5 Pmla

Chap 5: Prevention Of Money Laundering Act, 2002
Sec 2: Definitions
PM: What are Proceeds of crime?
Ans:
Provision: [Relevant Section 2 of PMLA, 2002]
Section 2(1)(u) defines "proceeds of crime" as any property derived or obtained, directly or indirectly, by any
person as a result of criminal activity relating to a scheduled offence or the value of any such property.
PM: What is Payment System?

Ans:
In terms of clause (rb) of section 2 "payment system" means a system that enables payment to be effected be-
tween a payer and a beneficiary, involving clearing, payment or settlement service or all of them. It includes
the systems enabling credit card operations, debit card operations, smart card operations, money transfer op-
erations or similar operations.
PM: Explain the term "Offence of Money Laundering" within the meaning of the Prevention of Money Laun-
dering Act, 2002. State the punishment for the offence of money laundering.
Ans:
Provision: [Relevant Section 2, 3 & 4 of PMLA, 2002]
Offence of Money Laundering: Section 2(1)(y) of the Prevention of Money Laundering Act, 2002 defines the
term “scheduled offence", which accordingly means –
(i) the offences specified under Part A of the Schedule; or
(ii) the offences specified under Part B of the Schedule if the total value involved in such offences is One
Crore rupees or more.
(iii) The offences specified under Part C of the Schedule.
These Schedule to the Act gives a list of all the above offences. Section 3 deals with the offence of money
laundering. Punishment for the Offence of Money Laundering Section 4 of the said act provides for the pun-
ishment for Money-Laundering. Whoever commits the offence of money-laundering shall be punishable with:
i) Rigorous imprisonment for a term which shall not be less than three years, but may be extended to seven
years, and shall also be liable to fine.
ii) But, where the proceeds of crime involved in money-laundering relates to any offence specified under
paragraph 2 of Part A of the Schedule (Offences under the Narcotic Drugs and Psychotropic Substances
Act, 1985), the maximum punishment may extend to ten years instead of seven years.
Sec 3: offence of money laundering
Sec 4: punishment for Money-Laundering
PM: What is the punishment for the offence of money laundering?
Ans:
Provision: [Relevant Section 3 & 4 of PMLA, 2002]
Chapter II comprises of Sections 3 and 4. Section 3 deals with the offence of money laundering. Section 4 pro-
vides for the punishment for Money-Laundering. Whoever commits the offence of money-laundering shall be
punishable with rigorous imprisonment for a term Corporate and Allied Laws which shall not be less than three
years but which may extend to seven years and shall also be liable to fine. But where the proceeds of crime
involved in money-laundering relate to any offence specified under paragraph 2 of Part A of the Schedule, (Of-
fences under the Narcotic Drugs and Psychotropic Substances Act, 1985), the maximum punishment may ex-
tend to ten years instead of seven years.
PM: Explain the meaning of the term “Money Laundering”. Z, a known smuggler was caught in transfer of
funds illegally exporting narcotic drugs from India to some countries in Africa. State the maximum punish-
ment that can be awarded to him under Prevention of Money Laundering Act, 2002.
Ans:
Provision: [Relevant Section 3 & 4 of PMLA, 2002]
Money Laundering: Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a
party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as
untainted property shall be guilty of offence of money laundering. Section 3 of the Prevention of Money Laun-
dering Act, 2002 deals with the offence of money laundering. Paragraph 2 of Part A of the Schedule to the Pre-
vention of Money Laundering Act, 2002, covers Offences under the Narcotic Drugs And Psychotropic Substanc-
es Act, 1985. Whereby, illegal import into India, export from India or transhipment of narcotic drugs and psy-
chotropic substances (section 23) is covered under paragraph 2 of Part A.
Punishment: Section 4 of the said Act provides for the punishment for Money-Laundering. Whoever commits
the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be
less than 3 years but which may extend to 7 years and shall also be liable to fine. But where the proceeds of
crime involved in money-laundering relate to any offence specified under paragraph 2 of Part A of the Sched-
ule, the maximum punishment may extend to 10 years instead of 7 years.
Sec 12: Obligation of Banking Companies, Financial Institutions and Intermediaries or
a person carrying on a designated business or profession
PM: Enumerate the obligations of banking companies under the Prevention of Money Laundering Act, 2002.
Ans:
Section 12 provides for the obligation of Banking Companies, Financial Institutions and Intermediaries. Accord-
ing to subsection (1), every banking company, financial institution and intermediaries shall –
(a) maintain a record of all transactions, including information relating to transactions covered under clause
b, in such manner as to enable it to reconstruct individual transactions;
(b) furnish to the Director within such time as may be prescribed, information relating to such transactions,
whether attempted or executed, the nature and value of which may be prescribed;
(c) verify the identity of its clients in such manner and subject to such conditions, as may be prescribed;
(d) identify the beneficial owner, if any, of such of its clients, as may be prescribed;
(e) maintain record of documents evidencing identity of its clients and beneficial owners as well as account
files and business correspondence relating to its clients.
Every information maintained, furnished or verified, save as otherwise provided under any law for the time
being in force shall be kept confidential. The records referred to in clause (a) of sub-section (I) shall be main-
tained for a period of five years from the date of transaction between a client and the reporting entity. The
records referred to in clause (e) of sub-section (I) shall be maintained for a period of five years after the busi-
ness relationship between a client and the reporting entity has ended or the account has been closed, which-
ever is later. The Central Government may, by notification, exempt any reporting entity or class of reporting
entities from any obligation under this chapter.
Sec 26: The right and time frame to make an appeal to the Appellate Tribunal
PM: The Adjudicating Authority appointed under the Prevention of Money Laundering Act, 2002 issued an
order attaching certain properties of XYZ Limited alleged to be involved in money laundering for a specified
period. The company aggrieved by the order of the Adjudicating Authority seeks your advice about the rem-
edy that is available under the Act. Advise explaining the relevant provisions of the Prevention of Money
Laundering Act, 2002.
Ans:
Provision: [Relevant Section 25, 26 & 42 of PMLA, 2002]
Section 25 of Prevention of Money Laundering Act, 2002 empowers the Central Government to establish an
Appellate Tribunal to hear appeal against order of the Adjudicating Authority and other authorities under the
Act. Section 26 deals with the right and time frame to make an appeal to the Appellate Tribunal.
Explanation:
Any person aggrieved by an order made by the Adjudicating Authority may prefer an appeal to the Appellate
Tribunal within a period of 45 days from the date on which a copy of the order is received by him. The appeal
shall be in such form and be accompanied by such fee as may be prescribed. The Appellate Tribunal may ex-
tend the period if it is satisfied that there was sufficient cause for not filing it within the period of 45 days. The
Appellate Tribunal may after giving the parties to the appeal an opportunity of being heard, pass such order as
it thinks fit, confirming, modifying or setting aside the order appealed against. The Act also provides further
5.2 © CA Darshan D. Khare

