Prevention of Money Laundering Act (PMLA)

Introduction

Money laundering is a serious financial crime that enables criminals to disguise the origins of illegally obtained money. To combat this threat, governments around the world have implemented strict regulations to detect and prevent illicit financial activities. In India, the Prevention of Money Laundering Act, 2002 (PMLA) serves as the primary legislation to address money laundering and related offenses.

The Act was enacted to align with global efforts against financial crimes, following international commitments made through United Nations declarations. It provides a legal framework for identifying, investigating, and confiscating assets involved in money laundering activities. By enforcing stringent compliance measures, the PMLA plays a crucial role in safeguarding the integrity of India’s financial system.

Important Definitions under PMLA

1. Adjudicating Authority

The Adjudicating Authority is the entity appointed under Section 6 of the Act. It is responsible for deciding whether any property is involved in money laundering and for enforcing attachment orders issued under the law.

2. Appellate Tribunal

The Appellate Tribunal, as referred to in Section 25, is the body that hears appeals against the decisions of the Adjudicating Authority and other related authorities under PMLA.

3. Attachment

Attachment refers to the prohibition of transferring, converting, or moving property that is suspected of being involved in money laundering. This action is taken under Chapter III of the Act to prevent the accused from disposing of the assets.

4. Banking Company

A banking company includes banks governed under the Banking Regulation Act, 1949, as well as co-operative banks and any banking institutions mentioned in Section 51 of the Act.

5. Beneficial Owner

A beneficial owner is the individual who ultimately owns or controls a client of a reporting entity. This also includes persons who exercise effective control over a juridical person (such as a company or trust).

6. Financial Institution

A financial institution includes entities such as banks, chit fund companies, housing finance institutions, payment system operators, non-banking financial companies (NBFCs), and the Department of Posts in the Government of India.

7. Money Laundering

As per Section 3, money laundering refers to any act where a person directly or indirectly attempts to conceal, acquire, or use proceeds of crime by engaging in financial transactions to make it appear as legally obtained money.

8. Intermediary

An intermediary includes various financial market participants, such as stockbrokers, share transfer agents, merchant bankers, investment advisers, and other entities registered under Section 12 of the Securities and Exchange Board of India (SEBI) Act, 1992.

9. Proceeds of Crime

The term proceeds of crime refers to any property derived or obtained directly or indirectly through criminal activity related to a scheduled offense. If such property is held outside India, an equivalent value within or outside the country is also covered under this definition.

10. Scheduled Offense

A scheduled offense refers to any offense listed in Part A, Part B, or Part C of the Schedule to the PMLA. These offenses serve as the basis for investigating and prosecuting money laundering activities.

11. Special Court

A Special Court is a Court of Session designated under Section 43 of the Act to handle cases related to money laundering. It ensures that proceedings under the PMLA are handled expeditiously.

12. Reporting Entity

A reporting entity includes banking companies, financial institutions, intermediaries, and persons engaged in designated businesses or professions that are required to report transactions under the Act.

13. Real Estate Agent

A real estate agent, as defined under the Finance Act, 1994, refers to individuals or entities facilitating the sale, purchase, or lease of real estate properties. They are required to comply with anti-money laundering measures.

14. Person

Under PMLA, a person includes individuals, Hindu Undivided Families (HUFs), companies, firms, associations of persons, and any artificial juridical persons or agencies.

15. Payment System Operator

A payment system operator is an entity that facilitates payments, including credit card operations, debit card transactions, money transfers, and digital payment platforms.

Offence of Money-Laundering

Section 3 of the law defines what constitutes the offence of money-laundering. It criminalizes various acts associated with the proceeds of crime. A person is guilty of money-laundering if they directly or indirectly:

• Attempt to engage in activities involving the proceeds of crime.
• Knowingly assist in such activities.
• Are part of or involved in any process related to the proceeds of crime.

The section explicitly includes various activities that amount to money-laundering, such as:

• Concealment: Hiding or disguising the existence, nature, source, or ownership of illicit funds.
• Possession: Holding or maintaining control over the proceeds of crime.
• Acquisition: Gaining ownership or control over illicit funds or assets.
• Use: Utilizing the proceeds of crime for any purpose.
• Projecting as untainted property: Misrepresenting illicit funds as legally acquired.
• Claiming as untainted property: Falsely asserting that illicit funds or assets are legally earned.

A key feature of this provision is that the offence of money-laundering is considered a continuing activity. This means that as long as a person enjoys the benefits of the proceeds of crime, whether by concealment, possession, acquisition, or use, the offence continues to exist. The section ensures that individuals cannot escape liability merely by delaying or indirectly engaging in such activities.

Punishment for Money-Laundering

Section 4 lays down the punishment for committing the offence of money-laundering. The prescribed punishment includes:

• Rigorous imprisonment for a minimum period of three years, which may extend up to seven years.
• A fine, the amount of which is determined by the court based on the severity of the offence.

However, in cases where the proceeds of crime relate to offences listed under Paragraph 2 of Part A of the Schedule, the punishment is enhanced. In such cases, the maximum imprisonment is extended to ten years instead of seven. This provision reflects the gravity of serious offences such as drug trafficking, terrorism financing, and organized crime.

Attachment of Property under Prevention of Money Laundering Act

What is Attachment of Property?

Attachment of property under the PMLA is a legal mechanism that allows authorities to temporarily restrict the use or transfer of assets suspected to be involved in money laundering. This process ensures that such assets are not concealed, transferred, or dealt with in a way that could obstruct legal proceedings.

Who Has the Authority to Attach Property?

Under Section 5 of the PMLA, the power to attach property lies with:

• The Director of the Enforcement Directorate (ED), or
• Any officer not below the rank of Deputy Director, authorized by the Director.

Conditions for Property Attachment

Before proceeding with an attachment, the officer must have substantial reason to believe, based on material evidence, that:

1. A person possesses proceeds of crime (assets obtained through money laundering), and
2. Such proceeds may be concealed, transferred, or dealt with in a manner that could hinder confiscation proceedings.

This belief must be recorded in writing, and the attachment must follow prescribed legal procedures.

Duration of Property Attachment

• The initial attachment period cannot exceed 180 days from the date of the order.
• If court proceedings impose a stay, the duration of the stay is excluded from the 180-day period, with an additional 30-day extension after the stay is lifted.
• The attachment order automatically ceases if an order under Section 8(3) of PMLA is passed earlier.

Legal Process Following Attachment

1. Immediate Reporting: Once a property is attached, the Director or Deputy Director must forward a copy of the attachment order, along with supporting evidence, to the Adjudicating Authority in a sealed envelope.
2. Adjudication: The Adjudicating Authority will review the case and determine whether the attachment should continue.
3. Judicial Scrutiny: If necessary, the matter may proceed to a Special Court under PMLA for further proceedings.
4. Rights of the Property Holder: The affected individual can continue to enjoy the immovable property (such as land or buildings) while the matter is under review. They also have the right to appeal against the attachment.

Final Confiscation of Property

If the court confirms that the property is linked to money laundering, it may order confiscation in favor of the central government. If no evidence supports the charges, the attachment is revoked.

