Prevention of Money Laundering Act (PMLA), 2002

 

Here’s a detailed overview of the Prevention of Money Laundering Act (PMLA), 2002 in India:

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1. Introduction

The Prevention of Money Laundering Act, 2002 (PMLA) was enacted to prevent money laundering, punish those involved in it, and confiscate the proceeds of crime.
It was notified on 1st July 2005 and has been amended several times to strengthen anti-money laundering measures.

Objective:

• To curb the process of “cleaning” illegal money through legitimate financial channels.

• To detect and prevent money laundering activities.

• To confiscate assets derived from unlawful activity.

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2. Key Definitions

• Money Laundering: The process of converting proceeds of crime into legitimate money or assets.

• Proceeds of Crime: Any property derived or obtained directly or indirectly from criminal activity.

• Reporting Entities: Banks, financial institutions, intermediaries, and any other person required under PMLA to report suspicious transactions.

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3. Applicability

• All individuals and entities involved in financial transactions in India.

• Reporting entities include:

  • Banks

  • NBFCs

  • Stock brokers

  • Mutual funds

  • Insurance companies

  • Intermediaries under SEBI and IRDA regulations

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4. Offences under PMLA

1. Money Laundering (Section 3)

   • Making any direct or indirect arrangement involving proceeds of crime.

2. Failure to Report (Section 12)

   • Non-reporting of suspicious transactions by reporting entities is an offence.

3. Tipping Off (Section 19)

   • Informing a person about pending investigations that could obstruct the process.

Punishments:

• Imprisonment: 3 to 7 years

• Fine: Varies depending on the offence and amount involved

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5. Authorities under PMLA

1. Financial Intelligence Unit – India (FIU-IND)

   • Receives, analyses, and disseminates suspicious transaction reports (STRs).

2. Enforcement Directorate (ED)

   • Investigates and prosecutes money laundering offences.

   • Can attach and confiscate property derived from proceeds of crime.

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6. Key Provisions

Provision	Description
Section 3	Punishment for money laundering
Section 4	Punishment for attempt or conspiracy
Section 5	Punishment for dealing with proceeds of crime
Section 12	Reporting of transactions by banks and financial institutions
Section 17	Confiscation of property derived from proceeds of crime
Section 45	Offences are cognizable, non-bailable, and non-compoundable
Section 50 & 51	Powers of ED to attach, seize, and investigate property

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7. Procedure

1. Reporting: Banks and financial institutions must report suspicious transactions to FIU-IND.

2. Investigation: ED investigates the reported transactions and may provisionally attach properties.

3. Adjudication: Confiscation orders can be issued by Adjudicating Authority.

4. Appellate Mechanism: Appeals can be made to Appellate Tribunal and finally to High Court.

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8. Recent Amendments & Updates

• Amendments in 2009, 2012, 2018: Strengthened powers of ED and widened scope of reporting entities.

• Digital and cryptocurrency transactions: Falling under PMLA regulations for reporting suspicious transactions.

• Stringent penalties for corporate entities involved in money laundering.

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✅ Summary

PMLA, 2002 is a comprehensive framework to combat money laundering in India. It imposes obligations on financial institutions to report suspicious transactions, empowers the ED to investigate and confiscate proceeds of crime, and prescribes stringent punishments for offenders.