Anti-Money Laundering 2020

Domestic legislation

Domestic law

Question 1:
Identify your jurisdiction’s money laundering and anti-money laundering (AML) laws and regulations. Describe the main elements of these laws.

AZB Response:
The Prevention of Money Laundering Act 2002 (the PML Act), together with the rules issued thereunder and the rules and regulations prescribed by regulators such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), set out the broad framework for the anti-money laundering laws in India. Some of the primary rules and guidelines regulating money laundering activities in India include:

· the Prevention of Money Laundering (Maintenance of Records) Rules 2005, as amended from time to time (the PML Rules), issued under the PML Act;

· the Master Circular on Guidelines on Anti-Money Laundering (AML) Standards/Combating Financing of Terrorism (CFT)/Obligations of Intermediaries under the Prevention of Money Laundering Act 2002 and the rules framed thereunder, issued by SEBI on 15 October 2019 (the SEBI AML Guidelines); and

· the Reserve Bank of India (Know Your Customer (KYC)) Directions 2016, issued by the RBI on 25 February 2016, as updated on 20 April 2020, which is the most up-to-date consolidation of the KYC guidelines and norms for all entities regulated by the RBI (RBI KYC Master Directions).

The PML Act

The PML Act was enacted by the Indian parliament in 2002 and came into force in 2005. It was enacted following the adoption of the Political Declaration and Global Programme of Action by the United National General Assembly in February 1990, which called upon member states to develop money laundering legislations and programmes. The PML Act not only criminalises the offence of money laundering but also puts in place preventive measures. These measures are proposed to be achieved through provisional attachment of ‘proceeds of crime’, which are likely to be concealed, transferred or dealt with in a manner that may obstruct proceedings, and through obligations imposed on banks, financial institutions and intermediaries to maintain records and supply information regarding certain types of transactions.

The PML Act provides for the appointment of authorities to administer and enforce the provisions of the PML Act. These authorities are vested with powers, similar to those vested in a civil court, to provisionally attach property involved in money laundering, issue summons and search, seize and arrest with regard to proceeds of crime. Under the PML Act, financial institutions and intermediaries, reference to which includes, inter alia, non-banking financial companies (NBFCs), stockbrokers and payment system operators, are required to maintain records of transactions of a prescribed nature and above certain thresholds. The procedure and manner for providing such information is prescribed by the RBI in consultation with the central government.

Although there is limited jurisprudence on the interpretation of provisions of the PML Act, as a general principle of law in India, courts have widely accepted the position that criminal statutes must be construed strictly, and that for a penalty to be imposed under any criminal statute, an offence must have been committed that falls not only within the letter but also within the spirit of the statute (see Glaxo Industries v Presiding Officer, Labour Court, Meerut AIR 1984 SC 505). Having said that, the courts in India have also held that where a plain reading of the statute does not cover the objectives of the legislature in passing the law, the courts must also have due consideration for those objectives while interpreting the provisions of the statute. The above principle is especially important in the context of socio-economic statutes, such as those dealing with corruption or violations of foreign exchange laws. Thus, one may view that the PML Act, if litigated before Indian courts, may also be interpreted and enforced in line with the above principles.

The PML Rules

The PML Rules have been issued by the central government in consultation with the RBI, setting out the process to be adopted by banks, financial institutions, persons carrying out a designated business or profession (designated persons) and intermediaries (collectively, reporting entities) for identifying and verifying their clients before commencing a business relationship with them. The PML Rules also prescribe exhaustive requirements for reporting entities to establish and verify the identity of any client at the time of operating an account or executing a transaction, including prescribing the documents that the reporting entity should seek from a client and maintain on record.

The definitions of the terms ‘financial institutions’, ‘designated persons’ and ‘intermediaries’ are extremely wide under the PML Act. The PML Rules cast obligations on reporting entities to maintain records of certain prescribed transactions, which include all transactions in excess of a certain value, series of interconnected transactions that may cumulatively amount to a prescribed value and suspicious transactions (as defined in the PML Rules), regardless of whether the transactions are effected in cash. The PML Rules stipulate that reporting entities should follow the procedures and manner of maintenance of records prescribed by their respective regulators. In this regard, the RBI has issued the RBI KYC Master Directions for banks and financial institutions, and the SEBI has issued the SEBI AML Guidelines for SEBI-registered intermediaries.

The RBI KYC Master Directions

The RBI KYC Master Directions were issued by the RBI and are applicable to all entities regulated by RBI (regulated entities), including banking companies and NBFCs. The purpose of the RBI KYC Master Directions is to prevent regulated entities from being used for money laundering or terrorist financing activities. The RBI KYC Master Directions require regulated entities to put in place requirements establishing the identity of customers, categorising customers based on the degree of risk they may pose, undertaking client due diligence (CDD) (including enhanced CDD for high-risk customers and beneficiary accounts) and procedures for dealing with various types of transactions, such as cross-border transactions, and reporting such transactions to the Financial Intelligence Unit.

The SEBI AML Guidelines

The SEBI AML Guidelines were issued by the SEBI and are applicable to SEBI-registered intermediaries. The SEBI AML Guidelines require that intermediaries must put in place policies and procedures to combat money laundering, which should include:

· communication of group policies relating to the prevention of money laundering and terrorist financing to all management and relevant staff members that handle account information, securities transactions, the client acceptance policy and CDD measures (including requirements for proper identification);

· maintenance of records;

· cooperation with the relevant law enforcement authorities (including the timely disclosure of information); and

· the role of internal audits or compliance functions to ensure compliance with the policies, procedures and controls relating to the prevention of money laundering and terrorist financing.

Investigatory powers

Question 2:

Describe any specific powers to identify proceeds of crime or to require an explanation as to the source of funds.

AZB Response:

The Directorate of Enforcement has been given wide powers under the PML Act to conduct search and seizure when it believes that a person has committed any act constituting money laundering, or is in possession of proceeds of crime, records or property relating to money laundering.

When any property or record is attached or seized, an application or complaint must be filed before the Adjudicating Authority, which has been constituted to exercise jurisdiction, powers and authority conferred by or under the PML Act. Typically, a criminal court or a special court set up for this purpose is appointed and vested with the powers of the Adjudicating Authority under the PML Act.

The Adjudicating Authority has been given powers under section 8 of the PML Act to serve a notice, if it has reason to believe that any person has committed an offence of money laundering or is in possession of proceeds of crime, calling upon the person to indicate the sources of his or her income, earnings or assets out of which or by which means he or she acquired the property that has been seized, attached or frozen and the evidence on which the person relies, as well as to show cause as to why those properties should not be declared to be properties involved in money laundering and confiscated by the central government.

An Adjudicating Authority has, for the purposes of the PML Act, been vested with the same powers as that of a civil court under the Code of Civil Procedure 1908, including, inter alia, in relation to discovery and inspection, compelling the production of records, receiving evidence on affidavits, enforcing the attendance of any person, etc.

Money laundering

Criminal enforcement

Question 3:

Which government entities enforce your jurisdiction’s money laundering laws?

AZB Response:

The Directorate of Enforcement (ED), which is under the administrative control of the Department of Revenue, the Ministry of Finance, the Indian government and the director of the Financial Intelligence Unit (FIU) under the Department of Revenue of the Ministry of Finance have been appointed to exercise exclusive powers under specific sections of the Prevention of Money Laundering Act 2002 (the PML Act).

Additionally, section 54 of the PML Act provides that certain officers are empowered and required to assist authorities under the Act with enforcement, including:

officers of the Customs and Central Excise Departments;
officers appointed in terms of certain provisions of the Narcotic Drugs and Psychotropic Substances Act 1985;
members and officers of recognised stock exchanges under the Securities Contracts (Regulation) Act 1956;
income tax authorities under the Income Tax Act 1961;
officers of the Reserve Bank of India (RBI);
officers of the police;
officers of enforcement appointed under the Foreign Exchange Management Act 1999;
officers of the Securities and Exchange Board of India (SEBI);
officers of the Insurance Regulatory and Development Authority;
officers of the Forward Markets Commission;
officers and members of associations recognised under the Forward Contracts (Regulation) Act, 1952;
officers of the Pension Fund Regulatory and Development Authority;
officers of the Department of Posts in the Indian government;
registrars and sub-registrars appointed by state governments under the Registration Act 1908;
registering authorities empowered to register motor vehicles under the Motor Vehicles Act 1988;
officers and members of the Institute of Chartered Accountants of India, the Institute of Cost and Works Accountants of India and the Institute of Company Secretaries of India;
officers of any other body corporate that is established under a state or central legislation; and
such other officers of the central government, state government, local authorities or reporting entities (ie, banks, financial institutions, persons carrying out a designated business or profession (designated persons) and intermediaries) who may be notified by a special order of the central government.

The PML Act specifically mandates assistance and cooperation between the above-mentioned authorities since an essential element for the commission of the offence of money laundering is being involved in a process or activity connected with the ‘proceeds of crime’ (including its concealment, possession, acquisition or use), and projecting or claiming those proceeds of crime as untainted property.

The PML Act defines ‘proceeds of crime’ to mean any property (or the value of any property) derived or obtained, directly or indirectly, by any person as a result of any offence under the Indian penal statutes set out in the Schedule to the PML Act (scheduled offences); or where such property is taken or held outside the country, the property equivalent in value held within the country or abroad. It has been clarified in an explanation that ‘proceeds of crime’ include not only property that is derived or obtained from scheduled offences but also any property that may directly or indirectly be derived or obtained as a result of any criminal activity that is relatable to a scheduled offence.

