Overview of Prevention of Money Laundering Act, 2002
Prevention of Money Laundering Act, 2002 is also commonly known as PMLA 2002. This Act applies to the whole of India and it came into force with effect from 1st July 2005. It’s silent features are –
- It aims at combating chanellising of money into illegal activities,
- Provides for attachment and seizure of property and records
- Has stringent punishment, including rigorous imprisonment of up to 10 years and fine
This Act is in line with the commitment made by India to fighting all forms of economic crimes. It has ten chapters and seventy-five sections.
Brief History of this Legislation
On 23rd February 1990, United Nations held its 17th Special Session. It adopted the resolution S-17/2 that contained Political Declaration and Global Programme of Action. Later the Political Declaration was adopted by the Special Session of the United Nations General Assembly held on 8th – 10th June 1998. It called upon the Member States to adopt national money-laundering legislation and program. It was lieu of this resolution that India enacted PMLA 2002.
In its original form, it dealt with money laundering activities. Later on, it was amended to effectively combat money laundering, terror financing, and cross-border economic offences. An Amendment Act, 2009 was passed by the Parliament which came into effect on 1st June 2009.
Some Important Definitions
(i). Money – Laundering: Money Laundering is defined in Clause (p) of subsection (1) in section 2. This section has assigned its meaning as per section 3. Moving to section 3, it is defined as –
“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.”
As clear from above section, money-laundering has been defined in relation to acts of-
- Attempting or assisting in any process/activity connected with proceeds of crime and
- Projecting such tainted properties as untainted property
(ii). Proceeds of Crime: To know the meaning of “Proceeds of crime”, we have to read Section 2(1)(u). It 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.
(iii). Property: Reading clause (v) of subsection (1) of Section 2, we get the meaning of “Property” as 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 and assets, wherever located. So, it has included even assets in foreign countries that are purchased from money related to criminal activities. Such assets can be under direct title or can even be under indirect title granted through deeds or instruments. This has enlarged the meaning of property and scope of money-laundering. It has further included intangible assets too.
(iv). Payment System: Clause (rb) of subsection (1) of Section 2 has the meaning of “Payment System”. According to this clause, “Payment System” means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, paying or settlement service or all of them. Explanation to this clause states that the “payment system” includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations.
(v). Scheduled Offence: This term has been defined in clause (y) of subsection (1) of section 2. It means –
– the offences specified under Part A of the Schedule; or
– the offences specified under Part B of the Schedule if the total value involved in such offences is thirty lakh rupees or more; or
– the offences specified under Part C of the Schedule.
Schedule to the Act
It gives a list of all the above offences. The Schedule is divided into three parts – Part A, Part B and Part C.
Paragraph 1 – Offences under the Indian Penal Code
- Section 120B – Criminal Conspiracy
- Section 121 – Waging, or attempting to wage war, or abetting waging of war, against the Government of India.
Section 121A – Conspiracy to commit offences punishable by section 121 against the State.
- Section 255 – Counterfeiting Government Stamp.
- Section 257 – Making or selling instrument for counterfeiting Government Stamp.
- Section 258 – Sale of counterfeit Government Stamp.
- Section 259 – Having possession of counterfeit Government Stamp.
- Section 260 – Using as genuine a Government stamp known to be counterfeit.
- Section 302 – Murder.
- Section 304 – Punishment for culpable homicide not amounting to murder.
- Section 307 – Attempt to Murder.
- Section 308 – Attempt to commit culpable homicide.
- Section 327 – Voluntarily causing hurt to extort property, or to constrain to an illegal act.
- Section 329 – Voluntarily causing grievous hurt to extort property, or to constrain to an illegal act.
- Section 264A – Kidnapping for ransom, etc.
- Section 384 to 389 – Offences relating to extortion.
- Section 392 to 402 – Offences relation to robbery and dacoity.
- Section 411 – Dishonestly receiving stolen property.
- Section 412 – Dishonestly receiving property stolen in the commission of a dacoity.
- Section 413 – Habitually dealing in stolen property.
