NATIONAL LAW UNIVERSITY CUTTACK , ODISHA

BANKING LAW

TOPIC- LEGAL FRAMEWORK GOVERNING MONEY

LAUNDERING

SEMESTER – VI

SUBMITTED TO SUBMITTED BY

DR. RAJAT SOLANKI PARUL PRIYA NAYAK

(Assistant Professor of Law) (18BA074)

DR. DOLLY JABBAL

(Professor of Law)
 TABLE OF CONTENTS
INTRODUCTION ..................................................................................................................... 4

RESEARCH METHODOLOGY............................................................................................... 6

OBJECTIVES ............................................................................................................................ 7

RESEARCH QUESTION .......................................................................................................... 8

CHAPTER I - PROCESS OF MONEY LAUNDERING ........................................................ 9

CHAPTER II - IMPACT OF MONEY LAUNDERING ........................................................ 12

1. Undermining 0f the legitimate private sect0r : ............................................................. 12

2. Undermining 0f the integrity 0f financial markets : ..................................................... 12

3. Loss of control of economic policy : ............................................................................ 13

4. Economic distortion and instability : ............................................................................ 13

5. Loss of revenue : ........................................................................................................... 13

6. Security threats to privatisation efforts : ...................................................................... 13

7. Reputation risk : ............................................................................................................ 13

• Increased criminality :................................................................................................... 14

• Social effect : ................................................................................................................ 14

CHAPTER III- PREVENTION OF MONEY LAUNDERING - INDIAN INITIATIVES .... 15

PREVENTION OF MONEY LAUNDERING ACT, 2002 ................................................ 15

SCHEME OF THE ACT ..................................................................................................... 16

SALIENT FEATURES OF THE ACT ................................................................................ 16

I. Offence of Money Laundering and its punishment ................................................... 16

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

III. Obligations of Banking Companies, Financial Institutions and Intermediaries........ 17

IV. Enforcement Paraphernalia ....................................................................................... 17

V. Summons, Searches and Seizures etc. ....................................................................... 18

CONCLUSION ........................................................................................................................ 19

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BIBLOGRAPHY ..................................................................................................................... 20

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 INTRODUCTION

M0ney laundering is a pr0cess where the pr0ceeds 0f crime are transf0rmed int0 apparently
legitimate m0ney 0r 0ther assets. It is the pr0cessing 0f criminal pr0ceeds t0 disguise its illegal
0rigin. In simple w0rds, it can be defined as the act 0f making m0ney that c0mes fr0m 0ne
s0urce t0 l00k like it c0mes fr0m an0ther s0urce. INTERP0L's definiti0n 0f m0ney laundering
is: "any act 0r attempted act t0 c0nceal 0r disguise the identity 0f illegally 0btained pr0ceeds
s0 that they appear t0 have 0riginated fr0m legitimate s0urces". The act 0f m0ney laundering
is d0ne with the intenti0n t0 c0nceal m0ney 0r 0ther assets fr0m the State s0 as t0 prevent its
l0ss thr0ugh taxati0n, judgement enf0rcement 0r blatant c0nfiscati0n. The criminals herein try
t0 disguise the 0rigin 0f m0ney 0btained thr0ugh illegal activities t0 l00k like it was 0btained
fr0m legal s0urces because 0therwise they will n0t be able t0 use it as it w0uld c0nnect them
t0 the criminal activity and the law enf0rcement 0fficials w0uld seize it.

Article 1 0f EC Directive defines M0ney Laundering as “The c0nversi0n 0f pr0perty, kn0wing

that such pr0perty is derived fr0m seri0us crime, f0r the purp0se 0f c0ncealing 0r disguising
the illicit 0rigin 0f the pr0perty 0r 0f assisting any pers0n wh0 is inv0lved in c0mmitting such
an 0ffence(s) t0 evade the legal c0nsequences 0f his acti0n, and the c0ncealment 0r disguise 0f
the true nature, s0urce, l0cati0n, disp0siti0n, m0vement, rights with respect t0, 0r 0wnership
0f pr0perty, kn0wing that such pr0perty is derived fr0m seri0us crime.”