Part XIV of the Finance Act 2018, which came into effect on 19 April 2018, amended the definition of ‘proceeds of crime’ such that the right of attachment also extends to property (equivalent to the proceeds of crime) held outside India. Scheduled offences are the predicate offences for the commission of the offence of money laundering. Accordingly, if any transaction is not linked to a scheduled offence, the funds relating to those transactions would not constitute proceeds of crime, and, therefore, dealing in those funds would not amount to money laundering. The investigation of the offence of money laundering is, therefore, inextricably linked to the investigation of the scheduled offence, and it is on account of this that various investigative agencies have been directed in terms of the PML Act to coordinate and cooperate with the ED.

Scheduled offences and the offence of money laundering are proposed to be tried together by a special court constituted by the PML Act that has jurisdiction over the area in which the offence has been committed. Section 43 of the Act provides that the central government may, in consultation with the Chief Justice of the relevant High Court, designate one or more sessions courts as a special court. Accordingly, the commission of a scheduled offence must be alleged before the special court that is trying the offence of money laundering under the PML Act, and evidence and material relating to the scheduled offence must be placed before the special court to enable it to frame a charge in respect of the offence and try it (see Hasan Ali Khan v Union of India (2012 BomCR (Cri) 807)).

The Finance Act 2015 introduced certain amendments to the PML Act, including the replacement of the Adjudicating Authority with a special court, which will be authorised to adjudicate on and finalise an order of attachment of property. Additionally, a provision was also included in the PML Act that permits the special court to direct that any property that stands confiscated to the central government be restored to a claimant with a legitimate interest in the property who, acting in good faith, may have suffered a quantifiable loss as a result of the offence of money laundering, despite having taken all reasonable precautions. The special court has been empowered to consider the claim for restoration of such a claimant during the trial of the offence.

Pursuant to amendments made to the PML Act by the Finance Act 2016, the appellate tribunal constituted under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 1976 has been deemed to be the appellate tribunal for hearing appeals against the orders of the Adjudicating Authority and the director of FIU under the PML Act.

Defendants

Question 4:

Can both natural and legal persons be prosecuted for money laundering?

AZB Response:

Under the PML Act, both natural and legal persons can be prosecuted for money laundering.

The term ‘person’ under the PML Act has been defined to include individuals, companies, firms, associations of persons (whether incorporated or not), artificial juridical persons and agencies, offices and branches owned or controlled by any such natural or legal person. The PML Act provides for a wide range of penal actions that may be taken against persons in possession of proceeds of crime who have committed scheduled offences.

Under section 70 of the PML Act, if a body corporate (including a firm or association of individuals) contravenes any of the provisions of the PML Act, the persons in charge of the body corporate (and responsible to the body corporate for the conduct of its business) at the time of commission of the offence by the body corporate and the body corporate itself will be deemed to be guilty of the contravention of the provisions of the PML Act.

However, section 70 of the PML Act provides that persons in charge of the company will not be liable for the contravention if they are able to prove that the contravention of the PML Act by the body corporate took place without their knowledge or that they exercised all due diligence to prevent the commission of such an offence by the body corporate.

Further, where a contravention by a body corporate is attributable to any particular director, officer, secretary or manager (either on account of his or her consent, connivance or negligence), the director, officer, secretary or manager may also be prosecuted separately under the PML Act for the contravention committed by the body corporate.

The offence of money laundering

Question 5:

What constitutes money laundering?

AZB Response:

Offence of money laundering

Money laundering is defined in the PML Act as direct or indirect attempts to indulge in, knowingly assist or knowingly become a party to, or having actual involvement in, the process or activity connected with the proceeds of crime (including its concealment, possession, acquisition or use) and projecting or claiming such property as untainted property. Under section 3 of the PML Act, the following actions are tantamount to the offence of money laundering:

a direct or indirect attempt to indulge in any process or activity that is connected with the proceeds of crime (including its concealment, possession, acquisition or use), with the intention of projecting or claiming those proceeds of crime as untainted property;
any direct or indirect assistance in any process or activity connected with the proceeds of crime (including its concealment, possession, acquisition or use) and projecting or claiming those proceeds of crime as untainted property, provided that assistance is knowingly given; and
being, directly or indirectly, a knowing party to or being involved in any process or activity connected with the proceeds of crime (including its concealment, possession, acquisition or use) and projecting or claiming those proceeds of crime as untainted property.

Further, in the case of Hasan Ali Khan v Union of India, the Bombay High Court held that an offence is committed under the PML Act only when an attempt is made to demonstrate a legitimate source of earning with respect to a tainted property, namely with respect to proceeds of crime. In terms of section 24 of the Act, where there are any proceedings relating to proceeds of crime under the PML Act, in the case of a person involved in the offence of money laundering, unless the contrary is proved, it is presumed that the proceeds of crime are involved in the offence of money laundering.

The PML Act sets out certain specific offences that are referred to as ‘scheduled offences’ under the PML Act. These scheduled offences are further sub-divided into three categories, namely Part A, Part B and Part C offences. The commission of any offence mentioned in Part A of the Schedule to the PML Act (Part A offence) or Part C of the Schedule to the PML Act (Part C offence) constitutes a scheduled offence. Part C offences are those that have cross-border implications and are Part A offences, offences against property under Chapter XVII of the Penal Code 1860 (PC) or offences of wilful attempts to evade any tax, penalty or interest referred to in section 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 (the Black Money Act). The commission of an offence mentioned in Part B of the Schedule to the PMLA (Part B offence) constitutes a scheduled offence only if the total value involved in the offence is equal to or greater than 10 million rupees.

To constitute an offence of money laundering under section 3 of the PML Act, a person must knowingly assist or knowingly be a party to any process or activity connected with the proceeds of crime and in the projection or claiming of such proceeds of crime as untainted property, or be involved in concealing, acquiring or using such proceeds of crime. Therefore, the element of knowledge is an important constituent for the offence of money laundering in India; thus, a strict liability standard may not be applicable in India in the context of an offence of money laundering. The term ‘knowledge’ was specifically inserted into section 3 of the PML Act after deliberations over the draft bill in parliament prior to the passing of the PML Act. Therefore, the legislative intent of the parliament in this regard seems quite clear.

Banks, financial institutions, persons carrying out a designated business or profession (designated persons) and intermediaries (collectively, reporting entities) can be prosecuted or pursued for money laundering offences committed by their clients if it can be demonstrated that they were aware of the commission of a scheduled offence, knowingly became recipients of the proceeds of crime and projected the proceeds as untainted property. The obligations cast on the reporting entities in terms of the PML Act, the Prevention of Money Laundering (Maintenance of Records) Rules 2005, as amended from time to time (the PML Rules), the Reserve Bank of India (Know Your Customer (KYC)) Directions 2016 (the RBI KYC Master Directions) and the Master Circular on Guidelines on Anti-Money Laundering (AML) Standards/Combating Financing of Terrorism (CFT)/Obligations of Intermediaries under the Prevention of Money Laundering Act 2002 and the rules framed thereunder (the SEBI AML Guidelines) are to exercise due diligence in their dealings with clients and to maintain and supply records of certain prescribed dealings with clients. Accordingly, although the exercise of diligence on the part of the reporting entities does not constitute a defence under the PML Act and the PML Rules, it may be used as a factor in demonstrating the lack of knowledge of the commission of money laundering by their clients.

Qualifying assets and transactions

Question 6:

Is there any limitation on the types of assets or transactions that can form the basis of a money laundering offence?

AZB Response:

Determination of the commission of a scheduled offence is required to ascertain whether the offence of money laundering has been committed. For such a determination, a monetary threshold has been prescribed for certain scheduled offences (namely, Part B offences). Part B offences include offences of false declarations and false documents under section 132 of the Customs Act 1962, for which a monetary threshold of 10 million rupees has been prescribed. Accordingly, only if the total value involved in the commission of such a Part B offence exceeds 10 million rupees would the other elements of the offence of money laundering be satisfied.

In the context of a Part A offence and an offence of cross-border implications, however, the above monetary threshold do not apply.

Predicate offences

Question 7:

Generally, what constitute predicate offences?

AZB Response:

The Schedule to the PML Act sets out a list of offences (ie, scheduled offences), the commission of which are a prerequisite to determine whether the offence of money laundering has been committed. These include certain identified offences under the IPC (including, inter alia, criminal conspiracy, counterfeiting, kidnapping, extortion, robbery, receiving stolen property and fraud), the Arms Act 1959 (relating to, inter alia, the manufacturing and selling of arms and ammunition in contravention of the Arms Act), the Prevention of Corruption Act 1988 (PCA), the Wildlife (Protection) Act 1972, the Immoral Traffic (Prevention) Act 1956 and the Narcotic Drugs and Psychotropic Substance Act 1985 (the NDPS Act). Further, if the offence of a deliberate attempt to evade tax under section 51 of the Black Money Act has cross-border implications, then it is a scheduled offence under the PML Act.

Under the Black Money Act, wilful non-filing of returns or non-declaration of foreign incomes or assets in the periodic income tax returns is punishable by rigorous imprisonment for a period between six months and seven years. However, a declarant who has made a declaration under section 59 of the Black Money Act is immune from the PML Act to the extent of the scheduled offence of wilful attempt to evade tax, in respect of those declared assets.

The Finance Act 2018, which came into effect on 1 April 2018, also incorporated corporate fraud under the Companies Act 2013 in the list of scheduled offences under the PML Act. Further, through certain amendments to the PCA, with effect from 26 July 2018, the ambit of certain offences thereunder was widened, and certain additional offences were also added. Consequential amendments have also been made to the list of scheduled offences in the PML Act. As a result, the updated list of scheduled offences under the PML Act also includes, inter alia, offences such as bribing a public servant by a commercial organisation and taking an undue advantage to influence a public servant by corrupt or illegal means or by exercising personal influence as well as punishment for habitual offenders.

