention of Money Laundering Act can be
retained by the authorised officer, if he has reason to believe that such property is
required to be retained for adjudication under section 8 of Prevention of Money
Laundering Act – section 20(1) of Prevention of Money Laundering Act.
• The property can be retained for a period of 180 days from the day on which the
asset was seized or frozen [section 20(1) of Prevention of Money Laundering
Act].
• Details of property seized or frozen have to be informed to Adjudicating Authority
in the prescribed manner [section 20(2) of Prevention of Money Laundering Act].

23. • Director of Enforcement under FEMA has been empowered to
retain such property as per Notification No. GSR 441(E) dated
1-7-2005.
• The seized property is required to be returned to person from
whom it was seized after 180 days unless Adjudicating Authority
permits retention of property beyond this period [section 20(3)
of Prevention of Money Laundering Act].

24. • Receipt, Management and Disposal of Confiscated Properties
• If adjudicating Authority decides that the property is involved in
money laundering, he can order that the property shall be attached,
or if already attached, the attachment will continue till order of trial
court becomes final [section 8(3) of Prevention of Money Laundering
Act].
• If the person is found to be guilty finally by trial court, Adjudicating
Authority shall confiscate the attached property after giving
opportunity of hearing, after order of trial court has become final
[section 8(5) of Prevention of Money Laundering Act].

25. • Enforcement apparatus
• Adjudicating Authority: The Act gives the Central Government
the authority to establish an adjudicating authority with a
chairman and two other members and to specify the authority’s
mandate and other terms of service. The Authority has been
given independent authority to control its adjudicating process.

26. • Administrator: The property laundered will be taken care of i.e.
managed after confiscation by an Administrator who will act in
accordance with the instructions of the Central Government.
• Appellate Tribunal: An Appellate Tribunal established by the
Central Government will hear all appeals from decisions made
by the Adjudicating Authority. It will have two members, and the
chairman will be in charge.

27. • Special Courts: An Appellate Tribunal established by the Central
Government will hear all appeals from decisions made by the
Adjudicating Authority. It will have two members, and the
chairman will be in charge.
• Banking companies, financial institutions, and intermediaries
are required by the PMLA and the rules thereunder to confirm
the identity of their clients, keep records, and provide
information to FIU-IND.

28. Penalties
• Under the Prevention of Money Laundering Act, the punishment for the crime of
money laundering is as follows:
• Imprisonment: The offender can face imprisonment for not less than three
years, extending up to seven years. In some instances where the crime involves
specified offenses, imprisonment can extend up to 10 years.
• Monetary Penalty: In addition to imprisonment, a penalty of Rs.5 lakhs can be
imposed on the offender. This penalty may vary depending on the nature and
severity of the offense.
• Non-Bailable Offence: Money laundering is considered a non-bailable offense
under the PMLA. This means that a person arrested for money laundering is not
entitled to bail as a matter of right and may have to apply for bail before a court.

29. • Arrest without Warrant: In certain circumstances, an arrest
can be made without a warrant under the PMLA. This allows
law enforcement agencies to take immediate action and prevent
the potential destruction of evidence or flight of the accused.
• Disqualification from Elections: If convicted under the PMLA,
the person may be disqualified from contesting in elections for
eight years, starting from the date of conviction. This provision
aims to ensure that individuals involved in money laundering
are not able to hold public office and misuse their influence.