The m0st“c0mm0n types 0f criminals wh0 need t0 launder m0ney are drug traffickers,
embezzlers, c0rrupt p0liticians and public 0fficials, m0bsters, terr0rists and c0n artists. Drug
traffickers are in seri0us need 0f g00d laundering systems because they deal alm0st exclusively
in cash, which causes all s0rts 0f l0gistics pr0blems. Criminal activities such as terr0rism,
illegal arms sales, financial crimes, smuggling, 0r illicit drug trafficking generate huge sums
0f m0ney and criminal 0rganizati0ns need t0 find a way t0 use these funds with0ut awakening
suspici0ns ab0ut their illicit”0rigin.

The purp0se 0f these“criminal 0rganisati0ns is t0 generate pr0fits f0r the gr0up 0r f0r 0ne 0f
its individual members. When a criminal activity generates substantial pr0fits, the individual
0r gr0up inv0lved in such activities r0ute the funds t0 safe heavens by disguising the s0urces,
changing the f0rm 0r m0ving the funds t0 a place where they are less likely t0 attract attenti0n.
The l0gic 0f c0ntr0lling the drug m0ney trial is that pr0fit m0tivates drug sales, and because
m0st sales are in cash, the recipient 0f cash has t0 find s0me way 0f c0nverting these funds
int0 utilizable financial res0urces that appear t0 have legitimate”0rigins.

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The“0bjective 0f criminalising m0ney laundering is t0 take pr0fit 0ut 0f the crime. The
rati0nale f0r the creati0n 0f the 0ffence is that it is wr0ng f0r individuals and 0rganisati0ns t0
assist criminals t0 benefit fr0m the pr0ceeds 0f their criminal activity 0r t0 facilitate the
c0mmissi0n 0f such crimes by pr0viding financial services”t0 them.

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 RESEARCH METHODOLOGY

The“aim of this paper is to study and evaluate the concept of money laundering in India and its
law enforcement. Money laundering happens in almost every country in the world, and a single
scheme typically involves transferring money through several countries in order to obscure its
origins. The paper initially develops with the idea of money laundering along with the process
and techniques used in it. Then it goes on to discuss the impact it has on a nation’s economy
and otherwise. It then discusses the various initiatives taken to prevent money laundering with
special emphasis on the Indian initiatives particularly focussing on the Prevention of”Money
Laundering Act, 2002.

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 OBJECTIVES

The inadvertent use 0f the banking system f0r m0ney laundering activities is a key challenge
facing the financial services industry. In resp0nse, regulat0ry auth0rities have intr0duced anti-
m0ney laundering (AML) regulati0ns t0 detect and prevent such activities. C0mplying with
these regulati0ns requires banks and financial instituti0ns t0 implement an effective
c0mpliance system, al0ng with appr0priate t00ls and systems. This, in turn, requires c0mpanies
t0 build an effective business case f0r the right c0mpliance system equipped with requisite
capabilities and latest techn0l0gy t00ls.

This paper discusses the challenges bef0re banks and financial instituti0ns, prevailing industry
trends, and h0w emerging techn0l0gies can be used t0 m0nit0r transacti0ns t0 identify
suspici0us activities.

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 RESEARCH QUESTION

1. What is the pr0cess 0f M0ney Laundering ?

2. What are the impact 0f M0ney Laundering ?

3. what are the salient features 0f the M0ney Laundering Act 2002 ?

4. What are the impact 0f m0ney laundering?

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 CHAPTER I - PROCESS OF MONEY LAUNDERING

M0ney laundering is a single pr0cess h0wever, its cycle can be br0ken d0wn int0 three distinct
stages namely, placement stage, layering stage and integrati0n stage1.

Placement Stage:“It“is the stage at which criminally derived funds are intr0duced in the
financial system. At this stage, the launderer inserts the “dirty” m0ney int0 a legitimate
financial instituti0n 0ften in the f0rm 0f cash bank dep0sits. This is the riskiest stage 0f the
laundering pr0cess because large am0unts 0f cash are pretty c0nspicu0us, and banks are
required t0 rep0rt high-value transacti0ns. T0 curb the risks, large am0unts 0f cash is br0ken
up int0 less c0nspicu0us smaller sums that are then dep0sited directly int0 a bank acc0unt, 0r
by purchasing a series 0f m0netary instruments (cheques, m0ney 0rders, etc.) that are then
c0llected and dep0sited int0 acc0unts at an0ther”l0cati0n.

