1.

The Crime of Money Laundering and Criminal

Enforcement
1.1 What is the legal authority to prosecute money laundering
at the national level?
The Prevention of Money Laundering Act, 2002 (“PMLA”), and the rules
issued thereunder (“PML Rules”), provides the key legislative framework for
the prosecution of money laundering. The primary legal authority
responsible for investigating and prosecuting money laundering offences
under the PMLA at the national level is the Directorate of Enforcement
(“ED”), under the aegis of the Department of Revenue, Ministry of Finance.
In addition to the above, regulators such as the Reserve Bank of India
(“RBI”), Securities and Exchange Board of India (“SEBI”) and the Insurance
Regulatory and Development Authority of India (“IRDAI”) are empowered to
deal with issues relating to money laundering activities and lay down
guidelines on anti-money laundering (“AML”) standards. These guidelines,
read with the PMLA and PML Rules, form the core of the legal framework for
AML laws and enforcement in India.
1.2 What must be proven by the government to establish money
laundering as a criminal offence? What money laundering predicate
offences are included? Is tax evasion a predicate offence for money
laundering?
Under the PMLA, the offence of money laundering arises from the
commission of any offence mentioned in the PMLA schedule of offences, and
proceeds of crime arising thereof. “Money laundering” is defined as any act
where a person directly or indirectly attempts to indulge, knowingly assists,
or knowingly is a party to or is actually involved in any process or activity
connected to the proceeds of crime, including its concealment, possession,
acquisition or use and projecting or claiming it as untainted property; such
acts are covered under the scope of a money laundering offence. Further,
where any property is derived or obtained directly or indirectly by any person
as a result of a criminal activity relating to an offence specified in the
schedule to the PMLA, including the value of any such property or where
such property is taken or held outside the country, then the property
equivalent in value held within the country or abroad, also amounts to
proceeds of crime and hence, amounts to money laundering. Therefore, by
the very nature of its definition, money laundering involves
obtaining/deriving proceeds arising from the commission of a criminal
offence. Section 4 of the PMLA criminalises the offence of money
laundering. To proceed against a person accused of offences under the
PMLA, a predicate offence, i.e. an offence based on which the proceeds of
the crime were generated, should have been registered with the
jurisdictional police or before the competent forum. In this regard, the
Supreme Court held in its decision in Vijay Madanlal Choudhary and Others v.
Union of India and Ors. (2022 SCC Online SC 929), that for initiating an action
for the provisional attachment of properties, registration of the predicate
offence is not mandatory.

As specified in Parts A–C of the PMLA schedule, the commission of a

Scheduled Offence attracts the provisions of the PMLA. Examples of
Scheduled Offences are enumerated below:

a. Part A enlists offences under various pieces of legislation, including the:

Indian Penal Code, 1860 (“IPC”); Narcotics Drugs and Psychotropic
Substances Act, 1985 (“NDPSA”); Explosive Substances Act, 1908;
Unlawful Activities (Prevention) Act, 1967; Prevention of Corruption Act,
1988 (“PCA”); SEBI Act, 1992; Customs Act, 1962; Foreigners Act, 1946;
Arms Act, 1959; Antiquities and Art Treasures Act, 1972; Copyright Act,
1957; Trademark Act, 1999; Information Technology Act, 2000;
Companies Act, 2013 (“CA 2013”); Wild Life (Protection) Act, 1972;
Immoral Traffic (Prevention) Act, 1956; Explosives Act, 1884; Customs
Act, 1962; Bonded Labour System (Abolition) Act, 1976; Child Labour
(Prohibition and Regulation) Act, 1986; Transplantation of Human Organs
Act, 1994; Juvenile Justice (Care and Protection of Children) Act, 2000;
Emigration Act, 1983; Passports Act, 1967; Foreigners Act, 1946;
Biological Diversity Act, 2002; Protection of Plant Varieties and Farmers’
Rights Act, 2001; Environment Protection Act, 1986; Water (Prevention
and Control of Pollution) Act, 1974; Air (Prevention and Control of
 Pollution) Act, 1981; and Suppression of Unlawful Acts against Safety of
Maritime Navigation and Fixed Platforms on Continental Shelf Act, 2002.
b. Part B offence (offence under Section 132 of the Customs Act, 1962),
where the total value involved in such offence is INR 1 crore or more.
c. Part C deals with transborder crimes and reflects the commitment to
tackle money laundering across international boundaries.

A wilful attempt to evade any tax, penalty or interest as referred to in

Section 51 of the Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015 (“Black Money Act”) qualifies as a Scheduled
Offence under Part C of the schedule to the PMLA.
1.3 Is there extraterritorial jurisdiction for the crime of money
laundering? Is money laundering of the proceeds of foreign crimes
punishable?

Yes, the PMLA confers extraterritorial jurisdiction to the authorities

constituted thereunder where the offence has cross-border implications:

a. where any proceeds of crime arising out of a Scheduled Offence

committed in India have been remitted or attempted to be remitted
outside India; or
b. where any conduct by a person at a place outside India which constitutes
an offence at that place and which would have qualified as a Scheduled
Offence had it been committed in India, and where any proceeds arising
out of such conduct thereafter may have been remitted to India.

The PMLA empowers the relevant authorities to attach and confiscate assets
of equivalent value in India or abroad where the asset constituting the
proceeds of crime is taken and held abroad and cannot be forfeited.

In addition to the above, the Black Money Act provided for a three-month
window from July 1, 2015 to September 30, 2015 for any person to make a
declaration in relation to his undisclosed assets located outside India, and
avail of the option of paying the prescribed tax and penalty on their foreign
assets on or before December 31, 2015, failing which they were subject to
penalties and prosecution under the Black Money Act. The offence of a wilful
attempt to evade tax under Section 51 of the Black Money Act is a Scheduled
Offence under Part C of the PMLA schedule and, accordingly, the PMLA may
apply to such offences.

1.4 Which government authorities are responsible for

investigating and prosecuting money laundering criminal offences?
The ED is the primary authority responsible for investigating and prosecuting
money laundering. Established under the aegis of the Department of
Revenue, Ministry of Finance, the ED is empowered to initiate proceedings
for attachment of property and launch proceedings in the designated Special
Court for the offence of money laundering. The Financial Intelligence Unit –
India (“FIU”) under the Department of Revenue, Ministry of Finance is the
central national agency responsible for receiving, processing, analysing, and
disseminating information relating to suspect financial transactions to
enforcement agencies and foreign FIUs.

Apart from the ED and FIU, other regulators are empowered to enforce AML
guidelines, including:

a. The SEBI: SEBI has issued detailed know your customer (“KYC”) norms
and requirements for financial intermediaries and investors in the
securities market.
b. The RBI: Similarly, RBI has prescribed KYC and AML guidelines for banks
and other financial institutions regulated by it.
c. IRDAI: IRDAI has prescribed certain AML guidelines on combating the
financing of terrorism (“CFT”), applicable to certain categories of
insurers. It has also recently released Draft Master Guidelines on
AML/CFT, and final master guidelines consolidating and updating the
guidelines on AML/CFT, covering provisions of the PMLA and PML Rules,
and other applicable norms.
d. Economic Offences Wing, Central Bureau of Investigation (“CBI”):
CBI is a specialised police establishment established for the investigation
of specific types of crimes such as corruption by public servants, serious
 economic offences, fraud and crime with inter-state/all-India
ramifications.
e. Income Tax Department: This department is empowered to take steps
to prevent the offence of money laundering by imposing tax on
undisclosed foreign income and assets of Indian residents.
f. Registrar of Companies (“RoC”): As per the new requirement under
the CA 2013, every Indian company, both private and public, is
mandated to file with the RoC a record of the company’s significant
beneficial owners (in eForm MGT-6).

1.5 Is there corporate criminal liability or only liability for

natural persons?

Under the PMLA, both natural and legal persons may be prosecuted for the
offence of money laundering. Section 70 of the PMLA recognises corporate
criminal liability; it states that where a company contravenes the PMLA or its
rules, every person who was in charge of or responsible for the
actions/business of the company at the time the contravention was
committed, as well as the company, shall be deemed guilty and liable to be
proceeded against under the PMLA. Hence, in addition to the liability
accruing on natural persons for contravention of the PMLA and the rules
thereunder, other legal entities may also attract liability and can be fined for
such contraventions.

