Prevention of Money Laundering Act, 2002: Download Notes

Overview: Money laundering is disguising the origins of money obtained through criminal activities, such as terrorism, smuggling, or prostitution, to make it appear legitimate. This practice involves converting "dirty money" (illegally earned funds) into "clean money" by integrating it into the financial system. It is a criminal offence, and the proceeds are considered tainted.

Objectives of Money Laundering:

• To make illicit funds appear to originate from lawful sources.
• To allow criminals to enjoy their proceeds without attracting attention.

Download & Print this Blog for your Preparation

Stages of Money Laundering:

1. Placement:

   • Initial entry of illicit funds into the financial system.
   • Criminals deposit large amounts of cash into banks or other institutions.
   • This stage is the most vulnerable to detection, as suspicious deposits may alert authorities.

2. Layering:

   • It involves complex transactions to obscure the money's origin.
   • This may include international transfers, investments, or the purchase of high-value assets.
   • Designed to make tracking the source of funds challenging.

3. Integration:

   • The laundered money is reintroduced into the economy as legitimate funds.
   • Criminals use the money for legal investments or high-end purchases, such as real estate, luxury cars, or art, making it appear clean.

Download Consumer Protection Act for AIBE Notes for Free

Prepare with: IBPS SO Law Officer Mains Mock Test

---

Key Legislation in India: Prevention of Money Laundering Act, 2002 (PMLA)

Objective: The PMLA aims to prevent money laundering, confiscate properties acquired through illegal means, and address related issues in India.

Scope:

• Extends across India, including Jammu & Kashmir.

---

Important Definitions:

1) Proceeds of Crime – Section 2(1)(u)

Under Section 2(1)(u), "proceeds of crime" refer to any property acquired or derived, directly or indirectly, by an individual as a result of criminal activities related to a scheduled offence. This includes the value of such property. If the property is located or held outside the country, the definition extends to property of equivalent value within India or abroad.

2) Scheduled Offense – Section 2(1)(y)

A "scheduled offence" encompasses:

• Offences listed under Part A of the Schedule.
• Offences listed under Part B of the Schedule provided the total value involved is ₹ one crore or more.
• Offences listed under Part C of the Schedule typically involve cross-border implications.

Download Motor Vehicles Act Notes for UCG NET LAW

Know everything about IBPS SO Law Officer Prelims Cut Off 2024

Money Laundering – Sections 3 and 4

A) Meaning of Money Laundering – Section 3
An individual is guilty of money laundering if they directly or indirectly:

• Engage, attempt to engage, or assist in activities related to the proceeds of crime.
• Participate in concealing, possessing, acquiring, using, projecting, or claiming proceeds of crime as legitimate property.

---

B) Penalty for Money Laundering – Section 4
The penalty for committing money laundering includes:

• Imprisonment: Minimum of 3 years and up to 7 years.
• Exception: If the proceeds of crime are related to an offence under the Narcotic Drugs and Psychotropic Substances Act, 1985, imprisonment may extend to 10 years.

Read More: Download Dowry Prohibition Act of 1961 Notes

---

Join Our AIBE Crash Course Now!

Attachment of Property Involved in Money Laundering – Section 5

• Purpose: To prevent the concealment or transfer of proceeds of crime, enabling their confiscation.
• Authority: A Director or authorized officer (ranked Deputy Director or higher) can provisionally attach property involved in money laundering.

Key Provisions:

1. Duration of Attachment: Maximum of 180 days (provisional attachment).
2. Post-Attachment Procedure:
   • A copy of the attachment order and supporting materials must immediately be forwarded to the Adjudicating Authority.
   • A complaint detailing the facts of the attachment must be filed before the Adjudicating Authority within 30 days.

---

Adjudicating Authority (AA)

Role and Appointment:

• The Central Government appoints members to the Adjudicating Authority.
• Members must have the required rank or experience.

Composition:

• Three members, one each from:
  • Law
  • Administration
  • Finance
• One member is designated as the Chairperson.

Download: Motor Vehicle Act 1988 Notes For Free

Download Previous Year IBPS SO Law Officer Papers Here! ⬇️

Function:

• It operates under the Department of Revenue, Ministry of Finance, and Government of India.
• Headquarters: New Delhi.