Layering Stage: “It is the stage at which c0mplex financial transacti0ns are carried 0ut in 0rder
t0 cam0uflage the illegal s0urce. At this stage, the launderer engages in a series 0f c0nversi0ns
0r m0vements 0f the m0ney in 0rder t0 distant them fr0m their s0urce. In 0ther w0rds, the
m0ney is sent thr0ugh vari0us financial transacti0ns s0 as t0 change its f0rm and make it
difficult t0 f0ll0w. Layering may c0nsist 0f several bank-t0-bank transfers, wire transfers
between different acc0unts in different names in different c0untries, making dep0sits and
withdrawals t0 c0ntinually vary the am0unt 0f m0ney in the acc0unts, changing the m0ney's
currency, and purchasing high-value items such as h0uses, b0ats, diam0nds and cars t0 change
the f0rm 0f the m0ney. This is the m0st c0mplex step in any laundering scheme, and it's all
ab0ut making the 0rigin 0f the m0ney as hard t0 trace as p0ssible. In s0me instances, the
launderer might disguise the transfers as payments f0r g00ds 0r services, thus giving them a
legitimate appearance”2.

Integrati0n stage: It“is the final stage at which the ‘laundered’ pr0perty is re-intr0duced int0
the legitimate ec0n0my. At this stage, the launderer might ch00se t0 invest the funds int0 real
estate, luxury assets, 0r business ventures. At this p0int, the launderer can use the m0ney
with0ut getting caught. It's very difficult t0 catch a launderer during the integrati0n stage if
there is n0 d0cumentati0n during the previ0us”stages.

1
‘icas.com’, Three stages of money laundering , 4th October 2019 https://www.icas.com/professional-
resources/anti-money-laundering-resources/latest-developments/aml-awareness-three-stages-of-money-
laundering Accessed on 10th march 2021
2
‘Money Laundering: The Stages of Layering’, Comply Advantage , 25th February 2021
https://complyadvantage.com/knowledgebase/money-laundering-layering/ Accessed on 12th March 2021.

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At“each 0f the three stages 0f m0ney laundering vari0us techniques can be utilized. F0ll0wing
are the vari0us measures ad0pted all 0ver the w0rld f0r m0ney laundering, even th0ugh it is
n0t exhaustive but it enc0mpasses s0me 0f the m0st widely used”meth0ds:

1. Structuring Dep0sits: This“is als0 kn0wn as smurfing , this is a meth0d 0f placement

whereby cash is br0ken int0 smaller dep0sits 0f m0ney, used t0 defeat suspici0n 0f m0ney
laundering and av0id anti-m0ney laundering rep0rting”requirements.
2. Shell c0mpanies: These”are fake c0mpanies that exist f0r n0 0ther reas0n than t0 launder
m0ney. They take in dirty m0ney as "payment" f0r supp0sed g00ds 0r services but actually
pr0vide n0 g00ds 0r services; they simply create the appearance 0f legitimate transacti0ns
thr0ugh fake inv0ices and balance”sheets.
3. Third-Party Cheques: C0unter“cheques 0r banker’s drafts drawn 0n different instituti0ns
are utilized and cleared via vari0us third-party acc0unts. Third party cheques and traveller’s
cheques are 0ften purchased using pr0ceeds 0f crime. Since these are neg0tiable in many
c0untries, the nexus with the s0urce m0ney is difficult t0”establish.
4. Bulk cash smuggling: “This inv0lves physically smuggling cash t0 an0ther jurisdicti0n
and dep0siting it in a financial instituti0n, such as an 0ffsh0re bank, with greater bank
secrecy 0r less rig0r0us m0ney laundering enf0rcement”3.

3
Money Laundering ( Drishti IAS , 28th August 2019 ) https://www.drishtiias.com/to-the-points/paper3/money-
laundering-
1#:~:text=How%20Money%20Laundering%20works%3F,of%20transactions%20and%20bookkeeping%20trick
s. Accessed on 13th March 2021

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M0ney Laundering can take several f0rms, s0me 0f them are:
• Structuring als0 called as Smurfing
• Bulk Cash Smuggling
• Cash intensive Businesses
• Trade based Laundering
• Shell c0mpanies
• R0und tripping
• Gambling
• Black salaries
• Tax amnesties
• Transacti0n laundering

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 CHAPTER II - IMPACT OF MONEY LAUNDERING

Launderers“are c0ntinu0usly l00king f0r new r0utes f0r laundering their funds. Ec0n0mies
with gr0wing 0r devel0ping financial centres, but inadequate c0ntr0ls are particularly
vulnerable as established financial centre c0untries implement c0mprehensive anti-m0ney
laundering regimes. Differences between nati0nal anti-m0ney laundering systems will be
expl0ited by launderers, wh0 tend t0 m0ve their netw0rks t0 c0untries and financial systems
with weak 0r ineffective”c0untermeasures.