However, as per the proviso to Section 70, the person who was in charge of
or responsible for the actions/business of the company at the time the
contravention was committed may contend in their defence, and prove that
such contravention took place without their knowledge/despite all due
diligence.

Additionally, “Politically Exposed Persons” (“PEPs”) have also now been

defined as “individuals who have been entrusted with prominent public
functions by a foreign country, including the heads of States or
Governments, senior politicians, senior government or judicial or military
officers, senior executives of state-owned corporations and important
political party officials”. Notably, under the Prevention of Money Laundering
Amendment Rules, 2023, vide Notification No. S.O. 1074(E), dated March 7,
2023 – only foreign PEPs have been covered by the present definition, and
domestic PEPs still remain excluded from its purview. The inclusion of PEP’s
definition in the principal rules has now brought the definition under PMLA at
par with the RBI Master Directions on KYC, 2016 (“RBI MD”), and also in line
with the Financial Action Task Force (“FATF”) norms. Now, Reporting
Entities are required to maintain records and monitor financial transactions
pertaining to foreign PEPs under the PMLA.

A company may be prosecuted irrespective of whether the

prosecution/conviction is contingent on the prosecution or conviction of any
individual.

1.6 What are the maximum penalties applicable to individuals

and legal entities convicted of money laundering?

The maximum penalty for commission of money laundering is rigorous

imprisonment for a minimum period of three years, which may extend up to
seven years with a fine.

It is worth noting that where the proceeds of crime involved in the money
laundering relate to any of the offences under the NDPSA (see the PMLA
Schedule Part A, Para. 2), the maximum penalty is rigorous imprisonment for
a minimum period of three years, which may extend up to 10 years with a
fine.
Under the PMLA, fines ranging from INR 10,000 to 100,000 for each failure
can be imposed on legal entities who qualify as Reporting Entities (please
see question 2.1) if they fail to maintain records or supply relevant
information in the prescribed manner under the PMLA and PML Rules.
Although the PMLA and PML Rules do not provide for the revocation of
licences of Reporting Entities, regulators such as the RBI and the SEBI
regulating the Reporting Entities may take such actions based on their
circulars relating to KYC and AML.

1.7 What is the statute of limitations for money laundering

crimes?
The PMLA does not specifically provide for a limitation period with respect to
the offences therein. In absence thereof, the provisions of the Code of
Criminal Procedure, 1973 (“CrPC”) apply. Section 468 does not prescribe
any limitation period for offences punishable with imprisonment of more than
three years. In the case of Hari Narayan Rai v. Union Of India, 2010 (94) AIC
908, it was observed by the Jharkhand High Court that the offence under
Sections 3 and 4 of the PMLA would continue as long as the accused
continues to hold the proceeds of crime, and as long as he is involved in the
activity connected with the proceeds of crime projecting the same as
untainted property.
Furthermore, the amendments brought to the PMLA through the Finance Act,
2019 offer clarification to Section 3 of the PMLA, setting out that it would be
incorrect to interpret money laundering as a one-time, instantaneous offence
that ceases with the concealment, possession, acquisition, use or projection
of the proceeds of crime as untainted property or through claiming it as
untainted. A person shall be liable to be prosecuted for the offence of money
laundering for as long as the said person is enjoying the “proceeds of crime”
– thus, making the offence of money laundering a continuous
offence. Accordingly, for offences punishable under the PMLA, there does
not appear to be a specific limitation period.
1.8 Is enforcement only at national level? Are there parallel
state or provincial criminal offences?

Under the Indian AML framework, there are no parallel state or provincial
criminal offences. The offence of money laundering as recognised under the
PMLA is applicable throughout India, and the enforcement actions are taken
by the ED/FIU at national level.

1.9 Are there related forfeiture/confiscation authorities? What

property is subject to confiscation? Under what circumstances can
there be confiscation against funds or property if there has been no
criminal conviction, i.e., non-criminal confiscation or civil forfeiture?

The ED is empowered to initiate proceedings for attachment of property and

to launch proceedings in a criminal court or a Special Court set up for the
trial of the offence of money laundering.

Properties that are derived or obtained, directly or indirectly, by any person

as a result of criminal activities relating to a Scheduled Offence are subject
to attachment/confiscation under the PMLA. Under the PMLA, the term
“property”: means any property or assets of any description, whether
corporeal or incorporeal, movable or immovable, tangible or intangible;
includes deeds and instruments evidencing title to, or interest in, such
property or assets, wherever located; and covers property of any kind used
in the commission of an offence under the PMLA or any of the Scheduled
Offences.
The PMLA does not make a separate provision for non-conviction-based
forfeitures. On the contrary, Sections 5 and 8 of the PMLA deal with pre-
trial attachment/confiscation of properties, wherein the confiscation is
crystallised upon order of conviction from the designated Special Court and
that such property is proceeds of crime. Nevertheless, it may be possible to
initiate such forfeiture proceedings against an accused where the accused
assisted/indulged in the money laundering offence alone, without having
participated in the Scheduled Offence. This was highlighted in the case of B.
Rama Raju v. Union of India [(2011) 164 Comp Cases 149 AP], wherein the
division bench of the Andhra Pradesh High Court observed:
“On the afore-stated scheme the provisions of the Act, the prosecution
under the Act; and attachment and eventual confiscation proceedings are
distinct proceedings. These two sets of proceedings may be initiated against
the same person if he is accused of the offence of money-laundering. Even
when a person is not so accused, the property in his possession may be
proceeded against for attachment and confiscation, on a satisfaction by the
appropriate and competent authority that such property constitutes
proceeds of crime.”
In its decision in Vijay Madanlal Choudhary and Others v. Union of India and
Ors. (2022 SCC Online SC 929), the Supreme Court held that “proceeds of
crime” includes “any property”, including that which has derived from
abroad or has been obtained directly or indirectly. It also includes property
derived or obtained from the sale proceeds, or in a given case in lieu of or in
exchange of the “property”, which had been directly derived or obtained as a
result of criminal activity relating to a scheduled offence.

The Supreme Court also held that properties can also be attached
provisionally, and in such scenarios it is not mandatory that the predicate
offence should be registered. However, provisional attachment of property
can only be initiated based on the material, in possession of the authorised
officer, which indicates that the person is in possession of proceeds of crime.
Moreover, not all properties of the accused person can be attached, and only
those properties that appear to be the proceeds of crime, based on the
material in possession of the authorised officer, can be attached.

1.10 Have banks or other regulated financial institutions or their

directors, officers or employees been convicted of money
laundering?

While we have not come across any successful case of conviction of any
bank/regulated financial institution or their directors, officers or employees,
the ED has carried out investigations in respect of the affairs of financial
institutions. The ED recently filed a money laundering case against the
erstwhile Managing Director of a major private Indian bank in December
2021 for accepting illegal gratification in the form of a property in return for
a loan and concessions in existing credit facilities from the bank.

In a separate instance, the RBI imposed a monetary penalty of INR 50 million

on Federal Bank Limited for non-compliance with, inter alia, the RBI’s
guidelines/directions on KYC and AML requirements. Where a bank/regulated
financial institution is in non-compliance with RBI directions, the RBI is
empowered to revoke the banking licence of the banking company as
provided under Section 35A read with Section 22 of the Banking Regulation
Act, 1949 (“BR Act”). Furthermore, the RBI may also impose penalties in
the exercise of its powers under Section 47A(1)(c) read with Section 46(4)(i)
of the BR Act.
1.11 How are criminal actions resolved or settled if not through
the judicial process? Are records of the fact and terms of such
settlements public?
Under Sections 265A to Section 265L, Chapter XXIA of the CrPC, Indian law
recognises the concept of plea bargaining as available to the accused;
however, it is not applicable for:

a. offences that have been notified by the government as affecting the

“socio-economic condition of the country”; or
b. offences where the punishment prescribed by law is:
i. death;
ii. life imprisonment; or
iii. imprisonment for a term in excess of seven years.

Under Section 65 of the PMLA the provisions of CrPC apply to PMLA-related

proceedings so far as they are not inconsistent with the provisions of the
PMLA. The provisions of the PMLA do not contain any explicit references to
the option of plea bargaining.

