The Prevention of Money Laundering Act, 2002: Learning Outcomes

3
THE PREVENTION OF MONEY

LAUNDERING ACT, 2002
LEARNING OUTCOMES
After reading this chapter, you will be able to:
❑ Learn the measures to prevent and control money laundering
❑ Know when the property obtained from the laundered money be
confiscated and seized
❑ Know the penalties imposed and the adjudication process in money
laundering cases
1. INTRODUCTION
Money Laundering
It is a highly sophisticated act to cover up or camouflage the
identity/origin of illegally obtained earnings so that they appear to have
derived from lawful sources.
It is the process by which illegal funds and assets are converted into
legitimate funds and assets. In other words it is basically the process of
converting illegal/ black money of a person in a legal or white money. It is the process used by
criminals’ to wash their “tainted” money to make it “clean.”
Illegal / Black Money Legal / White Money
© The Institute of Chartered Accountants of India

3.2 CORPORATE AND ECONOMIC LAWS
The Prevention of Money Laundering Act, 2002 is known to have been legislated basically to sub-
serve twin purpose. Firstly to prevent money laundering and secondly to provide for confiscation of
property derived from, or involved in money laundering, and to ensure curbing of the tendency of
committing scheduled offences.
There are multiple methods through which black money is made, laundered and huge profit is made,
some of them are:
• Cash Smuggling: Moving cash from one location to another or depositing the cash in Swiss
Bank Account;
• Structuring: Cash is broken down into formal receipts to buy money orders etc. Smaller
amounts are hard to detect;
• Laundering via Real Estate: Buying a land for money and then selling it making the profits
legal.
• Stock Markets scams
• Creating bogus companies and booking false incomes
• Hawala
• Drug Trafficking;
• Bribery and Corruption;
• Kidnapping and Extortion.
If left unchecked, money laundering can erode a nation’s economy by changing the demand for
cash, making interest and exchange rates more volatile, and by causing high inflation in countr ies
where criminal elements are operating. The draining of huge amounts of money from normal
economic growth poses a real danger for the financial health of every country which in turn adversely
affects the global market.
In view of an urgent need for the enactment of a comprehensive legislation for preventing money
laundering and connected activities, confiscation of proceeds of crime, setting up of agencies and
mechanisms for coordinating measures for combating money laundering etc., the Preventio n of
Money Laundering Bill, 1998 was introduced in the Parliament on 4th August, 1998. The Bill received
the assent of the President and became the Prevention of Money Laundering Act, 2002 on 17th
January 2003. The Act has come into force with effect from 1st July 2005. It has been amended in
2005, 2009 and then in 2012.
The objective of the Act is to prevent and control money-laundering and provide for confiscation
and seizure of property derived from, and deal with any other issue connected with money-
laundering in India.

THE PREVENTION OF MONEY LAUNDERING ACT, 2002 3.3
Understanding Money Laundering

Let us understand Money Laundering with the example of Hawala.
How Hawala Works: Hawala system works with a network of operators called Hawaladars or
Hawala agents. For a Hawala transaction, customer contacts a Hawala agent at the source location.
The Hawala agent at that end collects money from the person who wishes to make a transfer. The
agent then calls up his counterpart in the country where the transfer has to be made.
This counterpart then hands over the cash to the recipient after deducting a commission. The source
agent promises to settle the debt to the destination agent through an informal settlement.
For example, a person in country ‘A’ who wants to transfer some money to someone in country ‘B’
gives the money to the Hawala broker in country ‘A’. The agent accepts it and calls up his colleague
in country ‘B’. His colleague gives the money in country ‘B’s’ currency to the person in country ‘B’ to
whom it has to be transferred. An identification code is requested, ensuring the authenticity of the
receiver. The same modus operandi is followed within the country as well.
In a Hawala transfer, the money enters the hawala system in local currency and leaves as local or
foreign currency. The currency exchange happens at a rate set by the agents and not the official
rates.
2. DEFINITIONS
To understand the meaning of money laundering it is essential to define proceeds of crime, property
and scheduled offence. Infact, all the above definitions have to be read together.
I. Clause (p) of sub section (1) of section 2 provides that "money-laundering" has the meaning
assigned to it in section 3. Moving to section 3, it is observed that whosoever directly or
indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually
involved in any process or activity connected with the proceeds of crime including its
concealment, possession, acquisition or use and projecting or claiming it as untainted
property shall be guilty of offence of money laundering.
• attempts to
• indulge or
Whosoever
• knowingly assists or
(directly or
indirectly) • knowingly is a party or
• is actually involved in any process/activity shall be guilty of
connected with the proceeds of crime the offence of
money laundering
• its concealment,
• possession,
including • acquisition or use
• and projecting or claiming it as untainted
property

II. Section 2(1)(u) defines "proceeds of crime" as 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 or where such property is taken or held outside the country, then
the property equivalent in value held within the country or abroad;
"proceeds of crime" include property not only derived or obtained from the scheduled offence
but also any property which may directly or indirectly be derived or obtained as a result of
any criminal activity relatable to the scheduled offence.
III. Now, let us understand what this Property as talked above is. In terms of clause (v) of sub –
section (1) of section 2, "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. The term "property" includes property of any kind used in the commission of an
offence under this Act or any of the scheduled offences;
IV. In terms of clause (rb) of sub – section (1) of section 2 "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.
It also includes the systems enabling credit card operations, debit card operations, smart card
operations, money transfer operations or similar operations;
V. The term “scheduled offence" has been defined in clause (y) of sub-section (1) of section
2. It means –
(a) the offences specified under Part A of the Schedule; or
(b) the offences specified under Part B of the Schedule if the total value involved in such
offences is one crore rupees or more; or
(c) The offences specified under Part C of the Schedule.
VI. “Transfer” includes sale, purchase, mortgage, pledge, gift, loan or any other form of transfer
of right, title, possession or lien.
Other Definitions
“Banking company” means a banking company or a co-operative bank to which the Banking
Regulation Act, 1949 applies and includes any bank or banking institution referred to in section 51
of that Act.
“Beneficial owner” means an individual who ultimately owns or controls a client of a reporting entity
or the person on whose behalf a transaction is being conducted and includes a person who exercises
ultimate effective control over a juridical person
“Client” means a person who is engaged in a financial transaction or activity with a reporting entity
and includes a person on whose behalf the person who engaged in the transaction or activity, is
acting.

“Financial institution” means a financial institution as defined in clause (c) of section 45 I of the
Reserve Bank of India Act, 1934 and includes a chit fund company, a housing finance institution, an
authorised person, a payment system operator, a non-banking financial company and the
Department of Posts in the Government of India.
“Intermediary” means,
(i) 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 or
any other intermediary associated with securities market and registered under section 12 of
the Securities and Exchange Board of India Act, 1992; or
(ii) an association recognised or registered under the Forward Contracts (Regulation) Act, 1952
or any member of such association; or
(iii) intermediary registered by the Pension Fund Regulatory and Development Authority; or
(iv) a recognised stock exchange referred to in clause (f) of section 2 of the Securities Contracts
(Regulation) Act, 1956.
“Records” include the records maintained in the form of books or stored in a computer or such
other form as may be prescribed.
“Reporting entity” means a banking company, financial institution, intermediary or a person
carrying on a designated business or profession.
3. PUNISHMENT FOR THE OFFENCE OF MONEY

LAUNDERING [SECTION 3 AND 4]
Section 3 deals with the offence of money laundering. Money laundering is a single process.
however; its cycle can be broken down into three distinct stages
1. Placement: It is the first and the initial stage when the black money is injected into the formal
financial System.
2. Layering: In the second stage, money injected into the system is layered and moved or
spread over various transactions in different accounts and different countries. Thus, it
becomes difficult to detect the origin of the money.
3. Integration: Under the third and final stage, money enters the financial system in such a way
that original association with the crime is sought to be obliterated so that the money can then
be used by the offender or person receiving it as clean money.

