Tax Publishers

The Institute of Chartered Accountants of India

Committee on Commercial Laws, Economic Advisory & NPO Cooperative

 

 

Frequently Asked Questions (FAQs)

on

Notification dated 3rd May, 2023 under the Prevention of Money

Laundering Act, 2002

 

Glossary

 

PMLA

Prevention of Money Laundering Act 2002

POC

Proceeds of crime

PLI

Placement Layering and Integration

HUF

Hindu Undivided Family

U/S

Under Section

AOP

Association of persons

BOI

Body of Individuals

RE

Reporting Entities

GST

Goods and Services Tax

FATF

Financial Action Task Force

AML

Anti-Money Laundering

CFT

Countering the Financing of Terrorism

CPF

Combating Proliferation Financing

KYC

Know Your Customer

ED

Directorate of Enforcement

FIU-IND

Financial Intelligence Unit of India

CTR

Cash Transaction Report

STR

Suspicious Transaction Reports

NPO

Non-profit organizations

DD

Designated Director

ICSI

Institute of Company Secretaries of India

ICMAI

Institute of Cost Accountants of India

PO

Principal Officer

COP

Certificate of Practice

CA

Chartered Accountant

CS

Company Secretary

CWA

Cost and Works Accountant

WTR

Wireless transfer transaction report

SRB

Statutory Regulatory Body ICAI, ICSI, ICMAI

RBA

Risk-Based Approach

ML/TF/PF

Money Laundering, Terrorism Financing and Proliferation

Financing

CDD

Customer Due Diligence

EDD

Enhanced Due Diligence

PMLR

Prevention of Money-Laundering Rules

 

1. Which Act governs Money laundering offences?

Prevention of Money Laundering Act (PMLA), 2002 which came into force since 1st July 2005.

2. What is money laundering?

Money Laundering is the process of converting the tainted property (referred to as Proceeds of Crime - POC) acquired/obtained by carrying out specific offences (referred to as scheduled offences or predicate offences) as described in the Schedules under the Prevention of Money Laundering Act 2002, into the untainted property.

All or Any acts, directly or indirectly related to such proceeds of crime such as concealment, possession, acquisition, use, projecting or claiming it as untainted property is treated as an act of Money Laundering Offences.

The crux of Money Laundering is scheduled offences (Prescribed under the PMLA law) and generating property out of these offences i. e. POC.

A large number of criminal acts is done to generate some Property by the individual or group that carries out that act. When a criminal activity generates properties (which is tainted property), the individual or group (criminals) involved in that offence, may find some ways to convert that tainted property into untainted property without attracting legal attention. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention. All this involves Placement, Layering & Integration (PLI).

This process (PLI) is of critical importance, as it enables the criminal to enjoy these POC properties without explaining their illegal source.

Money laundering is a serious crime that facilitates various illegal activities, such as drug trafficking, corruption, fraud, and terrorism financing.

3. What is a money laundering offence under the PMLA Act?

Section 3 of PMLA, 2002 defines it as Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use or projecting or claiming it as untainted property shall be guilty of offence of money-laundering. This definition also has two Explanations to it and has to be read in its entirety.

The offence of money laundering involves knowingly engaging in financial transactions that conceal, possess, acquire, use or disguise the origins of illicitly obtained funds. It typically involves three stages:

Placement (introducing illicit funds into the financial system),

Layering (conducting complex transactions to obscure the audit trail),

Integration (legitimizing the illicit funds by integrating them back into the formal economy).

Hence what is important to note is that the Proceeds of crime (POC) arising from the violations of certain sections of about 30 different laws (referred to as Scheduled offence) results in tainted property and any activity/process of the type as stated above (including its use, acquisition, possession etc.) or projecting it as untainted property is the offence of Money Laundering.

4. Who is covered under PMLA?

Every Person - be it an Individual, HUF, firm, company, AOP/BOI, agency/branch etc. - whosoever directly or indirectly attempts to indulge or knowingly assists or is a party or is involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use or projecting or claiming it as untainted property shall be guilty of offence of money-laundering and can be covered under section 3 of the PMLA.

5. Who is a reporting entity (RE)?

Reporting entity means an entity defined under section 2(wa) of the PMLA Act 2002 and includes a banking company, financial institution, intermediary or a person carrying on a designated business or profession like Inspector General of Registration, Real estate agents, persons carrying on activities for playing games of chance/casinos or as notified by the Central Government, are all Reporting Entity.

6. Who is a beneficial owner?

Beneficial owner under section 2(fa) means an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person.

The beneficial owner is applicable only to legal entities such as companies, partnership firms, trusts etc. The criteria are based upon the percentage of shareholding or profit sharing.

7. Who is a person?

Every Person - be it an Individual, HUF, firm, company, AOP/BOI, artificial juridical person, agency/office/branch that is owned or controlled by any of the entities.

This definition is similar to the definition of 'pe