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Money Laundering Regulations: A Country-by-Country Breakdown of AML and CFT Rules in India

As a major economy with significant global trade links, India has implemented robust regulations to combat money laundering (AML) and counter terrorist financing (CFT). This article provides an overview of India’s AML/CFT framework, highlighting its key components, enforcement measures, and international cooperation.

The Foundation of India’s AML Regulatory Framework

India’s AML journey began with its commitment to international initiatives, including the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, the Basel Statement of Principles, and Financial Action Task Force (FATF) recommendations. The Political Declaration and Global Programme of Action adopted by the UN General Assembly in 1990 emphasized the need for countries to develop mechanisms to prevent financial institutions from being used for money laundering.

The Prevention of Money Laundering Act (PMLA) of 2002

India’s cornerstone AML legislation is the PMLA, which criminalizes money laundering and provides legal provisions for tracing, seizing, and confiscating proceeds of crime. The PMLA establishes specialized enforcement agencies, such as the Directorate of Enforcement (ED), to investigate and prosecute money laundering cases.

The Role of Enforcement Agencies

Enforcement agencies like the ED play a crucial role in enforcing the PMLA and combating money laundering. They are equipped with investigative powers and collaborate with other law enforcement agencies to gather intelligence, conduct inquiries, and prosecute money launderers.

Customer Due Diligence and Reporting Obligations

Financial institutions in India must implement customer due diligence (CDD) measures to:

  • Verify customer identities
  • Understand transaction nature
  • Assess account risks

They also must monitor transactions and report suspicious activities to the Financial Intelligence Unit (FIU).

Prohibition of Benami Transactions

The Benami Transactions (Prohibition) Act of 1988 prohibits benami transactions, where a property is held by one person but consideration for it is paid by another. This act allows for confiscation of benami properties and provides a strong deterrent against such transactions.

Measures to Prevent Terror Financing

India’s AML framework also addresses terror financing, recognizing the link between money laundering and funding terrorism. The Unlawful Activities (Prevention) Act and amendments to the PMLA provide provisions to:

  • Designate individuals and organizations as terrorist entities
  • Freeze their assets
  • Choke off funding sources

Given the cross-border nature of money laundering, international cooperation is vital in combating this financial crime effectively. India actively engages with foreign jurisdictions and international organizations to:

  • Exchange information
  • Track illicit funds
  • Cooperate in investigations

Conclusion

India’s AML regulatory framework reflects its commitment to combating money laundering and related financial crimes. The PMLA, along with other relevant legislations, provides a strong legal basis for identifying, tracing, and seizing illicit assets. Enforcement agencies equipped with advanced technology and international cooperation play a vital role in enforcing AML measures. Customer due diligence, reporting obligations, and prohibition of benami transactions enhance financial transparency and integrity. India’s proactive approach in addressing terror financing further strengthens its AML efforts. Through international cooperation and mutual legal assistance, India contributes to the global fight against money laundering.