Placement Layering Integration
As per Section 3, whosoever directly or indirectly attempts to indulge or knowingly assists or

knowingly is a party or is actually involved in any process or activity connected with the proceeds of
crime including its concealment, possession, acquisition or use and projecting or claiming it as
untainted property shall be guilty of offence of money-laundering.
(i) a person shall be guilty of offence of money-laundering if such person is found to have directly
or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually
involved in one or more of the following processes or activities connected with proceeds of
crime, namely:--
(a) concealment; or
(b) possession; or
(c) acquisition; or
(d) use; or
(e) projecting as untainted property; or
(f) claiming as untainted property,
in any manner whatsoever;
(ii) the process or activity connected with proceeds of crime is a continuing activity and continues
till such time a person is directly or indirectly enjoying the proceeds of cri me.
Accordingly, the entire process or activity connected to the proceeds of crime is a continuing offence.
The above explanation was inserted on the basis that concealment possession, acquisition and use
of proceeds of crime were not criminalized earlier under section 3 of the PMLA.
Section 4 provides for the Punishment for Money-Laundering-Whoever commits the
offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall
not be less than three years but which may extend to seven years and shall also be liable to fine.
But where the proceeds of crime involved in money-laundering relate to any offence specified under
paragraph 2 of Part A of the Schedule (i.e. Offences under the Narcotic Drugs and Psychotropic
Substances Act, 1985) 1, the maximum punishment may extend to ten years instead of seven years.
1Paragraph 2 of Part A deals with Offences under the Narcotics Drugs and Psychotropic Substances Act,
1985, which mainly consist of contravention in relation to poppy straw, opium, cannabis plant, ca nnabis,
psychotropic substances, manufactured drugs.

Where the proceeds of crime involved in

Whoever commits the offence of money-
money-laundering relate to any offences
laundering shall be punishable
pertaining to the NDPS Act, 1985
with rigorous imprisonment from 3 to 7 the maximum punishment may extend

years, and to ten years
fine fine
4. ATTACHMENT, ADJUDICATION AND CONFISCATION

“Attachment” means prohibition of transfer, conversion, disposition or movement of property by an
order issued under Chapter III of the Act.
“Adjudicating Authority” means an Adjudicating Authority appointed under sub-section (1) of
section 6 of the Act.
As per section 5, Adjudicating Authority has to decide that property is involved in money laundering
and accordingly by an order in writing confirm the attachment of property.
Attachment of property involved in money-laundering [Section 5]
1. Order for provisional attachment: Where the Director or any other officer (not below the
rank of Deputy Director authorised by the Director), has reason to believe (the reason for
such belief to be recorded in writing), on the basis of material in his possession, that —
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any
manner which may result in frustrating any proceedings relating to confiscation of such
proceeds of crime under this Chapter,
Such director/ any other officer may, by order in writing, provisionally attach such property
for a period not exceeding one hundred and eighty days from the date of the order , in
such manner as may be prescribed.
Condition for attachment: Provided that no such order of attachment shall be made unless,
in relation to the scheduled offence:
• a report has been forwarded to a Magistrate under section 173 of the Code of Criminal
Procedure, 1973, or
• a complaint has been filed by a person authorised to investigate the offence mentioned
in that Schedule, before a Magistrate or court for taking cognizance of the scheduled
offence, as the case may be, or

• a similar report or complaint has been made or filed under the corresponding law of
any other country.
Provided further that, any property of any person may be attached under this section if the
Director or any other officer not below the rank of Deputy Director authorised by him has
reason to believe (the reasons for such belief to be recorded in writing), on the basis of
material in his possession, that if such property involved in money-laundering is not attached
immediately under this Chapter, the non-attachment of the property is likely to frustrate any
proceeding under this Act.
Computation of period of attachment: Provided also that for the purposes of computing the
period of one hundred and eighty days, the period during which the proceedings under this
section is stayed by the High Court, shall be excluded and a further period not exceeding
thirty days from the date of order of vacation of such stay order shall be counted.
2. Forward of copy of attachment to adjudicating authority: The Director, or any other officer
not below the rank of Deputy Director, shall, immediately after attachment, forward a copy of
the order, along with the material in his possession, to the Adjudicating Authority, in a sealed
envelope, in the prescribed manner and such Adjudicating Authority shall keep such order
and material for such period as may be prescribed.
3. Period of validity of attachment order: Every order of attachment made, shall cease to
have effect after the expiry of the period i.e., one hundred and eighty days from the date of
the order, or on the date of an order made under section 8(3), whichever is earlier.
4. No effect on the right to enjoy the property: This section shall not prevent the person
interested in the enjoyment of the immovable property attached from such enjoyment.
“person interested”, in relation to any immovable property, includes all persons claiming or
entitled to claim any interest in the property.
5. Complaint against the attachment before the AA: The Director or any other officer who
provisionally attaches any property shall, within a period of thirty days from such attachment,
file a complaint stating the facts of such attachment before the Adjudicating Authority (AA).
Adjudication [Section 8]
(1) Serving of notice: On receipt of a complaint under section 5 (5), or applications made under
section 17(4) or under section 18 (10), if the Adjudicating Authority has reason to believe that
any person has committed an offence under section 3 or is in possession of proce eds of
crime, it may serve a notice of not less than 30 days on such person calling upon him to
indicate-
• the sources of his income, earning or assets, out of which or by means of which he
has acquired the property attached under section 5(1), or, seized o r frozen under
section 17 or section 18,

• the evidence on which he relies, and

• other relevant information and particulars, and
• to show cause why all or any of such properties should not be declared to be the
properties involved in money-laundering and confiscated by the Central Government.
Person on behalf of any other person holds property specified in notice: Where a notice
under this sub-section specifies any property as being held by a person on behalf of any other
person, a copy of such notice shall also be served upon such other person:
In case of joint holding of property: Where more than one person holds such property
jointly, such notice shall be served to all persons holding such property.
(2) Order of AA: The Adjudicating Authority (AA) shall by an order, after—
(a) considering the reply, if any, to the notice issued;
(b) hearing the aggrieved person and the Director or any other officer authorised by him
in this behalf; and
(c) taking into account all relevant materials placed on record before him,
record a finding whether all or any of the properties referred to in the notice issued, are
involved in money-laundering.
If the property is claimed by a person, other than a person to whom the notice had been
issued, such person shall also be given an opportunity of being heard to prove that the
property is not involved in money-laundering.
(3) Order for attachment/retention of property etc.: Where the Adjudicating Authority decides
that any property is involved in money-laundering, he shall, by an order in writing, confirm the
attachment of the property or retention of property or record seized or frozen under section
17 or section 18 and record a finding to that effect.
Period for attachment, retention, or freezing of the seized or frozen property or record:
Whereupon such attachment, retention, or freezing of the seized or frozen property or record,
AA shall—
(a) continue during investigation, for a period not exceeding 2three hundred and sixty-five
days or the pendency of the proceedings relating to any offence under this Act before
a court or under the corresponding law of any other country, before the competent
court of criminal jurisdiction outside India, as the case may be; and
(b) become final after an order of confiscation is passed under section 8(7) or section 8(5)
or section 58B or section 60(2A) by the Special Court.
2Substituted for "ninety days" by the Finance Act, 2019, w.e.f. 20-3-2019.