The offence of money laundering is non-compoundable as the PMLA does not

contain any explicit provisions for the settlement of offences; therefore,
there are as of yet no Indian law precedents observing settlement of PMLA
offences.

1.12 Describe anti-money laundering enforcement priorities or

areas of particular focus for enforcement.
Under the PMLA, all cases of money laundering are prosecuted with equal
severity. The primary function of the ED is to investigate money laundering
offences under the provisions of the PMLA and to take actions of attachment
and confiscation of property if the same is determined to be proceeds of
crime derived from a Scheduled Offence under the PMLA, and to prosecute
the persons involved in the money laundering offence. The Supreme Court
of India has further expanded on this notion in its judgment of Vijay Madanlal
Choudhary and Others v. Union of India and Ors. (2022 SCC Online SC 929)
and connected matters, wherein it held that even “projecting” or “claiming”
the proceeds of the crime as an untainted property would be considered to
be an independent act of money laundering, and it does not necessarily have
to be accompanied with concealment, possession, acquisition, or use of
proceeds of crime. Thus, projecting or claiming the proceeds of crime as an
untainted property has also now been brought under the ambit of particular
focus for enforcement.

It is important to note that regulatory bodies are empowered to ensure

compliance with PMLA provisions by persons, body corporates, and financial
institutions.

2. Anti-Money Laundering
Regulatory/Administrative Requirements and
Enforcement
2.1 What are the legal or administrative authorities for
imposing anti-money laundering requirements on financial
institutions and other businesses? Please provide the details of such
anti-money laundering requirements.
The PMLA lays down the broad framework for AML compliance requirements
applicable to banking companies, financial institutions, intermediaries, and
persons carrying out a designated business or profession (collectively,
“Reporting Entities”).
Pursuant to the PMLA and PML Rules, Reporting Entities are required to
undertake certain AML measures that include, inter alia, customer
identification, enhanced client due diligence (“CDD”), customer acceptance,
maintenance of records, and tracking and reporting of certain types of
transactions. Reporting Entities must ensure implementation of PMLA
provisions, including operational instructions issued from time to time.
Through the Prevention of Money Laundering Amendment Rules, 2023, the
definition of non-profit organisation (“NPO”) has been inserted in the PMLA.
If the clients are NPOs, then the financial institutions shall register the
client’s information on the Darpan portal of the Niti Aayog. After ending the
business relationship between a client and themselves or closing the
accounts, the Reporting Entity must maintain records for five years.
According to this recent amendment, banks and financial institutions are not
only required to maintain records of financial transactions of PEPs and non-
governmental organisations (“NGO”), but are also required to share the
information with the Enforcement Directorate as and when they require it.

In addition to NPOs, as detailed in question 1.5, the definition of PEPs has

been added through the aforementioned amendment. It covers the
individuals who have been entrusted with prominent public functions by a
foreign country, including the heads of states or governments, senior
politicians or judicial or military officers, senior executives of state-owned
corporations and important political party officials.

The government has also amended the due diligence documentation

requirement under PMLA Rules to include the documents of officers who
have the authority to act on their behalf. The information required now also
includes the names of the person holding senior management positions,
partners, beneficiaries, etc. Additionally, clients are required to submit
details of their registered address and principal place of business of the
banks.

PMLA provisions are further supplemented by various rules along with

guidelines issued by supervisory regulators such as the SEBI, RBI, and IRDAI,
providing the framework for imposing AML and compliance requirements.
The RBI MD regulate financial institutions, whereas SEBI Guidelines on AML
Standards/CFT/Obligations of Intermediaries (“SEBI AML Guidelines”)
regulate the intermediaries registered with it. Breach of these regulations
can lead to regulatory enforcement action against violators.
RBI-regulated entities, including financial institutions, are required to verify
and maintain records evidencing the identity of all clients including beneficial
owners, all transactions and furnish information to the FIU, among other
mandates. Reporting Entities must have a board-approved KYC policy,
including four key elements: customer acceptance policy; risk management;
customer identification policy; and monitoring of transactions.

Similarly, the SEBI AML Guidelines provide, inter alia, principles concerning
AML and CFT procedures and obligations to be followed by all registered
intermediaries to ensure compliance with AML and CFT, CDD processes, risk
assessment, recordkeeping and retention, and monitoring of transactions
and suspicious transactions.

Further, India is a member of FATF, an international organisation tasked with

combating money laundering and terrorist financing. As a policy-making
body, the FATF works to generate the necessary political will to bring about
national legislative and regulatory reforms in these areas. It has developed
the FATF recommendations, or FATF standards, to ensure a coordinated
global response towards preventing organised crime, corruption and
terrorism. The FATF monitors countries to ensure they implement the FATF
standards fully and effectively, and holds countries that do not comply to
account.

2.2 Are there any anti-money laundering requirements imposed

by self-regulatory organisations or professional associations?

The RBI, SEBI and IRDA have detailed frameworks regulating the “persons”
and “Reporting Entities”, as defined under the PMLA. These regulatory
guidelines along with the PMLA and PML Rules, regulate the AML regime in
India. Furthermore, the Indian Bank’s Association, an association of Indian
banks and financial institutions, has issued a guidance note on KYC norms
and AML standards for its members.

Through Notification No. S.O. 2036(E), dated May 3, 2023, practicing

professionals in the field of Chartered Accountancy, Company Secretaries
and Cost and Works Accountants are now brought under the ambit of the
PMLA as a Reporting Entity if they execute some specific listed financial
transactions on behalf of their clients in the course of their profession. While
no rules have yet been notified in this regard, the Institute of Chartered
Accountants of India (“ICAI”) has stated that it will cooperate with the Centre
and raise awareness among all its members about the obligations they have
under the PMLA.

Although there are no specific legal obligations for the non-regulated sector
to have AML measures, it is prudent to implement measures to mitigate AML
risks.

2.3 Are self-regulatory organisations or professional

associations responsible for anti-money laundering compliance and
enforcement against their members?

The RBI, SEBI, and IRDAI are specialised regulators empowered to deal with
issues relating to money laundering activities across India. Civil and criminal
actions can be initiated by the regulators for violations of the PMLA, PML
Rules or regulatory rules/guidelines issued therein, as well as failure to take
AML measures, etc.

The Central Government may empower officers from various state/provincial

governments to assist in PMLA enforcement.
2.4 Are there requirements only at national level?

Yes, the AML/compliance requirements under the PMLA and PML Rules apply
to all persons and body corporates, including financial institutions operating/
carrying out business in India.

2.5 Which government agencies/competent authorities are

responsible for examination for compliance and enforcement of anti-
money laundering requirements? Are the criteria for examination
publicly available?

The ED is a specialised investigative agency under the Ministry of Finance,

Government of India, tasked with enforcement and prosecution of the PMLA.
The FIU is the central national agency responsible for receiving, processing,
analysing and disseminating information relating to suspect financial
transactions. It is also responsible for coordinating and strengthening efforts
of national and international intelligence, investigations, and enforcement
agencies in pursuing global efforts against money laundering and related
crimes. Moreover, the RBI in its regulatory capacity works to ensure the
compliance of the standards laid down by it in line with the FATF’s
recommendations.

These agencies are required to act as per the criteria laid down under extant
AML laws applicable in India.

2.6 Is there a government Financial Intelligence Unit (“FIU”)

responsible for analysing information reported by financial
institutions and businesses subject to anti-money laundering
requirements?
The FIU was established in 2004 to perform the functions described in
question 2.7 below.

2.7 What is the applicable statute of limitations for competent

authorities to bring enforcement actions?
The FIU is an independent body accountable to the Economic Intelligence
Council, headed by the Union Finance Minister of India. The FIU’s primary
functions are to receive cash/suspicious transaction reports (“STRs”),
analyse them and, as appropriate, disseminate valuable financial information
to intelligence/enforcement agencies and regulatory authorities. Other
functions include, inter alia:

a. Collection of Information: Act as the central reception point for

receiving cash transaction reports, NPO transaction reports, cross-border
wire transfer reports, reports on the purchase or sale of immovable
property and STRs from various Reporting Entities.
b. Analysis of Information: Analyse information received to uncover
transaction patterns suggesting potential money laundering and related
crimes.
c. Sharing of Information: Share information with national
intelligence/law enforcement agencies, national regulatory authorities
and foreign FIUs.
d. Act as Central Repository: Establish and maintain a national database
of reports received from Reporting Entities.
e. Coordination: Coordinate and strengthen the collection and sharing of
financial intelligence through an effective national, regional, and global
network to combat money laundering and related crimes.
f. Research and Analysis: Monitor and identify strategic key areas on
money laundering trends, typologies and development.