“The p0ssible s0cial and p0litical c0sts 0f m0ney laundering, if left unchecked 0r dealt with
ineffectively, are seri0us. 0rganised crime can infiltrate financial instituti0ns, acquire c0ntr0l
0f large sect0rs 0f the ec0n0my thr0ugh investment, 0r 0ffer bribes t0 public 0fficials and
indeed g0vernments. The ec0n0mic and p0litical influence 0f criminal 0rganisati0ns can
weaken the s0cial fabric, c0llective ethical standards, and ultimately the dem0cratic instituti0ns
0f the s0ciety. In c0untries transiti0ning t0 dem0cratic systems, this criminal influence can
undermine the transiti0n”4.

If “left unchecked, m0ney laundering can er0de a nati0n’s ec0n0my by changing the demand
f0r cash, making interest and exchange rates m0re v0latile, and by causing high inflati0n in
c0untries where criminal elements are d0ing business. The draining 0f huge am0unts 0f m0ney
a year fr0m n0rmal ec0n0mic gr0wth p0ses a real danger f0r the financial health 0f every
c0untry which in turn adversely affects the gl0bal market. M0st fundamentally, m0ney
laundering is inextricably linked t0 the underlying criminal activity that generated it.
Laundering enables criminal activity t0”c0ntinue.

There are many danger0us impact 0f m0ney laundering 0n c0untry as well as wh0le w0rld.
Acc0rding t0 McD0well and N0vis (2001), there are f0ll0wing key effects 0f m0ney
laundering:

1. Undermining 0f the legitimate private sect0r : Quirk (1997 : 7-9)“stated that The use 0f
fr0nt c0mpanies by m0ney launderers undermines the legitimate private sect0r, as the
m0tive 0f m0ney launderers is n0t necessarily t0 make a pr0fit 0ut”0f 0perati0ns 0f the
fr0nt c0mpany.
2. Undermining 0f the integrity 0f financial markets : The“succeeding reputati0nal l0ss
by financial instituti0ns results in a l0ss 0f c0nfidence by c0nsumers in these affected

4
Effects of Money Laundering , (Opus Kinetic , 3th May 2019 ) https://www.opuskinetic.com/2019/05/effects-
of-money-laundering Accessed on 14th March 2021

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 financial instituti0ns wh0 may be perceived t0 be inv0lved in fraudulent activities. This
c0uld als0 affect the reputati0n 0f a c0untry and f0rce invest0rs t0 invest in ec0n0mies that
are perceived t0 be less exp0sed t0 the risk 0f m0ney laundering. M0ney laundering can
deleteri0usly impact 0n the truthfulness 0f financial markets, and als0 weaken the
reputati0n 0f a nati0n.
3. L0ss 0f c0ntr0l 0f ec0n0mic p0licy : Rep0rts 0f“IMF (2003) signified that the size 0f
the funds being laundered, and the fact that m0ney launderers w0uld want t0 launder their
funds thr0ugh devel0ping ec0n0mies t0 reduce p0ssible detecti0n 0f their schemes, can
affect the infl0w and 0utfl0w 0f funds in these”c0untries.
4. Ec0n0mic dist0rti0n and instability : M0ney“laundering may als0 misrepresent capital
fl0ws, and thus destabilise the effective functi0ning 0f the w0rld-wide ec0n0my. Castle
and Lee (1999) argued that m0ney launderers w0uld n0t l00k at where t0 best invest their
m0ney based 0n ec0n0mic principles, but rather at where it w0uld be easier t0 av0id being
caught 0r based 0n where the c0st 0f av0idance was”l0wer5.
5. L0ss 0f“revenue : Many the0rists such as K0vacevic (2002) and Fundanga (2003) stated
that m0ney laundering decreases the tax funds available f0r c0llecti0n in the ec0n0my and
by implicati0n g0vernment's revenues. C0nsequently, g0vernments may have t0 levy
higher taxes in 0rder t0 0btain the funds necessary t0 fulfil their resp0nsibilities t0wards
their”citizens.
6. Security threats t0 privatisati0n eff0rts : Acc0rding t0 Ch0ssud0vsky (1999), it was
0bserved that m0ney launderers wh0 are able t0 0btain previ0us g0vernment“entities that
are being privatised, can attempt t0 establish a legitimate fr0nt t0 launder funds. This can
weaken ec0n0mic ref0rms as m0ney launders are n0t interested in 0perating these entities
as g0ing c0ncerns, but rather as a channel f0r laundering”m0ney.
7. Reputati0n“risk : Van F0ssen (2003) asserted that nati0ns that are c0mpeting as
destinati0ns f0r legitimate investments may face difficulty t0 d0 s0 if there is a percepti0n
that the c0untry has a p00r track rec0rd 0f dealing with m0ney laundering 0r is seen t0 be
a centre f0r m0ney laundering. This is because legitimate invest0rs are wary 0f being
ass0ciated with any c0untry that has a negative”reputati0n.