3For the purposes of computing the period of three hundred and sixty -five days under
clause (a), the period during which the investigation is stayed by any court under any
law for the time being in force shall be excluded.
(4) Confirmation of provisional order: Where the provisional order of attachment made under
section 5(1) has been confirmed as stated above as per section 8(3), the Director or any other
officer authorized by him in this behalf shall forthwith take the possession of the property
attached under section 5 or frozen under section 17(1A).
If it is not practicable to take possession of a property frozen, the order of confiscation shall
have the same effect as if the property had been taken possession of.
(5) Final order on confirmation of commission of Act: Where on conclusion of a trial of an
offence under this Act, the Special Court finds that the offence of money-laundering has been
committed, it shall order that such property involved in the money laundering or which has
been used for commission of the offence of money-laundering shall stand confiscated to the
Central Government.
Where on conclusion of a trial under this Act, the Special Court finds that the offence of money
laundering has not taken place or the property is not involved in money -laundering, it shall
order release of such property to the person entitled to receive it.
(6) Where the trial under this Act cannot be conducted by reason of the death of the accused
or the accused being declared a proclaimed offender or for any other reason or having
commenced but could not be concluded-
there in such case, the Special Court shall, on an application moved by the Director or a
person claiming to be entitled to possession of a property in respect of which an order has
been passed under section 8(3), pass appropriate orders regarding confiscation or release
of the property, as the case may be, involved in the offence of money-laundering after giving
regard to the material before it.
(7) Where a property stands confiscated to the Central Government under section 8(5), the
Special Court, in such manner as may be prescribed, may also direct the Central Government
to restore such confiscated property or part thereof of a claimant with a legitimate interest in
the property, who may have suffered a quantifiable loss as a result of the offence of money
laundering:
Provided that the Special Court shall not consider such claim unless it is satisfied that the
claimant has acted in good faith and has suffered the loss despite having taken all reasonable
precautions and is not involved in the offence of money laundering.
3Inserted by the Finance Act, 2019, w.e.f. 20-3-2019

Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant
for the purposes of restoration of such properties during the trial of the case in such manner
as may be prescribed.
Vesting of property in Central Government [Section 9]
Where an order of confiscation has been made under section 8(5) or section 8(7) or section 58B or
section 60(2A) in respect of any property of a person, all the rights and title in such property shall
vest absolutely in the Central Government free from all encumbrances.
However, where the Special Court or the Adjudicating Authority, as the case may be, after giving an
opportunity of being heard to any other person interested in the property attached under this Chapter,
or seized or frozen, is of the opinion that any encumbrance on the property or lease-hold interest
has been created with a view to defeat the provisions of this Chapter, it may, by order, declare such
encumbrance or lease-hold interest to be void and thereupon the aforesaid property shall vest in the
Central Government free from such encumbrances or lease-hold interest.
Further, nothing in this section shall operate to discharge any person from any liability in respect of
such encumbrances, which may be enforced against such person by a suit for damages.
Management of properties confiscated under this Chapter [Section 10]
The Administrator appointed by Central Government, shall receive and manage the property in
relation to which an order has been made under sub-section (5) or sub-section (6) or sub-section
(7) of section 8 or section 58B or sub-section (2A) of section 60.The Administrator shall also take
such measures, as the Central Government may direct, to dispose of the property which is vested
in the Central Government.
Power regarding summons, production of documents and evidence, etc. [Section11]
The Adjudicating Authority shall, for the purposes of this Act, have the same powers as are vested
in a civil court while trying a suit in respect of the following matters, namely: --
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company or a
financial institution or a company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed.
All the persons so summoned shall be bound to attend in person or through authorised agents, as
the Adjudicating Authority may direct, and shall be bound to state the truth upon any subject
respecting which they are examined or make statements, and produce such documents as may be
required.

Every proceeding under this section shall be deemed to be a judicial proceeding .

Verification of Identity by Reporting Entity [Section 11A]
(1) Every Reporting Entity shall verify the identity of its clients and the beneficial owner, by --
(a) authentication under the Aadhaar (Targeted Delivery of Financial and Other
Subsidies, Benefits and Services) Act, 2016 if the reporting entity is a banking
company; or
(b) offline verification under the Aadhaar (Targeted Delivery of Financial and Other
Subsidies, Benefits and Services) Act, 2016; or
(c) use of passport issued under section 4 of the Passports Act, 1967; or
(d) use of any other officially valid document or modes of identification as may be notified
by the Central Government in this behalf:
Provided that the Central Government may, if satisfied that a reporting entity other than
banking company, complies with such the standards of privacy and security under the
Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act,
2016, and it is necessary and expedient to do so, by notification, permit such entity to perform
authentication under clause (a):
Provided further that no notification under the first proviso shall be issued without consultation
with the Unique Identification Authority of India established under sub-section (1) of section
11 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and
Services) Act, 2016 and the appropriate regulator.
(2) If any reporting entity performs authentication under clause (a) of sub -section (1), to verify
the identity of its client or the beneficial owner it shall make the other modes of identification
under clauses (b), (c) and (d) of sub-section (1) also available to such client or the beneficial
owner.
(3) The use of modes of identification under sub-section (1) shall be a voluntary choice of every
client or beneficial owner who is sought to be identified and no client or beneficial owner shall
be denied services for not having an Aadhaar number.
(4) If, for identification of a client or beneficial owner, authentication or offline verification under
clause (a) or clause (b) of sub-section (1) is used, neither his core biometric information nor
his Aadhaar number shall be stored.
(5) Nothing in this section shall prevent the Central Government from notifying additional
safeguards on any reporting entity in respect of verification of the identity of its client or
beneficial owner.

Explanation. The expressions "Aadhaar number" and core biometric information shall have the same
meanings as are respectively assigned to them in clauses (a) and (j) of section 2 of the Aadhaar
(Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 .
5. OBLIGATION OF BANKING COMPANIES, FINANCIAL

INSTITUTIONS AND INTERMEDIARIES
Reporting entity to maintain records
Section 12 provides for the obligation of Banking Companies, Financial Institutions and
Intermediaries i.e. the reporting entity to maintain records of all transactions.
1. Maintenance of records: According to sub-section (1), every reporting entity shall –
(a) maintain a record of all transactions, including information relating to transactions
covered under clause (b), in such manner as to enable it to reconstruct individual
transactions;
(b) furnish to the Director within such time as may be prescribed, information relating to
such transactions, whether attempted or executed, the nature and value of which may
be prescribed;
4 [(c) omitted
(d) omitted]
(e) maintain record of documents evidencing identity of its clients and beneficial owners
as well as account files and business correspondence relating to its clients.
transactions Clients
maintain record of
• maintain a record of all • verify the identity of its
transactions documents evidencing
clients
• furnish to the Director identity of its clients and
• identify the beneficial beneficial owners
information relating to owner, if any, of such of its
such transactions
clients
2. Confidentiality: Every information maintained, furnished or verified, save as otherwise

provided under any law for the time being in force shall be kept confidential.
3. Maintenance of records by the reporting entity of all such transactions whether
attempted or executed , the nature and value of which may be prescribed ; (for clause
4Clauses (c) and (d) omitted by Act 14 of 2019, (w.e.f. 25-07-2019)

a): The records referred to in clause (a) of sub-section (1) shall be maintained for a period of
five years from the date of transaction between a client and the reporting entity.
4. Maintenance of records (for clause e): The records referred to in clause (e) of sub-section
(1) of documents evidencing identity of its clients and beneficial owners as well as account
files and business correspondence relating to its clients shall be maintained for a period of
five years after the business relationship between a client and the reporting entity has ended
or the account has been closed, whichever is later.
5. Exemption by the Central Government: The Central Government may, by notification,
exempt any reporting entity or class of reporting entities from any obligation under this
chapter.
Access to information [Section 12A]
This section empowers the Director to call for any of the above records and for any additional
information as he considers necessary, from any reporting entity. Every reporting entity shall furnish
to the Director the required information within such time and manner as he may specify. Every
information sought by the Director shall be kept confidential.
Director (may call) to Furnish information Maintain Confidentiality
• Records referred in • Within prescribed • of Information