If vast sums of money arise from criminal acts that are not scheduled offences, even if attempts have been made to project these as legitimate earnings, the offence of money laundering could not have occurred since the predicate offence would not have been committed (Hasan Ali Khan v Union of India). The jurisdiction of the PML Act applies where an offence is committed by a person outside India and the offence would also constitute a scheduled offence (had it been committed in India), and any part of the proceeds of the offence have been remitted to India. Further, the jurisdiction of the PML Act also extends to situations where the scheduled offences have been committed within India, and all or part of the proceeds of crime have been remitted outside India.

Defences

Question 8:

Are there any codified or common law defences to charges of money laundering?

AZB Response:

There are no codified defences to the charge of money laundering other than demonstrating a lack of knowledge.

Resolutions and sanctions

Question 9:

What is the range of outcomes in criminal money laundering cases?

AZB Response:

An offence of money laundering is punishable by imprisonment for a term of between three years and seven years and, additionally, a fine. The maximum term of imprisonment may extend to 10 years in the event that the proceeds of crime relate to an offence under the NDPS Act (which deals with crimes relating to narcotics). Plea bargaining is available in terms of the Code of Criminal Procedure 1973 (CrPC), although not for:

offences that have been notified by the government as affecting the ‘socio-economic condition of the country’; or
offences where the punishment prescribed by law is:
death;
life imprisonment; or
imprisonment for a term in excess of seven years.
The offence of money laundering has not yet been notified as affecting the ‘socio-economic condition of the country’ and is, accordingly, not precluded from being eligible for plea bargaining. Further, given that the maximum punishment is seven years’ imprisonment (except in the case of proceeds of crime arising out of an offence under the NDPS Act), plea bargaining should be available for the offence of money laundering. In this regard, if the courts in India consider the PML Act as a socio-economic statute like the corruption laws and other statutes, then plea bargaining may not be available.

The process for plea bargaining involves the accused making an application to the court and, upon the court being satisfied that the application was made voluntarily, making an order for the accused to work out a mutually satisfactory disposition of the case that may include the accused giving to the victim the compensation and other expenses during the case and thereafter.

Under the PML Act, fines ranging from 10,000 rupees to 100,000 rupees for each failure can be imposed on a reporting entity if it has failed to maintain records or supply information in the manner prescribed under the PML Act and the PML Rules.

In addition, although the PML Act and PML Rules do not provide for the revocation of licences of reporting entities, this may be possible based on the circulars relating to KYC and AML, issued by the regulators of the reporting entities. The RBI KYC Master Directions were issued by the RBI under section 35A of the Banking Regulation Act 1949 (the BR Act) (which empowers the RBI to issue such general or specific directions ‘as it may deem fit’), as well as under the PML Rules. Section 35A of the BR Act, read with section 22, provides that if a banking company does not comply with a direction validly issued by the RBI, then the RBI has the power to revoke the banking licence of the banking company. Accordingly, in the event that a banking company fails to comply with the provisions of the RBI KYC Master Directions, the RBI may be empowered to revoke the licence of the banking company.

Similarly, sections 45K and 45L read with section 45 IA(6) of the Reserve Bank of India Act 1934 provide that if an NBFC fails to comply with the provisions of a direction issued by the RBI, including, for instance, the RBI KYC Master Directions, the RBI is empowered to cancel the registration of the NBFC.

Section 11B of the SEBI Act 1992, inter alia, empowers the SEBI to regulate the securities market by any measures as it thinks fit and to cancel the licence of an intermediary for non-compliance with the directions issued by the SEBI, including, for instance, the SEBI AML Guidelines.

Forfeiture

Question 10:

Describe any related asset freezing, forfeiture, disgorgement and victim compensation laws.

AZB Response:

Provisional attachment

The PML Act provides for the provisional attachment of any property that is the proceeds of crime, pending a final confirmation by the Adjudicating Authority under the PML Act. The term ‘property’ has been defined very broadly to mean any property or assets of every description, whether corporeal or incorporeal, movable or immovable and tangible or intangible, and it includes deeds and instruments evidencing title to, or interest in, such property or assets wherever located. Further, the term ‘property’ includes property of any kind used in the commission of an offence under the PMLA Act; or any scheduled offence.

The amendment to the definition of ‘proceeds of crime’ under the PML Act by the Finance Act 2015 enables the attachment and confiscation of equivalent assets in India where the proceeds of crime have been taken or held outside India. Further, the Finance Act 2018 amended the definition of ‘proceeds of crime’ such that such right of attachment also extends to property (equivalent to the proceeds of crime) held outside India.

In terms of section 5 of the PML Act, if the ED, based on the materials in its possession, has reason to believe that a person is in possession of proceeds of crime and those proceeds are likely to be concealed, transferred or dealt with in any manner that may result in frustrating any proceedings relating to the confiscation of those proceeds, then the ED, by an order in writing, may provisionally attach such property for a period of 180 days from the date of the order or until a confirming order is passed by the Adjudicating Authority under section 8(2) of the PML Act, whichever is earlier. An order of provisional attachment can be made only after a report has been forwarded to a magistrate under section 173 of the CrPC in relation to a scheduled offence or a complaint has been filed before a magistrate for taking cognisance of the scheduled offence. The Finance Act, 2018 has clarified that in computing the 180-day period for provisional attachment of the property, the period during which the proceedings are stayed by the relevant High Court is excluded, and a further period not exceeding 30 days from the date of order of vacation of the stay order is counted.

The PML Act does not define or explain the term ‘reason to believe’. However, the construction of the phrase may be aided by the definition of the term in section 26 of the PC, wherein it is provided that a person may have reason to believe something if there is sufficient cause to believe it, but not otherwise. The courts have held that ‘reason to believe’ does not mean a purely subjective satisfaction, and the belief must be held in good faith. It is open for the courts to examine the reasons for a belief and to ascertain whether these reasons are relevant and not extraneous to the matter in question.

It has been held by the courts (albeit not in the context of the PML Act, but in the context of other statutes) that a mere doubt or suspicion cannot be a reason to believe. Following provisional attachment under section 5 of the PML Act, the ED, or an officer authorised in this regard, is required to forward the material in its possession along with the provisional attachment order in a sealed envelope to the Adjudicating Authority in accordance with the procedure prescribed in the Prevention of Money Laundering (the Manner of forwarding a Copy of the Order of Provisional Attachment of Property along with the Material, and Copy of the Reasons along with the Material in respect of Survey, to the Adjudicating Authority and its Period of Retention) Rules 2005. The PML Act specifically permits a person interested in the ‘enjoyment’ of immovable property to enjoy the immovable property that has been attached.

In the judgment of B Rama Raju v Union of India (2011 164 CompCas 149(AP)), the Andhra Pradesh High Court held that for the purposes of attachment and confiscation (which are civil and economic consequences and not penal sanctions and are distinct from the process for prosecution under the PML Act) neither mens rea nor knowledge that a property has a lineage of criminality has been statutorily prescribed as a prerequisite. Therefore, even where a person has not been charged with the predicate offence or the offence of money laundering, the authorities may, nevertheless, attach (and confiscate) property in the possession of the person if the property constitutes the proceeds of crime.

Limitation periods on money laundering prosecutions

Question 11:

What are the limitation periods governing money laundering prosecutions?

AZB Response:

The PML Act does not specifically provide for a limitation period in relation to the offence of money laundering. However, section 468 of the CrPC specifies the limitation periods of various categories of offences in India. Under section 468, for an offence punishable with imprisonment for a term greater than three years, there is no limitation period. The CrPC defines the term ‘offence’ to mean ‘any act or omission made punishable by any law for the time being in force’. Consequently, the offence of money laundering under the PML Act constitutes an ‘offence’ within the meaning of the CrPC. Given that the offence of money laundering is punishable with imprisonment from three to 10 years, in accordance with the provisions of section 468 of the CrPC, there is no limitation period for the offence of money laundering.

Further, under section 468 of the CrPC, if two or more offences are being tried together, then the limitation period for each offence will be determined with reference to the offence that is punishable with the most severe punishment. Thus, if a person is prosecuted simultaneously for a scheduled offence punishable by imprisonment for a term of less than three years together with the offence of money laundering under the PML Act (which is punishable with imprisonment for three or more years), then even if the limitation period for the underlying scheduled offence may have expired when considered independently, the accused person may still be tried for the scheduled offence in light of section 468 of the CrPC, given that the limitation period in such a scenario for both offences would be determined based on the offence of money laundering and not the scheduled offence.

Extraterritorial reach of money laundering law

Question 12:

Do your jurisdiction’s money laundering laws have extraterritorial reach?

AZB Response:

The PML Act applies to the whole of India; however, its application is not restricted to property situated in India. The term ‘property’ is defined under the PML Act to include any property or assets, wherever located, so long as it is derived from, arises out of or is related to any of the scheduled offences. The amendment to the definition of ‘proceeds of crime’ under the PML Act, by the Finance Act 2015, enables the attachment and confiscation of equivalent assets in India where the proceeds of crime have been taken or held outside India. Further, the Finance Act 2018 has amended the definition of ‘proceeds of crime’ such that this right of attachment also extends to property (equivalent to the proceeds of crime) held outside India.