The PMLA does not specifically provide any limitation period in which the FIU
must bring an enforcement action for non-compliance with AML law.

2.8 What are the maximum penalties for failure to comply with
the regulatory/administrative anti-money laundering requirements
and what failures are subject to the penalty provisions?
The Director of the FIU, pursuant to an inquiry into the obligations of a
Reporting Entity, may impose on such Entity, its designated director on the
board or any of its employees a monetary penalty of up to INR 100,000 for
each failure.

Non-compliance with AML requirements, i.e. customer identification, CDD,

customer acceptance, and tracking and reporting of certain types of
transactions under the PMLA, is subject to penalty provisions.

2.9 What other types of sanction can be imposed on individuals

and legal entities besides monetary fines and penalties?

The PMLA is primarily a criminal statute and sanctions thereunder include:

a. imprisonment of persons;
b. imposition of monetary fines and penalties;
c. attachment of property involved in money laundering;
d. seizure, freezing or retention of properties; and
e. freezing funds, financial assets or economic resources or related
services.

2.10 Are the penalties only administrative/civil? Are violations of

anti-money laundering obligations also subject to criminal
sanctions?

The offence of money laundering is punishable with rigorous imprisonment

for a term of three to seven years. Where the offence of money laundering
is related to an offence under the NDPSA, imprisonment may extend up to 10
years.

In some instances, the authorities are empowered to issue warnings or

directions mandating specific compliance, or by an order impose a monetary
penalty on Reporting Entities or their designated board director or any of
their employees. Except for the powers given above, the PMLA specifically
bars any civil or criminal proceedings against Reporting Entities, their
directors and employees for furnishing information under the PMLA.

The RBI is empowered to revoke the licence of a banking company should it

fail to comply with RBI directions, including the RBI MD. Similarly, the SEBI is
empowered to take appropriate measures and to cancel the licence of an
intermediary for non-compliance with SEBI directions, including SEBI AML
Guidelines.

2.11 What is the process for assessment and collection of

sanctions and appeal of administrative decisions? a) Are all
resolutions of penalty actions by competent authorities public? b)
Have financial institutions challenged penalty assessments in
judicial or administrative proceedings?

Section 25 of the PMLA designates an appellate tribunal constituted under

the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property)
Act, 1976, as an appellate tribunal where an appeal can be filed against the
orders of the adjudicating authorities or any other authorities constituted
under the PMLA. The orders of the appellate tribunal can be further
appealed to the High Court.

In India, court judgments are public records and generally published unless
specifically barred by court or law. However, ED actions including passing of
attachment orders or lodging enforcement case information reports are not
publicly available.
The assessment of penalties by the ED/adjudicating authority have been
challenged by financial institutions at appellate, High Court and Supreme
Court levels.

3. Anti-Money Laundering Requirements for

Financial Institutions and Other Designated
Businesses
3.1 What financial institutions and non-financial businesses and
professions are subject to anti-money laundering requirements?
Describe any differences in the anti-money laundering requirements
that each of them are subject to.
The PMLA, along with the PML Rules framed thereunder, prescribes certain
compliance and reporting requirements of reporting entities that
include, inter alia, banking companies and financial institutions registered
with Reporting Entities such as the RBI (viz. non-banking finance companies
(“NBFCs”), payment system operators, etc.), intermediaries (viz. entities
registered with securities market regulators, pension fund regulators, etc.) or
persons carrying out a designated business or profession as may be
prescribed (viz. a person carrying out activities for playing games of chance
such as casinos, dealers in precious metals, precious stones and other high-
value goods, and persons engaged in the safekeeping and administration of
cash and liquid securities on behalf of other persons). Further to Notification
No S.O. 2036(E) dated May 3, 2023, practicing professionals in the field of
Chartered Accountancy, Company Secretaries and Cost and Works
Accountants are now brought under the ambit of the PMLA if any financial
transactions are executed on behalf of clients. As a result of the Notification
No. S.O. 2135(E), dated May 9, 2023, Reporting Entities would also include,
“persons carrying on designated business or profession” when they carry out
the following activities:

a. acting as a formation agent of companies and Limited Liability

Partnerships (“LLPs”);
 b. acting as or arranging for another person to act as a director or secretary
of a company, a partner of a firm or a similar position in relation to other
companies and LLPs;
c. providing a registered office, business address or accommodation,
correspondence or administrative address for a company, LLP or trust;
d. acting as or arranging for another person to act as a trustee of an
express trust or performing the equivalent function for another type of
trust; and
e. acting as or arranging for another person to act as a nominee
shareholder for another person.

The scope of the definition of a “money laundering offence” covers within its
ambit any activity or transaction connected to the proceeds of crime. The
PMLA may be invoked in case of offences that have been listed in the PMLA,
which includes criminal offences (such as conspiracy, cheating, fraudulent
removal or concealment of property to prevent distribution among creditors,
forgery, counterfeiting seals, currency or bank notes), offences pertaining to
the illegal import and export of narcotic drugs and psychotropic substances,
etc.

The PMLA and the PML Rules subject all Reporting Entities to AML
requirements such as customer identification, CDD, customer acceptance,
and the tracking and reporting of some prescribed transactions that may
qualify as proceeds of crime under the PMLA. In terms of the PML Rules,
financial regulators such as the RBI, SEBI and IRDAI are empowered to issue
guidelines and directions in connection with the compliance that the
respective Reporting Entities must adhere to.

For the purposes of this note on the overview of applicable regulatory

framework, we have restricted our inputs to the regulatory framework
applicable to entities that are regulated by the RBI and SEBI only.
In terms of the RBI MD, the term “regulated entities” includes banks, All India
Financial Institutions, NBFCs, payment system providers and prepaid
payment instrument issuers, etc.

Payment system providers are also subject to AML requirements, and

therefore businesses engaged in offering new payment technologies or
alternative currencies may also be subject to these requirements. In 2021,
PayPal, a digital financial services entity, was charged by the FIU with a
penalty of INR 96 lakhs for its failure to register itself as a Reporting Entity
with the FIU, and to comply with the applicable AML requirements. PayPal is
contesting this, and the matter is currently sub judice before the Delhi High
Court.
Similarly, the SEBI Master Circular on Guidelines on Anti-Money Laundering
(AML) Standards and Combating the Financing of Terrorism (CFT) (“SEBI
Master Circular”) applies to all intermediaries registered with the SEBI,
which includes stockbrokers, investment advisers, merchant bankers,
depository participants, etc. The RBI MD and the SEBI Master Circular have
laid down specific enhanced procedures for the respective entities
supervised by them to undertake CDD in relation to their clients, as well as
the procedures and manner of maintaining records of certain prescribed
transactions.
3.2 Describe the types of payments or money transmission
activities that are subject to anti-money laundering requirements,
including any exceptions.
Under PMLA provisions, there is no minimum investment threshold or
category exemption for Reporting Entities carrying out CDD measures.
However, the PML Rules mandate Reporting Entities to maintain records of
certain transactions, including: all cash transactions of more than INR 1
million or their equivalent in foreign currency (“Prescribed Value”); any
series of interconnected transactions that may cumulatively amount to the
Prescribed Value; transactions involving receipts by NPOs of an amount
greater than the Prescribed Value; all cash transactions involving forged or
counterfeit currency notes or bank notes being used as genuine; all cross-
border wire transfers of the value of more than INR 5 lakhs; all purchases
and sales of immovable property by any person valued at INR 50 lakhs or
more; and suspicious transactions, regardless of whether the transactions
are effected in cash.
3.3 To what extent have anti-money laundering requirements
been applied to the cryptocurrency industry? Describe the types of
cryptocurrency-related businesses and activities that are subject to
those requirements.
Under the Indian legal framework, there is presently no specific law
regulating the interplay between cryptocurrencies and their involvement in
the offence of money laundering, or which prescribes AML requirements to
be applied to the cryptocurrency industry. Previously, the RBI, through its
Circular dated April 6, 2018, had banned its regulated entities from providing
services to any individual or business dealing in digital currencies, including
services such as: maintaining accounts; registering, trading, settling,
clearing, giving loans against virtual tokens, and accepting virtual tokens as
collateral; and opening accounts of exchanges, dealing with them and
transferring or receiving money in accounts relating to the purchase/sale of
cryptocurrencies or facilitating the same. However, the Supreme Court of
India ruled against the ban in Internet and Mobile Association of India vs.
RBI [(2020) 10 SCC 274]. Thereafter, the RBI, through its Notification dated
May 31, 2021, set out that banks and financial institutions dealing in
cryptocurrencies must follow the KYC, AML and CFT obligations of regulated
entities as prescribed under AML law. Apart from the RBI’s May 2021
Notification, the Cryptocurrency and Regulation of Official Digital Currency
Bill, 2021 was tabled before the Indian Parliament to be considered;
however, there have been no further updates in this regard.
In the context of tax compliance requirements, the Finance Act, 2022, which
received presidential assent as recently as March 30, 2022, stipulates new
norms for taxation of cryptocurrencies. It inserts Section 115BBH to the
Income Tax Act, 1961, which deals with taxes on virtual digital assets
(“VDAs”) and imposes a flat 30% tax on capital gains on VDAs. This
provision disallows set-off of any loss arising from the transfer of VDAs with
the gains from the transfer of another VDA. It suggests inclusion of Section
194S in the Income Tax Act, 1961, which proposes a 1% tax deduction at
source on payments towards VDAs beyond INR 10,000 in a year and taxation
of such gifts in the hands of the recipient.

