Enforcement Directorate
Ahmedabad, 21st Feb 2015
Money Laundering…..
Process by which illegal funds and
assets are converted into legitimate
funds and assets.
The Need for Money Laundering
Act
 Part of International/National commitment
to fight terrorism, Organized Crime
Syndicates, major economic offenders by
targeting their financial resources.
 PMLA, 2002 fills the gap in the Criminal
Justice System where attachment of proceeds
of crimes was very difficult in the existing
Major Criminal Acts.
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The FATF
 Established by the G-7 Summit in Paris in July 1989 to
examine measures to combat money laundering.
 An inter-governmental body whose purpose is to establish
international standards and promote national and
international policies to combat money laundering (ML) and
terrorist financing (TF).
Membership of FATF
 The 36 members(34 countries and 2 regional bodies) of the
FATF and the members of EIGHT FATF-style regional bodies
(FSRBs) have all directly committed to implement the FATF
standards.
 The Gulf Cooperation Council is a member of the FATF.
 The European Union is a member of the FATF.
The role of the FATF
40+9 Recommendations (the FATF standards)

Establish international standards to combat money
laundering and terrorist financing.
Mutual evaluation system

Assess compliance with the FATF standards.
Typologies work

Study methods and techniques of money laundering (ML)
and terrorist financing (TF).
Objectives of FATF Standards


Provide a comprehensive set of measures to enable all countries to
implement effective anti-money laundering (AML) / counterterrorist financing (CFT) systems that will protect the world-wide
financial system from misuse by organised crime and terrorist
financiers.
Foster good governance and longer term economic development.
Overview of the standards
The 40 Recommendations
 Legal systems: criminalisation of money laundering,
international cooperation.
 Comprehensive set of preventative measures to be taken by
financial institutions and non-financial businesses and
professions (customer due diligence, record keeping).
 Institutional framework and other measures (reporting of
suspicious transactions, compliance, regulation and
supervision, sanctions).
 International cooperation: mutual legal assistance,
extradition, information sharing.
Overview of the standards (continued)
The 9 Special Recommendations on Terrorist Financing
 Ratify United Nations instruments.
 Criminalise terrorist financing.
 Freeze and confiscate assets.
 Report suspicious transactions.
 International cooperation.
 Protect against abuse of alternative remittance systems and
abuse of non-profit organisations.
 Ensure originator information on wire transfers
 Detect cash couriers.
FATF issued revised Recommendation in Feb 2012 .
The new recommendations are 40 in numbers and
subsumes the earlier 40+9 recommendations
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Parliamentary History of the Law.
 The PML bill, 1998 was introduced in Lok Sabha on 04-08-1998.
 Referred to Standing committee on finance on 05-08-1998.
 The committee submitted its report on 04-03-1999.
 The bill was presented in Rajya Sabha on 08-03-1999.
Parliamentary History of the Law.
 The PML, Bill 1999 was presented in Lok Sabha on 29-10-1999.
 The PML, Bill 1999 was passed in Lok Sabha on 02-12-1999.
 Rajya Sabha referred the bill to Select committee.
 The committee finalised its report on 24th July, 2000.
 The present act after being passed by both the houses received
the assent of the president on 17th January, 2003.
Preamble to PMLA 2002
“An Act to prevent money laundering and to
provide for confiscation of property derived
from, or involved in money laundering and
for matters connected or incidental thereto”
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PMLA 2002: Key Concepts
 Offence of Money Laundering –
attempt to
indulge or knowingly assist or knowingly is a
party or is actually involved in any process or
activity connected to proceeds of crime
including its concealment, possession,
acquisition or use and projecting or claiming
it as untainted property .
 Proceeds of Crime - Assets obtained as a
result of Criminal activity related to
Scheduled Offence
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Money
Laundering Cycle
1.
Predicate Crimes
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•
•
•
•
•
•
Corruption and Bribery
Fraud
Organized crime
Drug and human trafficking
Environmental crime
Terrorism
Other serious crimes…
4.
INTEGRATION
2.
PLACEMENT
• The last stage in the laundering
process.
• Occurs when the laundered
proceeds are distributed back to
the criminal.
• Creates appearance of
legitimate wealth.
• Initial introduction of criminal
proceeds into the stream of
commerce
• Most vulnerable stage of money
laundering process
3.
LAYERING
• Involves distancing the money
from its criminal source:
• movements of money into
different accounts
• movements of money to
different countries
• Increasingly difficult to detect
Simple Bribe and Money Laundering Transaction
Country 3
Country 1
Company owned by Minister’s cousin
Company A
• Needs to generate $1
million for bribe to
Minister.
• Uses invoices from
company in Country 2
Company Bank Account
Country 2
$500,000 - Purchase of
Real Estate
Country 1
PMLA Administered by:
 Financial Intelligence Unit for verification of
identity of clients, maintenance of records and
reporting
 Enforcement Directorate for investigation of
and prosecution for money-laundering offences
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Flow of Events
Scheduled offence
Intelligence from FIU/Other
sources
Investigation by
Police/CBI/NCB/ Forest
Deptt.
Investigation by ED
Complaint
(Chargesheet) filed in
the Jurisdictional Court
Adjudicating
Authority
Special court
Confirmation of
Prov. Attachment
Conviction in
Scheduled offence
Conviction for ML
Confiscation of
Tainted property
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Scheduled Offences
 Schedule to PMLA has 156 Offences under
28 criminal acts
 Indian Penal Code (IPC)
 Narcotic Drugs And Psychotrophic Substances
Act (NDPS)
 Unlawful Activities (Prevention) Act (UAPA)
 Explosive Substances Act
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Scheduled Offences
•
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•
•
•
•
•
•
•
•
•
•
•
•
Arms Act
Wild life Protection Act
Immoral Traffic Act
Prevention of Corruption Act
The Explosive Act
SEBI Act
Customs Act
Bonded Labour System (Abolition) Act
Child Labour (Prohibition and regulation)Act
Trans Plantation of Human Organ Act
The Juvenile Justice Act
The Emigration Act
The Passports Act
The Foreigners Act
•The Copyright Act
•The Trade Marks Act
•The Information Technology Act
•The Biological Diversity Act
•The Protection of Plant Varieties And
Farmers Right Act
•The Environmental Protection Act
•The Water (Prevention and Control of
Pollution) Act
•The Air (Prevention and Control of
Pollution) Act
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PMLA: A multi-agency perspective
ATS
Customs
/ DRI
Customs
Act/NDPS
IPC/UAPA/Arms
Act/Explosive
Substances Act
NDPS
SEBI
CBI/ACB
SEBI Act
Prevention of
Corruption Act
Other
Police/CBI
IPC & Other Acts
NCB
PMLA
Respective Acts
ED
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Legal Obligation under PMLA towards FIU
PMLA impose obligations on following reporting entities:

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banking companies
financial institutions
intermediaries of the securities market
Persons carrying on designated business or
profession
to
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maintain records
furnish information
verify identity of clients
Section 12
“Banking Company” under PMLA includes:

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All nationalized banks, private Indian banks
and private foreign banks
All co-operative banks viz. primary co-operative
banks, state co-operative banks and central
(district level) co-operative banks
State Bank of India and its associates and
subsidiaries
Regional Rural Banks
“Financial Institution” under PMLA includes:

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Financial Institutions as defined in Section
45-I of the RBI Act namely EXIM Bank,
NABARD, NHB, SIDBI, IFCI Ltd., IDFC Ltd.,
IIBI Ltd. and TFCI Ltd.
Insurance companies
Hire Purchase companies
Chit fund companies as defined in the Chit
Funds Act.
“Intermediary” under PMLA includes persons
registered under Section 12 of the Securities and
Exchange Board of India (SEBI) Act, 1992:
•Stock brokers
•Sub-brokers
•Share transfer agents
•Bankers to an issue
•Trustees to trust deed
•Registrars to issue
•Merchant bankers
•Underwriters
•Portfolio Managers
•Investment advisers
•Depositories
•Custodian of securities
•Foreign institutional investors
•Credit rating agencies
•Venture capital funds
•Collective investment schemes
including mutual funds
Persons carrying on designated business or profession under
PMLA includes
(i) a person carrying on activities for playing games of chance for cash or kind, and
includes such activities associated with casino;
(ii) a Registrar or Sub-Registrar appointed under section 6 of the Registration Act,
1908 (16 of 1908) as may be notified by the Central Government;
(iii) real estate agent, as may be notified by the Central Government;
(iv) dealer in precious metals, precious stones and other high value goods, as may
be notified by the Central Government;
(v) person engaged in safekeeping and administration of cash and liquid
securities on behalf of other persons, as may be notified by the Central
Government; or
(vi) person carrying on such other activities as the Central Government may, by
notification, so designate, from time-to-time;
Salient Features
 Effective provisions for attachment and confiscation of
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proceeds of crime
Provisions for Overseas investigations and attachment of
properties abroad
Special Courts set up by Government across the Country
for prosecution
Provision for disclosure by banks, financial institutions and
intermediaries – Financial Intelligence Unit (FIU)
Burden of proof on accused to prove that proceeds of crime
are untainted
Statements recorded by ED Officers admissible as evidence
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There are three main methods by which criminal organisations
and terrorist financiers move money for the purpose of
disguising its origins and integrating it into the formal economy.
• use of the financial system;
• physical movement of money (e.g. through the use of cash
couriers);
• through the physical movement of goods through the trade
system..
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•Trade-based money laundering is defined as the process of disguising the
proceeds of crime and moving value through the use of trade transactions
in an attempt to legitimise their illicit origins.
•In practice, this can be achieved through the misrepresentation of the
price, quantity or quality of imports or exports. Moreover, trade-based
money laundering techniques vary in complexity and are frequently used
in combination with other money laundering techniques to further
obscure the money trail.
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Examples of Trade-Based
Money Laundering
• over- and under-invoicing of goods and services;
• multiple invoicing of goods and services;
• falsely described goods and services.
Indicators and Trends
Trade-Based Money Laundering
• Cash for high-value orders
Items priced well over or under market value
Mismatch between customer and items ordered
Business transfers made for no apparent reason
Third-party financing
Packaging inconsistent with contents
Routing is circuitous or economically illogical.
Size or weight of goods is inconsistent with contents
Under voicing of Goods
Exporter Ships 1 million widgets @ $1 each
whereas actual price is $2 each
Company I
Company E
1$ Million is moved from exporter
to importer
Home Country
Foreign Country
Importer remits payment for 1 million widgets @ $1 each
Company I can sell extra widgets and can distribute 1
million as per direction of company E
Mechanics of a Black Market Peso Exchange Agreement
Colombian
Importer
Drug Cartel
Drugs
Goods
US
Dollars
Peso
broker
Pesos
Pesos
Use of Gold Bullion
Cartel smuggles drugs into the US from Colombia
Proceeds from
drug sales used
to purchase gold
bullion
US
Gold is recast
into hardware
The “hardware” is
exported to Colombia
Cartel re-exports gold bullion into the US from
Colombia
Colombia
J.P Singh ,
Joint director, ED , Ahmedabad
Mob.No-9099030707
E.mail- jitendrapr.singh@nic.in
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