Objective of the Act:

• Prevent and control money laundering.
• Confiscate and seize property derived from laundered money.
• Address related matters in India.

---

Download Indian Contract Act Practice Questions for AIBE ⬇️

Adjudicating Authority (Section 8):

• Comprises three members (law, finance, and administration).
• Review money laundering cases, issue notices, and confirm attachments or confiscations after hearings.

Adjudication – Section 8

1. Issuing Notice:

• Upon receiving a complaint, if the Adjudicating Authority (AA) believes that an individual has committed an offence under Section 3 or possesses proceeds of crime, it can issue a notice.
• The notice must provide at least 30 days for the individual to:
  • Explain the sources of their income, earnings, or assets used to acquire the attached property.
  • Justify why the property should not be declared involved in money laundering and confiscated by the Central Government.

Notes:

• If there is a beneficial owner, the notice must also be served to them.
• If the property is jointly held, all holders should receive notices.

You can read about the syllabus details right here: UGC NET Law Syllabus 2024

---

Download IT Act Practice Questions for AIBE ⬇️

2. Findings by the Adjudicating Authority (AA):

• After reviewing the reply to the notice, hearing the concerned parties, and considering all evidence, the AA will determine if the properties mentioned in the notice are involved in money laundering.

---

3. Attachment of Property:

• If the AA concludes that the property is linked to money laundering, it will:
  • Confirm the attachment or retention of the property or records.
  • Such attachment or retention will:
    • Continue during the investigation for a maximum of 365 days or until the proceedings before a court (or under equivalent foreign law) conclude.
    • It becomes final after the Special Court issues a confiscation order.

4. Action on Confirmed Attachment:

• Once the attachment is confirmed, the Director or an authorized officer will immediately take possession of the property.

Download Jurisprudence Practice Questions for AIBE ⬇️

5. Trial Outcome – Confiscation or Release:

• If the Special Court concludes that money laundering has occurred, it will order:
  • Confiscation: The property involved in money laundering will be confiscated by the Central Government.
• If no offence is found, the court will order the release of the property to the rightful owner.

Check out here: UGC NET Law 2024 Important Topics

Vesting of Property in the Central Government – Section 9

Key Provisions:

1. Confiscated Property:

   • Once an order of confiscation is made, all rights and titles of the confiscated property are vested absolutely in the Central Government, free from encumbrances.

2. Encumbrances or Lease-Hold Interests:

   • If an encumbrance (e.g., liens or lease interests) was created to evade the provisions of the PMLA, the AA or Special Court may declare it void after hearing the concerned parties.

Download Indian Contract Act Practice Questions for UGC NET ⬇️

Important Obligations for Financial Institutions:

1. Customer Due Diligence:

   • Banks must identify and verify customers and maintain transaction records for at least 5 years.
   • Suspicious transactions must be reported to the Financial Intelligence Unit (FIU-IND).

2. Confidentiality:

   • Institutions must maintain the confidentiality of customer information unless required by law.

Global Initiatives Against Money Laundering:

• Vienna Convention (1988): Criminalized money laundering and promoted international investigation cooperation.
• Financial Action Task Force (FATF) was established in 1989 to combat money laundering, terrorist financing, and related threats.
• Basel Committee Principles: Encourages banks to adopt anti-money laundering measures.
• European Union Directive: Mandates customer identification and reporting of suspicious transactions.
• United Nations Global Programme Against Money Laundering: It focuses on technical cooperation, research, and the creation of financial investigation services.

Download : UGC NET Law Previous Year Papers

Download Specific Relief Act Practice Questions for UGC NET ⬇️

Retention of Property – Section 20

1. Retention or Freezing Period: If an authorized officer believes that seized or frozen property is required for adjudication, it can be retained or frozen for up to 180 days from the date of seizure or freezing.
2. Forwarding the Order: Upon passing an order for retention or continuation of freezing, the officer must immediately forward a copy of the order and supporting material to the Adjudicating Authority in a sealed envelope.
3. Post-180 Days: Once the 180-day period expires, the property must be returned to the person from whom it was seized unless the Adjudicating Authority extends the retention or freezing period.
4. Confiscation Orders: If the property is found unrelated to money laundering, the Court or Adjudicating Authority will order its release to the rightful owner.
5. Retention During Appeals: If a release order is issued, the Director or an authorized officer can withhold the property for up to 90 days if necessary for ongoing appeal proceedings.