- Section 414 – Assisting in concealment of stolen property.
- Section 417 – Punishment for Cheating.
- Section 418 – Cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect.
- Section 419 – Punishment for cheating by personation.
- Section 420 – Cheating and dishonestly inducing delivery of properties.
- Section 421 – Dishonest or fraudulent removal or concealment of property to prevent distribution among creditor.
- Section 422 – Dishonesty or fraudulently preventing debt being available for creditors.
- Section 423 – Dishonest or fraudulent execution of deed of transfer containing false statement of consideration.
- Section 424 – Dishonest or fraudulent removal or concealment of property.
- Section 467 – Forgery of valuable security, will, etc.
- Section 471 – Using as genuine a forged document or electronic record.
- Section 472 and 473 – Making or possessing counterfeit seal, etc. with intent to commit forgery.
- Section 475 and 476 – Counterfeiting device or mark.
- Section 481 – Using a false property mark.
- Section 482 – Punishment for using a false property mark.
- Section 483 – Counterfeiting a property mark used by another.
- Section 484 – Counterfeiting a mark used by a public servant.
- Section 485 – Marking or possession of any instrument for counterfeiting a property mark.
- Section 486 – Selling goods marked with a counterfeit property mark.
- Section 487 – Making a false mark upon any receptacle containing goods.
- Section 488 – Punishment for making use of any such false mark.
- Section 289A – Counterfeiting currency notes or bank notes.
- Section 489B – Using as genuine, forged or counterfeit currency notes or bank notes.
Paragraph 2 – Offences under the Narcotic Drugs and Psychotropic Substances Act, 1985
- Section 15 – Contravention in relation to poppy straw.
- Section 16 – Contravention in relation to coca plant and coca leaves.
- Section 17 – Contravention in relation to prepared opium.
- Section 18 – Contravention in relation to opium poppy and opium.
- Section 19 – Embezzlement of opium by cultivator.
- Section 20 – Contravention in relation to cannabis plant and cannabis.
- Section 21 – Contravention in relation to manufactured drugs and preparations.
- Section 22 – Contravention in relation to psychotropic substances.
- Section 23 – Illegal import into India, export from India or transhipment of narcotic drugs and psychotropic substances.
- Section 24 – External dealings in narcotic drugs and psychotropic substances in contravention of section 12 of the Narcotic Drugs and Psychotropic Substances Act, 1985.
- Section 25A – Contravention of orders made under section 9A of the Narcotic Drugs and Psychotropic Substances Act, 1985.
- Section 27A – Financing illicit traffic and harbouring offenders.
- Section 29 – Abetment and criminal conspiracy.
Paragraph 3 – Offences under the Explosive Substances Act, 1908
- Section 3 – Causing explosion likely to endanger life or property.
- Section 4 – Attempt to cause explosion, or for making or keeping explosives with intent to endanger life or property.
- Section 5 – Making or possessing explosives under suspicious circumstances.
Paragraph 4 – Offences under the Unlawful Activities (Prevention) Act, 1967
- Section 10 read with section 3 – Penalty for being member of an unlawful association.
- Section 11 read with section 3 – Penalty for dealing with funds of an unlawful association.
- Section 13 read with section 3 – Punishment for unlawful activities.
- Section 16 read with section 15 – Punishment for terrorist act.
- Section 16A – Punishment for making demands of radioactive substances, nuclear devices, etc.
- Section 17 – Punishment for raising fund for terrorist act.
- Section 18 – Punishment for conspiracy, etc.
- Section 18A – Punishment for organising of terrorist camps.
- Section 18B – Punishment for recruiting of any person or persons for terrorist act.
- Section 19 – Punishment for harbouring, etc.
- Section 20 – Punishment for being member of terrorist gang or organisation.
- Section 21 – Punishment for holding proceeds of terrorism.
- Section 38 – Offence relating to membership of a terrorist organisation.
- Section 39 – Offence relating to support given to a terrorist organization.
- Section 40 – Offence for raising fund for a terrorist organisation.