11A,12(1), 12AA(1) time and manner furnished
• Additional
information
Enhanced due diligence [Section 12AA]

(1) Every reporting entity shall, prior to the commencement of each specified transaction, --
(a) verify the identity of the clients undertaking such specified transaction by
authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies,
Benefits and Services) Act, 2016 in such manner and subject to such conditions, as
may be prescribed:
Provided that where verification requires authentication of a person who is not entitled
to obtain an Aadhaar number under the provisions of the said Act, verification to
authenticate the identity of the client undertaking such specified transaction shall be
carried out by such other process or mode, as may be prescribed;
(b) take additional steps to examine the ownership and financial position, including
sources of funds of the client, in such manner as may be prescribed;

(c) take additional steps as may be prescribed to record the purpose behind
conducting the specified transaction and the intended nature of the relationship
between the transaction parties.
(2) Where the client fails to fulfill the conditions laid down under sub-section (1), the
reporting entity shall not allow the specified transaction to be carried out.
(3) Where any specified transaction or series of specified transactions undertak en by a
client is considered suspicious or likely to involve proceeds of crime, the reporting entity shall
increase the future monitoring of the business relationship with the client, including greater
scrutiny or transactions in such manner as may be prescribed.
(4) The information obtained while applying the enhanced due diligence measures under
sub-section (1) shall be maintained for a period of five years from the date of transaction
between a client and the reporting entity.
Explanation -For the purposes of this section, "specified transaction" means--
(a) any withdrawal or deposit in cash, exceeding such amount;
(b) any transaction in foreign exchange, exceeding such amount;
(c) any transaction in any high value imports or remittances;
(d) such other transaction or class of transactions, in the interest of revenue or where there is a
high risk or money-laundering or terrorist financing,
as may be prescribed.
Power of director to impose fine [Section 13]
According to the section following are the powers of the Directors:
Order to make an inquiry:
Director may make inquiry or cause inquiry to be made,
if necessary, with regard to the obligations of the
reporting entity
on an application,
on his own motion, or
made by
any authority officer or person
Direct to audit the records: If at any stage of inquiry or any other proceedings before him, the
Director having regard to the nature and complexity of the case, is of the opinion that it is necessary

to do so, he may direct the concerned reporting entity to get its records, audited b y an accountant
from amongst a panel of accountants, maintained by the Central Government for this purpose. The
expenses of, and incidental to, any such audit shall be borne by the Central Government.
In case of non-compliance with the obligations under this chapter by the reporting entity and
others: If the Director, during inquiry, finds that a reporting entity /its designated director on the
Board /any of its employees has failed to comply with the obligations under this Chapter, then , he
may
(a) issue a warning in writing; or
(b) direct such reporting entity or its designated director on the Board or any of its employees, to
comply with specific instructions; or
(c) direct such reporting entity or its designated director on the Board or any of its employees, to
send reports at such interval as may be prescribed on the measures it is taking; or
(d) by an order, impose a monetary penalty on such reporting entity or its designated director on
the Board or any of its employees, which shall not be less than ten thousand rupees but may
extend to one lakh rupees for each failure.
issue a warning in writing
direct to comply with specific instructions
Periodical reports may be asked
Impose penalty (10,000 to 1 Lakh per failure)
Copy of order to be forwarded to the reporting entity: The Director shall forward a copy of the
order passed to every banking company, financial institution or intermediary or person who is a party
to the proceedings.
No civil or criminal proceedings: Act gives immunity to reporting entity, its directors and emplyees,
against civil or criminal proceedings for furnishing information under clause (b) of sub -section (1) of
section 12. (Section 14)
Whereas as per Section 15 the Central Government may, in consultation with the Reserve Bank of
India, prescribe the procedure and the manner of maintaining and furnishing information by a
reporting entity under section 11A, 12(1) & 12AA(1) for the purpose of implementing the provisions
of this Act.

6. APPELLATE TRIBUNAL
Hierarchy under the Prevention of Money Laundering Act, 2002
High Court
Special Court
Appellate Tribunal
Adjudicating Authority
Section 48 provides for the following classes of authorities for the purposes of this Act, namely: -
1. Director or Additional Director or Joint Director,
2. Deputy Director,
3. Assistant Director, and
4. such other class of officers as may be appointed for the purposes of this Act.
As per section 2(1) clause (b), Appellate Tribunal means the Appellate Tribunal established under
section 25.
Appellate Tribunal [Section 25]
The Appellate Tribunal constituted under section 12(1) of the Smugglers and Foreign Exchange
Manipulators (Forfeiture of Property) Act, 1976, shall be the Appellate Tribunal for hearing appeals
against the orders of the Adjudicating Authority and the other authorities under this Act.
Appeals to Appellate Tribunal [Section 26]
Section 26 deals with the right and time frame to make an appeal to the Appellate Tribunal (AT).

Appeal to AT may be prefered by

Director or any person aggrieved by an order made by Any reporting entity aggrieved by any order of the
the AA Director
Time for appeal
shall be filed within a period of 45 days from the date shall be filed within a period of 45 days from the date on
on which a copy of the order made by AA is recieved which a copy of the order made by the Director is received
Condonation of delay
Appellate Tribunal may, after giving an opportunity of being heard, entertain an appeal after the expiry of the said
period of forty-five days
Passing of Order
the Appellate Tribunal may, after giving the parties an opportunity of being heard, pass such orders thereon as it
thinks fit, confirming, modifying or setting aside the order
The Appellate Tribunal shall send a copy of every order made to

the concerned Adjudicating
the parties to the appeal and the Director, as the case may be.
Authority or
Time frame for disposing off appeal
within 6 months from the date of filing of the appeal
Procedure and powers of Appellate Tribunal [Section 35]

(1) The Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil
Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the
other Provisions of this Act, the Appellate Tribunal shall have powers to regulate its own
procedure.
(2) The Appellate Tribunal shall have, for the purposes of discharging its functions under this
Act, the same powers as are vested in a civil court while trying a suit, in respect of the
following matters:
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;

(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872,
requisitioning any public record or document or copy of such record or document from
any office;
(e) issuing commissions for the examination of witnesses or documents;
(f) reviewing its decisions;
(g) dismissing a representation for default or deciding it ex parte;
(h) setting aside any order of dismissal of any representation for default or any order
passed by it ex parte; and
(i) any other matter, which may be, prescribed by the Central Government.
(3) An order made by the Appellate Tribunal under this Act shall be executable by the Appellate
Tribunal as a decree of civil court and, for this purpose, the Appellate Tribunal shall have all
the powers of a civil court.
(4) The Appellate Tribunal may transmit any order made by it to a civil court having local
jurisdiction and such civil court shall execute the order as if it were a decree made by that
court.
(5) All proceedings before the Appellate Tribunal shall be deemed to be judicial proceedings
within the meaning of sections 193 and 228 of the Indian Penal Code and the Appellate
Tribunal shall be deemed to be a civil court for the purposes of sections 345 and 346 of the
Code of Criminal Procedure, 1973.
Decision to be by majority [Section 38]
If the Members of a Bench consisting of two Members differ in opinion on any point, they shall state
the point or points on which they differ, and make a reference to the Chairman who shall either hear
the point or points himself or refer the case for hearing on such point or points by third Member of
the Appellate Tribunal and such point or points shall be decided according to the opinion of the
majority of the Members of the Appellate Tribunal who have heard the case, including those who
first heard it.
Civil court not to have jurisdiction [Section 41]
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which
the Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this Act
to determine and no injunction shall be granted by any court or other authority in respect of any
action taken or to be taken in pursuance of any power conferred by or under this Act.