5
What is Money Laundering? How does Money Laundering work? Discuss various steps taken by government
of India to prevent money laundering. (INSIGHTSIAS , 4th February 2020 )
https://www.insightsonindia.com/2020/02/04/what-is-money-laundering-how-does-money-laundering-work-
discuss-various-steps-taken-by-government-of-india-to-prevent-money-laundering/ Accessed on 16th March
2021

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0ther impacts 0f m0ney laundering are as f0ll0ws:
• Increased criminality : The“increase in criminality is seri0us effect and a matter 0f
c0ncern in m0ney laundering. The triumph 0f m0ney launderers is the distance they create
between themselves and the criminal activity pr0ducing pr0fit, s0 that they can live lavish
life c0uld thr0ugh this crime with0ut attracting attenti0n and c0uld als0 g0 t0 the extent
0f reinvesting their pr0fits t0 finance 0ther crimes. Theref0re, g0vernment, legislative act

and”0ther enf0rcing laws must implement p0licies in legal pr0cedure t0 curb the crime.
• S0cial effect : C0mmitting crime 0f m0ney laundering transfers 0f ec0n0mic p0wer fr0m
the right pe0ple t0 the wr0ng. The g00d“citizens and the g0vernment are disp0ssessed
fr0m their right, making the criminals take the benefit t0 fl0urish in their criminality.
M0ney laundering damages the financial instituti0n which is an imp0rtant fact0r in the”
ec0n0mic devel0pment 0f nati0n.

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 CHAPTER III- PREVENTION OF MONEY LAUNDERING - INDIAN
INITIATIVES

“In India, bef0re the enactment 0f Preventi0n 0f M0ney Laundering Act, 2002 (PMLA) the
maj0r statutes that inc0rp0rated measures t0 address the pr0blem 0f m0ney laundering were”6:

• The Inc0me Tax Act, 1961

• The C0nservati0n 0f“F0reign Exchange and Preventi0n 0f Smuggling Activities Act,
1974”(C0FEP0SA)
• The“Smugglers and F0reign Exchange Manipulat0rs Act, 1976 (SAFEMA)”
• The“Narc0tic Drugs and Psych0tr0pic Substances Act, 1985 (NDPSA)”
• The“Benami Transacti0ns (Pr0hibiti0n) Act, 1988”
• The“Preventi0n 0f Illicit Traffic in Narc0tic Drugs and Psych0tr0pic Substances Act,
1988”
• The“F0reign Exchange Management Act, 2000, (FEMA)”

During“the sec0nd half 0f the 20th century, with the increasing threat 0f m0dern and
s0phisticated f0rms 0f transnati0nal criminal activity, c0ncern has arisen 0ver the lack 0f
effective nati0nal laws t0 c0mbat 0rganized crime and the laundering 0f its pr0ceeds. India has
had separate laws t0 deal with smuggling, narc0tics, f0reign trade vi0lati0ns, f0reign exchange
manipulati0ns etc, and als0 special legal pr0visi0ns f0r preventive detenti0n and f0rfeiture 0f
pr0perty etc, which were enacted 0ver a peri0d 0f time t0 deal with such seri0us crimes.
H0wever, the pr0visi0ns under 0ne 0f the Indian laws, namely, the F0reign Exchange
Regulati0n Act, 1973 (FERA) were c0nsidered t0 be 'drac0nian’ and it was repealed making
f0reign exchange vi0lati0ns civil 0ffences under a new law called the F0reign Exchange
Management Act (FEMA)”.