Paragraph 5 – Offences under the Arms Act, 1959
- Section 25 –
- To manufacture, sell, transfer, convert, repair or test or prove or expose or offer for sale or transfer or have in his possession for sale, transfer, conversion, repair, test or proof, any arms or ammunition in contravention of section 5 of the Arms Act, 1959.
- To acquire, have in possession or carry any prohibited arms or prohibited ammunition in contravention of section 7 of the Arms Act, 1959.
- Contravention of section 24A of the Arms Act, 1959 relating to prohibition as to possession of notified arms in disturbed areas, etc.
- Contravention of section 24B of the Arms Act, 1959 relating to prohibition as to carrying of notified arms in or through public places in disturbed areas.
- Other offences specified in section 25.
- Section 26 –
- To do any act in contravention of any provisions of section 3, 4, 10 or 12 of the Arms Act, 1959 in such manner as specified in sub-section (1) of section 26 of the said Act.
- To do any act in contravention of any provisions of section 5, 6, 7 or 11 of the Arms Act, 1959 in such manner as specified in sub-section (2) of section 26 of the said Act.
- Other offences specified in section 26.
- Section 27 – Use of arms or ammunitions in contravention of section 5 or use of any arms or ammunitions in contravention of section 7 of the Arms Act, 1959.
- Section 28 – Use an possession of fire arms or imitation fire arms in certain cases.
- Section 29 – Knowingly purchasing arms from unlicensed person or for delivering arms, etc., to person not entitled to possess the same.
- Section 30 – Contravention of any condition of a licence or any provisions of the Arms Act, 1959 or any rule made thereunder.
Paragraph 6 – Offences under the Wild Life (Protection) Act, 1972
- Section 51 read with section 9 – Hunting of wild animals.
- Section 51 read with section 17A – Contravention of provisions of section 17A relating to prohibition of picking, uprooting, etc., of specified plants.
- Section 51 read with section 39 – Contravention of provisions of section 39 relating to wild animals, etc., to be Government property.
- Section 51 read with section 44 – Contravention of provisions of section 44 relating to dealings in trophy and animals without licence prohibited.
- Section 51 read with section 48 – Contravention of provisions of section 49B relating to prohibition of dealings in trophies, animal articles, etc., derived from scheduled animals.
Paragraph 7 – Offences under the Immoral Traffic (Prevention) Act, 1056
- Section 5 – Procuring, inducing or taking person for the sake of prostitution.
- Section 6 – Detaining a person in premises where prostitution is carried on.
- Section 8 – Seducing or soliciting for purposes of prostitution.
- Section 9 – Seduction of a person in custody.
Paragraph 8 – Offences under the Prevention of Corruption Act, 1988
- Section 7 – Public servant taking gratification other than legal remuneration in respect of an official act.
- Section 8 – Taking gratification in order, by corrupt or illegal means, to influence public servant.
- Section 9 – Taking gratification for exercise of personal influence, with public servant.
- Section 10 – Abetment by public servant of offence defined in section 8 or section 9 of the Prevention of Corruption Act, 1988.
- Section 13 – Criminal misconduct by a public servant.
Paragraph 9 – Offences under the Explosive Act, 1884
- Section 9B – Punishment for certain offences.
- Section 9C – Offences by companies.
Paragraph 10 – Offences under the Antiquities and Arts Treasures Act, 1972
- Section 25 read with section 3 – Contravention of export trade in antiquities and art treasures.
- Section 28 – Offences by companies.
Paragraph 11 – Offences under the SEBI Act, 1992
Section1 2A read with section 24 – Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.
Paragraph 12 – Offences under the Customs Act, 1962
Section 135 – Evasion of duty or prohibitions.
Paragraph 13 – Offences under the Bounded Labour System (Abolition) Act, 1976
- Section 16 – Punishment for enforcement of bonded labour.
- Section 18 – Punishment for extracting bonded labour under the bonded labour system.
- Section 20 – Abetment to be an offence.
Paragraph 14 – Offences under the Child Labour (Prohibition and Regulation) Act, 1986
- Section 14 – Punishment for employment of any child to work in contravention of then provisions of section 3.