Adjudication Process under the Prevention of Money Laundering Act

The Prevention of Money Laundering Act (PMLA) provides a structured mechanism for adjudicating cases related to money laundering. The process involves the appointment of an Adjudicating Authority, which plays a crucial role in determining whether assets linked to alleged money laundering activities should be confiscated by the government.

Composition and Appointment of the Adjudicating Authority

The Central Government appoints the Adjudicating Authority, which consists of a Chairperson and two other Members. At least one member must have experience in law, administration, finance, or accountancy. The Chairperson and Members hold office for a term of five years or until they reach the age of 65, whichever comes earlier.

Jurisdiction and Powers

The jurisdiction of the Adjudicating Authority is exercised through Benches constituted by the Chairperson. These Benches can sit in New Delhi and other locations as notified by the Central Government. The Chairperson has the power to transfer cases between Benches as required.

The Adjudicating Authority is not bound by the Code of Civil Procedure but follows principles of natural justice while regulating its own procedures. It has the power to examine evidence, summon individuals, and make determinations on properties linked to money laundering offenses.

Adjudication Process

1. Issuance of Notice: Upon receiving a complaint or application related to money laundering offenses, the Adjudicating Authority issues a notice of at least 30 days to the concerned person, asking them to provide details about the sources of income and assets.
2. Reply and Hearing: The person to whom the notice is issued must submit a reply along with supporting evidence. A hearing is conducted where the accused and enforcement authorities present their arguments.
3. Determination of Involvement: Based on the evidence and hearings, the Adjudicating Authority records its findings on whether the assets in question are involved in money laundering.
4. Confirmation of Attachment: If the Authority concludes that the assets are linked to money laundering, it confirms their attachment or freezing, ensuring they remain under government control during investigations or legal proceedings.
5. Final Confiscation or Release: Upon conclusion of the trial, the Special Court may order the confiscation of the property to the Central Government if money laundering is proven. If the offense is not established, the property is released to its rightful owner.
6. Exceptional Cases: If the accused passes away, becomes a proclaimed offender, or the trial cannot be concluded for any reason, the Special Court decides whether to confiscate or release the property.
7. Restoration of Property: In certain cases, if a third party with a legitimate interest has suffered a loss due to the offense, the Special Court may order the restoration of confiscated property.

Legal Powers of the Adjudicating Authority

The Adjudicating Authority plays a significant role in handling matters related to confiscation under PMLA. It is vested with powers similar to those of a civil court under the Code of Civil Procedure, 1908. Some of these powers include:

• Ordering discovery and inspection of documents.
• Summoning individuals, including officers of financial institutions, for questioning.
• Compelling the production of records and evidence.
• Examining witnesses and collecting affidavits as evidence.

Any proceeding before the Adjudicating Authority is considered a judicial proceeding, ensuring that individuals involved must provide truthful information and face legal consequences for perjury.

Confiscation and Management of Property under Prevention of Money Laundering Act

One of the key aspects of the Act is the confiscation and management of property acquired through illegal means. 

Vesting of Property in Central Government

When a property is confiscated under PMLA, all rights and titles associated with that property are transferred to the Central Government. The law ensures that such property vests absolutely in the government, free from any encumbrances or claims by third parties. This step is crucial to prevent any further misuse of assets acquired through money laundering.

Key Provisions:

1. If the Adjudicating Authority or Special Court determines that an encumbrance (such as a lease or mortgage) was created to evade the provisions of PMLA, it can declare such encumbrances as void.
2. Even after confiscation, the liability of the person involved in creating such encumbrances remains, and they may be subject to further legal action.

Management of Confiscated Properties

Once a property is confiscated, it needs to be managed effectively to prevent deterioration and ensure proper utilization. The Central Government has the authority to appoint Administrators to oversee such properties.

Functions of the Administrator:

• Receiving and Managing Confiscated Property: The appointed Administrator takes charge of the confiscated assets and ensures their maintenance as per legal provisions.
• Disposal of Property: The Central Government may direct the Administrator to sell or otherwise dispose of the property as per prescribed guidelines.
• Ensuring Compliance: The Administrator must act in accordance with government regulations to avoid mismanagement.

Obligation of Banking Companies , Financial Institution and Intermediaries 

Identity Verification and Record Maintenance 

Ensuring transparency and security in financial and business transactions is crucial for regulatory compliance. The legal framework mandates that reporting entities adhere to specific guidelines for identity verification and record maintenance to prevent financial fraud and illicit activities. 

Identity Verification by Reporting Entities (Section 11A)

Identity verification is a fundamental responsibility of reporting entities, ensuring that only legitimate individuals and businesses access financial services. According to Section 11A, every reporting entity must verify the identity of its clients and beneficial owners using one of the following methods:

1. Aadhaar-Based Authentication: If the reporting entity is a banking company, identity verification can be done through Aadhaar authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits, and Services) Act, 2016.
2. Offline Aadhaar Verification: Reporting entities can opt for offline Aadhaar verification, which does not involve biometric authentication.
3. Passport Verification: The use of a valid passport issued under the Passports Act, 1967, is also an accepted mode of identity verification.
4. Other Government-Approved Documents: The Central Government may notify additional officially valid documents or identification methods.

The law ensures that clients are provided with multiple identity verification options and cannot be denied services for not having an Aadhaar number. Additionally, reporting entities using Aadhaar authentication must comply with strict privacy and security standards, ensuring that neither core biometric data nor Aadhaar numbers are stored.

Record Maintenance by Reporting Entities (Section 12)

Apart from verifying identities, reporting entities must maintain detailed records to enable transaction reconstruction and regulatory compliance. Section 12 mandates the following:

1. Transaction Records: Entities must maintain records of all transactions, including attempted and executed ones, to facilitate individual transaction reconstruction.
2. Information Submission: Reporting entities are required to furnish transaction details to the Director within the prescribed timeframe.
3. Client Identity and Business Records: Entities must keep records of documents verifying client identity, beneficial ownership, account files, and business correspondence.
4. Confidentiality of Records: Any maintained, furnished, or verified information must remain confidential unless specified otherwise by law.
5. Retention Period:
   • Transaction records must be preserved for five years from the date of the transaction.
   • Client identity records should be maintained for five years after the business relationship ends or the account is closed, whichever is later.
6. Government Exemptions: The Central Government may exempt specific reporting entities or classes from certain obligations under this section.

Record-Keeping and Due Diligence Requirements for Reporting Entities

In financial and business operations, maintaining accurate records and conducting due diligence are crucial for compliance and transparency. The legal framework outlined in sections 12, 12A, and 12AA of Prevention of Money Laundering Act sets clear requirements for reporting entities regarding record-keeping, access to information, and enhanced due diligence. 

