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Anti Money Laundering measures in India

Anti Money Laundering Act, 2002 was passed by Indian Parliament in the year 2002 and became effective from 1st July, 2005.

The Act specifies statutory duties for Banking Companies, Financial Institutions and Intermediaries. The compliance with these duties is intended to supplement the law enforcement authorities activities, to identify funds from  crimes and help to effectively prevent money laundering, financing for terrorism, and conversion of wrongfully attained money. The rationale of this policy is to set up the general structure for the movement against money laundering, terrorism, financial crimes and corruption.

Prevention of Money Laundering Act, (PMLA) 2002

Prevention of Money Laundering Act, 2002 addresses the problem money laundering with various statutes outlined as follows,

  • The Income Tax Act (1961)
  • The Indian Penal Code and Code of Criminal Procedure (1973)
  • The Conservation of Foreign Exchange and Prevention of Smuggling Act (1974)
  • The Narcotics Drugs and Psychotropic Substances Act (1985)
  • The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act (1988)
  • The Benami Transactions(Prohibition) Act (1988)
  • The Foreign Exchange Management Act (1999) (FEMA)

Objectives

  • The act criminalizes money laundering and also provides for freezing and confiscation of assets.
  • Appointment of various authorities including FIU is also covered in its provisions.
  • The Act also lays down obligations of banks in maintaining records of certain prescribed transactions and reporting such transactions to FIU-IND.

Procedures for Anti Money Laundering:

Each registered intermediary should adopt written procedures to implement the Anti Money Laundering provisions as envisaged under the Prevention of Money laundering Act, 2002. Such procedures should include inter alia, the following three specific parameters which are related to the overall ‘Client Due Diligence Process’:

  • Policy for acceptance of clients
  • Procedure for identifying the clients
  • Transaction monitoring and reporting especially suspicious
  • Transactions Reporting (STR)