Appeal to High Court [Section 42]

“High Court” means—
(i) the High Court within the jurisdiction of which the aggrieved party ordinarily resides or carries
on business or personally works for gain; and
(ii) where the Central Government is the aggrieved party, the High Court within the jurisdiction
of which the respondent, or in a case where there are more than one respondent, any of the
respondents, ordinarily resides or carries on business or personally works for gain .
person aggrieved by any decision Condonation for delay filing of

/ order of the Appellate Tribunal appeal
• file an appeal to the High Court • The High Court, if satisfied that
• within 60 days from the date of the appellant was prevented by
communication of the decision / sufficient cause from filing the
order appeal within the said period
• on question of law/fact • allow filing within a further
period not exceeding sixty days
7. SPECIAL COURTS
“Special Court” means a Court of Session designated as Special
Court under section 43(1).
Sections 43 – 47 deals with provision relating to Special Courts.
Section 43 empowers the Central Government in consultation with the
Chief Justice of the High Court for trial of offence of money laundering
(offence punishable under section 4), to designate one or more Courts
of Sessions as Special Court or Special Courts for such area or areas or for such case or class or
group of cases as may be prescribed in the notification to this effect.
Jurisdiction of special courts: Section 44 clearly provides for the offences triable by Special
Courts. It overrides the provisions of the Code of Criminal Procedure, 1973 and provides that –
(i) Trial of offence punishable under section 4 and any scheduled offence: an offence
punishable under section 4 and any scheduled offence committed under this Act, shall be
tried by the Special Court constituted for the area in which the offence has been committed.
The Special Court, trying a scheduled offence before the commencement of this Act, shall
continue to try such scheduled offence; or
(ii) Cognizance of offence under section 3 by special Court: A Special Court may, upon a
complaint made by an authority authorised in this behalf take cognizance of offence under
section 3, without the accused being committed to it for trial; or

(iii) Transfer of scheduled offence to special court: if the court which has taken cognizance
of the scheduled offence is other than the Special Court which has taken cognizance of the
complaint of the offence of money-laundering under sub-clause (b), it shall, on an application
by the authority authorised to file a complaint under this Act, commit the case relating to the
scheduled offence to the Special Court and the Special Court shall, on receipt of such case
proceed to deal with it from the stage at which it is committed; or
(iv) Same power as that of session court for trial of offences: a Special Court while trying the
scheduled offence or the offence of money-laundering shall hold trial in accordance with the
provisions of the Code of Criminal Procedure, 1973, as it applies to a trial before a Court of
Session.
Explanation.--For the removal of doubts, it is clarified that,--
(i) the jurisdiction of the Special Court while dealing with the offence under this Act, during
investigation, enquiry or trial under this Act, shall not be dependent upon a ny orders passed in
respect of the scheduled offence, and the trial of both sets of offences by the same court shall not
be construed as joint trial;
(ii) the complaint shall be deemed to include any subsequent complaint in respect of further
investigation that may be conducted to bring any further evidence, oral or documentary, against any
accused person involved in respect of the offence, for which complaint has already been filed,
whether named in the original complaint or not.
The provisions of Section 44 shall not be deemed to affect the special powers of the High Court
regarding bail under section 439 of the Code of Criminal Procedure, 1973 and the High Court may
exercise such powers including the power under clause (b) of sub-section (1) of that section as if
the reference to "Magistrate" in that section includes also a reference to a "Special Court" designated
under section 43.
Nature of offence committed under the Act: Section 45 provides that the offences under the Act
shall be cognizable and non-bailable. As per Code of Criminal Procedure, cognizable offence is an
offence in which police officer may arrest without any warrants or orders of the court. Whereas non -
cognizable offence is an offence in which a police officer has no authority to arrest wi thout warrants.
Person accused of an offence under this Act shall not be released on bail or on his own bond unless-
(i) The Public Prosecutor has been given an opportunity to oppose the application for such
release and
(ii) Where the Public Prosecutor opposes the application, the court is satisfied that there are
reasonable grounds for believing that he is not guilty of such offence and that he is not likely
to commit any offence while on bail.
Exceptions: In case of any person who is under the age of 16 years or is a woman or is a sick or
infirm or if accused either on his own or along with other co-accused is accused of money-laundering
a sum of less than one crore rupees, may be released on bail, if the Special Court so directs.

Cognizance of offence: The Special Court cannot take cognizance of any offence under the Act,
unless a complaint in writing is made by:-
(a) The Director or
(b) Any officer of the Central Government or a State Government authorise d in writing in this
behalf by the Central Government by a general or special order made in this behalf by that
Government.
Investigation by Police officer: Police officer shall investigate into an offence under this Act only
when specifically authorised, by the Central Government by a general or special order, and, subject
to such conditions as may be prescribed.
Section 46 provides that the provisions of the Code of Criminal Procedure, 1973 (including the
provisions as to bails or bonds) shall apply to the proceedings before a Special Court and the Special
Court shall be deemed to be a Court of Session and the persons conducting the prosecution before
the Special Court, shall be deemed to be a Public Prosecutor.
Section 47 empowers the High Court to exercise (so far as applicable) all the powers granted by
Chapter XXIX or Chapter XXX of the Code of Criminal Procedure 1973 related to appeal and
revision, on a High Court, as if a Special Court within the local limits of the jurisdiction of the High
Court were a Court of Session trying cases within the local limits of the jurisdiction of the High Court.
8. RECIPROCAL ARRANGEMENT FOR ASSISTANCE IN

CERTAIN MATTERS
Definitions
“Corresponding law” means any law of any foreign country corresponding to any of the provisions
of this Act or dealing with offences in that country corresponding to any of the scheduled offences
“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 transfers in any manner 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 Money laundering (Amendment)
Act, 2009.
Example 2: Mr. Rohit has been in employment in Germany for past 3 years. He was involved in a
conduct which constituted an offence in Germany. The conduct would have been considered an

offence in India as well if it had been committed in India. The proceeds involved in the offence was
Rs 60 lakhs. Mr. Rohit attempted to remit Rs 50,00,000 out of the Rs 60,00,000 to India but was not
successful. The Government of India held this offence as an Offence of Cross Border implications
as per Sec 2(ra) of the Prevention of Money Laundering Act, 2002. State whether the contention of
Government of India is correct?
Answer: As per the provision of Sec 2(ra) of the Prevention of Money Laundering Act, 2002
Offence of cross border implications means –
i Any conduct by a person at a place outside India which constitutes an offence at that pl ace
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.
It is evident from point ii of the above definition that an attempt to remit the proceeds will be
considered as an offence of cross border implications where the offence is committed in India.
If the offence is committed outside India then it will be considered as an offence of cross border
implications when:-
• Such offence is an offence if it would have been committed in India; AND
• Proceeds or part thereof is remitted to India
The word “attempt to remit” is missing in part i of the definition.
Also where even part of the proceeds is remitted still it would be covered under the above definition.
Also the definition of “offence of cross border implications” does not contain any monetary limit.
Hence , the contention of government is not correct, since the proceeds were not successfully
remitted to India and only an attempt was made hence the offence will not be considered as an
offence of cross border implications.
According to section 55, unless the context otherwise requires-
“Contracting State” means any country or place outside India in respect of which arrangements
have been made by the Central Government with the Government of such country through a treaty
or otherwise;

Contracting any country or place outside India

State
arrangement is made by CG with the Governemnt of such country
through Treaty or otherwise
Agreements with foreign countries [Section 56]