Record-Keeping Obligations (Section 12)

Every reporting entity is required to maintain records of transactions in a manner that allows for the reconstruction of individual transactions. These records must include:

1. All Transactions:
   • Reporting entities must record every transaction they process.
   • The records must be detailed enough to allow for the reconstruction of individual transactions if needed.
2. Furnishing Information:
   • Reporting entities must submit information about specific transactions to the designated authority (the Director) within the prescribed time.
   • This includes both attempted and completed transactions that meet the prescribed criteria.
3. Confidentiality:
   • All maintained and furnished records must be kept confidential, except where disclosure is required by law.
4. Retention Periods:
   • Transaction records must be kept for five years from the date of the transaction.
   • Identity verification records, business correspondence, and other related documents must be retained for five years after the business relationship ends or the account is closed.

Access to Information (Section 12A)

The law grants the Director authority to request records from reporting entities. This includes:

• Any records maintained under Section 12.
• Any additional information deemed necessary for compliance and enforcement purposes.
• Reporting entities must comply with these requests within the specified timeframe.
• Confidentiality is required for any information sought under this section, unless otherwise mandated by law.

Enhanced Due Diligence (Section 12AA)

Before executing certain high-risk transactions, reporting entities must take extra steps to verify client identities and assess the legitimacy of the transaction. This process is known as enhanced due diligence (EDD) and includes:

1. Identity Verification:
   • Clients undertaking specified transactions must verify their identity using Aadhaar authentication.
   • If Aadhaar authentication is not applicable, an alternative process must be used as prescribed.
2. Examining Financial Position and Ownership:
   • Reporting entities must assess the client’s financial position and ownership structure.
   • This includes verifying sources of funds to prevent illicit activities.
3. Recording the Purpose of Transactions:
   • The reason behind the transaction and the nature of the relationship between the parties must be documented.
4. Rejection of Transactions:
   • If a client fails to meet these due diligence requirements, the transaction must not proceed.
5. Monitoring and Scrutiny of Transactions:
   • If a transaction appears suspicious or potentially involves the proceeds of crime, the reporting entity must increase monitoring of future transactions with that client.
   • Greater scrutiny is required for transactions that pose a risk of money laundering or terrorist financing.
6. Retention of EDD Information:
   • Information collected during the enhanced due diligence process must be retained for five years from the date of the transaction.

What is a Specified Transaction?

A “specified transaction” refers to certain types of high-risk financial activities, including:

• Large cash withdrawals or deposits exceeding a prescribed limit.
• Foreign exchange transactions above a certain threshold.
• High-value imports or remittances.
• Any other transaction classified as high risk for money laundering or terrorist financing.

The Power of the Director to Impose Fines under Prevention of Money Laundering Act

Ensuring financial compliance is a key aspect of regulatory frameworks in India. The Director has been granted significant powers to impose fines and enforce legal adherence. 

Powers of Director to Impose Fines

1. Authority to Initiate Inquiry

The Director is empowered to conduct inquiries either on their own initiative or based on applications from relevant authorities, officers, or individuals. This provision ensures proactive oversight and strict compliance with financial regulations.

2. Audit of Records

At any stage of the inquiry, if the complexity of the case demands, the Director can mandate an audit of the reporting entity’s records. This audit must be performed by a chartered accountant from a government-approved panel, ensuring accuracy and transparency.

• Who Bears the Cost? The Central Government covers the expenses of such audits, relieving financial burdens on reporting entities.

3. Actions for Non-Compliance

If an inquiry reveals non-compliance, the Director can take one or more of the following actions:

• (a) Issue a Written Warning – A formal notification urging compliance.
• (b) Enforce Compliance – The Director may direct the entity or its officers to comply with specific corrective actions.
• (c) Request Periodic Reports – The reporting entity may be required to submit compliance updates at prescribed intervals.
• (d) Impose Monetary Penalties – Fines range from ₹10,000 to ₹1,00,000 per violation, serving as a deterrent against financial misconduct.

This structured approach encourages adherence to regulations while imposing penalties for non-compliance.

4. Communication of Orders

To ensure transparency, any order passed under this section is shared with relevant financial institutions, intermediaries, and banking entities involved in the proceedings.

5. Definition of Accountant

For the purpose of financial audits, an “accountant” refers to a chartered accountant as per the Chartered Accountants Act, 1949. This ensures that only qualified professionals handle compliance assessments.

Legal Protection for Reporting Entities

Under this provision, reporting entities, along with their directors and employees, are shielded from civil or criminal proceedings for furnishing information as required by Section 12(1)(b). This protection encourages transparent reporting and cooperation with regulatory authorities.

Furnishing Information to Authorities

To standardize reporting processes, the Central Government, in collaboration with the Reserve Bank of India (RBI), prescribes procedures for maintaining and furnishing financial information. This ensures uniform compliance across all reporting entities.

Investigative Powers under the Prevention of Money Laundering Act

Survey 

The PMLA grants authorities the power to conduct surveys if they have reason to believe that an offense under Section 3 (offense of money laundering) has been committed. The key aspects of this provision are:

• Authorities can enter any place within their jurisdiction or an area authorized by a superior officer.
• The purpose of the survey is to inspect records, verify proceeds of crime, or gather information related to money laundering transactions.
• Any proprietor, employee, or person present at the site must facilitate the inspection by providing relevant records or information.
• Even if no activity occurs at a specific place, it can still be surveyed if records related to money laundering are stored there.
• After completing the survey, the investigating authority must submit a report with their findings to the Adjudicating Authority in a sealed envelope.

Search and Seizure 

Authorities have search and seizure powers when they have credible information that a person:

• Has committed an act of money laundering.
• Is in possession of proceeds of crime or related records.
• Is holding property acquired through criminal activities.

If these conditions are met, the Director or an authorized officer may:

• Enter and search any building, vehicle, vessel, or aircraft where such evidence is suspected to be kept.
• Break open locks, safes, or storage spaces if access is denied.
• Seize any relevant records or property found during the search.
• Place identification marks on the seized property or documents.
• Record statements of persons found in possession of relevant evidence.

If seizing a property is impractical, the investigating officer can issue an order to freeze the property, preventing any transaction without prior approval.

The seized material must be submitted to the Adjudicating Authority within 30 days for further legal proceedings.

Search of Persons 

Authorities are empowered to search individuals if they suspect that a person has concealed money laundering records or proceeds of crime on their body or belongings. The provisions include:

• The search can be conducted only by an authorized officer and must be based on written reasons.
• The individual can request to be taken before a Gazetted Officer or a Magistrate within 24 hours before the search.
• The search must be conducted in the presence of two independent witnesses.
• Authorities must maintain a list of items seized and obtain signatures of the witnesses.
• If a woman is to be searched, it must be conducted only by a female officer.
• The individual’s statement must be recorded in connection with any records or proceeds of crime found during the search.
• Within 30 days, an application must be filed before the Adjudicating Authority for retention of seized property.

Power to Arrest under the Prevention of Money Laundering Act

Under Section 19 of PMLA, 2002, specific government-authorized officers, including the Director, Deputy Director, Assistant Director, or any other officer designated by the Central Government, have the authority to arrest an individual suspected of involvement in money laundering. However, such power is not absolute and must be exercised based on substantial material evidence. The arresting officer must have a reasonable belief, supported by documented proof, that the person has committed a punishable offense under PMLA.