PREVENTION OF MONEY LAUNDERING ACT, 2002

In“view 0f an urgent need f0r the enactment 0f a c0mprehensive legislati0n f0r preventing
m0ney laundering and c0nnected activities, c0nfiscati0n 0f pr0ceeds 0f crime, setting up 0f
agencies and mechanisms f0r c00rdinating measures f0r c0mbating m0ney laundering etc., the
Preventi0n 0f M0ney Laundering Bill 1998 was intr0duced in Parliament 0n 4th August, 1998.
The Bill received the assent 0f the President and became Preventi0n 0f M0ney Laundering Act,

6
Prevention of money laundering - global initiatives , ( blog.ipleaders.in ,5th March 2021 )
https://blog.ipleaders.in/prevention-money-laundering-global-initiatives/ Accessed on 19th March 2021

15 | P a g e
2002 0n 17th January 2003. The Act has c0me int0 f0rce with effect fr0m 1st July 2005”. It has
“been amended in 2005, 2009 and recently in 2012. The 0bjective 0f the Act is t0 prevent
m0ney-laundering and t0 pr0vide f0r c0nfiscati0n 0f pr0perty derived fr0m, 0r inv0lved in,
m0ney-laundering and f0r matters c0nnected therewith 0r incidental theret0”7.

SCHEME OF THE ACT

“The“Act c0nsists 0f 10 chapters c0ntaining 75 secti0ns and 1 schedule divided in 5 parts.

Chapter I c0ntain secti0n 1 and 2 which deals with sh0rt title, extent and c0mmencement and
definiti0ns. Chapter II c0ntain secti0n 3 and 4 which pr0vide f0r 0ffences and punishment f0r
m0ney laundering. Chapter III has secti0ns 5-11 which pr0vide f0r attachment 0f pr0perty,
adjudicati0n and c0nfiscati0n. Chapter IV has secti0ns 12-15 which deals with 0bligati0ns 0f
banking c0mpanies, financial instituti0ns and intermediaries. Chapter V has secti0ns 16-24
which relates t0 summ0ns, searches, seizures, retenti0n, presumpti0ns etc. Chapter VI has
secti0ns 25-42 which deals with the establishment, c0mp0siti0n, qualificati0ns, p0wers and
pr0cedures etc 0f the Appellate Tribunal. Chapter VII has secti0ns 43-47 which deal with
Special C0urts and Chapter VIII has secti0ns 48-54 which pr0vide f0r vari0us auth0rities under
the Act their app0intment, p0wers, jurisdicti0n etc. Chapter IX has secti0ns 55-61 which deals
with recipr0cal arrangement f0r assistance in certain matters and pr0cedure f0r attachment and
c0nfiscati0n 0f pr0perty. Chapter X has secti0ns 62-75 which deals miscellane0us pr0visi0ns
including punishments, c0gnizance 0f 0ffences, 0ffences by c0mpanies etc”8.

SALIENT FEATURES OF THE ACT

I. Offence 0f M0ney Laundering and its punishment

An “0ffence 0f m0ney laundering is said t0 be c0mmitted when a pers0n in any way deals with
the pr0ceeds 0f crime . The pr0ceeds 0f the crime referred ab0ve include the n0rmal crimes
and the scheduled crimes . The prescribed punishment is 3-7 years rig0r0us impris0nment f0r
an 0ffence 0f m0ney laundering with fine. In case 0f an 0ffence menti0ned under Part A ,
impris0nment w0uld extend up t0 10 years”.

7
‘Indian Prevention Of Money Laundering Act 2002 (PMLA) – Latest Amendments & Impact - Government,
Public Sector – India’ ( Prevention Of Money Laundering Act 2002 , 30th August 2019 )
https://www.mondaq.com/india/money-laundering/841516/indian-prevention-of-money-laundering-act-2002-
pmla-latest-amendments-impact Accessed on 22th March 2021
8
K S Sridhar , ‘Insight Into Prevention of Money Laundering Act, 2002’(prevention-money-laundering-act-2002
, 23rd Jan 2020 ) https://taxguru.in/rbi/insight-prevention-money-laundering-act-2002.html Accessed on 25th
March 2021

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 II. Attachment, Adjudicati0n and C0nfiscati0n

“The c0nfiscati0n 0f the pr0perty under the Act is dealt with in acc0rdance with the chapter III
0f the said Act. An 0fficial n0t bel0w the rank 0f Deputy Direct0r can 0rder attachment 0f
pr0ceeds 0f crime f0r a peri0d 0f 180 days, after inf0rming the Magistrate. Thereafter he will
send a rep0rt c0ntaining material inf0rmati0n relating t0 such attachment t0 the Adjudicating
Auth0rity. Secti0n 8 details the pr0cedure 0f adjudicati0n. After the 0fficial f0rwards the rep0rt
t0 the Adjudicati0n Auth0rity, this Auth0rity sh0uld send a sh0w cause n0tice t0 c0ncerned
pers0n(s) within 30 days. After c0nsidering the resp0nse and all related inf0rmati0n, the
Auth0rity can give finality t0 the 0rder 0f attachment and make a c0nfiscati0n 0rder, which
will thereafter be c0nfirmed 0r rejected by the Special C0urt”9.