appeal. According to Section 42 any person aggrieved by any decision or order of the Appellate Tribunal may
file an appeal to the High Court within 60 days from the date of communication of the order of the Appellate
Tribunal.
Answer:
In the light of the provisions of the Act explained above the company is advised to prefer an appeal to Appel-
late Tribunal in the first instance.
Section 43 to Section 47
PM: How the trials under PMLA are conducted in special courts?
Ans:
Provision: [Relevant Section 43 – 47 of PMLA, 2002]
Section 43 empowers the Central Government (in consultation with the Chief Justice of the High Court) for trial
of offence of money laundering, to notify one or more Courts of Sessions as Special Court or Special Courts for
such area or areas or for such cases or class or group of cases as may be specified in the notification to this ef-
fect. Section 44 clearly provides for the offences triable by Special Courts. It overrides the provisions of the
Code of Criminal Procedure, 1973 and provides that –
(i) the scheduled offence and the offence punishable under section 4 shall be triable only by the Special Court
constituted for the area in which the offence has been committed;
(ii) a Special Court may, upon a complaint made by an authority authorised in this behalf under this Act take
cognizance of the offence for which the accused is committed to it for trial.
The requirement of police report of the facts which constitute an offence under this Act is no more applicable.
PM: Mr. Fraudulent has been arrested for a cognizable and non-bailable offence punishable for a term of
imprisonment for more than three years under the Prevention of Money Laundering Act, 2002. Advise, as to
how can he be released on bail in this case?
Ans:
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.
(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.
(iii) In case of any person who is under the age of 16 years where the accused is under 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 per-
son on bail.
PM: Mr. Gambler has been arrested for a cognizable and non-bailable offence punishable for a term of im-
prisonment for more than three years under the Prevention of Money. He seeks your advice as to how can
he be released on bail. Advise him.
Ans:
In accordance with the provisions of the Money Laundering Act, 2002, as contained under Section 45, the of-
fences under the Act shall be cognizable and non-bailable.
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.
(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.
(iii) In case of any person who is under the age of 16 years where the accused is under 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 per-
son on bail
Answer:
Mr. Gambler may refer the above section 45 so that he can be released on bail.
Other
PM: "Money Laundering" does not mean just siphoning of fund." Comment on this statement explaining the
significance and aim of the Prevention of Money Laundering Act, 2002.
Ans:
Money Laundering is a moving of illegally acquired cash through financial systems so that it appears to be le-
gally acquired. Thus, money laundering is not just the siphoning of fund but it is the conversion of money
which is illegally obtained. Prevention of Money Laundering Act, 2002 has been enacted with aim for combat-
ing channelizing of money into illegal activities. Significance and Aim of Prevention of Money Laundering Act,
2002:
The preamble to the Act provides that it aims to prevent money–laundering and to provide for confiscation of
property derived from, or involved in, money–laundering and for matters connected therewith or incidental
thereto. In order to further strengthen the existing legal framework and to effectively combat money launder-
ing, terror financing and cross-border economic offences, an Amendment Act, 2009 was passed. The new law
seeks to check use of black money for financing terror activities. Financial intermediaries like full-fledged mon-
ey changers, money transfer service providers and credit card operators have also been brought under the
ambit of The Prevention of Money-Laundering Act. Consequently, these intermediaries, as also casinos, have
been brought under the reporting regime of the enforcement authorities. It also checks the misuse of promis-
sory notes by FIIs, who would now be required to furnish all details of their source. The new law would check
misuse of “proceeds of crime” be it from sale of banned narcotic substances or breach of the Unlawful Activi-
ties (Prevention) Act. The passage of the Prevention of Money Laundering (Amendment), 2009 have enabled
India’s entry into Financial Action Task Force (FATF), an inter-governmental body that has the mandate to
combat money laundering and terrorist financing.
PM: What is Money – Laundering?
Ans:
Provision: [Relevant Section 2(1)(p) & 3 of PMLA, 2002]
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 proper-
ty shall be guilty of offence of money laundering.
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Chap 5: Prevention Of Money Laundering Act, 2002

PM: What is Payment System?

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