To give effect to this limited extraterritorial application in the context of certain specified offences that may be committed abroad (which also constitute scheduled offences if committed in India) but the proceeds of which may have been remitted to India, or where the scheduled offence may have been committed in India but the proceeds of the crime are remitted abroad, section 56 of the PML Act empowers the central government to enter into reciprocal arrangements with the government of any country outside India for enforcing the provisions of the PML Act and for the exchange of information for the prevention of any offence under the PML Act or under the corresponding law in force in that country, or for investigation under the PML Act.

On 1 August 2018, the government notified the Fugitive Economic Offenders Act 2018 (the Economic Offenders Act), effective retrospectively from 21 April 2018, to deter fugitive economic offenders from evading the process of law by staying outside the jurisdiction of Indian courts. For operationalising the Economic Offenders Act, the Fugitive Economic Offenders (Procedure for Conducting Search and Seizure) Rules 2018 have also been notified with effect from 24 August 2018. Some of the key provisions of the Economic Offenders Act are set out below:

a ‘fugitive economic offender’ is defined as an individual against whom an arrest warrant has been issued for committing any prescribed offence (where the value exceeds 1 billion rupees), and has left the country to avoid facing prosecution or has refused to return to face prosecution;
if any person against whom an application has been filed fails to appear (in person or through counsel) after a notice issued by the special court, then the person may be declared a ‘fugitive economic offender’;
any property of the fugitive economic offender can be attached for 180 days unless further extended by the special court. The properties will be released if the person is not found to be a fugitive economic offender at the conclusion of proceedings; and
the special court is entitled to confiscate properties, free of encumbrances, of any person declared as a ‘fugitive economic offender’ that are proceeds of a crime in India or abroad, benami properties in India or abroad or any other property in India or abroad. However, the special court is empowered to exempt from confiscation, any property in which a third party has a bona fide interest, without knowledge of the fact that the property is a proceed of crime.

The PML Act also contemplates ‘offences of cross-border implications’, which are:

offences committed or related to conduct outside India that constitute an offence in that jurisdiction and are scheduled offences under the PML Act, and a part of or all the proceeds of crime arising from such conduct are remitted to India; or
scheduled offences committed in India, and part of or all the proceeds of crime have been transferred or have been attempted to be transferred from India to a place outside India.
Offences with cross-border implications are scheduled offences under the PML Act and, accordingly, the PML Act may be applicable to those offences. In addition to this, the Black Money Act provided for a three-month window from 1 July 2015 to 30 September 2015 within which a person could make a declaration in respect of his or her undisclosed assets located outside India, and pay the prescribed rate of tax and penalty on those foreign assets on or before 31 December 2015, failing which those individuals would be subject to all the provisions of the Black Money Act, including penalties and prosecutions. The offence of wilful attempt to evade tax under section 51 of the Black Money Act has also been included in the list of scheduled offences under the PML Act, and accordingly, the PML Act may be applicable to those offences.

Further, the UN Security Council Resolution 1373 obliges countries to freeze without delay the funds or other assets of:

persons who commit, or attempt to commit, terrorist acts, or participate in or facilitate the commission of terrorist acts;
entities owned or controlled directly or indirectly by (1); and
persons and entities acting on behalf of, or at the direction of, (1) or (2), including funds or other assets derived or generated from property owned or controlled, directly or indirectly, by those persons and associated persons and entities.
Each country has the authority to designate the persons and entities that should have their funds or other assets frozen. Additionally, to ensure that effective cooperation is developed among countries, countries should examine and give effect to, if appropriate, the actions initiated under the freezing mechanisms of other countries. To give effect to the requests of foreign countries under UN Security Council Resolution 1373, the Ministry of External Affairs will examine the requests made by foreign countries and forward it electronically, with their comments, to a designated officer for the freezing of funds or other assets. Freezing orders take place without prior notice to the designated persons involved.

AML requirements for covered institutions and individuals

Enforcement and regulation

Question 13:

Which government entities enforce your jurisdiction’s AML regime and regulate covered institutions and persons? Do the AML rules provide for ongoing and periodic assessments of covered institutions and persons?

AZB Response:

There are several government entities that are collectively responsible for different aspects of enforcement and regulation of the AML framework in India.

The Financial Intelligence Unit (FIU) was set up by the government by way of an office memorandum on 18 November 2004 as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions. The FIU is also responsible for coordinating and strengthening the efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes. The FIU is an independent body reporting directly to the Economic Intelligence Council, headed by the Finance Minister.

By way of an order dated 1 July 2005, the central government empowered the Directorate of Enforcement (ED) (which is under the administrative control of the Department of Revenue of the Ministry of Finance and the government for operational purposes) to exercise exclusive powers regarding the investigation and prosecution of cases under the Prevention of Money Laundering Act 2002 (the PML Act).

In addition, section 54 of the PML Act provides that certain officers are empowered and required to assist authorities under the Act with enforcement. Given that the PML Act requires that the scheduled offence (ie, the offence under the Indian penal statutes set out in the Schedule to the PML Act) and the offence of money laundering are tried together, the investigative agencies responsible for prosecuting the predicate scheduled offence have been mandated to assist the ED that is authorised to prosecute the offence of money laundering.

Further, the Reserve Bank of India (RBI) regulates banks and financial institutions, including in relation to their obligations under the PML Act, the Prevention of Money Laundering (Maintenance of Records) Rules 2005, as amended from time to time (the PML Rules), and the Reserve Bank of India (Know Your Customer (KYC)) Directions 2016 (the RBI KYC Master Directions). Similarly, the Securities and Exchange Board of India (SEBI) regulates intermediaries registered with it, including in relation to their obligations under the PML Act, the PML Rules and the Master Circular on Guidelines on Anti-Money Laundering (AML) Standards/Combating Financing of Terrorism (CFT)/Obligations of Intermediaries under the Prevention of Money Laundering Act 2002 and the rules framed thereunder (the SEBI AML Guidelines).

Covered institutions and persons

Question 14:

Which institutions and persons must carry out AML measures?

AZB Response:

Reporting entities, namely banks, financial institutions, intermediaries, and designated persons, are required to carry out certain anti-money laundering measures, including customer identification, client due diligence (CDD), customer acceptance, and tracking and reporting of certain types of transactions. The terms ‘financial institutions’, ‘intermediaries’ and ‘designated persons’ have wide definitions under the PML Act.

Financial institutions have been defined as companies, corporations or cooperative societies carrying out the activities prescribed under section 45I of the RBI Act and include chit fund companies, housing finance institutions, authorised persons, payment system operators, non-banking financial companies and the Department of Posts.

Intermediaries have been defined as:

stockbrokers, share transfer agents, merchant bankers, underwriters, investment advisers or other institutions registered as intermediaries with SEBI under section 12 of the SEBI Act 1992 (the SEBI Act);
associations registered or recognised under the Forward Contracts (Regulation) Act 1952;
institutions registered with the Pension Fund Regulatory and Development Authority as intermediaries; and
recognised stock exchanges.
Designated persons include, among others, the following:

person carrying out activities for playing games of chance for cash or kind, including such activities associated with casinos;
registrars who record transactions relating to immovable property, as may be notified by the central government;
real estate agents, as may be notified by the central government;
dealers in precious metals, precious stones and other high-value goods, as may be notified by the central government; and
persons engaged in the safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the central government.

Compliance

Question 15:

Do the AML laws in your jurisdiction require covered institutions and persons to implement AML compliance programmes? What are the required elements of such programmes?

AZB Response:

Pursuant to the PML Act and the PML Rules, reporting entities are required to appoint a principal officer who is responsible for supplying information specified under the PML Rules to the office of the director of FIU, and a designated director who is responsible for ensuring compliance with the obligations cast on the reporting entity under Chapter IV of the PML Act and the PML Rules. Names, designations and addresses (including email addresses) of the principal officer and the designated director, including any changes therein, must be intimated to the office of the director of the FIU. The designated director is required to be of a sufficiently senior position and able to discharge the functions with independence and authority. Further, every SEBI-registered intermediary should ensure that a proper policy framework required by the AML Guidelines is put into place.

Financial institutions (and other entities regulated by RBI) are required to have a know your customer policy (KYC policy) duly approved by the board of directors of the entity or any committee of the board to which such power has been delegated. The KYC policy must include following four key elements, namely a customer acceptance policy, risk management parameters, customer identification procedures and monitoring of transactions. These regulated entities are now mandated to carry out ‘Money Laundering (ML) and Terrorist Financing (TF) Risk Assessment’ exercises periodically to identify, assess and take effective measures to mitigate their money laundering and terrorist financing risk for clients, countries or geographic areas, products, services, transactions or delivery channels. Regulated entities are further required to apply a risk-based approach for the mitigation and management of identified risks and should have policies, controls and procedures in this regard, approved by their board of directors.

Record-keeping and reporting are integral elements of the compliance programme.

Further, as part of such compliance requirements, reporting entities and their directors, officers and employees (permanent and temporary) are prohibited from disclosing (tipping off) to their client the fact that a suspicious transaction report or related information is being reported or provided to the Financial Intelligence Unit.

Breach of AML requirements

Question 16:

What constitutes breach of AML duties imposed by the law?

AZB Response:

The following constitute a breach of AML duties imposed by law:

acting in breach of section 3 of the PML Act by way of direct or indirect attempts to indulge in, knowingly assist or knowingly become a party to, or having actual involvement, in the process or activity connected with the proceeds of crime (including its concealment, possession, acquisition or use) and projecting or claiming such proceeds of crime as untainted property; or
reporting entities acting in breach of the various compliance requirements imposed on them under Chapter IV of the PML Act, the PML Rules or specific guidelines and regulations issued by the RBI or SEBI (including the RBI KYC Master Directions and SEBI AML Guidelines).