1. The Central Government may enter into an agreement with the Government of any country
outside India for—
(a) enforcing the provisions of this Act;
(b) exchange of information for the prevention of any offence under this Act or under the
corresponding law in force in that country or investigation of cases relating to any
offence under this Act,
and may, by notification in the Official Gazette, make such provisions as may be necessary
for implementing the agreement.
2. The Central Government may, by notification in the Official Gazette, direct that the application
of this Chapter in relation to a contracting State with which reciprocal arrangements have
been made, shall be subject to such conditions, exceptions or qualifications as are specified
in the said notification.
CG aggrement with Other country (for)
Enforcing the provisions of this Act Exchange of information
Prevention of offence Investigation of cases

Prevention of any under corresponding relating to any offence
offence under this Act law in force in that under this Act
country
Letter of request to a contracting State in certain cases [Section 57]

1. Issue of letter of request by Special Court for investigation to a contracting State: If, in
the course of an investigation into an offence or other proceedings under this Act, an
application is made to a Special Court by the Investigating Officer or any officer superior in
rank to the Investigating Officer that any evidence is required in connection with investigation
into an offence or proceedings under this Act and he is of the opinion that such evidence may
be available in any place in a contracting State, and the Special Court, on being satisfied that
such evidence is required in connection with the investigation into an offence or proceedings

under this Act, may issue a letter of request to a court or an authority in the contracting State
competent to deal with such request to-
(i) examine facts and circumstances of the case,
(ii) take such steps as the Special Court may specify in such letter of request, and
(iii) forward all the evidence so taken or collected to the Special Court issuing such letter
of request.
2. Mode of communication of letter of request: The letter of request shall be transmitted in
such manner as the Central Government may specify in this behalf.
3. Nature of evidence: Every statement recorded or document or thing received shall be
deemed to be the evidence collected during the course of investigation.
Letter of request When: When an application is received by Special court that any evidence
to contracting is required in respect of investigation
state
From whom: (i) by the Investigating Officer or
(ii) any officer superior in rank to the Investigating Office
Opinion of officer: That such evidence may be available with contracting
state
Statisfaction of Special Court: is necessary
Letter to whom: to a court or an authority in the contracting State

competent to deal with such request
Assistance to a contracting State in certain cases [Section 58]

Where a letter of request is received by the Central Government from a court or authority in a
contracting State requesting for investigation into an offence or proceedings under this Act and
forwarding to such court or authority any evidence connected therewith, the Central Government
may forward such letter of request to the Special Court or to any authority under the Act as it thinks
fit for execution of such request in accordance with the provisions of this Act or, as the case may
be, any other law for the time being in force.

Letter of Received by: CG

request from
Contracting
state From: Contracting State
For: request for investigation into an offence or proceedings under

this Act
Forward to: CG forward the (i) Special Court

request to:
(ii) to any authority under the Act as it thinks fit
for execution of such request
Example 3: Mr. A has been subjected to investigation under the Prevention of Money Laundering
Act, 2002 on account of information of bank accounts in tax heaven - County X which is stuffed with
money earned from extortion. In this regard, Mr. I, the Investigation Officer investigating this case,
is of the opinion that certain information such as number of accounts and details of transactions may
be available only from Country X. Hence, he has made an application to Special Court seeking
permission to write letter to competent authority of country X to seek information. In this regard, what
course of action would be taken by the special court under the Prevention of Money Laundering Act,
2002?
Answer: As per Section 57 of the PMLA 2002. “ Notwithstanding anything contai ned in this Act or
the Code of Criminal Procedure, 1973 if, in the course of an investigation into an offence or other
proceedings under this Act, an application is made to a Special Court by the Investigating Officer or
any officer superior in rank to the Investigating Officer that any evidence is required in connection
with investigation into an offence or proceedings under this Act and he is of the opinion that such
evidence may be available in any place in a contracting State, and the Special Court, on being
satisfied that such evidence is required in connection with the investigation into an offence or
proceedings under this Act, may issue a letter of request to a court or an authority in the contracting
State competent to deal with such request to-
• examine facts and circumstances of the case,
• take such steps as the Special Court may specify in such letter of request, and
• forward all the evidence so taken or collected to the Special Court issuing such letter of
request.
Special Court, after satisfying itself that such evidence are required, issue a letter to the competent
authorities of Country X seeking such information.
Reciprocal arrangements for processes and assistance for transfer of accused persons.
[Section 59]
Where a Special Court, in relation to an offence punishable under section 4, desires that --

(a) a summons to an accused person, or

(b) a warrant for the arrest of an accused person, or
(c) a summons to any person requiring him to attend and produce a document or other thing or
to produce it, or
(d) a search warrant,
issued by it shall be served or executed at any place in any contracting State, it shall send such
summons or warrant in duplicate in such form, to such Court, Judge or Magistrat e through such
authorities, as the Central Government may, by notification, specify in this behalf and that Court,
Judge or Magistrate, as the case may be, shall cause the same to be executed.
9. RECOVERY OF FINE OR PENALTY

Punishment for vexatious search [Section 62]
Any authority or officer exercising powers under this Act or any rules made thereunder, who, without
reasons recorded in writing,-
(a) searches or causes to be searched any building or place; or
(b) detains or searches or arrests any person, shall for every such offence be liable on conviction
for imprisonment for a term which may extend to two years or fine which may extend to fifty
thousand rupees or both.
Punishment for false information or failure to give information, etc. [Section 63]
1. Any person wilfully and maliciously giving false information and so causing an arrest or a
search to be made under this Act shall on conviction be liable for imprisonment for a term
which may extend to two years or with fine which may extend to fifty thousand rupees or both.
2. If any person,-
(a) being legally bound to state the truth of any matter relating to an offence under section
3, refuses to answer any question put to him by an authority in the exercise of its
powers under this Act; or
(b) refuses to sign any statement made by him in the course of any proceedings under
this Act, which an authority may legally require to sign; or
(c) to whom a summon is issued under section 50 either to attend to give evidence or
produce books of account or other documents at a certain place and time, omits to
attend or produce books of account or documents at the place or time,
he shall pay, by way of penalty, a sum which shall not be less than 500 rupees but which may
extend to 10,000 rupees for each such default or failure.

3. No order under this section shall be passed by an authority referred to in sub -section (2) (i.e.
point 2 above) unless the person on whom the penalty is proposed to be imposed is given an
opportunity of being heard in the matter by such authority.
4. Notwithstanding anything contained in clause (c) of sub-section (2), a person who
intentionally disobeys any direction issued under section 50 shall also be liable to be
proceeded against under section 174 of the Indian Penal Code.
Cognizance of offences [Section 64]
1. No court shall take cognizance of any offence under section 62 or sub -section (1) of section
63 except with the previous sanction of the Central Government.
2. The Central Government shall, by an order, either give sanction or refuse to give sanction
within ninety days of the receipt of the request in this behalf.
Code of Criminal Procedure, 1973 to apply [Section 65]
The provisions of the Code of Criminal Procedure, 1973 shall apply, in so far as they are not
inconsistent with the provisions of this Act, to arrest, search and seizure, attachment, confiscation
investigation, prosecution and all other proceedings under this Act.
Disclosure of Information [Section 66]

(1) The Director or any other authority specified by him by a general or special order in this behalf
may furnish or cause to be furnished to-
(i) any officer, authority or body performing any functions under any law relating to
imposition of any tax, duty or cess or to dealings in foreign exchange, or prevention of
illicit traffic in the narcotic drugs and psychotropic substances under the Narcotic
Drugs and Psychotropic Substances Act, 1985 or
(ii) such other officer, authority or body performing functions under any other law as the
Central Government may, if in its opinion it is necessary so to do in the public interest,
specify by notification in the Official Gazette in this behalf, any information received or
obtained by such Director or any other authority, specified by him in the performance
of their functions under this Act, as may, in the opinion of the Director or the other
authority so specified by him, be necessary for the purpose of the officer, authority or
body specified in clause (i) or clause (ii) to perform his or its functions under that law.
(2) If the Director or other authority specified under sub-section (1) is of the opinion, on the basis
of information or material in his possession, that the provisions of any other l aw for the time
being in force are contravened, then the Director or such other authority shall share the
information with the concerned agency for necessary action.