The Ministry of Finance through Notification No. S.O. 1072(E) dated March 7,
2023, clarified that “virtual digital asset” shall have the same meaning
assigned to it in clause (47A) of Section 2 of the Income-tax Act, 1961 (43 of
1961) Section 2(1)(sa). The Notification has extended the compliance
requirements, such as verification of identities, maintenance of records and
enhanced due diligence as provided for in the PMLA to the various service
providers of VDAs. The following activities/transactions concerning VDAs
have been brought under the definition of “person carrying on designated
business or profession”:

a. exchange between VDA and fiat currencies;

b. exchange between one or more forms of VDA;
c. transfer of VDA;
d. safekeeping or administration of VDA or instruments enabling control
over VDA; and
e. participation in and provision of financial services related to an issuer’s
offer and sale of a VDA.

3.4 To what extent do anti-money laundering requirements

apply to non-fungible tokens (“NFTs”)?
Neither the Indian Government nor the regulators have yet issued any
guidelines concerning AML requirements applicable to NFTs.

3.5 Are certain financial institutions or designated businesses

required to maintain compliance programmes? What are the
required elements of the programmes?

The PMLA read with PML Rules require the Reporting Entities (as defined in
the PML Rules and subsequent amendments) to appoint:

a. a principal officer, who is responsible for providing the requisite

information to the FIU; and
b. a designated director, who ensures compliance with the obligations of
the Reporting Entities as provided under the PMLA and PML Rules.

All entities regulated pursuant to the SEBI AML Guidelines and the RBI MD
are required to implement AML and KYC policies for governing customer
acceptance, customer identification procedures, risk management
parameters and monitoring of transactions, as well as to perform periodic
“Money Laundering and Terrorist Financing Risk Assessment” exercises to
assess and mitigate any money laundering/terrorist financing risks for
clients, countries or geographic areas, products, services, transactions or
delivery channels. All regulated entities are required to apply a risk-based
approach for the mitigation/management of identified risks and must have
policies and procedures in place that are duly approved by the board of
directors of the entity.

The Reporting Entities must also comply with further recordkeeping and
reporting requirements, as detailed in question 3.6 below.
3.6 What are the requirements for recordkeeping or reporting
large currency transactions? When must reports be filed and at
what thresholds?

The information relating to transactions detailed in question 3.2 above is

required to be maintained by Reporting Entities. Under the PML Rules, the
records maintained must contain information including:

a. the nature of the transactions;

b. the amount of the transaction and the currency in which it was
denominated;
c. the date on which the transaction was conducted; and
d. the parties to the transaction, to enable the Reporting Entity to
reconstruct individual transactions.

The PMLA and PML Rules prescribe the manner and period in which Reported
Entities are required to maintain records. Reporting Entities are mandated
to maintain the information relating to the transaction for a period of five
years from the date of transaction between a client and the Reporting
Entity. Records relating to the identity of clients and beneficial owners, as
well as account files and business correspondence, must be maintained for a
period of five years after the business relationship between the client and
Reporting Entity has ended or the account has been closed, whichever is
later.

As per the PML Rules, every Reporting Entity shall maintain a record of all
transactions, including the record of:

a. all cash transactions of the value of more than INR 1,000,000 or its
equivalent in foreign currency;
b. all series of cash transactions integrally connected to each other which
have been individually valued below INR 1,000,000 or its equivalent in
foreign currency where such series of transactions have taken place
 within a month and the monthly aggregate exceeds an amount of INR
1,000,000 or its equivalent in foreign currency;
c. all transactions involving receipts by NPOs of value more than INR
1,000,000, or its equivalent in foreign currency;
d. all cash transactions where forged or counterfeit currency notes or bank
notes have been used as genuine, or where any forgery of a valuable
security or a document has taken place facilitating the transactions;
e. all suspicious transactions whether or not made in cash;
f. all cross-border wire transfers of the value of more than INR 5,000,000 or
its equivalent in foreign currency where either the origin or destination of
the fund is in India; and
g. all purchase and sale by any person of immovable property valued at INR
5,000,000 or more that is registered by the Reporting Entity, as the case
may be.

In terms of reporting requirements, every Reporting Entity must, inter alia,

ensure the following:

 All client and transaction records and information are made available on
a timely basis to the competent investigating authorities.
 The principal officer of a Reporting Entity is under an obligation to supply
information relating to suspicious transactions (in the form of STRs) to
the office of the director of the FIU no later than seven working days on
being satisfied that the transaction is suspicious.
 The RBI MD and SEBI AML Guidelines mandate maintenance of “utmost
confidentiality” in the filing of STRs with the FIU, and Reporting Entities
are mandated to ensure that there is no tipping-off to the customer at
any level.
 The principal officer must also supply information in respect of cash
transaction (individual or connected) of the Prescribed Value, receipts by
NPOs of more than the Prescribed Value, counterfeit currency
transactions and cross-border wire transfers of a value of more than INR
500,000 every month to the FIU by the 15th day of the following month.
 The principal officer must supply information relating to transactions in
immovable property valued at more than INR 5 million every quarter to
the FIU by the 15th day of the month following the quarter (i.e. April, July,
October or January).
 Pursuant to the RBI MD and SEBI AML Guidelines, the background,
including all documents, office records, memoranda and clarifications,
sought pertaining to transactions that deviate from the client’s normal
activity and purpose thereof must also be examined, and findings should
be recorded in writing. Such findings, records and related documents
should be made available to auditors as well as to the RBI, SEBI, the FIU
and other relevant authorities during audit, inspection or as and when
required.
The aforesaid records must be preserved for a period of at least five years.

3.7 Are there any requirements to report routinely transactions

other than large cash transactions? If so, please describe the types
of transactions, where reports should be filed and at what
thresholds, and any exceptions.

The reporting requirements are in relation to certain specific type of

transactions, which have been highlighted in question 3.6 above.

3.8 Are there cross-border transactions reporting

requirements? Who is subject to the requirements and what must be
reported under what circumstances?

Yes, the principal officer of Reporting Entities under the PMLA and the PML
Rules is mandated to supply information in respect of:

a. all cross-border wire transfers of the value of more than INR 5 lakhs or its
equivalent in foreign currency where either the origin or destination of
the funds is in India;
b. all suspicious transactions, whether or not made in cash and by way of
money transfer or remittances in favour of the Entity’s own clients or
non-clients from India or abroad, and to third-party beneficiaries in India
or abroad, including transactions on its own account in any currency by
any of the following:
i. payment orders;
ii. cashier cheques;
iii. demand drafts;
iv. telegraphic or wire transfers or electronic remittances or transfers;
v. internet transfers;
vi. Automated Clearing House remittances;
vii. lockbox-driven transfers or remittances;
viii. remittances for credit or loading to electronic cards; and
ix. any other mode of money transfer by whatever name it is called; and
c. loans and advances including credit or loan substitutes, investments and
contingent liability by way of foreign exchange contracts, currency,
 interest rates and commodities and any other derivative instrument in
whatsoever name it is called,

to the office of the director of the FIU by the 15 th day of the following month
for transactions falling under (a), and not later than seven working days on
being satisfied that the transaction is suspicious for transactions falling
under (b).