Customer and business partner due diligence

Question 17:

Describe due diligence requirements in your jurisdiction’s AML regime.

AZB Response:

The PML Rules require that every reporting entity:

at the time of commencement of an account-based relationship, verify the client’s identity as well as its beneficial owners (if the client is acting on behalf of a beneficial owner) and obtain information on the purpose and intended nature of the business relationship; and
in all other cases, verify the client’s identity while carrying out:
transactions of an amount equal to or exceeding 50,000 rupees, whether conducted as a single transaction or several transactions that appear to be connected; or
any international money transfer operations.

However, irrespective of the amount deposited, invested or transacted by clients, no minimum threshold or exemption is available from obtaining the minimum information or documents from clients as stipulated in the PML Rules regarding the verification of the records of the identity of clients. Further, no exemption from carrying out CDD exists in respect of any category of clients. In other words, there is no minimum investment threshold or category exemption available for carrying out CDD measures by registered intermediaries.

The PML Rules require an intermediary to obtain certain minimum documentation from a client to verify the client’s identity. The nature of the documentation that is required to be obtained is in turn dependent on the nature of the client. In the past, individuals were required to submit certified copies of an officially valid document while opening a bank account; however, pursuant to an amendment to the PML Rules in 2017, it was made mandatory for Indian-resident individuals to provide their Aadhaar number (a 12-digit unique identification number) issued by the Unique Identification Authority of India (UIDAI) for opening bank accounts and for transactions exceeding 50,000 rupees. The provisions of the PML Rules provided that bank accounts that were not linked by 31 March 2018 were to be frozen, and no new accounts were to be opened without the submission of an Aadhaar number after this date. However, the constitutional validity of the Aadhaar regime was challenged before the Supreme Court (the apex judicial authority in India), and although the constitutional validity of the Aadhaar regime was upheld, certain provisions were read down, including the aforementioned provisions in relation to the Aadhaar number being mandatory for opening or operating bank accounts. Corresponding changes in other legislation (including the PML Rules) were subsequently brought about, prescribing that the linking of the Aadhaar number to bank accounts is voluntary.

Currently, the following documents must be obtained by a reporting entity for opening an individual client’s account: the client’s Aadhaar number, or proof of possession of an Aadhaar number (for carrying out offline verification), or any officially valid document containing details of his or her identity and address; his or her permanent account number; and other documents in respect of the nature of the business and financial status of the client as may be required.

The RBI also mandates similar KYC norms for banks, requiring regular monitoring of transactions and periodical updates of the customer identification data for high-risk individuals every two years.

Beneficial ownership

A client has been defined as a person who engages in a financial transaction or activity with a reporting entity and includes a person on whose behalf the person engaged in the transaction or activity is acting. The PML Act has been amended to define the term ‘beneficial owner’ as an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person. Therefore, an obligation is cast upon the reporting entities to ensure that the entities know the ‘true identity’ of each and every client, without any exceptions.

High-risk categories of customers, business partners and transactions

Question 18:

Do your jurisdiction’s AML rules require that covered institutions and persons conduct risk-based analyses? Which high-risk categories are specified?

AZB Response:

The RBI KYC Master Directions and the SEBI AML Guidelines provide for certain parameters of risk perception to be defined in terms of the nature of business activity, location of clients, mode of payments, volume of turnover, social and financial status, and so on, to enable the categorisation of customers into low, medium and high risk. Customers requiring a very high level of monitoring (eg, politically exposed persons (PEPs)) may, if considered necessary, be categorised even higher.

Banks, financial institutions and financial intermediaries must put in place documentation requirements in respect of different categories of customers depending on perceived risk and keeping in mind the requirements of the PML Act. The nature and extent of CDD depends on the risk perceived by the bank, and the information sought from a customer must be relevant to the risk category and should not be intrusive. For the purpose of risk categorisation, individuals (other than high net worth individuals) and entities whose identities and sources of wealth can be easily identified and transactions in whose accounts by and large conform to the known profile, may be categorised as low risk. Banks must apply enhanced CDD for high-risk customers, especially those for whom the sources of funds are not clear.

Some instances of high-risk customers requiring enhanced due diligence include:

non-resident customers;
high net worth individuals;
trusts, charities, non-governmental organisations (NGOs), non-profit organisations (NPOs) and organisations receiving donations;
companies having close family shareholding or beneficial ownership;
firms with ‘sleeping partners’;
PEPs of foreign origin, customers who are close relatives of PEPs and accounts of which a PEP is the ultimate beneficial owner; and
non-face-to-face customers and those with dubious reputations as per public information available.
However, NPOs and NGOs promoted by the United Nations or its agencies may be classified as low-risk customers.

Banks and other regulated entities are mandated to carry out ‘Money Laundering (ML) and Terrorist Financing (TF) Risk Assessment’ exercises periodically to identify, assess and take effective measures to mitigate their money laundering and terrorist financing risk for clients, countries or geographic areas, products, services, transactions or delivery channels. The risk assessment process should consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied. The risk assessment by regulated entities must be properly documented and should be proportionate to the nature, size, geographical presence and complexity of the activities or structure of the regulated entity.

Further, the periodicity of the risk assessment exercise must be determined by the board of directors of the entity, in line with the outcome of the risk assessment exercise. However, it should be reviewed at least annually. The outcome of the risk assessment exercise must be put up to the board of directors (or the relevant committee of the board) of the entity and should be made available to competent authorities and self-regulating bodies, as required by them.

Regulated entities must apply a risk-based approach for the mitigation and management of the identified risks and should have policies, controls and procedures, approved by their board of directors, in this regard.

Banks and non-banking financial companies (NBFCs) are required to have policies, controls and procedures in place to effectively manage and mitigate their risk adopting a risk-based approach as discussed above. In this regard, the Indian Banks’ Association (IBA) has taken initiative in assessing the money laundering and terrorist financing risk in the banking sector and has prepared a guidance note on KYC norms and AML standards in July 2009. The IBA guidance also provides an indicative list of high-risk customers, products, services and geographies. The RBI has clarified that banks and NBFCs may use the same guidance in their own risk assessments.

Record-keeping and reporting requirements

Question 19:

Describe the record-keeping and reporting requirements for covered institutions and persons.

AZB Response:

Pursuant to the PML Rules, every reporting entity is required to maintain a record of all transactions, including a record of:

all cash transactions where the value is more than 1 million rupees or its equivalent in foreign currency;
all series of cash transactions that are integrally connected to each other and that have been valued below 1 million rupees or its equivalent in foreign currency, where the series of transactions have taken place within a month and the aggregate value of the transactions exceeds 1 million rupees or its equivalent in foreign currency;
all transactions involving receipts by NPOs of a value of over 1 million rupees or its equivalent in foreign currency;
all cash transactions where counterfeit currency notes or bank notes have been used as genuine currency or where any forgery of a valuable security or a document has taken place facilitating the transactions; and
all ‘suspicious transactions’; in other words, transactions, including attempted transactions, regardless of whether these are made in cash, that to a person acting in good faith:
gives rise to reasonable grounds of suspicion that it may involve proceeds of a scheduled offence, regardless of the value involved;
appears to be made in circumstances of unusual or unjustified complexity;
appears to have no economic rationale or bona fide purpose; or
gives rise to a reasonable ground of suspicion that it may involve financing of activities relating to terrorism, regardless of whether it is in cash, made by way of:
deposits and credits, withdrawals into or from any accounts by way of cheques, travellers cheques or transfers from one account to another within the same reporting entity and any other mode in whatever name it is referred to;
credits or debits into or from any non-monetary accounts, such as demat accounts or security accounts, in any currency, maintained with the reporting entity;
money transfers or remittances in favour of clients or non-clients from India or abroad and to third-party beneficiaries in India or abroad, including transactions on its own account in any currency by any mode of money transfer;
loans and advances including credit or loan substitutes, investments and contingent liability by way of subscription to debt instruments such as: commercial papers, certificates of deposit, preferential shares, debentures, securitised participation, interbank participation or any other investments in securities; purchase and negotiation of bills, cheques and other instruments; foreign exchange contracts, currency, interest rate and commodity and any other derivatives; or letters of credit, standby letters of credit, guarantees, comfort letters, solvency certificates or any other instrument for settlement or credit support;
collection services in any currency by way of the collection of bills, cheques, instruments or any other mode of collection;
all cross-border wire transfers of the value of more than 500,000 rupees or its equivalent in foreign currency where either the origin or destination of the funds is in India; or
all purchases and sales by any person of immovable property valued at 5 million rupees or more that is registered by the reporting entity, as the case may be.
For the purpose of reporting suspicious transactions, apart from ‘transactions integrally connected’, ‘transactions remotely connected or related’ must also be considered.

The records required to be maintained with respect to a transaction must contain all the necessary information specified by the regulator of the regulated entity to permit reconstruction of individual transactions, including the following information:

the nature of the transaction;
the amount of the transaction and the currency in which it was denominated;
the date on which the transaction was conducted; and
the parties to the transaction.
The records are required to be maintained using the procedure and in the manner specified by the PML Rules. Every reporting entity must maintain such records as are sufficient to permit reconstruction of individual transactions (including the amounts and types of currencies involved, if any) so as to provide, if necessary, evidence for prosecution of criminal behaviour. Should there be any suspected drug-related or other laundered money or terrorist property, the competent investigating authorities may need to go through the audit trail to reconstruct a financial profile of the suspect account. To enable this reconstruction, registered intermediaries should retain the following information for the accounts of their clients in order to maintain a satisfactory audit trail:

the beneficial owner of the account;
the volume of the funds flowing through the account; and
for selected transactions:
the origin of the funds;
the form in which the funds were offered or withdrawn (eg, cheques and demand drafts);
the identity of the person undertaking the transaction;
the destination of the funds; and
the form of instruction and authority.
Every reporting entity must ensure that all client and transaction records and information are made available on a timely basis to the competent investigating authorities. Where required by the investigating authority, they should retain certain records, such as client identification, account files and business correspondence for periods that may exceed those typically required under the relevant legislation, rules and regulations, including the Banking Regulation Act 1949, the RBI Act, the SEBI Act, the rules and regulations framed under each of these and the PML Act.