Recovery of fine or penalty [Section 69]

Where any fine or penalty imposed on any person under section 13 or section 63 is not paid within
six months from the day of imposition of fine or penalty, the Director or any other officer authorised
by him in this behalf may proceed to recover the amount from the said person in the same manner
as prescribed in Schedule II of the Income-tax Act, 1961 for the recovery of arrears and he or any
officer authorised by him in this behalf shall have all the powers of the Tax Recovery Officer
mentioned in the said Schedule for the said purpose.
Offences by companies [Section 70]
1. Where a person committing a contravention of any of the provisions of this Act or of any rule,
direction or order made thereunder is a company, every person who, at the time the
contravention was committed, was in charge of and was responsible to the company, for the
conduct of the business of the company as well as the company, shall be deemed to be guilty
of the contravention and shall be liable to be proceeded against and punished accordingly .
Nothing contained in this sub-section shall render any such person liable to punishment if he
proves that the contravention took place without his knowledge or that he exercised all due
diligence to prevent such contravention.
2. Notwithstanding anything contained in sub-section (1), where a contravention of any of the
provisions of this Act or of any rule, direction or order made thereunder has been committed
by a company and it is proved that the contravention has taken place with the consent or
connivance of, or is attributable to any neglect on the part of any director, manager, secretary
or other officer of any company, such director, manager, secretary or other officer shall also
be deemed to be guilty of the contravention and shall be liable to be proceeded against and
punished accordingly.
Explanation 1- For the purposes of this section,
(i) “Company” means any body corporate and includes a firm or other association of
individuals; and
(ii) “Director”, in relation to a firm, means a partner in the firm.
Explanation 2- For the removal of doubts, it is hereby clarified that a company may be
prosecuted, notwithstanding whether the prosecution or conviction of any legal juridical
person shall be contingent on the prosecution or conviction of any individual.
Act to have overriding effect [Section 71]
The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained
in any other law for the time being in force.

Continuation of proceedings in the event of death or insolvency [Section 72]

1. Where-
(a) any property of a person has been attached under section 8 and no appeal against the
order attaching such property has been preferred; or
(b) any appeal has been preferred to the Appellate Tribunal, and-
(i) in a case referred to in clause (a), such person dies or is adjudicated an
insolvent before preferring an appeal to the Appellate Tribunal; or
(ii) in a case referred to in clause (b), such person dies or is adjudicated an
insolvent during the pendency of the appeal,
then, it shall be lawful for the legal representatives of such person or the official
assignee or the official receiver, as the case may be, to prefer an appeal to the
Appellate Tribunal or as the case may be, to continue the appeal before the Appellate
Tribunal, in place of such person and the provisions of section 26 shall, so far as may
be, apply, or continue to apply, to such appeal.
2. Where-
(a) after passing of a decision or order by the Appellate Tribunal, no appeal has been
preferred to the High court under section 42; or
(b) any such appeal has been preferred to the High Court,-
then-
(i) in a case referred to in clause (a), the person entitled to file the appeal dies or is
adjudicated an insolvent before preferring an appeal to the High Court, or
(ii) in a case referred to in clause (b), the person who had filed the appeal dies or is
adjudicated an insolvent during the pendency of the appeal before the High Court,
then, it shall be lawful for the legal representatives of such person, or the official assignee or
the official receiver, as the case may be, to prefer an appeal to the High Court or to continue
the appeal before the High Court in place of such person and the provisions of section 42
shall, so far as may be, apply, or continue to apply, to such appeal.
3. The powers of the official assignee or the official receiver under sub-section (1) or sub-section
(2) shall be exercised by him subject to the provisions of the Presidency -towns Insolvency
Act, 1909 or the Provincial Insolvency Act, 1920, as the case may be.
10. CONCLUSION
Does money laundering mean siphoning of fund. No, not just siphoning of fund, it actually refers to
a whole process or an entire system by which money is actually generated from serious crimes as

listed above, but they are given such shape (by disguising its origin into a series of transactions)
that it looks like it has originated from legitimate sources. The point to note is that the volume of
money generated by above activities is also very huge. But the question remains how does it affect
us? The answer lies in observing the continuous increase in terrorist or militant or other criminal
activities worldwide (wide spreading global network of terrorists and others who deal in above
crimes) and we cannot be ignorant to the fact that such activities need huge funding and they
generate large volume of money. To curb these criminal activities, one needs to follow and hit at this
generation and utilization of revenue. PLMA, 2002 aims to achieve this. So, money laundering is
simply giving shape to the financial structure required and generated from serious crimes as listed
above. For example, a criminal may deposit all his money into a bank account or purchase a fixed
deposit or even buy a property. But sudden appearance of such a transaction, invites the attraction
of one and all. Hence he may resort to money laundering by making cash purchases from the market
and then selling the goods in the legal manner and at the end create an impression that the money
has come from the sales and not from the criminal activities. So the money has been disguised by
entering into a series of transactions and its origin now looks legitimate. India has followed the
recommendations of Financial Action Task Force (FATF) and criminalized money laundering. FATF
is an international government body. Financial Intelligence Unit of India (FIU_IND) was also set up
at New Delhi with an objective to coordinate and strengthen the collection and sharing of financial
intelligence through an effective national, regional and global network to combat money laundering
and all the related crimes. The subject is a major issue of concern at the international level and all
sectors of business across the globe, like insurance, retail, real-estate, stock market, entertainment
– just to name a few are getting flooded with money and more money and at this stage we can
certainly doubt, that it might be a case of money laundering. Hence the need, significance and scope
of operation of Prevention of Money Laundering Act, 2002.

TEST YOUR KNOWLEDGE

Questions
1. Explain the meaning of the term “Money Laundering”. Z, a known smuggler was caught in
transfer of funds illegally exporting narcotic drugs from India to some countries in Africa. State
the maximum punishment that can be awarded to him under Prevention of Money Laundering
Act, 2002.
2. Mr. Fraudulent has been arrested for a cognizable and non-bailable offence punishable for a
term of imprisonment for more than three years under the Prevention of Money Laundering
Act, 2002. Advise, as to how can he be released on bail in this case?
3. The Adjudicating Authority appointed under the Prevention of Money Laundering Act, 2002
issued an order attaching certain properties of XYZ Limited alleged to be involved in money
laundering for a specified period. The company aggrieved by the order of the Ad judicating
Authority seeks your advice about the remedy that is available under the Act. Advise
explaining the relevant provisions of the Prevention of Money Laundering Act, 2002.
4. Mr. 'B' purchased a flat out of the proceeds earned by Drug Trafficking. The flat was
attached by the Director, Director of Enforcement after complying the procedures under
Section 5 of the Prevention of Money Laundering Act, 2002. Mr. ‘B' got a stay from the High
Court for any proceedings under the said Act. The stay was subsequently vacated.
State the relevant provisions of the PMLA, 2002 for computing the period of provisional
attachment including extension, if any.
Whether Mr. 'C', son of Mr. 'B' can occupy the flat during the period of provisional attachment?
5. Mr. 'K' used his car for smuggling cash and the Special Court found on conclusion of trial that
an offence of money laundering was committed by Mr. 'K' under the provisions of the
Prevention of Money Laundering Act, 2002 (PMLA, 2002). The car was under hypothe cation
to a Nationalized Bank for the car loan obtained. Referring to provisions of the PMLA, 2002,
examine whether the car can be confiscated despite the existence of encumbrance?
Answer to Questions
1. Money Laundering: Whosoever directly or indirectly attempts to indulge or knowingly assists
or knowingly is a party or is actually involved in any process or activity connected with the
proceeds of crime and projecting it as untainted property shall be guilty of offence of money
laundering. [Section 3 of the Prevention of Money Laundering Act, 2002]
Paragraph 2 of Part A of the Schedule to the Prevention of Money Laundering Act, 2002,
covers Offences under the Narcotic Drugs and Psychotropic Substances Act, 1985. Whereby,
illegal import into India, export from India or transshipment of narcotic drugs and psychotropic
substances (section 23) is covered under paragraph 2 of Part A.

