Money laundering is the process wherein criminals attempt to conceal their booty and make an attempt to cover them as a legitimate source of income. The bill on money laundering described it as an offence (i) when a crime has been committed. (ii)There are proceeds or gains from the crime. (iii) There is a transaction in respect of the proceeds of the gains. (Read: WHAT IS MONEY LAUNDERING AND FINANCING OF TERRORISM RISKS?)
India is considered among the high-risk areas for money laundering. Thus, the Indian government needs to be more cautious as money laundering poses a grave threat to India’s administrative order and economic stability. Failure to take the necessary measures increases money laundering crimes in India and undermines India’s reputation in the international arena. To strengthen the country’s anti-money laundering efforts, The Government of India enacted the Prevention of Money Laundering Act (PMLA) in 2002 to combat money laundering and prevent money laundering. Asset forfeiture, public awareness campaigns, and robust Know Your Customer (KYC) measures further strengthen the country’s anti-money laundering efforts, demonstrating a commitment to preserving the integrity of its financial system and ensuring economic stability.
Money laundering has a cross-border character and multifaceted nature of criminal activities. In countering these criminal activities, the anti-money laundering strategy has moved from a domestic to an international level. The internationalization of anti-money laundering has been marked by the establishment of the United Nations Vienna Convention and the Basel Committee on Banking Regulations. The former refers to the internationalization of the penal aspect of money laundering, while the latter addresses the internationalization of the principle of financial regulations against the use of the financial sectors for money laundering purposes. The scope of the Vienna Convention is to oblige parties to criminalize and confiscate drug trafficking and money laundering as well as to provide international cooperation in all aspects of investigation, prosecution, and judicial proceedings, including extradition and mutual legal assistance.
India is among the countries that are members of the Financial Action Task Force (FATF). FATF is a global organization established to prevent money laundering all over the world. By publishing AML guidelines, FATF aims for countries to fight financial crime more effectively. The FATF member states’ AML regimes must comply with FATF recommendations. The main international body engaged in continuous, comprehensive efforts both to define policy and to promote the adoption of countermeasures against money laundering is the Financial Action Task Force (FATF). The FATF has pursued three main tasks viz. (i) Monitoring members’ progress in applying measures to counter money laundering and (ii) Reviewing money laundering techniques and countermeasures. (iii) Promoting the adoption and implementation of appropriate measures by non-member countries.
A cornerstone of the FATF’s efforts is its detailed definition of appropriate countermeasures for countries to use. These measures are set out in the “Forty Recommendations” formulated and adopted by the group in 1990. The Forty Recommendations address four general themes:
1. The overall context, in which the recommendations urge member countries to ratify the Vienna Convention, to ensure that financial institution secrecy laws do not inhibit implementation of the recommendations, and to promote multilateral cooperation and mutual assistance in investigations, prosecutions, and extradition.
2. The legal framework, in which the recommendations require the criminalization of laundering the proceeds of drug-related Crimes, encourages the coverage of all serious crimes or all crimes that generate large proceeds and promotes provisions allowing the freezing, seizing, and confiscation of property related to laundered funds.
3. The role of the financial system, in which the recommendations define roles for banks, life insurance companies, and other nonbank financial institutions, as well as financial regulatory authorities. The role envisioned for financial institutions is identifying their customers, maintaining records sufficient to allow the reconstruction of transactions, and making these records available to the right authorities for criminal investigations and prosecutions. The recommendations thus imply that financial institutions should not keep anonymous accounts. The recommendations encourage institutions to make a serious effort to identify and report suspicious activities and to adopt good internal policies, procedures, and controls. And they encourage states to adopt legal provisions from legal liability for reporting suspicious transactions.
4. The strengthening of international cooperation, in which the recommendations encourage authorities to exchange information on currency flows money laundering techniques, and suspicious transactions or operations. International cooperation should be supported by bilateral and multilateral agreements based on generally shared legal concepts. Cooperation and mutual assistance should include the production of records by financial institutions, the identification, freezing, seizure, and confiscation of criminal proceeds, and extraditions and prosecutions.
FATF Statements circulated by Reserve Bank of India from time to time, and publicly available information, for identifying countries, that do not or insufficiently apply the FATF Recommendations, shall be considered. Reporting Entities to FIU like banks, financial institutions, and intermediaries shall apply enhanced due diligence measures, which are effective and proportionate to the risks, to business relationships and transactions with natural and legal persons (including financial institutions) from countries for which this is called for by the FATF.
RBI Master Circular dated 29.05.2024, under requirements/obligations under International Agreements -Communications from International Agencies states as under;
Obligations under the Unlawful Activities (Prevention) (UAPA) Act, 1967:
According to Section 51A of the Unlawful Activities (Prevention) (UAPA) Act, 1967, and amendments thereto, regulated Entities do not have any account in the name of individuals/entities appearing in the lists of individuals and entities, suspected of having terrorist links, which are approved by and periodically circulated by the United Nations Security Council (UNSC). The details of the two lists are as under:
- The “ISIL (Da’esh) &Al-Qaida Sanctions List”, established and maintained under Security Council resolutions 1267/1989/2253, which includes names of individuals and entities associated with the Al-Qaida is available at https://scsanctions.un.org/ohz5jen-al-qaida.html
- The “Taliban Sanctions List”, established and maintained under Security Council resolution 1988 (2011), which includes names of individuals and entities associated with the Taliban is available at https://scsanctions.un.org/3ppp1en-taliban.htm
Regulated Enterprises (REs) shall also ensure to refer to the lists as available in the
In terms of Schedules to the Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions) Order, 2007, as amended from time to time regulated entities are required to meticulously verify modification to the lists in terms of additions, deletions, or other changes on daily basis and comply accordingly.
The details of accounts that resemble any of the individuals/entities in the lists shall be reported to FIU-IND apart from advising the Ministry of Home Affairs (MHA) as required under UAPA notification dated February 2, 2021.
Freezing of Assets under Section 51A of UAPA, 1967:
The procedure laid down in the UAPA Order dated February 2, 2021, shall be strictly followed and meticulous compliance with the Order issued by the Government shall be ensured. The list of Nodal Officers for UAPA is available on the website of MHA.
Obligations under Weapons of Mass Destruction (WMD) and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMD Act, 2005):
REs shall ensure meticulous compliance with the “Procedure for Implementation of Section 12A of the Weapons of Mass Destruction (WMD) and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005” laid down in terms of Section 12A of the WMD Act, 2005 vide Order dated September 1, 2023, by the Ministry of Finance, Government of India.
Given the aforementioned Order, REs shall ensure not to carry out transactions if the particulars of the individual/entity match the particulars in the designated list.
REs shall run a check, on the given parameters, at the time of establishing a relation with a customer and periodically verify whether individuals and entities in the designated list are holding any funds, financial assets, etc., in the form of bank account, etc.
In case of match in the above cases, REs shall immediately inform the transaction details with full particulars of the funds, financial assets, or economic resources involved to the Central Nodal Officer (CNO), designated as the authority to exercise powers under Section 12A of the WMD Act, 2005. A copy of the communication shall be sent to the State Nodal Officer, where the account/transaction is held, and to the RBI.
The Financial Intelligence Unit – India (FIU-IND) is the central, national agency responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs.