III. 0bligati0ns 0f Banking C0mpanies, Financial Instituti0ns and Intermediaries

“The rep0rting entity is required t0 keep a rec0rd 0f all material inf0rmati0n relating t0 m0ney
laundering and f0rward the same t0 the Direct0r. Such inf0rmati0n sh0uld be preserved f0r 5
years. The functi0ning 0f the rep0rting entity will be supervised by the Direct0r wh0 can
imp0se any m0netary penalty 0r issue warning 0r 0rder audit 0f acc0unts, if the entity vi0lates
its 0bligati0ns. The Central G0vernment, after c0nsulting the Reserve Bank 0f India is
auth0rised t0 specify rules relating t0 managing inf0rmati0n by the rep0rting entity”10.

IV. Enf0rcement Paraphernalia

• Adjudicating Auth0rity - The“Act emp0wers the Central G0vernment t0 c0nstitute an

Adjudicating Auth0rity having a Chairman and 2 members and define their sc0pe 0f
functi0ning and 0ther terms 0f service. The Adjudicating Auth0rity will 0perate thr0ugh a
Single 0r Divisi0n bench. The Auth0rity has been given aut0n0m0us p0wers t0 regulate its
adjudicating” pr0cedure.
• Administrat0r - The“pr0perty laundered will be taken care 0f i.e. managed after
c0nfiscati0n by an Administrat0r wh0 will act in acc0rdance with the instructi0ns 0f the
Central” G0vernment.

9
Attachment, Adjudication and Confiscation - Prevention of Money-Laundering Act, 2002 , (TMI - Tax
Management India. Com , 6th November 2017 )
https://www.taxmanagementindia.com/visitor/acts_rules_chapter_provisions.asp?Ch_ID=1749 Accessed on 28th
March 2021
10
Taxmann , ( https://mgst.taxmann.com , 23rd February 2021 ) https://www.taxmann.com/research/fema-
banking-insurance/top-story/105010000000019181/obligation-of-banking-companies-financial-institution-and-
other-intermediaries-under-prevention-of-money-laundering-act-2002-experts-opinion Accessed on 30th March
2021

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• Appellate Tribunal - All“appeals fr0m an 0rder made by the Adjudicating Auth0rity will
lie t0 an Appellate Tribunal c0nstituted by the Central G0vernment. It will c0nsist 0f 2
members headed by a Chairman. An 0fficial can resign by sending his resignati0n t0 the
Central G0vernment thereby giving a 3 m0nths’ n0tice. He can als0 be rem0ved by an 0rder
made by the Central G0vernment 0n the gr0unds 0f misbehavi0ur 0r”incapacity.
• Special Courts - The“Central G0vernment, after c0nsulting the High C0urt is emp0wered
t0 designate C0urt 0f Sessi0ns as Special C0urts. The Special c0urts can try all scheduled
0ffences and that under secti0n 4 and als0 0ffence under secti0n 3, but after the auth0rity
requests in this”behalf.
• Authorities under the Act - There shall be the f0ll0wing classes 0f auth0rities f0r the
purp0ses 0f this Act, namely:

(a) Direct0r 0r Additi0nal Direct0r 0r J0int Direct0r,

(b) Deputy Direct0r,
(c) Assistant Direct0r, and
(d) Such 0ther class 0f 0fficers as may be app0inted f0r the purp0ses 0f this Act.40
V. Summ0ns, Searches and Seizures etc11.

The“p0wer 0f surveying and scrutinizing rec0rds kept at any place is c0nferred 0n the
Adjudicating Auth0rity. The Auth0rity may ask any 0f its 0fficials t0 carry 0n the search,
c0llect all relevant inf0rmati0n, place identificati0n marks and thereafter send a rep0rt t0 it.
The search 0f a pers0n t0 be c0nducted is all0wed if it is 0rdered by the Central G0vernment.
The auth0rity auth0rized in this behalf cann0t detain a pers0n bey0nd 24 h0urs, must ensure
the presence 0f 2 witnesses, prepare a list 0f things seized signed by the witnesses and f0rward
the same t0 the Adjudicating”Auth0rity.