The principal officer is under an obligation to supply information relating to suspicious transactions to the office of the director of the FIU no later than seven working days on being satisfied that the transaction is suspicious. Reporting entities should not put any restrictions on operations on the accounts where a suspicious transaction report has been made.

The principal officer must supply information in respect of cash transaction (individual or connected) of a value of more than 1 million rupees, receipts by NPOs of more than 1 million rupees, counterfeit currency transactions and cross-border wire transfers of a value of more than 500,000 rupees every month to the office of the director of the FIU by the 15th day of the following month. Further, the principal officer must supply information relating to transactions in immovable property valued at more than 5 million rupees every quarter to the office of the director of FIU by the 15th day of the month following the quarter (ie, April, July, October or January).

Pursuant to the RBI KYC Master Directions and the SEBI AML Guidelines, the background, including all documents, office records, memoranda and clarifications, sought pertaining to transactions that are deviant from the client’s normal activity and purpose thereof must also be examined, and findings should be recorded in writing. Further, those findings, records and related documents should be made available to auditors as well as to the RBI, the SEBI, the FIU and other relevant authorities during audit, inspection or as and when required. These records must be preserved for a period of at least five years.

In addition to the above, pursuant to an amendment to the PML Rules, linking of a client’s Aadhaar number to bank accounts was made mandatory for Indian-resident individuals, and existing bank account holders had to furnish the Aadhaar number issued by the UIDAI by 31 March 2018, failing which the accounts were to cease to be operational. However, this requirement has been discarded, and the requirement to link Aadhaar numbers to bank accounts is now voluntary.

Reporting of suspicious transactions

Any suspicious transaction (in the form of a detailed report that includes details of clients, transactions and the nature or reason of suspicion) must immediately be notified to the designated officer within the reporting entity. The principal officer and other related staff members are required to have timely access to client identification data and CDD information, transaction records and other relevant information.

To ensure that the registered intermediaries properly discharge their legal obligations to report suspicious transactions to the authorities, the principal officer acts as a central reference point in facilitating the reporting of suspicious transactions and for playing an active role in the identification and assessment of potentially suspicious transactions, and has access to and is able to report to senior management at the next reporting level or the board of directors.

UN designated list

Pursuant to a circular dated 23 October 2009, all banks, financial institutions and intermediaries are required to maintain an updated list of designated persons who are subject to United Nations sanctions measures and run a periodic check based on certain parameters to identify whether those persons have any transactions with the intermediary. If, pursuant to the check, a client’s details match with the United Nations’ designated persons list, the intermediary is required to inform the joint secretary (Internal Security 1 (IS-1) division) at the Ministry of Home Affairs, the Unlawful Activities (Prevention) Act (UAPA) Nodal Officer of the state where the account is held, the UAPA Nodal Officer of the SEBI and the office of the director of the FIU of the name and details of the client within 24 hours. If the details of the client match the details of a designated person beyond doubt, the bank, financial institution or intermediary is under an obligation to prevent the person from conducting financial transactions and to notify the joint secretary (IS-1 division) at the Ministry of Home Affairs. These transactions must also be included in the suspicious transaction reports submitted to the FIU in the prescribed format.

Privacy laws

Question 20:

Describe any privacy laws that affect record-keeping requirements, due diligence efforts and information sharing.

AZB Response:

Under section 12 of the PML Act, every reporting entity is required to maintain certain records and disclose such information to the authorities under the PML Act.

The Information Technology Act 2000 and the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules 2011 (the Sensitive Information Rules) impose certain data protection obligations on the collection, storage and transmission in electronic format of information that is considered to be ‘sensitive personal data or information’.

Sensitive personal data or information has been defined in the Sensitive Information Rules as ‘personal information’ (ie, any information relating to a natural person that, in combination with information available or likely to be available with an entity, is capable of identifying the person) that comprises:

passwords;
financial information, such as bank account, debit or credit card details;
an individual’s physical, psychological and mental health condition;
an individual’s sexual orientation;
medical records and history;
biometric information;
any details relating to the above as provided to the body corporate for providing a service; and
any information received relating to the above by the body corporate for processing or that is to be stored or processed under a lawful contract or otherwise.
The Sensitive Information Rules lay down practices and procedures that must be followed when collecting, storing and transferring sensitive personal data or information. The Rules prohibit the sharing of sensitive personal data or information unless the person to whom the data or information pertains (the data subject) has consented in writing to the sharing of the information, or the sharing of the information is necessary for the performance of the contract between the data subject and the body corporate that seeks to share the information. The Sensitive Information Rules, however, expressly permit the disclosure of sensitive personal data or information:

to the extent necessary to comply with legal obligations;
where a government agency that is mandated under law to obtain the information makes a request in writing for the information; and
pursuant to any order passed under law that is in force.

Accordingly, the storing and disclosure of information in terms of the PML Act should not be in violation of the Sensitive Information Rules. In addition, section 14 of the PML Act also provides that no civil or criminal proceedings may be initiated against a reporting entity for divulging records of transactions to the enforcement authorities under the PML Act in accordance with the provisions of section 12 of the Act.

An entity that collects, possesses or handles the ‘personal information’ or ‘sensitive personal data or information’ of the provider of the information is required to maintain a privacy policy for handling such information and must ensure that the privacy policy is available to the providers of the information in accordance with Rule 4 of the Sensitive Information Rules. The privacy policy must also be published on the website of the entity or any person on its behalf. The privacy policy must stipulate, inter alia, the type of ‘personal information’ or ‘sensitive personal data or information’ collected, the purpose and usage of the information, the details regarding disclosure of the information to third parties and the reasonable security practices and procedures followed by the body corporate to safeguard the ‘personal information’.

The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act 2016 (the Aadhaar Act), being the principal statute that governs the Aadhaar regime provides, inter alia, that a requesting entity is required to obtain the consent of an individual before collecting his or her identity information for the purposes of authentication in the manner prescribed, and to ensure that all the information is used only for submission to the Central Identities Data Repository for authentication. No identity information available with a requesting entity is permitted to be used for any purpose other than that specified to the individual at the time of submitting any identity information for authentication, or disclosed further, except with the prior consent of the individual to whom the information is related. The regulations also impose specific obligations and responsibilities on a requesting entity that uses the authentication and e-KYC facilities of the UIDAI, such as not sharing the data with any further entity and maintaining auditable logs of transactions where the e-KYC has been shared with other agencies.

The Aadhaar (Authentication) Regulations 2016 (the Authentication Regulations) also provide for, inter alia, the obligation to maintain logs of the authentication transactions processed by it, containing prescribed details, and also grant the UIDAI with audit rights in relation to a requesting entity’s operations, infrastructure, systems and procedures in relation to compliance with the Aadhaar Act and the regulations formulated thereunder. Regulation 17 of the Authentication Regulations also provide, inter alia, that a requesting entity must ensure that:

the core biometric information collected from the Aadhaar number holder is not stored, shared or published for any purpose whatsoever, and no copy of the core biometric information is retained with it, and the core biometric information is not transmitted over a network without the prescribed information technology security measures;
identity information received during authentication is used only for the purpose specified to the Aadhaar number holder at the time of authentication and must not be disclosed further, except with the prior consent of the Aadhaar number holder to whom the information relates;
the identity information of the Aadhaar number holder collected during authentication and any other information generated during the authentication process is kept confidential, secure and protected against access, use and disclosure not permitted under the Aadhaar Act and its regulations; and
all relevant laws and regulations in relation to data storage and data protection relating to the Aadhaar-based identity information in its systems, that of its agents (if applicable) and with authentication devices are complied with.

Resolutions and sanctions

Question 21:

What is the range of outcomes in AML controversies? What are the possible sanctions for breach of AML laws?

AZB Response:

An offence of money laundering is punishable by imprisonment for a term of between three years and seven years and, additionally, a fine. The maximum term of imprisonment may extend to 10 years in the event that the proceeds of crime relate to an offence under the Narcotic Drugs and Psychotropic Substance Act 1985 (the NDPS Act) (which deals with crimes relating to narcotics). Plea bargaining is available in terms of the Code of Criminal Procedure 1973 (CrPC), although not for:

offences that have been notified by the government as affecting the ‘socio-economic condition of the country’; or
offences where the punishment prescribed by law is:
death;
life imprisonment; or
imprisonment for a term in excess of seven years.
The offence of money laundering has not yet been notified as affecting the ‘socio-economic condition of the country’ and is, accordingly, not precluded from being eligible for plea bargaining. Further, given that the maximum punishment is seven years’ imprisonment (except in the case of proceeds of crime arising out of an offence under the NDPS Act), plea bargaining should be available for the offence of money laundering. In this regard, if the courts in India consider the PML Act as a socio-economic statute such as the corruption laws and other statutes, then plea bargaining may not be available.

The process for plea bargaining involves the accused making an application to the court and, upon the court being satisfied that the application was made voluntarily, making an order for the accused to work out a mutually satisfactory disposition of the case that may include the accused giving to the victim the compensation and other expenses during the case and thereafter.

