Financial Crime World

Anti-Money Laundering (AML) Regulations in India: An Overview

Penalties under the Prevention of Money Laundering Act (PMLA)

The PMLA provides for severe penalties, including imprisonment and confiscation of property involved in or derived from money laundering. Individuals and legal entities found guilty of violating AML requirements may also face monetary fines.

Criminal Liability

  • Imprisonment: Up to 14 years for individuals convicted of money laundering.
  • Confiscation of Property: Properties involved in or derived from money laundering may be confiscated.
  • Monetary Fines: Individuals and legal entities found guilty of violating AML requirements may face fines.

Compliance with Anti-Money Laundering Regulations

While the PMLA does not provide specific tax benefits for compliance, adhering to AML regulations can help mitigate reputational risks and avoid potential sanctions, fines, and penalties.

Tax Benefits

  • No specific tax benefits are provided by the PMLA for entities that comply with its provisions.
  • Compliance may still help entities avoid reputational risks and potential penalties.

Common Sources of Money Laundering in India

The PMLA does not provide information on common sources of money laundering in India. However, financial institutions and other entities are required to report suspicious transactions.

Reporting Suspicious Transactions

  • Reporting Entities (banks, financial institutions, intermediaries, etc.) must report all transactions suspected to be related to money laundering or terrorist financing.
  • Cross-border wire transfers must also be reported by the recipient bank.

Determining Suspicious Transactions

The PMLA defines what constitutes a suspect transaction and leaves it to each reporting entity to determine if they are required to report a specific transaction as suspect under the Act.

Factors in Determining Suspicious Transactions

  • Each reporting entity must use its own judgment to determine if a transaction is suspicious.
  • The PMLA provides guidance on what constitutes a suspect transaction.

Access to Information

The PMLA allows competent authorities (FIU, ED, and RBI) to access records maintained by Reporting Entities for purposes related to AML/CFT regulation.

Obligations of Financial Institutions

  • Reporting entities are obliged to provide information and assistance to competent authorities when required.
  • They must also maintain records as specified in relevant rules.

Politically Exposed Persons (PEPs)

The PMLA defines what constitutes a politically exposed person. Competent authorities may restrict or prohibit dealings with PEPs if they have been identified as such.

Identifying PEPs

  • Each reporting entity must use its own judgment to determine if an individual is a PEP.
  • The PMLA provides guidance on what constitutes a PEP.

Limitations on Restrictions for PEPs

Competent authorities may restrict or prohibit dealings with PEPs in accordance with relevant rules framed under the PMLA.