Paragraph 15 – Offences under the Transplantation of Human Organs Act, 1994
- Section 18 – Punishment for removal of human organ without authority.
- Section 19 – Punishment for commercial dealings in human organs.
- Section 20 – Punishment for contravention of any other provisions of this Act.
Paragraph 16 – Offences under the Juvenile Justice (Care and Protection of Children) Act, 2000
- Section 23 – Punishment for cruelty to juvenile or child.
- Section 24 – Employment of juvenile or child for begging.
- Section 25 – Penalty for giving intoxicating liquor or narcotic drug or psychotropic substance to juvenile or child.
- Section 26 – Exploitation of juvenile or child employee.
Paragraph 17 – Offences under the Emigration Act, 1983
Section 24 – Offences and penalties.
Paragraph 18 – Offences under the Passports Act, 1946
Section 12 – Offences and penalties.
Paragraph 19 – Offences under the Foreigners Act, 1946
- Section 14 – Penalty for contravention of provisions of the Act, etc.
- Section 14B – Penalty for using forged passport.
- Section 14C – Penalty for abetment.
Paragraph 20 – Offences under the Copyright Act, 1957
- Section 63 – Offence of infringement of copyright or other rights conferred by this Act.
- Section 63A – Enhanced penalty on second and subsequent convictions.
- Section 63B – Knowing use of infringing copy of computer programme.
- Section 68A – Penalty for contravention of section 52A.
Paragraph 21 – Offences under the Trademarks Act, 1999
- Section 103 – Penalty for applying false trade marks, trade descriptions, etc.
- Section 104 – Penalty for selling goods or providing services to which false trademark or false trade description is applied.
- Section 105 – Enhanced penalty on second or subsequent conviction.
- Section 107 – Penalty for falsely representing a trade mark as registered.
- Section 120 – Punishment of abetment in India of acts done out of India.
Paragraph 22 – Offences under the Information Technology Act, 2000
- Section 72 – Penalty for breach of confidential and privacy.
- Section 75 – Act to apply for offence or contravention committed outside India.
Paragraph 23 – Offences under the Biological Diversity Act, 2002
Section 55 read with section 6 – Penalties for contravention of section 6, etc.
Paragraph 24 – Offences under the Protection of Plant Varieties and Farmers’ Rights Act, 2001
- Section 70 read with section 68 – Penalty for applying false denomination, etc.
- Section 71 read with section 68 – Penalty for selling varieties to which false denomination is applied.
- Section 72 read with section 68 – Penalty for falsely representing a variety as registered.
- Section 73 read with section 68 – Penalty for subsequent offence.
Paragraph 25 – Offences under the Environment Protection Act, 1986
- Section 15 read with section 7 – Penalty for discharging environmental pollutants.
- Section 15 read with section 8 – Penalty for handling hazardous substance.
Paragraph 26 – Offences under the Water (Prevention and Control of Pollution) Act, 1974
- Section 41(2) – Penalty for pollution of stream or well.
- Section 43 – Penalty for contravention of provisions of section 24.
Paragraph 27 – Offences under the Air (Prevention and Control of Pollution) Act, 1981
Section 37 – Failure to comply with the provisions for operating industrial plant.
Paragraph 28 – Offences under the Suppression of Unlawful Acts against Safety of Maritime Navigation and Fixed Platforms on Continental Shelf Act, 2002
Section 3 – Offences against ship, fixed platform, cargo of a ship, maritime navigational facilities, etc.
An offence which is the offence of cross border implications and is specified in,-
- Part A; or
- The offences against property under chapter XVII of the Indian Penal Code.
Punishment for the Offence of Money Laundering
Chapter II comprises of Sections 3 and 4. As discussed earlier, Section 3 defines the act of money laundering. Section 4 provides for the punishment for Money Laundering. It provides for offences of money laundering with imprisonment for a term which shall not be less than three years but which may extend to seven years and also liable for 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 ten years instead of seven years.