Under the PML Act, fines ranging from 10,000 rupees to 100,000 rupees for each failure can be imposed on a reporting entity if it has failed to maintain records or supply information in the manner prescribed under the PML Act and the PML Rules.

In addition, although the PML Act and PML Rules do not provide for the revocation of licences of reporting entities, this may be possible based on the circulars relating to KYC and AML, issued by the regulators of the reporting entities. The RBI KYC Master Directions were issued by the RBI under section 35A of the Banking Regulation Act 1949 (the BR Act) (which empowers the RBI to issue such general or specific directions ‘as it may deem fit’), as well as under the PML Rules. Section 35A of the BR Act, read with section 22, provides that if a banking company does not comply with a direction validly issued by the RBI, then the RBI has the power to revoke the banking licence of the banking company. Accordingly, if a banking company fails to comply with the provisions of the RBI KYC Master Directions, the RBI may be empowered to revoke the licence of the banking company.

Similarly, sections 45K and 45L read with section 45 IA(6) of the Reserve Bank of India Act 1934 provide that if an NBFC fails to comply with the provisions of a direction issued by the RBI, including, for instance, the RBI KYC Master Directions, the RBI is empowered to cancel the registration of the NBFC.

Section 11B of the SEBI Act, inter alia, empowers the SEBI to regulate the securities market by any measures as it thinks fit and to cancel the licence of an intermediary for non-compliance with the directions issued by the SEBI, including, for instance, the SEBI AML Guidelines.

Limitation periods for AML enforcement

Question 22:

What are the limitation periods governing AML matters?

AZB Response:

The PML Act does not specifically provide for a limitation period in relation to the offence of money laundering. However, section 468 of the CrPC specifies the limitation periods of various categories of offences in India. Under section 468, for an offence punishable with imprisonment for a term greater than three years, there is no limitation period. The CrPC defines the term ‘offence’ to mean ‘any act or omission made punishable by any law for the time being in force’. Consequently, the offence of money laundering under the PML Act constitutes an ‘offence’ within the meaning of the CrPC. Given that the offence of money laundering is punishable with imprisonment from three to 10 years, in accordance with the provisions of section 468 of the CrPC, there is no limitation period for the offence of money laundering.

Further, under section 468 of the CrPC, if two or more offences are being tried together, then the limitation period for each offence will be determined with reference to the offence that is punishable with the most severe punishment. Thus, if a person is prosecuted simultaneously for a scheduled offence punishable by imprisonment for a term of less than three years together with the offence of money laundering under the PML Act (which is punishable with imprisonment for three or more years), then even if the limitation period for the underlying scheduled offence may have expired when considered independently, the accused person may still be tried for the scheduled offence in light of section 468 of the CrPC, given that the limitation period in such a scenario for both offences would be determined based on the offence of money laundering and not the scheduled offence.

Extraterritoriality

Question 23:

Do your jurisdiction’s AML laws have extraterritorial reach?

AZB Response:

The PML Act applies to the whole of India; however, its application is not restricted to property situated in India. The term ‘property’ is defined under the PML Act to include any property or assets, wherever located, so long as it is derived from, arises out of or is related to any of the scheduled offences. The amendment to the definition of ‘proceeds of crime’ under the PML Act, by the Finance Act 2015, enables the attachment and confiscation of equivalent assets in India where the proceeds of crime have been taken or held outside India. Further, the Finance Act 2018 has amended the definition of ‘proceeds of crime’ such that this right of attachment also extends to property (equivalent to the proceeds of crime) held outside India.

To give effect to this limited extraterritorial application in the context of certain specified offences that may be committed abroad (which also constitute scheduled offences if committed in India) but the proceeds of which may have been remitted to India, or where the scheduled offence may have been committed in India but the proceeds of the crime are remitted abroad, section 56 of the PML Act empowers the central government to enter into reciprocal arrangements with the government of any country outside India for enforcing the provisions of the PML Act and for the exchange of information for the prevention of any offence under the PML Act or under the corresponding law in force in that country, or for investigation under the PML Act.

On 1 August 2018, the government notified the Fugitive Economic Offenders Act 2018 (the Economic Offenders Act), effective retrospectively from 21 April 2018, to deter fugitive economic offenders from evading the process of law by staying outside the jurisdiction of Indian courts. For operationalising the Economic Offenders Act, the Fugitive Economic Offenders (Procedure for Conducting Search and Seizure) Rules 2018 have also been notified with effect from 24 August 2018. Some of the key provisions of the Economic Offenders Act are set out below:

a ‘fugitive economic offender’ is defined as an individual against whom an arrest warrant has been issued for committing any prescribed offence (where the value exceeds 1 billion rupees), and has left the country to avoid facing prosecution or has refused to return to face prosecution;
if any person against whom an application has been filed fails to appear (in person or through counsel) after a notice issued by the special court, then the person may be declared a ‘fugitive economic offender’;
any property of the fugitive economic offender can be attached for 180 days unless further extended by the special court. The properties will be released if the person is not found to be a fugitive economic offender at the conclusion of proceedings; and
the special court is entitled to confiscate properties, free of encumbrances, of any person declared as a ‘fugitive economic offender’ that are proceeds of a crime in India or abroad, benami properties in India or abroad or any other property in India or abroad. However, the special court is empowered to exempt from confiscation, any property in which a third party has a bona fide interest, without knowledge of the fact that the property is a proceed of crime.

The PML Act also contemplates ‘offences of cross-border implications’, which are:

offences committed or related to conduct outside India that constitute an offence in that jurisdiction and are scheduled offences under the PML Act, and a part of or all the proceeds of crime arising from such conduct are remitted to India; or
scheduled offences committed in India, and part of or all the proceeds of crime have been transferred or have been attempted to be transferred from India to a place outside India.
Offences with cross-border implications are scheduled offences under the PML Act and, accordingly, the PML Act may be applicable to those offences. In addition to this, the Black Money Act provided for a three-month window from 1 July 2015 to 30 September 2015 within which a person could make a declaration in respect of his or her undisclosed assets located outside India, and pay the prescribed rate of tax and penalty on those foreign assets on or before 31 December 2015, failing which those individuals would be subject to all the provisions of the Black Money Act, including penalties and prosecutions. The offence of wilful attempt to evade tax under section 51 of the Black Money Act has also been included in the list of scheduled offences under the PML Act, and accordingly, the PML Act may be applicable to those offences.

Further, the UN Security Council Resolution 1373 obliges countries to freeze without delay the funds or other assets of:

persons who commit, or attempt to commit, terrorist acts, or participate in or facilitate the commission of terrorist acts;
entities owned or controlled directly or indirectly by (1); and
persons and entities acting on behalf of, or at the direction of, (1) or (2), including funds or other assets derived or generated from property owned or controlled, directly or indirectly, by those persons and associated persons and entities.
Each country has the authority to designate the persons and entities that should have their funds or other assets frozen. Additionally, to ensure that effective cooperation is developed among countries, countries should examine and give effect to, if appropriate, the actions initiated under the freezing mechanisms of other countries. To give effect to the requests of foreign countries under UN Security Council Resolution 1373, the Ministry of External Affairs will examine the requests made by foreign countries and forward it electronically, with their comments, to a designated officer for the freezing of funds or other assets. Freezing orders take place without prior notice to the designated persons involved.

Civil claims

Procedure

Question 24:

Enumerate and describe the required elements of a civil claim or private right of action against money launderers and covered institutions and persons in breach of AML laws.

AZB Response:

The Prevention of Money Laundering Act 2002 (the PML Act) is a criminal statute, and civil claims and private rights of action have not been contemplated therein.

Damages

Question 25:

How are damages calculated?

AZB Response:

The PML Act does not create a private right of action, and, therefore, damages are not recoverable in a civil claim for a breach of AML laws.

Other remedies

Question 26:

What other remedies may be awarded to successful claimants?

AZB Response:

Not applicable.

International money laundering efforts

Supranational

Question 27:

List your jurisdiction’s memberships of supranational organisations that address money laundering.

AZB Response:

India is a member of the Financial Action Task Force (FATF), the Eurasian Group on anti-money laundering and combating the financing of terrorism and the Asia/Pacific Group on Money Laundering.

Further to the Multilateral Competent Authority Agreement on the automatic exchange of financial account information, joined by India on 3 June 2015, and for the purpose of implementing the Foreign Account Tax Compliance Act (FATCA) introduced by the US government in 2010, the Indian government and the US government entered into an intergovernmental agreement on 9 July 2015 (India IGA) to improve international tax compliance and provide for the implementation of the FATCA based on domestic reporting and reciprocal automatic exchange.

In terms of the FATCA read with the India IGA, Indian financial institutions are required to identify, establish and report information on financial accounts held directly or indirectly by US persons. In this regard, the Ministry of Finance has, by way of a notification dated 7 August 2015, amended the Income-tax Rules 1962 (the IT Rules) to include rules setting out the information to be maintained and reported, as well as the due diligence requirements. A ‘reportable account’ under the IT Rules means a financial account that has been identified, pursuant to the due diligence procedures provided in the IT Rules in this regard, as being held by:

one or more specified US persons (ie, a resident or citizen of the United States (or the estate of such a decedent); a partnership or corporate organised in the United States or under US law; or a trust controlled by citizens or residents of the United States or subjected to the authority of the US courts) or one or more persons other than:
a corporation, the stock of which is regularly traded on one or more established securities markets, or a related corporation;
a government entity;
an international organisation, a central bank or a financial institution that is a resident of any country or territory outside India (except the United States) under the tax laws of such country or territory, or an estate of a decedent who was a resident of any country or territory outside India (except the United States) under the tax laws of such country or territory;
a passive non-financial entity with one or more controlling persons that is a person described in (1) to (3); or
an entity, not based in the United States, with one or more controlling persons that is a specified US person.
The amendment to the IT Rules has been followed by the issuance of circulars and notifications from various authorities, such as the Securities and Exchange Board of India, the Reserve Bank of India and the Central Board of Direct Taxes, relating to steps to be taken by entities regulated by such regulators for ensuring compliance with the requirements specified in the IT Rules, after carrying out the necessary due diligence.

