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Prevention of Money Laundering Act


The Financial Intelligence Unit India (FIU-IND) has issued show cause notices to 9 offshore cryptocurrency and virtual digital assets service providers (VDA SPs) including Binance Kucoin, Huobi for not being compliant with the requisite provisions of the Prevention of Money Laundering Act (PMLA).


GS II: Polity and Governance

Dimensions of the Article:

  1. PMLA Compliance Obligations for VDA SPs:
  2. Prevention of Money Laundering Act (PMLA), 2002
  3. Recent Changes Made Under the PMLA

PMLA Compliance Obligations for VDA SPs:

Registration Requirement:

  • VDA SPs involved in activities related to virtual digital assets and fiat currencies must register with FIU-IND as reporting entities.

Activity-Based Compliance:

  • PMLA compliance is not tied to physical presence but is determined by activities performed, encompassing reporting, record-keeping, and other specified obligations.

Regulatory Framework Expansion and Enforcement:

  • Regulatory expansion in March 2023 brought VDA SPs under the Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) framework within PMLA.

Anti-Money Laundering Law Requirements:

  • Reporting entities must maintain Know Your Customer (KYC) details, client identity records, beneficial owner information, account files, and relevant business correspondence.

Statements of Financial Transactions (SFT):

  • Reporting entities are obligated to file Statements of Financial Transactions (SFT) detailing specific financial transactions or reportable accounts maintained during the year under the Income Tax Act.

Prevention of Money Laundering Act (PMLA), 2002

  • According to the Prevention of Money Laundering Act (PMLA) 2002, Money laundering is concealing or disguising the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.
    •  It is frequently a component of other, much more serious, crimes such as drug trafficking, robbery or extortion.
  • Money laundering is punishable with rigorous imprisonment for a minimum of 3 years and a maximum of 7 years and Fine under the PMLA.
  • The Enforcement Directorate (ED) is responsible for investigating offences under the PMLA.
  • The Financial Intelligence Unit – India (FIU-IND) is the national agency that receives, processes, analyses and disseminates information related to suspect financial transactions.
  • After hearing the application, a special court (designated under the Prevention of Money Laundering Act PMLA, 2002) may declare an individual as a fugitive economic offender and also confiscate properties which are proceeds of crime, Benami properties and any other property, in India or abroad.
  • The authorities under the PMLA, 2002 will exercise powers given to them under the Fugitive Economic Offenders Act.
    • These powers will be similar to those of a civil court, including the search of persons in possession of records or proceeds of crime, the search of premises on the belief that a person is an FEO and seizure of documents.

Recent Changes Made Under the PMLA

The Indian government has made several changes to the Prevention of Money-Laundering Act (PMLA) to plug loopholes and comply with Financial Action Task Force (FATF) regulations. Some of the key changes are:

  • More disclosures for non-governmental organizations by reporting entities like financial institutions, banking companies, or intermediaries.
  • Definition of “politically exposed persons” (PEPs) as individuals who have been entrusted with prominent public functions by a foreign country, which brings uniformity with a 2008 Reserve Bank of India (RBI) circular for Know Your Customer (KYC) norms and anti-money laundering standards for banks and financial institutions.
  • Inclusion of practicing chartered accountants, company secretaries, and cost and works accountants carrying out financial transactions on behalf of their clients under the ambit of the money laundering law.
  • Widening the list of non-banking reporting entities to allow 22 financial entities like Amazon Pay (India) Pvt. Ltd, Aditya Birla Housing Finance Ltd, and IIFL Finance Ltd. to verify the identity of their customers via Aadhaar under the ambit of the money laundering law.

The financial transactions covered under the money laundering law include buying and selling of any immovable property, managing client money, securities, or other assets, management of bank, savings, or securities accounts, organization of contributions for the creation, operation, or management of companies, creation, operation, or management of companies, limited liability partnerships, or trusts, and buying and selling of business entities.

-Source: The Hindu

February 2024