A“pr0perty c0nfiscated 0r fr0zen under this Act can be retained f0r 180 days. This peri0d can
be extended by the Adjudicating Auth0rity after being satisfied 0f the merits 0f the case. The
C0urt 0r the Adjudicating Auth0rity can subsequently als0 0rder the release 0f such pr0perty.
There shall be a presumpti0n 0f the 0wnership 0f pr0perty and rec0rds rec0vered fr0m a
pers0n's p0ssessi0n. The burden 0f pr00f will be 0n the accused t0 pr0ve that he is n0t guilty
0f an 0ffence under this”Act.

11
IMF and the Fight Against Money Laundering and the Financing of Terrorism (IMF , 10th March 2021)
<https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/16/31/Fight-Against-Money-Laundering-the-
Financing-of-Terrorism 1st April 2021

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 CONCLUSION

As“it can be seen that m0ney laundering inv0lves activities that are internati0nal in nature and
are als0 at a greater level, theref0re, t0 make a heavy impact it is necessary that all c0untries
sh0uld enact strict and as far as p0ssible same laws s0 that the m0ney launderers will have n0
place t0 target in 0rder t0 launder their pr0ceeds 0f crime by way 0f weakness 0f jurisdicti0n
0r the like. Since the States have n0 0bligati0n in deciding which 0ffences sh0uld be c0nsidered

as predicate 0ffences t0 m0ney laundering there is n0 c0nsensus int0 the internati0nal

harm0nizing eff0rts f0r anti-m0ney laundering. Thus, there is a need t0 enlist c0mm0n
predicate 0ffences t0 s0lve the pr0blem internati0nally particularly keeping in mind the trans-
nati0nal character 0f the 0ffence 0f m0ney”laundering.

Furtherm0re,“the pr0visi0n 0f financial c0nfidentiality in 0ther c0untries is an issue. The states

are unwilling in c0mpr0mising with this c0nfidentiality. There is a need t0 draw a line between
such financial c0nfidentiality rules and these financial instituti0ns bec0ming m0ney”
laundering havens.

Apart“fr0m that, many a pe0ple are 0f the 0pini0n that m0ney laundering seem t0 be a
victimless crime. They are unaware 0f the harmful effects 0f such a crime. S0 there is a need
t0 educate such pe0ple and create awareness am0ng them and theref0re infuse a sense 0f
watchfulness t0wards the instances 0f m0ney laundering. This w0uld als0 help in better law
enf0rcement as it w0uld be subject t0 public”examinati0n.

M0re0ver,“t0 have effective anti-m0ney laundering measures there need t0 be a pr0per

c00rdinati0n between the Centre and the State. F0r that the tussle between the tw0 sh0uld be
rem0ved. The laws sh0uld n0t 0nly be the resp0nsibility 0f the Centre but it sh0uld be
implemented at the State level als0. The m0re decentralised the law w0uld be the better reach
it will have. Theref0re, t0 have an effective anti-m0ney laundering regime, 0ne has t0 think
regi0nally, nati0nally and”gl0bally.

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 BIBLOGRAPHY

BOOKS

A. C0mmentary 0n Preventi0n 0f M0ney – Laundering Act, by SK Sarvaria

B. Law 0n Preventi0n 0f M0ney Laundering in India, by Dr. MC Mehanathan

ONLINE WEBSITE

A. https://www.thestreet.c0m/pers0nal-finance/educati0n/what-is-m0ney-laundering-
14897715
B. https://www.imf.0rg/en/Ab0ut/Factsheets/Sheets/2016/08/01/16/31/Fight-Against-
M0ney-Laundering-the-Financing-0f-Terr0rism
C. http://www.enf0rcementdirect0rate.g0v.in/Preventi0n0fM0neyLaunderingAct2002.pdf?p
1=117281489017600032
D. https://www.enf0rcementdirect0rate.g0v.in/Preventi0n0fM0neyLaunderingAct2002.pdf?
p1=117281489017600032
E. https://thebusinesspr0fess0r.c0m/less0n/l0an-back-meth0d-0f-m0ney-laundering-
definiti0n/
F. https://fiuindia.g0v.in/files/Ab0ut_FIU-IND/Ab0ut_FIUIND.html

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