Punishment: Section 4 of the said Act provides for the punishment for Money -Laundering.
Whoever commits the offence of money-laundering shall be punishable with rigorous
imprisonment for a term which shall not be less than 3 years but which may extend to 7 years
and shall also be liable to fine. But where the proceeds of crime involved in money-laundering
relate to any offence specified under paragraph 2 of Part A of the Schedule, the maximum
punishment may extend to 10 years instead of 7 years.
2. Section 45 provides that the offences under the Act shall be cognizable and non -bailable.
Notwithstanding anything contained in the Code of Criminal Procedure, 1973, no person
accused of an offence under this Act shall be released on bail or on his own bond unless-
(i) The Public Prosecutor has been given an opportunity to oppose the application for
such release and
(ii) Where the Public Prosecutor opposes the application, the court is satisfied that there
are reasonable grounds for believing that he is not guilty of such offence and that he
is not likely to commit any offence while on bail.
In case of any person who is under the age of 16 years or in case of a woman or in case of
a sick or infirm person or if accused either on his own or along with other co-accused is
accused of money-laundering a sum of less than one crore rupees, may be released on bail,
if the Special Court so directs.
3. Establishment of Appellate Tribunal
According to section 25 of the Prevention of Money Laundering Act, 2002, t he Appellate
Tribunal constituted under sub-section (1) of section 12 of the Smugglers and Foreign
Exchange Manipulators (Forfeiture of Property) Act, 1976 shall be the Appellate Tribunal for
hearing appeals against the orders of the Adjudicating Authority and the other authorities
under this Act.
Appeals to Appellate Tribunal
Section 26 deals with the right and time frame to make an appeal to the Appellate Tribunal.
The Director or any person aggrieved by an order made by the Adjudicating Authority under
this Act may prefer an appeal to the Appellate Tribunal.
The appeal shall be filed within a period of 45 days from the date on which a copy of the order
made by the Adjudicating Authority is received and it shall be in such form and be
accompanied by prescribed fees. The appeal shall be in such form and be accompanied by
such fee as may be prescribed. The Appellate Tribunal may extend the period if it is satisfied
that there was sufficient cause for not filing it within the period of 45 days.
The Appellate Tribunal may after giving the parties to the appeal an opportunity of b eing
heard, pass such order as it thinks fit, confirming, modifying or setting aside the order
appealed against.

Appeals to High Court

The Act also provides further appeal. According to Section 42 any person aggrieved by any
decision or order of the Appellate Tribunal may file an appeal to the High Court within 60 days
from the date of communication of the order of the Appellate Tribunal.
In the light of the provisions of the Act explained above the company is advised to prefer an
appeal to Appellate Tribunal in the first instance.
4. According to section 5 of the Prevention of Money Laundering Act, 2002, where the Director
or any other officer (not below the rank of Deputy Director authorised by the Director), has
reason to believe (the reason for such belief to be recorded in writing), on the basis of material
in his possession, that—
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any
manner which may result in frustrating any proceedings relating to confiscation of such
proceeds of crime under this Chapter,
he may, by order in writing, provisionally attach such property for a period not exceeding 180
days from the date of the order, in such manner as may be prescribed.
Provided further that, any property of any person may be attached under this section if the
Director or any other officer not below the rank of Deputy Director authorised by him has
reason to believe (the reasons for such belief to be recorded in writing), on the basis of
material in his possession, that if such property involved in money-laundering is not attached
immediately under this Chapter, the non-attachment of the property is likely to frustrate any
proceeding under this Act.
Computation of period of attachment: Provided also that for the purposes of computing
the period of 180 days, the period during which the proceedings under this section is stayed
by the High Court, shall be excluded and a further period not exceeding 30 days from the
date of order of vacation of such stay order shall be counted.
No effect on the right to enjoy the property: This section shall not prevent the person
interested in the enjoyment of the immovable property attached from such enjoyment.
Here, “person interested”, in relation to any immovable property, includes all persons
claiming or entitled to claim any interest in the property.
In the given case, Mr. C, son of Mr. B can occupy the flat during the period of provisional
attachment if he claims to have any interest in the said property.
5. Vesting of property in Central Government [Section 9]: Where an order of confiscation
has been made under section 8(5) or section 8(7) or section 58B or section 60(2A) of PMLA,
2002 in respect of any property of a person, all the rights and title in such property shall vest
absolutely in the Central Government free from all encumbrances.

However, where the Special Court or the Adjudicating Authority, as the case may be, after
giving an opportunity of being heard to any other person interested in the property attached
under this Chapter, or seized or frozen, is of the opinion that any encumbrance on the
property or lease-hold interest has been created with a view to defeat the provisions of this
Chapter, it may, by order, declare such encumbrance or lease-hold interest to be void and
thereupon the aforesaid property shall vest in the Central Government free from such
encumbrances or lease-hold interest.
In the instant case, Mr. K used his car for smuggling cash and Special Court found on
conclusion of trial that an offence of money laundering was committed by Mr. K. The car was
under hypothecation to an nationalized bank for the car loan obtained. As the encumbrance
on the car has been created to defeat the provisions, special court may order to declare such
encumbrance to be void and therefore the car can be confiscated and shall vest in the Central
Government.

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3

THE PREVENTION OF MONEY

Illegal / Black Money Legal / White Money

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Understanding Money Laundering

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

3. PUNISHMENT FOR THE OFFENCE OF MONEY

© The Institute of Chartered Accountants of India

Placement Layering Integration

As per Section 3, whosoever directly or indirectly attempts to indulge or knowingly assists or

© The Institute of Chartered Accountants of India

Where the proceeds of crime involved in

with rigorous imprisonment from 3 to 7 the maximum punishment may extend

4. ATTACHMENT, ADJUDICATION AND CONFISCATION

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

• the evidence on which he relies, and

© The Institute of Chartered Accountants of India

3Inserted by the Finance Act, 2019, w.e.f. 20-3-2019

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Every proceeding under this section shall be deemed to be a judicial proceeding .

© The Institute of Chartered Accountants of India

5. OBLIGATION OF BANKING COMPANIES, FINANCIAL

2. Confidentiality: Every information maintained, furnished or verified, save as otherwise

4Clauses (c) and (d) omitted by Act 14 of 2019, (w.e.f. 25-07-2019)

© The Institute of Chartered Accountants of India

Director (may call) to Furnish information Maintain Confidentiality

• Records referred in • Within prescribed • of Information

Enhanced due diligence [Section 12AA]

© The Institute of Chartered Accountants of India

any authority officer or person

© The Institute of Chartered Accountants of India

issue a warning in writing

direct to comply with specific instructions

Periodical reports may be asked

Impose penalty (10,000 to 1 Lakh per failure)

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Appeal to AT may be prefered by

Time for appeal

The Appellate Tribunal shall send a copy of every order made to

Time frame for disposing off appeal

within 6 months from the date of filing of the appeal

Procedure and powers of Appellate Tribunal [Section 35]

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Appeal to High Court [Section 42]

person aggrieved by any decision Condonation for delay filing of

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

8. RECIPROCAL ARRANGEMENT FOR ASSISTANCE IN

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Contracting any country or place outside India

through Treaty or otherwise

Agreements with foreign countries [Section 56]