Provisions of Prevention of Money Laundering Act, 2002

The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering and related crimes. The PMLA, along with its Rules, came into force on 1st July, 2005. Under PMLA, all entities registered with SEBI are required to furnish information about suspicious transactions, whether or not made in cash, to FIU-IND. According to Section 3 of PMLA, projecting crime as untainted property is considered an offense punishable under Section 4 of the PMLA.

Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. Through laundering, the launderer transforms monetary proceeds derived from criminal activity into funds with an apparently legal source.

Financial Intelligence Unit-India (FIU-IND) is the central national agency responsible for receiving, processing, analyzing, and disseminating information about suspect financial transactions. FIU-IND also coordinates efforts of national and international intelligence, investigation, and enforcement agencies in combating money laundering and related crimes.

Section 2 (1) (g) - Definition of Suspicious Transactions

The PMLA Rules define suspicious transactions (whether or not made in cash) as those that, to a person acting in good faith:

• Give rise to a reasonable suspicion that they may involve the proceeds of crime, or
• Appear to be made in circumstances of unusual or unjustified complexity, or
• Appear to have no economic rationale or bonafide purpose, or
• Raise suspicion that they may be related to terrorism activities.

Examples of Suspicious Transactions

Category	Examples
Identity of Clients	Forged identification documents False address details Uncertainty over the real beneficiary of the account
Suspicious Background	Positive match of name and date of birth with persons on various criminal lists Account held by publicly known criminals
Multiple Accounts	Large number of accounts with a common account holder, introducer, or authorized signatory without a rational or bona fide purpose Unexplained transfers between multiple accounts
Activity in Accounts	Unexplained activity in dormant accounts Account activity inconsistent with the declared business purpose
Nature of Transactions	Doubtful sources of funds Suspicious overseas fund transfers Foreign remittance to non-relatives Doubtful cash deposits in bank accounts at multiple locations Suspicious use of ATM/Credit card Doubtful foreclosure of loan accounts in cash Suspicious off-market transactions in demat accounts
Value of Transactions	Multiple transactions just under the reporting threshold to avoid reporting Unexplained large value transactions inconsistent with the client's financial standing

Monitoring and reporting suspicious transactions is crucial to combating money laundering, and financial institutions must take appropriate measures to ensure transparency and compliance with the law.