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Anti-Money Laundering Provisions

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1 Anti-Money Laundering Provisions
MAHESHWARI & CO.Advocates & Legal Consultants Anti-Money Laundering Provisions Jyotsna Chaturvedi Senior Associate MAHESHWARI & CO. Advocates & Legal Consultants Telephone: Fax: 1

2 MAHESHWARI & CO.Advocates & Legal Consultants
Introduction As per section 3 of the Prevention Money Laundering Act “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering” As per Sub- Committee on Narcotics and Terrorism of US Senate Foreign Relations Committee: “Money Laundering is the conversion of profits from illegal activities into financial assets which appear to have legitimate origins.”

3 Some of the Popular Places
Stock Markets Agricultural Products (as there is no income tax and mostly the transactions are on cash basis) Property Market Creating Bogus Companies Showing Loans False Export Import Invoices

4 Process of Money Laundering
It involves three stages: Placement: placing of black money in financial system or economy Layering: separating money from its source through series or layers of transaction to hide the main source Integrating: with the legitimate or white money

5 Punishment for Offence
Imprisonment up to seven years The same is 10 years in case of Narcotics and Drugs, and Fine up to Rs 5 lacs In addition, the tainted property is also confiscated by the Central Government

6 Obligations of Banking Companies, FI and Intermediary
Money Laundering will be naturally done through Banking Companies, FI (including NBFC Companies, authorised person etc.) and intermediaries of share market, hence responsibility has been cast on them The above are responsible for maintaining record of all transactions and reporting the same to the Director (Authority under the Act) on monthly basis. The Identities of all the Clients are also required to be verified and the records are to be maintained for 10 years.

7 Maintenance of Records
The following records are to be maintained by the Banks etc. : Cash Transactions of value of more than Rs 1 million in foreign currency or a Series of Transaction if total in a month exceeds the above limit Cash Transactions where forged or counterfeit currency or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions. All suspicious Transactions All records of proof of identity of individual/Company/Firm should also be retained

8 RBI Guidelines - KYC As per the circulars issued by RBI, Banks should have Know Your Customer and anti money laundering Standards for accepting customer, his identity, monitoring transactions and risk management. There are relaxations in case of NBFC where deposits are less than Rs 50,000 in view of deposits from low income group. In that case introduction by another account holder having satisfactory transaction will be sufficient RBI through its circular no. 39 dated 26/06/2006 has also brought Authorised Money Changers to follow all the above guidelines

9 SEBI Anti Money Laundering Guidelines
SEBI has also issued master circular no. ISD/AML/CIR-1/2008 dated 19/12/2008 to all intermediaries on anti money laundering and combating financing of terrorism. As per the above circular all intermediaries should appoint principal officer for insuring compliance with the provisions of the Act SEBI has also given detailed guidelines about maintaining records and reporting to Director (Authority)

10 Insurance Regulatory and Development Authority
IRDA has also issued master circular number 22 dated 24/11/2008 which includes KYC monitoring, reporting cash transactions, record keeping etc.

11 Director The Director, Financial Intelligence Unit India, under Ministry of Finance has been appointed as Director under the Act. He can call for records from the banks, FI and Intermediaries and impose fine if found negligent

12 Case Law In Shankarlal Agarwalla v State Bank of India (1987), it was held that though there is an implied term of Contract between banker and customer that the banker must not disclose the condition of his customer’s account except on reasonable and proper occasions, however disclosure if required by law is permitted. Hence Banking Companies /FI/Intermediary will not be liable in civil proceedings if they supply information subject there is no criminal intention in that case they may be liable for criminal proceedings.

13 Division of Work The division of work is such that the gentleman goes to Director Financial Intelligence Unit (FIU) under Ministry of Finance, while crooks go to Director of Enforcement under FEMA.

14 Director Financial Intelligence Unit (FIU)
Powers: Call for Records maintained by Banks etc. Power like a civil court while making enquiry, obtaining records and imposing fines

15 Director of Enforcement under FEMA
Powers: Power of Summons and examination as in judicial proceeding Impounding of Records produced before them Power of survey, search and seizure Confiscation of Property

16 Adjudicating Authority
Central Government appoints an ‘Adjudicating Authority’ which consists of a Chairperson and two members within Department of Revenue, Ministry of Finance. The Role is granting Permission to Director for : retention of records or property confiscation of seized property

17 Adjudicating Authority Contd.
Procedure : Adjudicating Authority Regulations, 2006 prescribes procedures to be followed by adjudicating authority in respect of application forms, summons, examination of witnesses and orders.

18 Appeal to Appellate Tribunal against order of Adjudicating Authority
Appeal can be made to Appellate Tribunal established under the Act. [section 26(1)]. It should be filed in 45 days. It should be decided within 6 months. [section 26(6)]. Tribunal will consist of Chairperson and two other members. Director of Enforcement under FEMA has also been empowered to file appeal to Appellate Tribunal against order of Adjudicating Authority.