There are also several compliances required in this regard under the Foreign
Exchange and Management Act, 1999, including:

a. Every Indian resident company that has made a Foreign Direct

Investment (“FDI”) in the preceding year, including the current year,
must submit a Foreign Liabilities and Assets Return.
b. An Annual Performance Report is to be submitted by a resident individual
who has made an Overseas Direct Investment (“ODI”).
c. An Indian company that receives investment outside India for the issue
of shares or other eligible securities under the FDI scheme must report
all the details of the amount of consideration to the concerned Regional
Office of the RBI through its Authorised Dealer (“AD”) category I bank
within 30 days from the date the shares were issued.

3.9 Describe the customer identification and due diligence

requirements for financial institutions and other businesses subject
to the anti-money laundering requirements. Are there any special or
enhanced due diligence requirements for certain types of
customers?

Reporting Entities are required to verify the client’s identity:

a. at the time of commencement of an account-based relationship with the

client (including the beneficial ownership (if applicable));
b. while carrying out a transaction of an amount equal to or exceeding INR
50,000, whether conducted as a single transaction or several
transactions that appear to be connected; or
c. while carrying out any international money transfer operations.
There is no minimum investment threshold or category exemption available
for Reporting Entities carrying out CDD measures prescribed under the PMLA
and PML Rules.

The Reporting Entities are also required to conduct ongoing diligence of the
client, closely examine transactions in order to ensure that they are
consistent with their knowledge of the client, the client’s business and risk
profile and, where necessary, the source of funds. Furthermore, the
Reporting Entity shall review the due diligence measures, including verifying
again the identity of the client and obtaining information on the purpose and
intended nature of the business relationship where there are suspicions of
money laundering or financing of activities relating to terrorism, or where
there are doubts with regard to the adequacy or veracity of previously
obtained client identification data. The reporting requirements (including
confidentiality obligations, etc.) in relation to suspicious transactions have
been detailed in question 3.6 above, and the criteria for reporting suspicious
activity is provided in question 3.11 below.

Furthermore, the nature and extent of CDD depends on parameters such as

the customer’s identity, social/financial status, the nature of business
activity, and information on the customer’s business and their location, etc.,
to enable the categorisation of customers into low, medium and high risk.
SEBI-registered intermediaries are generally required to apply enhanced
CDD for high-risk customers, i.e. those for whom the sources of funds are not
clear. These include:

a. non-resident customers;
b. high-net-worth individuals;
c. PEPs of foreign origin, customers who are close relatives of PEPs and
accounts of which a PEP is the ultimate beneficial owner;
d. companies with close family shareholding or beneficial ownership;
e. firms with “sleeping partners”;
 f. trusts, charities, NGOs, NPOs and organisations receiving donations
(NPOs and NGOs promoted by the United Nations or its agencies may be
classified as low-risk customers); and
g. non-face-to-face customers and those with dubious reputations as per
publicly available information.

Such enhanced CDD requirements include, inter alia, taking additional steps
to verify the client’s identity: examining ownership and financial position, the
names of the senior management personnel or partners, and the registered
office address and principal place of business; identifying the sources of the
client’s funds; and recording the purpose of the transaction and the intended
nature of the relationship between the transaction parties. Clients must
update the Reporting Entities with any changes in the information provided.
3.10 Are financial institution accounts for foreign shell banks
(banks with no physical presence in the countries where they are
licensed and no effective supervision) prohibited? Which types of
financial institutions are subject to the prohibition?
Yes, RBI’s KYC MD does not allow banks “to enter into a correspondent
relationship with a shell bank”. Shell banks are not permitted to operate in
India. The RBI MD prescribe that the “correspondent bank should not permit
its accounts to be used by shell banks”.

Such prohibition is applicable to all Scheduled Commercial Banks/Regional

Rural Banks/Local Area Banks/all Primary (Urban) Co-operative Banks/State
and Central Co-operative Banks and any other entity which has been
licensed under Section 22 of the BR Act.

3.11 What is the criteria for reporting suspicious activity?

The PML Rules mandate the reporting of those transactions, including an

attempted transaction, whether or not made in cash, which to a person
acting in good faith:
 a. give rise to a reasonable ground of suspicion that the transactions may
involve the proceeds of a Scheduled Offence specified in the schedule to
the PMLA, regardless of the value involved;
b. appear to be made in circumstances of unusual or unjustified complexity;
c. appear to have no economic rationale or bona fide purpose; or
d. give rise to a reasonable ground of suspicion that the transaction may
involve the financing of activities relating to terrorism.

Furthermore, for reporting suspicious transactions, apart from “transactions

integrally connected”, “transactions remotely connected or related” must
also be considered by the Reporting Entities.

3.12 What mechanisms exist or are under discussion to facilitate

information sharing 1) between and among financial institutions and
businesses subject to anti-money laundering controls, and/or 2)
between government authorities and financial institutions and
businesses subject to anti-money laundering controls (public-private
information exchange) to assist with identifying and reporting
suspicious activity?
Every Reporting Entity (including private businesses and financial institutions
covered under the definition of the term) is required to immediately notify
any suspicious transaction, whether or not made in cash (in the form of an
STR including the details of clients, transactions and the nature of or reason
for suspicion) to the designated officer within the Reporting Entity. The
principal officer of the Reporting Entity is under the obligation to supply
information relating to suspicious transactions to the office of the director of
the FIU no later than seven working days on being satisfied that the
transaction is suspicious. The principal officer must supply information
relating to transactions in immovable property valued at more than INR 5
million every quarter to the FIU by the 15th day of the month following the
quarter (i.e. April, July, October or January). The principal officer must also
supply information in respect of cash transactions (individual or connected)
of the Prescribed Value, receipts by NPOs of more than the Prescribed Value,
counterfeit currency transactions and cross-border wire transfers of a value
of more than INR 500,000 every month to the FIU by the 15 th day of the
following month. Furthermore, each Reporting Entity is also under an
obligation to gather the KYC information and share it with the Central KYC
Records Registry.

Separately, there are inter-regulatory arrangements for supervision and

information sharing. On November 22, 2022, the Ministry of Finance issued
a Notification amending the PMLA, allowing the ED to share information
about economic offenders with 15 more agencies, in addition to the 10
government agencies (which include the CBI, RBI, SEBI, IRDAI, Intelligence
Bureau, and FIU) that were previously permitted. These additional bodies
include:

1. National Investigation Agency.

2. Serious Fraud Investigation Office.
3. State Police Department.
4. Regulator, as defined under clause (fa) of rule 2 of the PML Rules.
5. Directorate General of Foreign Trade.
6. Ministry of External Affairs.
7. Competition Commission of India.
8. Special Investigation Team constituted, vide Notification of the
Government of India, Ministry of Finance, Department of Revenue.
9. National Intelligence Grid.
10. Central Vigilance Commission.
11. Defence Intelligence Agency.
12. National Technical Research Organisation.
13. Military Intelligence.
14. Inquiry authority under Central Civil Services Rules.
15. Wildlife Crime Control Bureau.

3.13 Is adequate, current, and accurate information about the

beneficial ownership and control of legal entities maintained and
available to government authorities? Who is responsible for
maintaining the information? Is the information available to assist
financial institutions with their anti-money laundering customer due
diligence responsibilities as well as to government authorities?

The PMLA defines “beneficial owner” as an individual who ultimately owns

and controls a Reporting Entity’s client or the person on whose behalf a
transaction is being conducted, which includes a person who exercises
ultimate effective control over a juridical person.

Per the PML Rules and the Prevention of Money Laundering Amendment
Rules, 2023, in order to ascertain controlling interest for the purposes of
determining beneficial ownership, the percentage of ownership/control in
Foreign Portfolio Investors (“FPI”) for companies and trusts is 10%. For
unincorporated associations, bodies of individuals or partnership firms, the
percentage for determining BO is 15%.