The Legal Framework and Arrest Procedures

Before making an arrest, the concerned officer must record in writing the reasons for the arrest, ensuring transparency and accountability. This procedural requirement prevents misuse of authority and ensures that arrests are made only when substantial evidence is available.

Once an arrest is made, the arrested individual must be informed of the grounds for their arrest without undue delay. This provision aligns with fundamental human rights principles, ensuring that individuals are not subjected to unlawful detention without being aware of the allegations against them.

Post-arrest, the officer must forward a copy of the arrest order, along with supporting evidence, to the Adjudicating Authority in a sealed envelope. This ensures judicial oversight and adds an additional layer of accountability to the process. The Adjudicating Authority is responsible for maintaining the confidentiality of these documents for a prescribed period.

Judicial Oversight and Timely Presentation Before Court

To prevent arbitrary detentions, the law mandates that every person arrested under Section 19 of PMLA must be presented before a Special Court, Judicial Magistrate, or Metropolitan Magistrate within twenty-four hours of the arrest. Importantly, the 24-hour period excludes the time necessary for travel from the place of arrest to the respective court. This provision ensures that judicial oversight is exercised promptly, preventing unnecessary detentions.

Handling of Seized Property & Records under Prevention of money Laundering Act

Retention of Property Under the PMLA

Under Sections 17 and 18 of the PMLA, authorities have the power to seize or freeze property suspected to be involved in money laundering. However, the retention of such property is not indefinite and must follow a legally defined process:

1. Initial Seizure and Freezing – When property is seized or frozen, the authorized officer must have a reason to believe, based on recorded material, that the property is linked to money laundering and is required for adjudication under Section 8.
2. Retention Period – The seized or frozen property may be retained for a maximum of 180 days from the date of seizure or freezing.
3. Approval from Adjudicating Authority – If authorities wish to extend the retention beyond 180 days, they must seek permission from the Adjudicating Authority. This ensures that prolonged retention is justified and legally compliant.
4. Release of Property – If the Adjudicating Authority does not approve continued retention, the property must be returned to the person from whom it was seized.
5. Final Confiscation or Release – After adjudication under Section 8, the Special Court directs the release of all property not linked to money laundering, ensuring that innocent individuals are not wrongfully deprived of their assets.
6. Withholding for Appeal – In certain cases, even after a release order is passed, the Director or an authorized officer may withhold the release of the property for up to 90 days if it is deemed relevant for an appeal proceeding.

Retention of Records Under the PMLA

Apart from physical property, financial and transactional records play a vital role in investigating and prosecuting money laundering cases. The retention of records follows a similar process:

1. Seizure and Freezing of Records – Records can be seized or frozen under Sections 17 and 18 of the PMLA if they are deemed crucial for an investigation.
2. Access to Copies – The individual or entity from whom records are seized has the right to obtain copies of these records, ensuring transparency and access to information.
3. Retention Period – Like property, records can be retained for up to 180 days from the date of seizure or freezing.
4. Approval for Extended Retention – If further retention is necessary, authorities must seek the Adjudicating Authority’s permission, confirming that the records are essential for adjudication.
5. Final Release or Confiscation – If the records are not linked to money laundering, they are returned to the original owner after adjudication. If they are found to be involved in illicit activities, they may be confiscated by authorities.
6. Retention for Appeal Proceedings – Even after an order for release, authorities can withhold records for up to 90 days if they believe the documents are crucial for an appeal.

Legal Presumption & Burden of Proof under the Prevention of Money Laundering Act

Presumption as to Records or Property

Section 22 of the PMLA establishes presumptions regarding records and property found during searches, surveys, or seizures. It states that if any property or records are found in the possession or control of a person, the following presumptions will apply:

1. Ownership and Authenticity: The law assumes that the property or records belong to the person in whose possession they are found.
2. Truthfulness of Records: The contents of such records are presumed to be true unless proven otherwise.
3. Handwriting and Signatures: If the records contain handwritten notes or signatures, it is presumed that they were made by the person they claim to belong to unless proven otherwise.
4. Execution and Attestation: If a document is stamped, executed, or attested, it is presumed that the person who appears to have done so has actually executed or attested it.

This presumption simplifies legal proceedings by placing the initial burden on the person in possession of such records or property.

Presumption in Inter-Connected Transactions

Money laundering often involves multiple transactions that are interconnected. Section 23 of the PMLA establishes a crucial legal presumption:

• If any one or more of the transactions involved in money laundering is proven, then all related transactions are presumed to be part of the money laundering process unless proven otherwise.
• This means that if authorities establish money laundering in one transaction, they can extend the presumption to all related transactions, making it easier to confiscate assets and prosecute offenders.

Burden of Proof

A key feature of the PMLA is the reversal of the burden of proof. Normally, in criminal cases, the prosecution must prove the guilt of the accused. However, under the PMLA, the accused has to prove their innocence in proceedings related to the proceeds of crime.

• For a person charged with money laundering under Section 3: The law presumes that the assets in question are proceeds of crime unless the accused proves otherwise.
• For any other person: The authorities may presume that the assets are proceeds of crime, but this presumption is discretionary.

This shift in the burden of proof ensures that individuals involved in money laundering cannot escape liability simply by claiming ignorance.

Appellate Tribunals under the Prevention of Money Laundering Act

To ensure fair adjudication and appeals, the PMLA Act provides for an Appellate Tribunal that hears appeals against orders issued by the Adjudicating Authority and other authorities. This section of the article explores the role, powers, and procedures of the Appellate Tribunal under the PMLA.

What is the Appellate Tribunal under PMLA?

The Appellate Tribunal under the PMLA is a specialized judicial body that hears appeals related to decisions made by the Adjudicating Authority and other designated officials. It acts as an intermediary review body before a case reaches the High Court, ensuring a fair and just legal process.

Constitution of the Appellate Tribunal

The Appellate Tribunal is constituted as per Section 25 of the PMLA. It was originally set up under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, and is also empowered to hear appeals under the PMLA.

Right to Appeal: Who Can File an Appeal?

As per Section 26 of the PMLA, an appeal can be filed by:

• The Director or any person aggrieved by an order of the Adjudicating Authority.
• A Reporting Entity, if aggrieved by an order of the Director under Section 13(2) of the Act.

Time Limit for Filing an Appeal

• An appeal must be filed within 45 days of receiving the order.
• The Tribunal may allow appeals beyond this period if there is a valid reason for the delay.

Powers and Procedures of the Appellate Tribunal

The Appellate Tribunal follows principles of natural justice and has the authority to regulate its own procedure. According to Section 35 of the PMLA, the Tribunal has powers similar to a civil court, including:

• Summoning and enforcing attendance of witnesses.
• Requiring discovery and production of documents.
• Receiving evidence on affidavits.
• Issuing commissions for examination of witnesses.
• Reviewing its own decisions.
• Deciding cases ex parte or setting aside dismissal orders.
• Executing its orders as a civil court decree.

Jurisdiction and Decision-Making Process

• The Tribunal’s decisions are binding and must be executed as decrees of a civil court.
• It is not bound by the Code of Civil Procedure, 1908, but must follow principles of fairness and justice.
• If there is a difference in opinion among two members of a Tribunal Bench, the matter is referred to the Chairman or a third member for a majority decision (Section 38).

