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Provisions of Prevention of Money Laundering Act, 2002

Prevention of Money Laundering Act, 2002 (PMLA) forms the core of legal framework put in place by India to combat money laundering and related crimes. PMLA and the Rules notified there under came into force from 1st July, 2005. Under PMLA, all the entries registered with SEBI are required to furnish information of all the suspicious transactions whether or not made in cash to FIU-IND. Under Section 3 of PMLA, projecting of crime as untainted property is an offence of money laundering liable to be punishment under section 4 of the PMLA. 

Money Laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with as apparently legal source.

Financial Intelligence Unit-India (FIU-IND) is the central national agency of India responsible for receiving, processing, analysing and disseminating information of suspect financial transactions. FIUIND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in combating money laundering and related crimes.

Section 2 (1) (g) of PMLA Rules defines suspicious transaction whether or not made in cash which, to a person acting in good faith:

• Gives rise to a reasonable ground of suspicious that it may involve the proceeds of crime: or

 Appears to be made in circumstances of unusual or unjustified complexity; or
 Appears to have no economic rationale or bonafied purpose; or

 Gives rise to a reasonable ground of suspicious that it may involve facing of the activities relating to terrorism.

Some examples of suspicious transactions reported to FIU-IND are as under:

CategoryExamples of Suspicious transactions
Identity of ClientsIdentification documents were found to be
forged
 Address details given by the account holder
were found
to be false
 Doubt over the real beneficiary of the
account
Suspicious
Background		 Positive match of name and date of births
with person
on various lists
 Account of publicly known criminals
Multiple
Accounts		 Large number of accounts having a
common account
holder, introducer or authorized Signatory
with no rational or bono fide purpose
 Unexplained transfers between multiple
accounts with
no rationale
Activity in
Accounts		 Unexplained activity in dormant accounts
 Unexplained activity in account inconsistent
with what
would be excepted from declared Business
Nature of Transaction Doubtful sources of Funds
 Doubtful overseas fund transfer
 Doubtful foreign remittance to non-relatives
 Doubtful cash deposits in a bank account at
multiple
locations
 Suspicious us of ATM/Credit card
 Doubtful foreclosure of loan account in cash
 Suspicious off-market transactions in demat
accounts
Value of
transactions		 Multiple transactions of value just under the
reporting
threshold amount in an apparent attempt to
avoid
reporting
 Unexplained large value transaction
inconsistent with
the client’s apparent financial Standing
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