The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005. Director, FIU-IND, and Director (Enforcement) have been conferred with exclusive and concurrent powers under relevant sections of the Act to implement the provisions of the Act.
The PMLA and rules notified thereunder impose an obligation on banking companies, financial institutions, intermediaries, and persons carrying on a designated business or profession, to verify the identity of clients, maintain records, and furnish information to FIU-IND. PMLA is an act to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto.
Rule 2(1)(g) of the Prevention of Money Laundering Act of 2002 (PMLA-2002) defines suspicious transactions as “A transaction whether or not made in cash which, to a person acting in good faith- (a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or (b) appears to be made in circumstances of unusual or unjustified complexity; or (c) appears to have no economic rationale or bonafide purpose, or (d) gives rise to a reasonable ground of suspicion that it may involve financing of activities relating to terrorism.”
Every banking company, financial institution, and intermediary shall furnish to the Directorate of Financial Intelligence Unit, India (FIU-IND) information on all suspicious transactions whether or not made in cash. Suspicions transaction, including an attempted transaction, whether or not made in cash which, to a person acting in good faith – (a) gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or (b) appears to be made in circumstances of unusual or unjustified complexity; or (c) appears to have no economic rationale or bonafide purpose, or (d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism. The Prevention of Money-laundering Act, 2002, and the rule thereunder also require every banking company, financial institution, and intermediary, to furnish to FIU-IND information relating to – All cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign currency; All series of cash transactions integrally connected which have been valued below rupees ten lakhs or its equivalent in foreign currency where such series of transactions have taken place within a month.
Counterfeit currency reports: The Prevention of Money-laundering Act, 2002, and rule thereunder require every banking company, financial institution, and intermediary, to furnish to Financial Intelligence Unit India information relating to all cash transactions where forged or counterfeit currency notes 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, whether or not made in cash and by way of money transfer or remittances in favour of the Entity’s clients or non-clients from India or abroad, and to third-party beneficiaries in India or abroad, including transactions on its account in any currency by any of the following: (i) payment orders; (ii) cashier cheques;(iii) demand drafts;(iv) telegraphic or wire transfers or electronic remittances or transfers; (v) internet transfers;(vi)Automated Clearing House remittances;(v) lockbox-driven transfers or remittances;(vi) remittances for credit or loading to electronic cards;(vi) any other mode of money transfer by whatever name it is called; and loans and advances including credit or loan substitutes, investments and contingent liability by way of foreign exchange contracts, currency, interest rates and commodities and any other derivative instrument in whatsoever name it is called.
The principal officer of a Reporting Entity is under an obligation to supply information relating to suspicious transactions (in the form of STRs) to the office of the directorate of the FIU no later than seven working days after being satisfied that the transaction is suspicious. 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. Reporting Entity shall keep records and inform the Authority about suspicious transactions. The director can call for records and information from the reporting entity. No civil liability on the reporting entity if they report suspicious transactions.
Reporting Entity shall keep records and inform the Authority about suspicious transactions. FIU-IND Director can call for records and information from the reporting entity. No civil liability on the reporting entity if they report suspicious transactions.
Reporting obligations under FEMA
As per FEMA 1999, every Indian resident company that has made a Foreign Direct Investment (“FDI”) in the preceding year, including the current year, must submit a Foreign Liabilities and Assets Return. An Annual Performance Report is to be submitted by a resident individual who has made an Overseas Direct Investment (“ODI”). An Indian company that receives investment outside India for the issue of shares or other eligible securities under the FDI scheme must report all the details of the amount of consideration to the concerned Regional Office of the RBI through its Authorised Dealer (“AD”) category I bank within 30 days from the date the shares were issued.
An AD bank must record valid LEI for cross-border transactions of INR 50 crore and more undertaken through it on or after October 1, 2022. The AD bank must report the valid LEI for all cross-border transactions, irrespective of the value of the transactions. However, if the AD bank already has a valid LEI of the entity, it must report it for all transactions, irrespective of whether the entity has undertaken a transaction of INR 50 crore or above through it.
The principal officer must supply information relating to transactions in immovable property valued at more than INR 5,000,000 every quarter to the FIU by the 15th day of the month following the quarter (i.e. April, July, October, or January).
The obligation of reporting entities to effectively serve to prevent and impede money laundering and terrorist financing and to observe such internal controls not only by them but also by their Designated Director, officers, and employees is a legal requirement under Rule 7(4) of the PMLR.
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