Appeal to High Court

If a party is dissatisfied with the Tribunal’s decision, they can appeal to the High Court within 60 days under Section 42 of the PMLA. The High Court has the authority to extend this period by another 60 days if sufficient cause is shown.

Exclusivity of Tribunal’s Jurisdiction

Under Section 41, no civil court has jurisdiction over matters handled by the Appellate Tribunal, ensuring specialized adjudication without external interference.

Special Courts Under the Prevention of Money Laundering Act

The Prevention of Money Laundering Act (PMLA) establishes Special Courts to handle cases related to money laundering and other associated offenses. These courts ensure that cases under the Act are dealt with effectively and in a time-bound manner. The legal provisions governing these Special Courts are covered under Sections 43 to 47 of the Act. Each section has a distinct role in defining the jurisdiction, powers, and procedures of these courts.

Establishment of Special Courts 

Under Section 43 of the PMLA, the Central Government, in consultation with the Chief Justice of the High Court, is responsible for designating one or more Sessions Courts as Special Courts. These courts are set up through a government notification and are assigned specific geographical areas or particular categories of cases. The purpose of these courts is to ensure that offenses under Section 4 of the Act, which deals with money laundering, are tried efficiently.

The term “High Court” in this context refers to the High Court of the State where the designated Sessions Court was functioning before being declared a Special Court. These courts do not just try cases under the PMLA but can also handle related offenses under the Code of Criminal Procedure, 1973.

Jurisdiction and Offenses Tried by Special Courts 

Section 44 establishes that Special Courts have exclusive jurisdiction over money laundering offenses and any scheduled offenses linked to them. If a scheduled offense was being tried in another court before the PMLA came into force, the same court would continue to try it. However, in cases where a Special Court has taken cognizance of a money laundering offense, the other court must transfer the case related to the scheduled offense to the Special Court.

Special Courts can take cognizance of money laundering offenses upon receiving a complaint from an authorized authority, even without the accused being committed to trial by a magistrate. If, after investigation, no money laundering offense is found, the concerned authority must submit a closure report before the Special Court.

The trial procedure in Special Courts follows the provisions of the Code of Criminal Procedure, 1973, just like any regular Sessions Court. This ensures consistency in the trial process and adherence to established legal standards.

Bail Provisions and Cognizability of Offenses 

Section 45 of the Act states that offenses under the PMLA are cognizable and non-bailable. This means that law enforcement officers can arrest an accused without a warrant. However, bail can only be granted under stringent conditions. The Public Prosecutor must be given an opportunity to oppose the bail application. If opposed, the court can grant bail only if it is satisfied that there are reasonable grounds to believe that the accused is not guilty and is unlikely to commit further offenses while on bail.

There are exceptions for certain categories of individuals, including minors, women, sick or infirm persons, or those accused of laundering less than one crore rupees. These individuals may be granted bail at the discretion of the Special Court.

Additionally, police officers cannot investigate PMLA offenses unless specifically authorized by the Central Government through a general or special order.

Application of the Code of Criminal Procedure 

All proceedings before the Special Courts must adhere to the Code of Criminal Procedure, 1973, except where the PMLA specifies otherwise. Special Courts function as Sessions Courts, and those handling prosecutions are deemed Public Prosecutors. The Central Government also has the authority to appoint Special Public Prosecutors for particular cases. To qualify for this role, an individual must have at least seven years of experience as an advocate and possess specialized knowledge of the law.

Appeals and Revisions 

The High Court has the authority to hear appeals and revisions against decisions made by Special Courts. The powers conferred under Chapters XXIX and XXX of the Code of Criminal Procedure, 1973, apply to these appeals. Special Courts are treated as Sessions Courts within the jurisdiction of the respective High Court, ensuring that cases follow the standard legal framework for appeal and revision.

Authorities under the Prevention of Money Laundering Act

The PMLA provides for the establishment of multiple levels of authorities to oversee its enforcement. These authorities include high-ranking officials who are empowered with investigative and administrative responsibilities to curb money laundering activities.

Classes of Authorities

According to the PMLA, the following are designated as authorities responsible for its enforcement:

• Director, Additional Director, or Joint Director

These are senior officers responsible for overseeing and supervising anti-money laundering investigations at a national level.

• Deputy Director

Officers at this level assist in investigations and ensure compliance with directives issued by the higher authorities.

• Assistant Director

They handle operational aspects of money laundering investigations, including gathering evidence and analyzing financial transactions.

• Other Officers

Any additional officers that the government may appoint for the effective implementation of the Act.

These authorities are the backbone of the enforcement mechanism under the PMLA.

Appointment and Powers of Authorities 

• The Central Government holds the power to appoint these authorities and assign them duties as necessary.
• The Director, Additional Director, Joint Director, Deputy Director, and Assistant Director have the authority to appoint subordinate officers for specific tasks.
• Each appointed authority is empowered to execute duties and exercise powers as specified by the Central Government.

This hierarchical system ensures an organized approach in dealing with cases of money laundering.

Investigative Powers of Authorities 

To ensure thorough investigations, the Director has powers equivalent to those of a civil court under the Code of Civil Procedure, 1908. These powers include:

• Discovery and inspection of evidence

The authority can mandate individuals or entities to disclose relevant information.

• Summoning individuals and enforcing attendance

This includes financial institution officers and any other involved parties.

• Compelling the production of documents and records

Ensuring that all necessary financial records are available for examination.

• Receiving evidence in the form of affidavits

Permitting authorities to accept sworn statements as evidence.

• Issuing commissions for examination of witnesses and documents

Allowing remote or delegated collection of evidence.

Additionally, the Director, Additional Director, Joint Director, Deputy Director, or Assistant Director can summon individuals during investigations and demand testimony or relevant records.

Jurisdiction of Authorities 

Authorities exercise jurisdiction based on government directives, which may be determined by:

• Geographical Area

Specific regions assigned to various officials.

• Classes of Persons

The type of individuals or businesses being investigated.

• Types of Cases

Certain categories of financial crimes may be assigned to specific officials.

• Other Criteria

Any additional factors set by the government.

This structured jurisdiction ensures accountability and efficiency in investigations.

Power of Central Government to Issue Directions 

The Central Government holds significant power to issue guidelines and directives to PMLA authorities. These directives ensure proper enforcement of the Act, but with certain restrictions:

• The government cannot dictate how a particular case should be decided.
• It cannot interfere with the Adjudicating Authority’s discretion while making legal decisions.

These limitations safeguard the impartiality of investigations and prevent undue influence in money laundering cases.

Empowerment of Certain Officers 

To strengthen enforcement, the Central Government can empower officers not below the rank of Director from the Central or State Government to act as authorities under the PMLA.

In exceptional cases where officers of Director rank are unavailable, the government may appoint lower-ranked officers to fulfill this role. This provision ensures that there is no administrative vacuum in implementing the Act.