---

Retention of Records – Section 21

1. Retention or Freezing of Records: Seized or frozen records can be retained for 180 days if the Investigating Officer or the Director's authorized officer deems them necessary for inquiry purposes.
2. Access to Copies: The individual from whom records are seized can obtain copies.
3. Post-180 Days: After the 180 days, records must be returned unless the Adjudicating Authority permits an extension.
4. Authority’s Satisfaction: Before allowing retention beyond 180 days, the Adjudicating Authority must be convinced that the records are essential for adjudication.
5. Post-Confiscation Orders: If records are unrelated to money laundering, they will be released to the rightful individual.
6. Retention for Appeals: Records may be withheld for 90 days post-release order if necessary for appeal proceedings.

---

Download Transfer of Property Act Practice Questions for UGC NET ⬇️

Appellate Tribunal – Section 25

1. Establishment:

   • The Central Government is authorized to establish an Appellate Tribunal for hearing appeals against the orders of the Adjudicating Authority or other authorities under the Act.

2. Structure:

   • The tribunal constituted under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 serves as the Appellate Tribunal for the PMLA.

3. Filing Appeals:

   • Appeals must be filed within 45 days of the order.
   • Delayed appeals may be accepted if sufficient cause is provided.

4. Timeline for Disposal:

   • The Appellate Tribunal must dispose of the appeal within 6 months.

Special Courts and Enforcement of the Act

1. Designation of Special Courts:

   • The Central Government (CG) can designate, in consultation with the Chief Justice of the High Court, one or more Courts of Session as Special Courts for the trial of offences punishable under Section 4 of the Act.

2. Offences to be Cognizable and Non-Bailable – Section 45:

   • All offences under the Act are cognizable (the police can arrest without a warrant) and non-bailable.
   • Bail can only be granted under these conditions:
     • The Public Prosecutor is allowed to oppose the bail application.
     • The Court must be satisfied that the accused is not guilty and unlikely to commit further crimes while on bail.

Exceptions for Bail:

• Bail may be granted to:
  • Minors below 16 years.
  • Women.
  • Individuals who are sick or infirm.
  • Those accused of laundering sums below ₹1 crore are subject to the discretion of the Special Court.

Investigation Authorization:

• A police officer cannot investigate offences under the Act without specific authorization by the Central Government, as per prescribed conditions.

---

Get AIBE Mock Test Series Here!

International Cooperation – Agreements and Assistance

1. Agreements with Foreign Countries – Section 56:

   • The CG can enter into agreements with foreign governments for:
     • Enforcing the provisions of the Act.
     • Exchanging information to prevent offences under the Act or corresponding laws in other countries.
     • Assisting in investigations related to the Act.

2. Assistance to a Contracting State – Section 58:

   • If a contracting state sends a letter of request for an investigation or evidence collection:
     • The CG forwards the request to the Special Court or appropriate authority for execution under the Act or any applicable laws.

---

Reciprocal Arrangements for Processes and Accused Transfers

1. Execution of Processes in Contracting States:

   • If a Special Court wishes to:
     • Summon an accused or witness.
     • Issue a warrant for arrest.
     • Require document production.
     • Issue a search warrant.
     • It will send these duplicates to the contracting state through the CG, ensuring execution.

2. Execution of Foreign Court Processes:

   • If a Special Court in India receives a summons, warrant, or search order from a contracting state:
     • It will execute them as if issued by an Indian court.

Download Free Prevention of Money Laundering Act, 2002 Notes by Toprankers⬇️

---

Attachment, Seizure, and Confiscation of Property

Property in Contracting States:

Suppose a property linked to money laundering is located in a contracting state. In that case, upon application by the Director or Administrator, the Special Court can issue a letter of request to the foreign court or authority for attachment, seizure, or confiscation.

Requests from Contracting States:

If a contracting state requests attachment, seizure, or confiscation of property in India, The CG forwards the request to the Director for execution under the Act.