Anti-money laundering assessments

Question 28:

Give details of any assessments of your jurisdiction’s money laundering regime conducted by virtue of your membership of supranational organisations.

AZB Response:

India’s mutual evaluation was last completed on 25 June 2010. The conclusion was that India has several mechanisms in place for domestic coordination and cooperation at both the policy and operational levels to identify new and emerging trends and to formulate appropriate responses.

India has progressively expanded and strengthened its preventive measures for the financial sector, which now apply to all but one of the financial activities required to be covered under the FATF standards; however, several preventive provisions need to be brought more closely into line with the FATF standards, and, overall, more time is needed before all requirements are substantially implemented.

The key recommendations made to India in the mutual assessment included the need to:

address the technical shortcomings in the criminalisation of both money laundering and terrorist financing and in the domestic framework of confiscation and provisional measures;
broaden the client due diligence obligations with clear and specific measures to enhance the current requirements regarding beneficial ownership;
improve the reliability of identification documents, the use of pooled accounts, politically exposed persons and non-face-to-face business;
ensure that India Post, which recently became subject to the Prevention of Money Laundering Act 2002 (the PML Act), effectively implements the anti-money laundering and combating the financing of terrorism (AML/CFT) requirements;
enhance the effectiveness of the suspicious transaction report reporting regime;
enhance the effectiveness of the financial sector supervisory regime and ensure that India Post is adequately supervised; and
ensure that the competent supervisory authorities make changes to their sanctioning regimes to allow for effective, proportionate and dissuasive sanctions for failures to comply with AML/CFT requirements.
The FATF, at the June 2013 plenary meeting, decided that India could be removed from the regular follow-up process as it had reached a satisfactory level of compliance with all the core and key recommendations.

FIUs

Question 29:

Give details of your jurisdiction’s Financial Intelligence Unit (FIU).

AZB Response:

The Financial Intelligence Unit – India (FIU-IND) has been a member of the Egmont Group, an international organisation for stimulating cooperation among FIUs, since May 2007. In accordance with its annual report 2017–18, as at 31 March 2018, the FIU-IND has signed bilateral memoranda of understanding (MoUs) with 39 countries, namely Australia, Bahrain, Bangladesh, Belarus, Bermuda, Brazil, Canada, Georgia, Guernsey, Fiji, Indonesia, Israel, Japan, Kazakhstan, Kyrgyz Republic, Macedonia, Malaysia, Mauritius, Montenegro, Myanmar, Nepal, Nigeria, the Philippines, Poland, Qatar, Russia, San Marino, Saudi Arabia, Singapore, Senegal, South Africa, Sri Lanka, Tajikistan, Thailand, Togo, the United States, Ukraine, Uzbekistan and Vatican City State. In addition, MoUs with more than 10 countries are under various stages of negotiation. The MoUs are to facilitate the exchange of intelligence between countries for the purpose of cooperation to gather, develop and analyse information concerning financial transactions suspected of being related to money laundering and terrorist financing.

The contact details for FIU-IND are as follows.

Address: Financial Intelligence Unit – India, 6th Floor, Hotel Samrat, Kautilya Marg, Chanakyapuri, New Delhi 110 021, India

Telephone: +91 11 26874429, 26874349 (PABX)

Fax: +91 11 26874459

Office contacts:

helpdesk: 91-11-24109792/93,91-11-24672794; and
for reporting entity or principal officer registration related enquiries: +91 11 24672138.
Emails for:

general queries: helpdesk@fiuindia.gov.in;
queries relating to reporting entity or principal officer registration: ctrcell@fiuindia.gov.in; and
any complaints: complaints@fiuindia.gov.in.
Website: https://fiuindia.gov.in/

Mutual legal assistance

Question 30:

In which circumstances will your jurisdiction provide mutual legal assistance with respect to money laundering investigations? What are your jurisdiction’s policies and procedures with respect to requests from foreign countries for identifying, freezing and seizing assets?

AZB Response:

The establishment of the commission of or apprehension for the offence of money laundering is a prerequisite for Indian authorities to seek information from a ‘contracting state’ under the PML Act or to take any steps to attach the assets of a person accused of money laundering (which may be located in a contracting state). Once this is established, Indian authorities then have to seek information by following the process set out in the reciprocal arrangement for the exchange of information between India and the contracting state, or the procedure detailed in sections 57, 59 and 60 of the PML Act. Section 56 of the PML Act empowers the Indian government to enter into reciprocal arrangements with the government of any country outside India for enforcing the provisions of the PML Act and the exchange of information for the prevention of any offence under the PML Act or under the corresponding law in force in that country.

Section 57 of the PML Act provides that in the course of the investigation of an offence or other proceedings under the PML Act, the relevant investigating officer may make an application to a special court in India to issue a letter of request to the competent authorities in the contracting state to forward, inter alia, the relevant evidence to the special court. If the special court is satisfied that such evidence is required in connection with the investigation, the special court may issue a letter of request to the relevant contracting state. Section 59 of the PML Act provides that a special court may, in relation to an offence under the PML Act, issue a warrant or summons for execution to competent authorities in a contracting state requiring an accused person to, inter alia, allow searches, attend proceedings before the special court or produce documents before the special court. In addition, under section 60 of the PML Act, the special court under the PML Act may take necessary steps to attach or seize property involved in money laundering that is located or suspected to be located in a contracting state by issuing a letter of request to a court or authority in the contracting state in the event that an offence corresponding with an offence under the Indian penal statutes set out in the Schedule to the PML Act has been committed in the contracting state. In terms of the PML Act, the power of the Indian government is limited to seeking information regarding a person accused of the commission of an offence under the PML Act and no other persons.

For the purpose of implementing the FATCA introduced by the US government in 2010, the Indian government and the US government entered into the India IGA on 9 July 2015 to improve international tax compliance and provide for the implementation of the FATCA based on domestic reporting and reciprocal automatic exchange. In terms of the FATCA read with the India IGA, and the subsequent amendments to the IT Rules, Indian financial institutions are required to identify, establish and report information on financial accounts that are held directly or indirectly by US persons.

Update and trends

Enforcement and compliance

Question 31:

Describe any national trends in criminal money laundering schemes and enforcement efforts. Describe any national trends in AML enforcement and regulation. Describe current best practices in the compliance arena for companies and financial institutions.

AZB Response:

In the wake of economic offenders such as Nirav Modi and Vijay Mallya, who have fled the country since their fraud came to light, the Fugitive Economic Offenders Act 2018 (the Economic Offenders Act) was enacted with effect from 21 April 2018. The legislation gives the Indian government the power to attach all the assets (and not just the assets acquired from the proceeds of crime) of an individual against whom an arrest warrant has been issued for committing a prescribed offence where the value exceeds 1 billion rupees. The government has also stated that it will establish an international cooperative mechanism to attach the foreign assets of such declared fugitives.

Absconding liquor baron Vijay Mallya became the first person to be declared a ‘fugitive economic offender’ under the Economic Offenders Act. The Directorate of Enforcement (ED) initiated proceedings against Mallya in 2016, alleging that he had used his business ventures to siphon huge amounts of money out of India. He had fled from India and moved to the United Kingdom. The High Court of Justice, according to publicly available information, dismissed his appeal against the Westminster Magistrates’ Court’s extradition order on 20 April 2020. Further, he has also lost leave to appeal against the High Court’s decision before the Supreme Court of the United Kingdom. Certain securities held by Mallya that had been attached by the ED have been sold to recover approximately 10 billion rupees.

In February 2018, the ED registered a money laundering case against billionaire diamond dealer Nirav Modi for alleged fraud approximating 13 billion rupees. Modi fled the country and moved to the United Kingdom, despite a series of criminal summons issued to him by Indian courts. He was arrested in London, and the ED is working with the Crown Prosecution Service of the United Kingdom to extradite him back to India. According to publicly available information, a Special Court declared Modi as a fugitive economic offender in December 2019 on an application filed by the ED.

By an order dated 25 September 2018, the Reserve Bank of India (RBI) imposed a monetary penalty of 50 million rupees on Federal Bank for non-compliance with the RBI directions in relation to, inter alia, certain know your customer and AML norms as well as for failure to pay compensation for delays in the resolution of ATM-related customer complaints.

With the objective of reviewing anti-bribery and anti-corruption laws in India, certain amendments to the Prevention of Corruption Act 1988 (PCA) were introduced with effect from 26 July 2018. Under the erstwhile PCA, only the demand side of corruption (ie, the solicitation and acceptance of a bribe) was a criminal offence, and there was no provision to directly criminalise the supply side of corruption or the offering of a bribe to obtain an undue advantage, which has now been included as an offence. Further, the PCA now also specifically prescribes the consequences of an offence thereunder when committed by a company. By virtue of the same set of amendments, the new offences under the PCA have been listed as ‘scheduled offences’ under the Prevention of Money Laundering Act 2002.

Law stated date

Correct on

Question 32:

Give the date on which the above information is accurate.

AZB Response:

20 April 2020.

Authors:

Aditya Vikram Bhat, Senior Partner
Prerak Ved, Partner

Published In:GTDT Lexology
Date: October 17, 2020