Assistance by Other Authorities 

The success of the PMLA depends on coordination among various government departments and financial regulatory bodies. The following officials and organizations are legally required to assist in investigations:

• Customs and Central Excise Officers
• Narcotic Drugs and Psychotropic Substances Act Officers
• Income Tax Authorities
• Stock Exchange Officials
• Reserve Bank of India Officers
• Police Officers
• Enforcement Directorate Officials
• Securities and Exchange Board of India (SEBI) Officers
• Insurance Regulatory and Development Authority (IRDA) Officers
• Registrar of Companies, Chartered Accountants, Cost Accountants, and Company Secretaries
• Other officials as notified by the Central Government

This multi-agency cooperation enhances the effectiveness of the PMLA and strengthens India’s financial regulatory framework.

Reciprocal Legal Assistance and Cooperation with Foreign Countries under the Prevention of Money Laundering Act

In an increasingly globalized world, criminal activities often transcend national borders. To combat crimes such as money laundering, cyber fraud, terrorism, and financial fraud, countries need to collaborate effectively. Reciprocal Legal Assistance is a crucial legal framework that facilitates this cooperation by enabling the exchange of evidence, enforcement of legal processes, and investigation of offenses across international boundaries.

India, like many other nations, has established legal provisions that allow it to engage in reciprocal legal association with foreign countries. These arrangements are governed by treaties, reciprocal agreements, and legal provisions that ensure cooperation while maintaining sovereignty and compliance with domestic laws.

Definitions and Key Concepts

To understand the framework of Reciprocal Legal Assistance, it is essential to define key terms that appear in related legal provisions.

Contracting State

A “contracting State” refers to any country outside India with which the Indian government has made formal arrangements through treaties or other legal mechanisms. These agreements facilitate legal assistance and the exchange of information for criminal investigations and legal proceedings.

Identifying and Tracing

• Identifying: This process involves establishing proof that a specific property has been acquired through illegal means or has been used in the commission of a crime.
• Tracing: Tracing refers to determining the nature, origin, movement, title, or ownership of property related to an offense. It plays a crucial role in financial investigations, particularly in cases involving money laundering and fraud.

Agreements with Foreign Countries

Section 56 of the legal framework grants the Indian government the authority to enter into agreements with foreign nations to:

• Enforce provisions of Indian laws in collaboration with other jurisdictions.
• Facilitate the exchange of critical information to prevent crimes or assist in investigations under Indian law and corresponding laws of the foreign nation.

These agreements are made public through notifications in the Official Gazette. They may contain specific conditions, limitations, or exceptions depending on the nature of the arrangement with the foreign country.

Letter of Request to a Contracting State

There are instances where Indian authorities require evidence located in a foreign country to aid an ongoing investigation. Section 57 provides a legal framework for issuing a Letter of Request to a contracting State. The process is as follows:

1. An Investigating Officer or a superior authority submits an application to a Special Court, justifying the necessity of foreign evidence.
2. If the Special Court is satisfied, it issues a formal Letter of Request to a competent authority or court in the contracting State.
3. The request may include instructions to:
   • Examine the facts and circumstances related to the case.
   • Undertake specific investigative steps outlined in the request.
   • Collect and transmit relevant evidence back to India.
4. The Central Government oversees the transmission of the request and ensures compliance with applicable treaties and international legal norms.

The evidence obtained through this process is considered valid and admissible in Indian courts for further investigation and prosecution.

Assistance to a Contracting State

Reciprocal Legal Assistance is not a one-way process. Just as India seeks legal cooperation from foreign authorities, it also assists foreign countries upon request.

Section 58 allows India to execute letters of request received from foreign courts or authorities seeking assistance in criminal investigations. When a request is received:

• The Central Government forwards it to a Special Court or any relevant authority for execution.
• The request is processed under Indian law, ensuring that no legal or constitutional provisions are violated.
• The collected evidence is transmitted back to the requesting foreign authority following the established legal procedure.

This provision strengthens international collaboration in criminal justice and ensures that offenders cannot escape prosecution by exploiting jurisdictional boundaries.

Reciprocal Arrangements for Legal Processes and Transfer of Accused Persons

Section 59 provides detailed provisions on how legal processes are executed between India and a contracting State. It covers:

Serving Summons and Warrants

If a Special Court in India issues any of the following legal documents and requires them to be served in a foreign country:

• Summons to an accused person.
• Warrant for the arrest of an accused person.
• Summons to produce documents or evidence.
• Search warrants for locating crucial evidence.

The request is sent to the appropriate foreign court, judge, or magistrate through designated authorities as specified by the Central Government.

Execution of Foreign Legal Requests in India

Similarly, if a Special Court in India receives a request from a foreign court for:

• Serving summons or warrants.
• Arresting an accused person.
• Conducting searches and gathering evidence.

The Indian authorities execute the request as per domestic legal procedures. Any evidence collected or arrests made are then handled according to the prescribed legal framework.

Transfer of Accused Persons

In cases where a person needs to be transferred between India and a foreign country for legal proceedings:

• If the person is an Indian prisoner being transferred to a foreign country, the Special Court or Central Government may impose specific conditions for the transfer.
• If the person is a foreign prisoner being transferred to India, the Special Court ensures that the agreed conditions are met and oversees the custody of the transferred individual.

These measures facilitate smooth legal proceedings while protecting the rights of individuals involved.

Transmission of Legal Requests

Section 61 lays out the structured process for transmitting legal requests such as letters of request, summons, and warrants. The Central Government plays a crucial role in ensuring these requests are:

• Transmitted in the proper format.
• Sent through the appropriate diplomatic and legal channels.
• Processed in compliance with applicable treaties and legal provisions.

Attachment, Seizure & Confiscation of Property under the Prevention of Money Laundering Act

Attachment, seizure, and confiscation of property are essential legal measures aimed at preventing financial crimes, particularly money laundering. These actions ensure that unlawfully acquired assets do not remain in the possession of offenders and are instead brought under the control of legal authorities. In India, the Prevention of Money Laundering Act (PMLA) provides the primary legal framework for these processes. 

Understanding the Key Concepts

1. Attachment of Property

Attachment refers to the legal restriction imposed on an individual’s right to transfer or dispose of property suspected of being linked to money laundering. Under Section 5 of PMLA, the Director of the Enforcement Directorate (ED) has the authority to attach a property if there is a reasonable belief that it has been acquired through illicit means.

• The attachment order is temporary and subject to review by the Adjudicating Authority, which decides whether to continue or revoke the attachment.
• This prevents the accused from transferring assets that could be used as evidence or for restitution.
• If the investigation proves that the property is tainted, further actions such as seizure and confiscation follow.

2. Seizure of Property

Seizure involves taking physical control of a property to prevent its misuse or concealment. This step is critical in ongoing investigations and follows the attachment process in cases where authorities require stricter measures.

• Under Section 17(1A) of PMLA, authorities can freeze bank accounts, real estate, or other assets if they suspect involvement in money laundering.
• The process requires careful documentation to ensure compliance with legal norms.
• Once an asset is seized, its status remains frozen until the completion of legal proceedings.

3. Confiscation of Property

Confiscation is the permanent transfer of property to the Central Government after due legal processes confirm its involvement in money laundering activities.

