Anti-Money Laundering 2021 (India Chapter)

DOMESTIC LEGISLATION

Domestic law

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

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)I) Directions, 2016, issued by the RBI on 25 February 2016, as updated on 1 April 2021, which is the most up-to-date consolidation of the KYC guidelines and norms for all entities regulated by the RBI (the 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, 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). Flowever, 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 financial institutions and intermediaries to maintain records and supply follow the procedures and manner of maintenance of records prescribed 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 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 (FIU).

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

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

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 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

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

The  Directorate  of  Enforcement  (IED),  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 Iaundering 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 PML 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

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

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

5      What constitutes money laundering?

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 subdivided 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 r(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 0(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

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

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 does not apply.

Predicate offences

7     Generally, what constitute predicate offences?

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 Indian Penal Code,  1860 (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. Commission of a scheduled offence is a sine qua non for constituting the offence of money laundering under the PML Act (see P Chidambaram v Directorate of Enforcement (MR 2019 SC 4198)).

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  as 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

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

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

Resolutions and sanctions

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

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  if 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,I000 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 a non-banking finance company (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  11 B of  the  SEBI Act  1992I, inter alia, empowers   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

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

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 PML 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 E.D, 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 IPC, 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 [2 0 ] 1 164 Comp Cas 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

11     What are the limitation periods governing money laundering prosecutions?

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

12      Do the money laundering laws applicable in your jurisdiction have extraterritorial reach?

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 ail 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 :

1          persons  who commit, or  attempt  to  commit, terrorist  acts, or participate in or facilitate the commission of terrorist   acts;

2          entities owned or controlled directly or indirectly by (1); and

3          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

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

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 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

14      Which institutions and persons must have AML measures in place?

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 451 of the Reserve Bank of India Act 1934 (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  (ie, persons engaged in providing services  in relation to sale or purchase of real estate) having an annual turnover of 2 million rupees or above;
  • dealers in precious metals and precious stones – if they engage in any cash transactions with a customer equal to or above 1 million rupees, carried out in a single operation or in several operations that appear to be linked; 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
15      Do the AML laws applicable in your jurisdiction require covered institutions and persons to implement AML compliance programmes? What are the required elements of such programmes?

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 the 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 SEBI AML Guidelines is put into place.

Financial institutions (and other entities  regulated  by  the  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  the 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 FIU.

Breach of AML requirements

16  | What constitutes breach of AML duties imposed by the law?

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 KYC Master Directions and the SEBI AML Guidelines.

Customer and business partner due diligence

17      Describe due diligence requirements in your jurisdictions AML regime

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 clients identity. The nature of the documentation that is required to be obtained is 1 in 1 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.  However, where  a client  is subscribing  or  dealing with depository receipts or  equity  shares, issued or  listed in  jurisdictions notified by the Indian government, of a company incorporated in India, and it is acting on behalf of a beneficial owner who is a resident of such jurisdiction, the  determination, identification  and  verification  of  such beneficial owner, will be governed by the norms of such jurisdiction.

High-risk categories of customers, business partners and transactions

18      Do the AML rules applicable in your jurisdiction require that covered institutions and persons conduct  risk-based  analyses? Which high-risk categories are specified?

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 clients identity. The nature of the documentation that is required to be obtained is 1in1 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 inumber (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 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, inI line  withI 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 iby 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

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

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;

    • 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 andt o 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;  ipurchase  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 transactionst, apart from ‘trans actions 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 reconstructionl 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;
  • 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 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  Ilaundered  Imoney  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 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 regulationsI, including the  Banking Regulation Act  1949I, the RBI  Act, the  SEBI Act, the rules and regulations framed undereach of these and the PMLAct. The principal officer is under an obligation to supply information relating to suspicious transactions to the office of the Idirector 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 Imore 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 Idiscarded, 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 Irelated 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 Iclient’s details matchI 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

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

Under section 12 of the PML Act, every reporting entity is required to maintain certain records and disclose such informationto 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 inatural 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   individuals   physical,   psychological   and   mental   health condition;
  • an individual’ s sexual orientation;
  • medical records and history;
  • biometric  information;
  • any details relating to the above as providedi to the body corporate for providing a service; and
  • any information ireceived 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 Sensitive Information 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 datai or information:

  • to the extent necessary to comply with legal obligations;
  • where a government agency that is imandated under law to obtain the information makes a request in writing forthe 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 Iof section 12 of the PML Act.