Under the PMLA and PML Rules, it is the responsibility of a Reporting Entity to
identify and maintain records of documents evidencing the identities of its
clients and beneficial owners, and to file a copy of the records with the
Central KYC Records Registry. These records must be maintained for a
period of five years after the business relationship between a client and the
Reporting Entity has ended or the account has been closed, whichever is
later. Additionally, the Reporting Entity is required to take enhanced due
diligence steps to examine ownership prior to the commencement of
specified transactions. Pursuant to the RBI MD and SEBI AML Guidelines, all
records, memoranda and clarifications sought in relation to relevant
transactions should be made available to the auditors, RBI, SEBI, FIU and any
other relevant authorities during the audit or inspection, or as and when
required.
Further, as per Section 90 of the CA 2013, company shall maintain a register
of significant beneficial owners which must be open to inspection by any
member of the company. The competent authorities at the RoC have access
to the information recorded. Further, the CA 2013 also provides that the
Central Government may at any time appoint inspectors to investigate a
company’s real ownership.

3.14 Is it a requirement that accurate information about

originators and beneficiaries be included in payment orders for a
funds transfer? Should such information also be included in
payment instructions to other financial institutions? Describe any
other payment transparency requirements for funds transfers,
including any differences depending on role and domestic versus
cross-border transactions.
The RBI MD mandates that all cross-border transactions must be
accompanied by accurate and meaningful originator information such as
name, address, and account number or unique reference number. Similarly,
domestic wire transfers of INR 50,000 or above must be accompanied by
originator information. Reporting Entities are directed to identify customers
if a customer is intentionally structuring wire transfers below INR 50,000 to
avoid reporting or monitoring. Further, if customers do not cooperate,
efforts must be made to establish his identity, and a STR must be sent to the
FIU (available at: [Hyperlink];Mode=0).

Interbank transfers and settlements where both the originator and

beneficiary are banks or financial institutions are exempted from the above
requirement.

3.15 Is ownership of legal entities in the form of bearer shares

permitted?
Bearer shares are not permitted under the Indian legal framework.

3.16 Are there specific anti-money laundering requirements

applied to non-financial institution businesses, e.g., currency
reporting?

The PMLA is applicable to a “person” and “Reporting Entities” that include a

“person carrying out [a] designated business or profession”. Further, the
Central Government has the power to include other activities by notification,
which may include non-financial institution businesses. The following
Notifications have been issued in this regard:

As per a Notification issued by the Central Government on May 3, 2023,

practicing professionals in the field of Chartered Accountancy, Company
Secretaries and Cost and Works Accountants are now brought under the
ambit of the PMLA as a Reporting Entity if they execute any of the following
financial transactions on behalf of their clients in the course of their
profession:

a. the buying and selling of any immovable property;

b. the management of client money, securities or other assets;
c. the management of bank, savings or securities accounts;
d. the organisation of contributions for the creation, operation or
management of companies; and
e. the creation, operation or management of companies, LLPs or trusts, and
buying and selling of business entities. The Central Government through
a Notification dated May 9, 2023 has listed additional activities (when
carried out in the course of business on behalf of or for another person)
that will deem an entity to be a “person carrying on designated business
or profession”, and therefore a Reporting Entity under the PMLA. These
activities are:
f. acting as a formation agent of companies and LLP;
g. acting as or arranging for another person to act as a director or secretary
of a company, a partner of a firm or a similar position in relation to other
companies and LLPs;
 h. providing a registered office, business address or accommodation,
correspondence or administrative address for a company, LLP or trust;
i. acting as or arranging for another person to act as a trustee of an
express trust or performing the equivalent function for another type of
trust; and
j. acting as or arranging for another person to act as a nominee
shareholder for another person.

Further, it was clarified that the following activities will be excluded from the
scope:

a. any activity that is carried out as part of any agreement of lease, sub-
lease, tenancy or any other agreement or arrangement for the use of
land, building or any space, and the consideration is subjected to
deduction of income tax as defined under Section 194-I of the Income-
tax Act, 1961;
b. any activity that is carried out by an employee on behalf of his employer
in the course of or in relation to his employment;
c. any activity that is carried out by an advocate, a chartered accountant,
cost accountant or company secretary in practice, who is engaged in the
formation of a company to the extent of filing a declaration as required
under Section 7(1)(b) of the CA 2013; or
d. any activity of a person which falls within the meaning of an
intermediary as defined in Section 2(1)(n) of the PMLA. The Ministry of
Finance through Notification No. S.O. 1072(E), dated March 7, 2023, has
extended the compliance requirements, such as verification of identities,
maintenance of records and enhanced due diligence as provided for in
the PMLA to the various service providers of VDAs. The following
activities/transactions concerning VDAs have been brought under the
definition of “person carrying on designated business or profession”:
e. exchange between VDA and fiat currencies;
f. exchange between one or more forms of VDA;
g. transfer of VDA;
h. safekeeping or administration of VDA or instruments enabling control
over VDA; and
i. participation in and provision of financial services related to an issuer’s
offer and sale of a VDA.

With regard to currency reporting, we understand that Reporting Entities are

required to maintain records and furnish reports to the FIU of certain
transactions, as specified in question 3.2 above.
3.17 Are there anti-money laundering requirements applicable to
certain business sectors, such as persons engaged in international
trade or persons in certain geographic areas such as free trade
zones?

“Reporting Entities” include “person[s] carrying out [a] designated business

or profession”, which are:

a. persons carrying on activities for playing games of chance for cash or

kind, including activities associated with casinos;
b. inspectors general of registration;
c. real estate agents, as notified by the Central Government;
d. dealers in precious metals, precious stones and other high-value goods,
as may be notified by the Central Government;
e. persons engaged in the safekeeping and administration of cash and
liquid securities on behalf of other persons; and
f. persons carrying out such activities, as the Central Government may
designate by Notification.

The Prevention of Money-laundering (Maintenance of Records) Amendment

Rules, 2022, issued on July 13, 2022 to amend the PMLA, included provisions
relating to International Financial Services Centre’s Authority (“IFSCA”).
IFSCA has notified the IFSCA (Anti Money Laundering, Counter-Terrorist
Financing and Know Your Customer) Guidelines, 2022. These guidelines
shall apply to every entity which is licensed, recognised, registered or
authorised by IFSCA. The primary aim of these guidelines is to enable these
entities to adopt an objective, proportional risk-based approach to identify
and assess the money laundering and terrorist financing risk to which the
entities are exposed. They are required to review and update the RBA at
appropriate intervals. These entities are also required to develop and
implement policies for money laundering and terrorist financing risk, as well
as laying down parameters for approving correspondent banking
relationships.
As detailed in question 3.16 above, practicing professionals in the field of
Chartered Accountancy, Company Secretaries and Cost and Works
Accountants are now under the ambit of the PMLA as a Reporting Entity for
some specified transactions. The following activities (excluding some
exceptions as listed above in 3.16) when carried out in the course of
business on behalf of or for another person will also need to be reported:

a. acting as a formation agent of companies and LLPs;

b. acting as or arranging for another person to act as a director or secretary
of a company, a partner of a firm or a similar position in relation to other
companies and LLPs;
c. providing a registered office, business address or accommodation,
correspondence or administrative address for a company, LLP or a trust;
d. acting as or arranging for another person to act as a trustee of an
express trust or performing the equivalent function for another type of
trust; and
e. acting as or arranging for another person to act as a nominee
shareholder for another person.

There are no specific AML requirements applicable to persons engaged in

international trade.

3.18 Are there government initiatives or discussions underway

regarding how to modernise the current anti-money laundering
regime in the interest of making it more risk-based and effective,
including by taking advantage of new technology, and lessening the
compliance burden on financial institutions and other businesses
subject to anti-money laundering controls?

The Government of India has integrated biometric-based identification

technology (Aadhar) to identify customers in order to comply with KYC
norms. Aadhar is a unique 12-digit identification number listed on a
document issued by the Indian Government which captures all details,
including demographic and biometric information, of every individual
resident in India. Such technological integration has significantly lowered
the cost of KYC compliance for financial institutions, and improved the
efficiency and accuracy of compliance.