• Sections 8(5) and 8(6) of PMLA empower Special Courts to order confiscation after examining evidence and hearing all parties involved.
• Unlike attachment and seizure, which are temporary measures, confiscation results in the government assuming full ownership of the assets.
• Once confiscated, the property may be utilized, auctioned, or repurposed by the government in accordance with the law.

International Cooperation in Asset Recovery

With globalization, financial crimes often have cross-border implications. To address such challenges, the PMLA incorporates international cooperation mechanisms under Sections 58A, 58B, and 60. These provisions facilitate asset recovery and enforcement of foreign confiscation orders.

• Requests from Foreign Courts

If a criminal trial outside India determines that an asset in India is linked to money laundering, the Special Court can order its confiscation upon receiving a request from the foreign government.

• Execution of Foreign Orders

The Central Government evaluates such requests and directs the Director of the Enforcement Directorate to move an application before the Special Court.

• Returning or Retaining Confiscated Assets

Confiscated assets may either be returned to the requesting State or retained by India, depending on mutually agreed terms that consider investigative and judicial costs.

Step-by-Step Procedure for Asset Confiscation

• Identification and Investigation

1. 1. • Authorities identify suspicious assets and conduct thorough investigations to establish links to money laundering activities.
      • Inquiry processes include tracing financial transactions and reviewing asset ownership.

• Issuance of Legal Orders

1. 1. • The Director of the Enforcement Directorate issues an attachment order if the property is suspected to be involved in financial crimes.
      • If required, authorities proceed with seizure to prevent asset tampering.
      • After the conclusion of legal proceedings, the Special Court decides on permanent confiscation.

• Appeals and Legal Review

1. • Affected individuals have the right to appeal against attachment and confiscation orders.
   • Higher legal authorities review the case to ensure compliance with due process.

Offences & Penalties under Prevention of Money Laundering Act

Prevention of Money Laundering Act lays down strict provisions for identifying, investigating, and punishing offenses related to money laundering activities. The Act not only penalizes individuals involved in money laundering but also extends liability to companies and their key personnel. 

Punishment for Vexatious Search 

Authorities and officers empowered under the PMLA must conduct searches, detentions, and arrests based on valid reasons recorded in writing. If an officer or authority:

• Conducts a search of any building or place without valid reasons, or
• Detains, searches, or arrests a person without proper justification,

they may face imprisonment for up to two years, a fine of up to ₹50,000, or both upon conviction. This provision ensures that law enforcement officers do not misuse their powers arbitrarily.

Punishment for False Information and Failure to Provide Information 

The Act penalizes individuals who provide false information or fail to comply with legal obligations during investigations. This includes:

• Providing false information leading to wrongful arrest or search: Punishable with imprisonment up to two years, a fine up to ₹50,000, or both.
• Failure to answer legal questions related to offenses under Section 3.
• Refusal to sign statements recorded during proceedings.
• Failure to comply with summons to provide evidence or produce documents.

Non-compliance with the above obligations can result in a penalty ranging from ₹500 to ₹10,000 for each default. However, before imposing such penalties, the concerned authority must provide the individual with an opportunity to be heard.

Additionally, intentional disobedience of directions issued under Section 50 can lead to prosecution under Section 174 of the Indian Penal Code (IPC).

Cognizance of Offences 

Legal proceedings against individuals accused of offenses under Section 62 or Section 63(1) can only be initiated with the prior sanction of the Central Government. The government is required to either approve or deny the sanction within 90 days of receiving the request. This provision ensures that frivolous cases are not initiated without due diligence.

Recovery of Fine or Penalty 

If a person fails to pay a fine or penalty imposed under Section 13 or Section 63 within six months, the Director or an authorized officer may recover the amount following the same procedures prescribed in Schedule II of the Income-tax Act, 1961. This ensures efficient recovery of penalties from defaulters.

Offences by Companies 

When a company is found guilty of violating the PMLA, the following individuals can be held liable:

• Persons in charge of and responsible for the company’s operations at the time of the violation.
• The company itself.
• If the violation occurred due to the consent, connivance, or negligence of a director, manager, secretary, or other officers, they can also be prosecuted.

However, if an individual proves that they were unaware of the contravention or exercised due diligence to prevent it, they may be exempted from liability.

Clarifications on Corporate Liability

• The term “company” includes any body corporate, firm, or association of individuals.
• The term “director” in a firm refers to a partner in the firm.
• A company can be prosecuted independently of the prosecution or conviction of its officers, ensuring that corporate entities are held accountable for financial crimes.

Procedure & Legal Framework under the Prevention of Money Laundering Act

Application of the Code of Criminal Procedure, 1973

Section 65 of the legal framework states that the Code of Criminal Procedure, 1973 (CrPC) applies to various legal proceedings unless explicitly contradicted by any specific provisions of the Act. This means that standard procedures for arrest, search and seizure, attachment, confiscation, investigation, and prosecution will follow the CrPC guidelines unless the Act itself provides a different course of action.

The inclusion of the CrPC ensures uniformity in legal procedures and maintains consistency in handling criminal matters. This provision is crucial because it allows authorities to rely on established legal principles while ensuring that justice is not hindered by gaps or inconsistencies in the Act.

Bar on Civil Suits Against Government Actions

Section 67 of the framework establishes that no civil court has jurisdiction to set aside or modify any proceedings or orders made under this Act. Additionally, no prosecution, suit, or legal action can be initiated against the Government or any of its officers for actions undertaken in good faith under this Act.

This provision is vital in safeguarding government officials who execute their duties per legal mandates. Without such a clause, legal actions against government agencies and officers could flood civil courts, leading to unnecessary delays and legal complications. However, it is crucial to note that this does not provide a blanket immunity—actions taken in bad faith or outside the scope of legal authority may still be challenged under other legal provisions.

Validation of Legal Notices, Summons, and Orders

Section 68 ensures that legal documents such as notices, summons, orders, and other proceedings remain valid despite minor mistakes, defects, or omissions, as long as they comply with the overall intent of the law.

This provision prevents technical errors from derailing legal proceedings. In many instances, legal notices or summons may contain typographical errors or minor discrepancies that do not affect their substantive purpose. Without such a safeguard, parties could exploit minor procedural flaws to escape legal scrutiny or delay justice.

Continuation of Legal Proceedings in Case of Death or Insolvency

Section 72 deals with the legal implications if a person involved in proceedings dies or becomes insolvent. The law ensures that ongoing matters related to property attachment, appeals, or other legal proceedings do not lapse upon a person’s death or insolvency. Instead, their legal representatives, official assignees, or receivers may continue the process.

• Attachment of Property and Appeals

If a person’s property has been attached under Section 8 and they pass away or become insolvent before filing an appeal, their legal representatives can continue the case before the Appellate Tribunal. This ensures that legal responsibilities do not vanish simply due to the individual’s death or financial downfall.

• Appeals to the High Court

If an appeal is pending or needs to be filed with the High Court, the deceased or insolvent person’s legal representatives or official assignees have the right to step in and continue the legal proceedings. This prevents disruptions in judicial processes and ensures that justice is carried out irrespective of personal circumstances.