19 Procedure for appeal to Tribunal
Appeal against order of Adjudicating Authority or Director will be to Appellate Tribunal in form prescribed under Prevention of Money Laundering (Appeal) Rules, 2005. Appeal shall be accompanied with prescribed appeal fees in form of demand draft payable to Registrar, Appellate Tribunal, New Delhi.

20 Appeal to High Court Further appeal can be made to High Court within 60 days. Appeal can be both on question of law and question of facts. [section 42]. Civil Court will have no jurisdiction in matters which Director, Adjudicating Authority or Appellate Tribunal is empowered under the Act. It cannot grant injunction in respect of any action taken under the Act. [section41].

21 Search, seizure, impounding
Director can authorise a person to search of any building, place, vessel, vehicle or aircraft where he has reason to suspect that records relating to money laundering or proceeds crime are kept. Section 18(1) empowers Central Government to authorise a person to order search of a person. Director of Enforcement under FEMA has been authorised for this.

22 Contd. The Prevention of Money Laundering (Forms, Search and seizure and the manner of forwarding the reasons and materials to the Adjudicating authority, impounding and custody of records and the period of retention) Rule 2005 gives relevant provisions on the various procedures. Director, Additional Director can issue summons to a person to attend at his office along with documents prescribed. They also have the powers to impound the documents so provided. However, records cannot be kept beyond three months without approval of Director

23 Retention of seized property
Property seized can be retained by authorised officer. The property can be retained for a period of three months from end of the month in which property is seized, the details being required to informed to Adjudicating Authority Director of Enforcement under FEMA has been empowered to retain such property as per Notification No. GSR 441 (E) dated The seized property is required to be returned to person from whom it was seized, unless Adjudicating Authority permits retention of property beyond this period [section 20(1)].

24 Provisional attachment of Property
Property involved in money-laundering can be provisionally attached [section 5(1)]. Authority appointed under the Act (Director, Joint Director or Deputy Director) can provisionally attach property upto 180 days (brought by amendment act, 2009), if he has reasons to believe that such person is in possession of proceeds or crime, he is charged with that crime and the proceeds of money are likely to be concealed or transferred.

25 Contd. Such order can be made only after report is forwarded or a complaint is filed before a Magistrate or court for taking cognizance of the scheduled offence. Director of Enforcement under FEMA has been empowered to attach the property, vide Notification No. 441 (E) dated ‘Attachment’ means prohibition of transfer, conversion, disposition or movement of property by an order issued under Chapter III of the Act.

26 Receipt, Management and disposal of confiscated properties
If Adjudicating Authority decides that the property is involved in money laundering, he can order that the property shall be attached, or if already attached, the attachment will continue till order of trial court becomes final. If the person is found to be guilty, the Authority shall confiscate the attached property after giving opportunity of hearing The property ordered to be confiscated by Adjudicating Authority will vest absolutely in Central Government.

27 Arrest of person Director, Deputy Director or any other officer authorised by Central Government can arrest a person, if he has reason to believe that he is guilty of offence punishable under the Act. The reasons should be based on material in his possession and should be recorded in writing and person so arrested is required to be produced before judicial or Metropolitan Magistrate within 24 hours

28 Other Provisions Special Courts to try all the offences, the appeals of which will lie in High Court Offences are non cognizable and police officers shall not investigate the offence unless specifically authorised by CG by special or general order All the interpretation of the rules made under this Act will be referred to CG whose decision is final.

29 International Scenario
The first push against banking secrecy and opaque cross border financial Dealings came after 9/11 terror attacks in US. The US Patriot Act was signed for prevention of money laundering and regular sharing Informations between FI and Authorities. Other Countries also passed similar laws but the focus remained mainly on tracking Terror Funding, not Tax Evasion. The second push came after financial crisis of 2008 in which public anger at rich financiers alleged to have participated in the same forced Western Govt. to initiate a crackdown

30 Contd. 40 Countries including Switzerland were identified in grey list as destinations which put an international pressure for more transparent sharing of tax information. The Global Forum on Transparency and Exchange of Information of Tax Purposes established in 2000 underwent serious restructuring As compared to only 70 tax agreements signed between countries between 2000 and 2008, 500 new Agreements were signed between 2009 and 2010 Since 2009, collection from overseas evaders are : France-$ 5.4 billion, UK- $ 810 million.

31 Money Laundering & India
$ 500 billion (Rs 22.5 lakh crore) has been spirited out of India since independence India’s underground economy is estimated at $640 billions which is estimated to about 50% of its GDP in 2008 There are at least 40 destinations that aggressively solicit such funds but most popular is Swiss Bank 72.2% ($462 billion) of Illicit assets are held overseas, remaining 27.8% ($178 billion) are held domestically

32 Contd. India is one of the 15 members of Forum’s Top advisory body and have not signed any Tax Information Exchange Agreement to bring back black money from abroad The Supreme Court and the Opposition parties have increased the pressure on the Government. However a big question still remains:

33 THE BIG QUESTION! Why there is continued inaction and why the Government is taking so long to enter even one Agreement where the rest of world has moved on with a rapid pace?


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