An entity that collects, possesses or handles the ‘personal information’ or ‘sensitive personal data or information’ of the provider of the information is reguired 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 Ipolicy  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 Iof 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 authenticaItion 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  speci¬ fied 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 for 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 imaintaining 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  secuirity measures;
  • identity information received during authentication is used only for the purpose specified to the Aadhaar inumber 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 informaition 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 inot permitted under the Aadhaar Act and its regulations; and
  • all relevant  laws and iregulations 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

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

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  if  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)4, 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 iunder 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

22  | What are the limitation periods governing AML matters?

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 madeI 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

23  | Do your jurisdiction’ s AML laws have extraterritorial reach?

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 icrime’  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 anI 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 beeni 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 (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 (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 :

1          persons  who  commit,  or  attempt  to  commit, terrorist  acts,  or participate in or facilitate the commission of terrorist acts;

2          entities owned or controlled directly or indirectly by (1); and

3          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

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.

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

25   How are damages calculated?

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

26    What other remedies may be awarded to successful claimants?

Not applicable.

INTERNATIONAL MONEY LAUNDERING EFFORTS

Supranational

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

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; or
  • 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

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

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 launderingi 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.

FlUs

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

The Financial Intelligence Unit – India (FIU-IND) has been a member of the Egmont Group, an international organisation for  stimulating cooperation among FlUs, 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.

Financial Intelligence Unit – India, 6th Floor, Tower – 2, Jeevan Bharati Building, Connaught Place, New Delhi 110 001, India

Telephone: +91 11 26874429, 26874349 (PABX)

Office contacts:

  • helpdesk: 91-11- 23319793; and
  • for reporting entity or principal officer  registration-related  enguiries: +91 11 24672138.

Emails for:

  • general  queries: helpdesk@fiuindia.gov.in;
  • queries relating to reporting entity or Iprincipal officer  registration: ctrcell@fiuindia.gov.in; and
  • any complaints: complaints@fiuindia.gov.in.

Website: https://fiundia.gov.in/

Mutual legal assistance

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?

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 reguest 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 requiredI 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 if 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 accusedI 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

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

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 Iprescribed 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.

The RBI, on 18 December 2020, amended the Reserve Bank of India (Know Your Customer (KYC)) Directions 2016. These amendments make it, inter alia, mandatory for the regulated entities to upload KYC records pertaining to accounts of legal entities whose accounts are opened after 1 April 2021 onto the Central KYC Records Registry (CKYCR), pursuant to Rule 9 ( 1 A) of the PML Rules. Even the KYC idata of accounts of individual customers and legal entities opened prior to the abovementioned date have to be incrementally uploaded on the CKYCR.

Coronavirus

32 What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

Indian regulatory  authorities have waived various procedural  compliances under certain laws and extended certain compliance timelines. Other measures taken include contribution towards awareness programmes and research related to covid-19 being permitted as part of corporate social responsibility obligations of companies. Further, the government rolled out various relief packages to address the ill effects of lockdown on the economy and those affected. The government has also undertaken various measures to  improve the ease of doing business in India. Clients would need to evaluate these in light of their specific  circumstances.

Authors:

Aditya Vikram Bhat, Senior Partner
Prerak Ved, Partner
Abhay Raj Singh Bundela, Associate

 

Published In:Lexology - Getting The Deal Through (Law Business Research, 2021)
Date: September 6, 2021