4. General
4.1 If not outlined above, what additional anti-money
laundering measures are proposed or under consideration?
In addition to the above, various steps have been taken to strengthen the
AML regime in India. Inter alia, these include:

a. The enactment of the Fugitive Economic Offenders Act, 2018, whereby

all assets of an individual (as against the assets from the proceeds of
crime), against whom an arrest warrant has been issued for committal of
certain offences of which the value exceeds INR 1 billion, are
confiscated.
b. The enactment of the Companies (Significant Beneficial Owners) Rules,
2018 by the Companies (Amendment) Act, 2017. These rules have their
origin in the recommendations made by the FATF to its member
countries, with regard to making suitable changes to the national
legislation in order to identify individuals who ultimately have significant
beneficial shareholding in the reporting company.
c. In a 2018 amendment, new offences under the PCA were added to the
list of Scheduled Offences under the PMLA.
d. The amendments brought to the PMLA through the Finance Act, 2019
expanded the scope of “proceeds of crime” to include properties and
assets created, derived, or obtained through any criminal activity related
to the Scheduled Offence, even if not listed under the PMLA. Further, the
amendment introduces greater and more nuanced reporting obligations
for Reporting Entities by insertion of Section 12AA, which mandates
authentication of clients undertaking specified transactions. These
include requiring every Reporting Entity to take additional steps to
examine a client’s ownership and financial position, including the client’s
sources of funds, prior to the commencement of each transaction.
Additionally, proceedings before the ED in relation to summons,
production of evidence, etc. have been deemed “judicial proceedings”,
thereby making statements before the ED admissible as evidence.
e. In consultation with the SEBI, the Central Government has directed that
the provisions of rule 9(1A) of the PMLA, i.e. the requirement for
Reporting Entities to file the electronic copy of the client’s KYC records
with the Central KYC Records Registry within 10 days after the
 commencement of an account-based relationship with a client, shall not
apply to FPIs.
f. The Jan Vishwas (Amendment of Provisions) Bill, 2022, introduced in Lok
Sabha on December 22, 2022, aims to decriminalise and rationalise
certain offences under the PMLA that are currently covered by the PMLA
Schedule Part A, such as: Para. 21 (Offences under the Trade Marks Act,
1999); Para. 22 (Offences under the Information Technology Act, 2000);
Para. 25 (Offences under the Environment Protection Act, 1986); and
Para. 27 (Offences under the Air Prevention and Control of Pollution Act,
1981).
g. Recently, in the case of Rana Ayyub v. Directorate of Enforcement (2023
SCC Online SC 109), the Supreme Court held that the area in which the
property is derived or obtained, or even held or concealed, will be the
area in which the offence of money laundering is committed.
h. In Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. (2022 SCC
Online SC 929), there was a challenge to the constitutionality of some
provisions of the PMLA. The Supreme Court upheld the validity of certain
challenged provisions which relate to the power of arrest, attachment,
search and seizure conferred on the ED under the PMLA:
i. The Supreme Court held that “investigation” must be regarded as
interchangeable with the function of “inquiry” undertaken by the
authorities for submitting such evidence before the adjudicating
authority. Therefore, any act done in pursuance of an investigation
conducted by the officials under Section 2(na) of the PMLA would not
attract the right guaranteed under Articles 20(3) and 21 of the
Constitution of India.
ii. The Supreme Court upheld Section 45 of the PMLA, which provides
for bail of the accused. It noted that the rigours of bail under Section
45 of the PMLA, 2002, even though more expansive while restricting
the right of the accused to secure bail, do not impose absolute
restraint on the grant of bail.
iii. The Supreme Court upheld, in regard to Section 3 of the PMLA, held
that it is not necessary to demonstrate that the proceeds of crime
are untainted for the offence to be prosecuted under the PMLA.
Indulging in or aiding in the activity of obtaining the proceeds of
crime is a sufficient and reliable piece of evidence for attracting the
crime under the PMLA, and the property need not be shown to be
untainted.
iv. The Supreme Court upheld the validity of Section 5 of the PMLA,
observing that even though the second proviso of Section 5 provides
the power of provisional attachment without safeguards, it is
necessary to view the urgency felt by the competent authority to
secure the property, and effectively prevent and regulate the offence
of money laundering.
v. The Supreme Court stated that the authorised officer cannot resort
to the action of provisional attachment of property (proceeds of
 crime) mechanically, and has to record satisfaction and the reason
for his belief in writing on the basis of the material in his possession;
if an immediate provisional attachment is foregone, the proceedings
may be frustrated.
vi. The petitioners contended that Section 24 of the PMLA reverses the
burden of proof and falls foul of Articles 20 and 21 of the Constitution
of India. The Court further held that Section 24 has reasonable
nexus with purposes and objects sought to be achieved by the PMLA,
and cannot be regarded as manifestly arbitrary or unconstitutional.
vii. The Supreme Court held that supply of a copy of ECIR in every case
to the person concerned is not mandatory; it is instead enough if the
ED at the time of arrest discloses the grounds of such arrest.
i. In Sanjay Pandey v. Directorate of Enforcement (Bail Appl. 2409/2022),
the court held that for a bail application in PMLA cases, it is only required
to look into scheduled offences, and other offences are irrelevant.
j. In K. Shanthamma v. State of Telangana (Criminal Appeal no. 261 of
2022), the Supreme Court of India ruled that in order to establish a case
against someone under Section 7 of the PCA, “demand for bribe” and
“it’s acceptance by the public servant” is a requirement, and simply
recovering money from the accused will not result in his conviction under
the Act.
k. The Ministry of Finance through a Notification dated March 7, 2023 has
extended the compliance requirements, such as verification of identities,
maintenance of records and enhanced due diligence as provided for in
the PMLA to the various service providers of virtual digital assets.
l. On March 7, 2023, the Ministry of Finance issued the Prevention of
Money Laundering (Maintenance of Records) Amendment Rules, 2023, to
make the existing rules and regulations on client due diligence and
recordkeeping more stringent. The amendments also require
implementation of group-wide policies for compliance with provisions of
Chapter IV, widening the definition of NPOs and revising thresholds for
ascertainment of beneficial ownership (from 25% to 10%), which means
more individuals will come under the purview of the regulator.

4.2 Are there any significant ways in which the anti-money

laundering regime of your country fails to meet the
recommendations of the Financial Action Task Force (“FATF”)? What
are the impediments to compliance?

The FATF’s most recent mutual assessment report of India was published in
2010. The report followed the 2004 methodology agreed by FATF to rate
India’s compliance with the FATF recommendations. There are four levels of
compliance: compliant; largely compliant; partially compliant; and non-
compliant.

According to the assessment, India was found to be compliant with four and
largely compliant with 25 of the FATF’s 49 recommendations. India was
partially compliant or non-compliant with five of the six core
recommendations. The key recommendations included, inter alia, the need
to: address technical shortcomings in the criminalisation of money
laundering and terrorist financing and loopholes in the domestic framework
of confiscation and provisional measures; improve the reliability of
identification documents; and enhance the suspicious transaction reporting
regime.

In 2013, the FATF concluded that India has reached a satisfactory level of
compliance with all core recommendations. Currently, India is not on the
FATF’s list of countries identified as having strategic AML deficiencies.

The FATF has prepared a plan to review India’s CFT and anti-money
laundering AML measures. The review is set to begin in May 2023, with an
on-site review of India’s actions scheduled for November 2023. India’s
activities are set to be discussed at the FATF Plenary meeting in June 2024.

4.3 Has your country’s anti-money laundering regime been

subject to evaluation by an outside organisation, such as the FATF,
regional FATFs, Council of Europe (Moneyval) or IMF? If so, when
was the last review?

The FATF’s most recent mutual evaluation report of India was published in
June 2010. As per reliable media reports, India’s next mutual evaluation by
FATF is scheduled to be initiated from Summer 2023.
The 2010 mutual evaluation report of India is available at: [Hyperlink]

uments/[Link].

4.4 Please provide information on how to obtain relevant anti-

money laundering laws, regulations, administrative decrees and
guidance from the Internet. Are the materials publicly available in
English?

For useful links, please see below:

a. The PMLA and PML Rules are available at: [Hyperlink]

b. The RBI MD (updated as of May 10, 2021) are available at: [Hyperlink]
c. The SEBI AML Guidelines (updated as of October 15, 2019) are available
at: [Hyperlink]

Guidance and directions from various supervisory authorities, as issued from

ti