The law also clarifies that the powers of official assignees or receivers in such matters will be subject to provisions of the Presidency-Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, ensuring that insolvency laws align with these procedural aspects.

Information Handling & Coordination under the Prevention of Money Laundering Act

Disclosure of Information

Authority to Disclose Information

Section 66 allows the Director or any designated authority to disclose information obtained during their duties to specific government bodies. This disclosure is necessary for enforcing laws related to taxation, financial transactions, and illicit activities. The provision ensures that relevant authorities have access to the information they need to perform their duties efficiently.

Entities Eligible for Information Sharing

The law permits information sharing with:

1. Taxation and Financial Regulatory Authorities

This includes bodies that impose taxes, duties, cess, and regulate foreign exchange transactions.

1. Law Enforcement Agencies

Authorities responsible for preventing illicit activities such as narcotic drug trafficking (under the Narcotic Drugs and Psychotropic Substances Act, 1985) can receive relevant data.

1. Other Authorities as Specified by the Central Government

If deemed necessary in the public interest, the Central Government may notify additional agencies authorized to receive such information.

Sharing Information for Law Enforcement

If the Director or designated authority believes that a law has been violated, they are obligated to share this information with the relevant enforcement agencies. This ensures that violations do not go unchecked and that the responsible agency can take corrective action.

Inter-Ministerial Coordination Committee

Purpose of the Committee

Recognizing the need for seamless cooperation between various government entities, Section 72A mandates the establishment of an Inter-Ministerial Coordination Committee. This committee facilitates cross-agency collaboration to address financial crimes, including money laundering and terrorism financing.

Key Functions of the Committee

1. Operational Cooperation

The committee fosters effective communication and data exchange between government departments, financial regulators, and enforcement agencies.

1. Policy Coordination

It ensures that policies across regulatory and enforcement bodies are aligned, avoiding duplication and ensuring consistency in enforcement.

1. Stakeholder Consultation

The committee consults with financial institutions and other key sectors to implement best practices for anti-money laundering (AML) and countering the financing of terrorism (CFT).

1. Policy Development and Implementation

It is responsible for formulating and executing strategies related to AML and CFT to enhance regulatory compliance.

1. Additional Responsibilities

The Central Government may assign further tasks to the committee through notifications, making it adaptable to emerging threats and challenges.

Rule Making And Administrative Powers Under the Prevention of Money Laundering Act

Rule-Making Power 

Section 73 grants the Central Government the authority to make rules through notifications. These rules provide clarity and structure for implementing various provisions of the Act.

General Rule-Making Power

• The Central Government has the authority to make rules that ensure the effective execution of the Act’s provisions.
• These rules cover aspects such as maintaining transaction records, adjudication procedures, and enforcement measures.

Specific Areas of Rule-Making

The Act specifies particular areas where the Central Government can establish rules. Below is a detailed explanation of each aspect:

(a) Form of Records Maintenance

Rules may prescribe the format and manner in which records related to money laundering activities should be maintained to ensure compliance with the Act.

(b) Provisional Attachment of Property

Rules define how properties suspected of being involved in money laundering can be provisionally attached under Section 5(1). This ensures that assets are secured while investigations are conducted.

(c) Experience Requirements for Members of the Adjudicating Authority

Section 6(3) allows rules to set criteria for the qualifications and experience required for individuals appointed to the Adjudicating Authority.

(d) Salaries and Allowances of Adjudicating Authority Members

Rules under Section 6(9) establish the terms of service, including salaries and allowances, for members of the Adjudicating Authority, ensuring fairness and transparency.

(e) Salaries and Allowances of Adjudicating Authority Employees

Section 7(3) mandates rules for determining the terms and conditions of service for officers and employees working under the Adjudicating Authority.

(f) Seizure and Possession of Attached Property

Rules dictate the procedures for seizing and taking possession of property that has been attached under Section 5 or frozen under Sections 17(1A) and 8(4), ensuring a standardized enforcement process.

(g) Management of Confiscated Property

Section 10(2) allows the creation of rules regarding how confiscated properties should be received and managed, preventing mismanagement.

(h) Additional Powers of the Adjudicating Authority

Section 11(1)(f) allows rules to grant additional powers to the Adjudicating Authority, similar to those of a civil court, to enhance its ability to conduct fair proceedings.

(i) Nature and Value of Transactions to be Reported

Rules define the type of transactions that require reporting under Section 12(1)(b), ensuring effective monitoring of suspicious financial activities.

(j) Client Authentication and Verification

Rules under Sections 12AA(1)(a) & (b) lay down procedures for verifying the identity of clients, their ownership, and financial standing, crucial for detecting fraudulent transactions.

(k) Recording Purpose of Transactions

Under Section 12AA(1)(c), rules mandate additional steps to document the intent and nature of transactions, strengthening transparency.

(l) Periodic Reporting by Entities

Rules specify the frequency with which reporting entities or their employees must submit reports under Section 13(2)(c), facilitating timely compliance.

(m) Procedure for Maintaining and Furnishing Information

Rules under Section 15(1) outline how records and information should be maintained and provided as per Section 12.

(n) Recording of Reasons for Actions Taken

Rules ensure that reasons and supporting material for enforcement actions under Sections 16(2), 17(2), 18(2), and 19(2) are properly documented.

(o) Forwarding of Orders for Property Retention

Section 20(2) allows rules to prescribe how orders related to the retention or freezing of property should be forwarded and the duration for which they should be kept.

(p) Recognition of Records from Foreign Entities

Section 22(2) enables rules to establish the manner in which records from outside India can be received and authenticated.

(q) Appeals Procedure and Fees

Section 26(3) permits rules to prescribe the procedure and fees for filing appeals before the Appellate Tribunal.

(r) Additional Civil Court Powers for the Tribunal

Section 35(2)(i) allows rules to grant further civil court powers to the Appellate Tribunal for smoother functioning.

(s) Authorization for Police Investigations

Under Section 45(1A), rules set the conditions under which police officers may be authorized to investigate offenses.

(t) Additional Powers of Authorities

Section 50(1)(f) allows rules to extend civil court-like powers to authorities conducting investigations under the Act.

(u) Custody and Impounding of Records

Section 50(5) enables rules to govern the impounding and safe custody of records obtained during investigations.

(v) Miscellaneous Provisions

Rules may also be framed for any other necessary matters not explicitly mentioned under the Act.

Parliamentary Oversight of Rules 

Once rules are made, they must be presented before Parliament to ensure transparency and accountability:

• Rules must be tabled before both Houses of Parliament for a total period of 30 days.
• This period can span one or more sessions.
• If either House suggests modifications or rejects a rule, the rule is modified or annulled accordingly.
• Any modifications do not affect actions taken before the amendment.

This oversight mechanism ensures that rule-making remains accountable to the legislature.

Power to Remove Difficulties

Section 75 provides the Central Government with flexibility to address unforeseen challenges:

• If difficulties arise in implementing the Act, the Government may issue orders to resolve them.
• These orders must be published in the Official Gazette.
• The power to issue such orders is available only within two years of the Act’s commencement.
• Orders issued under this section must be presented before Parliament for review.