Section 12 – Banking companies, financial institutions and intermediaries to maintain records
This section casts important duty on Banking Companies, Financial Institutions and Intermediaries or a person carrying on a designated business or profession. This section provides duty to such entities and persons to –
- 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;
- 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;
- Verify the identity of its clients in such manner and subject to such conditions, as may be prescribed.
- Identify the beneficial owner, if any, of such of its clients, as may be prescribed;
- Maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
This section also requires every information maintained, furnished or verified, save as otherwise provided under any law for the time being in force, to be kept confidential. Records in clause (a) should be maintained for five years from the date of transaction between a client and the reporting entity. Similarly, records referred in clause (e) shall be maintained for five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later. The Central Government has the authority to exempt any reporting entity or class of reporting entities from any obligation under this chapter.
Section 12A – The Director may call for any records referred above and any additional information as he considers necessary for the purpose of this Act, from any reporting entity. Unless required under any other law, all such information sought by the Director shall be kept confidential.
Power of Director (Section 13)
Section 13 provides powers to Director. It allows him either on own or on request from authority, person or employees, to call records and information from reporting entities. He may also if needed require such entities to get their records audited by accountant or panel of accountants maintained by the Central Government for this purpose. All such expenses for audit under this condition shall be borne by Central Government.
If the Director finds any failure on compliance or obligations from director on the board or any of its employees under this Chapter, then without prejudice to any other action that may be taken under any other provisions of this Act, he may –
- Issue a warning in writing; or
- Direct such reporting entity or its designated director on the Board or any of its employees, to comply with specific instructions; or
- 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
- 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.
The Director shall forward a copy of the order passed under sub-section (2) to every banking company, financial institution or intermediary or person who is a party to the proceedings under than subsection. Also for the purpose of this section, “accountant” shall mean a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949. Section 14 gives immunity to reporting entity, its directors and employees etc., against civil or criminal proceedings for furnishing information under clause (b) of subsection (1) of Section 12. Section 15 provides for prescribing the procedure and manner of furnishing information by reporting entities. Central Government may, in consultation with RBI, prescribe the procedure and the manner of maintaining and furnishing information under sub-section (1) of section 12 for the purpose of implementing the provisions of this Act.
The Central Government has authority to establish an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authority and the authorities under this Act. Section 26 deals with the right and time frame to make an appeal to the Appellate Tribunal. Those aggrieved of order of Director can appeal within a period of forty-five days from the date on which a copy of the order made is received. Such appeal should be in such form along with such fee as may be prescribed.
Such Appellate Tribunal shall try to dispose faster and shall dispose within six months. It can also if satisfied with reasons, can accept appeals after 45 days. It shall confirm, modify or invalidated such orders and shall send its order to all parties including the Authority or Director.
Section 27 deals with the composition of the Appellate Tribunal. The Appellate Tribunal shall consist of a Chairperson and two other members. Sub-section (2) of Section 27 also provides that the jurisdiction of the Appellate Tribunal may be exercised by benches thereof, as the Central Government may notify. Each bench may be constituted by the Chairperson with one or two Members as the Chairperson may deem fit.
Section 41 provides that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter 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.
Section 42 contains provisions regarding appeal to High Court. Time period of 60 days is allowed to appeal High Court from the order of Appellate Tribunal. If satisfied with reasons, High Court can allow cases after 60 days too.
Additionally, Central Government has power under Section 43 to notify one or more Courts of Sessions as Special Court or Special Courts for such area or areas or for such cases as may be prescribed in the notification to this effect, in consultation with the chief Justice of the High Court for trial of offence of money laundering.
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 punishable for a term of imprisonment of more than three years under Part A of the Schedule 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, the Special Court can direct the release of such person on bail.
The Special Court cannot take cognizance of any offence under the Act, unless a complaint in writing is made by –
- The Director or
- Any officer of the Central Government or a State Government authorised in writing in this behalf by the Central Government by a general or special order made in this behalf by that Government.
These were some important provisions of this Act. You can view complete Act in its original form from the link below: