Definition and Overview of Money Laundering

Money laundering refers to hiding or altering the source and origin of unlawfully acquired funds to make them appear to have been obtained from lawful sources. Money laundering is when a person or a business turns unlawful funds into legal funds through complex routes. The money goes through many stages, including conversion and transfers to a legally recognised institution. Money laundering is the concealment of an illicit source of money, usually done in three steps – placement, layering, and integration.

Some common methods of money laundering are as follows-

Smurfing – It is the practice of dividing large amounts of money into smaller, less suspicious sums. Multiple persons deposit the money into one or more bank accounts over time.

Offshore Accounts – Money launderers commonly move the amount via multiple “offshore accounts” in nations where bank secrecy regulations exist. A complicated plan may entail hundreds of bank transactions to and from offshore institutions. The Bahamas, Bahrain, Cayman Islands, Hong Kong, Panama, and Singapore are among the “major offshore centres,” according to the International Monetary Fund.

Shell firms – These firms are fictitious businesses that operate exclusively to launder money. They receive filthy money as “payment” for apparent products or services but offer none; instead, they create the impression of genuine transactions by forging invoices and balance sheets.

Importance of Preventing Money Laundering

Money laundering has become a global problem. The amount of money laundered globally in one year is 2% to 5% of global GDP, or US$800 billion to US$2 trillion. Money laundering involves smuggling, illicit weapon sales, theft of funds, insider trading, corruption, and digital fraud. Illegal organisations use banks, shell companies, intermediaries, and money transmitters to transfer money obtained unlawfully worldwide to incorporate it into legitimate businesses and economies.

Money laundering diverts resources away from more productive sections of the economy, slowing economic growth. Furthermore, failing to prevent or address money laundering effectively can have significant social and political ramifications. It also engenders unforeseeable alterations in the demand for money, and also gives rise to substantial fluctuations in international capital flows and currency exchange rates.

To curb these activities and convict the person involved in such a task, India has various anti-money laundering laws to prevent any illegal transactions and financial crimes.

Purpose of Money Laundering Prevention Laws

India’s Anti Money-Laundering Laws tackle the major threat of illegal financial transactions. These laws attempt to deter and identify money laundering. India has enacted strict Anti-Money-Laundering Laws safeguarding its financial system, economy, and law.

The Central Government and Reserve Bank of India issued the Prevention of Money-Laundering (Maintenance of Records) Rules 2005. It mandates banks and financial institutions to keep records of transaction information maintenance and delivery and customer verification.

Benami Transactions (Prohibition) Act 1988

This legislation was intended to criminalise transactions that concealed the identity of the ultimate beneficiary by buying and selling assets under fictitious identities. Benami Transactions occur when one person pays for something yet transfers or holds the property within its occupancy.

To summarise, the primary objective of the anti-money laundering regulations in India is to preserve the soundness of the financial framework, counter unlawful practices, and establish accountability in monetary dealings. The laws aim to safeguard the economy and establish an equitable and responsible financial atmosphere for all parties involved by implementing rigorous regulations and sanctions.

PMLA and Reporting Entities Compliance Responsibility

The Prevention of Money Laundering Act, 2002 (“PMLA”), is a statue that aims to prevent the offense of money laundering in India. Money laundering involves the layering and processing of proceeds of crime with an intent to disguise its illegal origin. The PMLA provides for the confiscation of property derived from money laundering and imposes obligations on certain notified reporting entities to such as real estate agents, jewelers, virtual digital assets service providers, etc. (“Reporting Entities”) report transactions suspected to be involved in money laundering. Reporting Entities must comply with the regulations and guidelines issued by the regulatory authorities. This involves registering with the Financial Intelligence Unit-India (“FIU-Ind”), developing and implementing robust anti-money laundering (“AML”) and know-your-customer (“KYC”) policies within their organizations and training their employees to identify suspicious transaction.

Expected Compliances under Anti-Money Laundering (“AML”) and Countering the Financing of Terrorism (“CFT”) Guidelines

The AML & CFT Guidelines are conscripted with an intent to help Reporting Entities across various sectors meet the expected compliances under the regulations, which includes the following:

• Client Due Diligence
• Enhanced Due Diligence
• Record-Keeping
• Ensure that records are accessible for regulatory examinations and audits
• Suspicious Activity Reporting
• Internal Controls and Compliance Culture
• Training & Awareness
• Regulatory Reporting
• Audits & Assessments

Our Approach on Prevention of Money Laundering

Ahlawat & Associates firm is one of the few Law firms that provide services in anti-money laundering laws in India. With extensive work experience in representing clients in various courts over Prevention of Money Laundering Act Case Law.

We manage to provide advice on all queries related to the Prevention of Money Laundering Act, anti-corruption issues and many more. Our lawyers represent clients before the Prevention of Money Laundering Act’s Adjudicating Authority, Appellate Tribunals, and High Courts, including the special courts. In addition, our team manages money laundering trials under the Anti Money-Laundering Laws in India. And also provide expert opinions on concerns related to the Prevention of Anti Money Laundering Act and Prevention of Money Laundering Rules.

Our team of experienced lawyers combines legal expertise with in-depth industry knowledge to provide you with the insights and analysis necessary to comply with regulations and contribute effectively to the responsibility entrusted by the Regulators with respect to the prevention of illicit financial activities.

Our Services under PMLA Compliance

• Assistance with registering with FIU-Ind and communicate the name, designation and address of the designated director and principal officer of the Reporting Entity to the Regulators.
• Formulating the Client Due Diligence Programme specific to requirements of the Reporting Entity to determine true identity of their clients, verify their identities, and obtain information on the purpose and intended nature of the relationship.
• Formulating the programme for determination of beneficial ownership, and to identification / verification of such owners;
• Assisting in formulating robust and effective internal mechanisms for the Reporting Entities for maintaining and furnishing information to FIU-IND including, but not limited to, Cash Transaction Reports, Counterfeit Currency Reports, Non-Profit-Organisation Transaction Reports, Cross Border Wire Transfer Reports, and Suspicious Transaction Reports, and to furnish such information in the manner and time frames prescribed.
• Assisting the Reporting Entities to maintain complete records of all client information and due diligence measures and to furnish them as and when called for by the Regulators.
• Training the Reporting Entities in implementing the robust and effective ongoing Client Due Diligence and Effective Due Diligence Programme and to identify suspicious transactions.