Enforcement Directorate Ahmedabad 21 st Feb 2015 Money Laundering Process by which illegal funds and assets are converted into legitimate funds and assets The Need for Money Laundering Act ID: 920791
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Slide1
The Prevention of Money Laundering Act, 2002
Enforcement Directorate
Ahmedabad
, 21
st
Feb 2015
Slide2Money Laundering….. Process by which illegal funds and assets are converted into legitimate funds and assets.
Slide3The Need for Money Laundering Act Part of International/National commitment to fight terrorism, Organized Crime Syndicates, major economic offenders by targeting their financial resources.PMLA, 2002 fills the gap in the Criminal Justice System where attachment of proceeds of crimes was very difficult in the existing Major Criminal Acts.3
Slide4The FATFEstablished by the G-7 Summit in Paris in July 1989 to examine measures to combat money laundering. An inter-governmental body whose purpose is to establish international standards and promote national and international policies to combat money laundering (ML) and terrorist financing (TF).
Slide5Membership of FATFThe 36 members(34 countries and 2 regional bodies) of the FATF and the members of EIGHT FATF-style regional bodies (FSRBs) have all directly committed to implement the FATF standards.The Gulf Cooperation Council is a member of the FATF.The European Union is a member of the FATF.
Slide6The role of the FATF40+9 Recommendations (the FATF standards)Establish international standards to combat money laundering and terrorist financing. Mutual evaluation systemAssess compliance with the FATF standards.Typologies workStudy methods and techniques of money laundering (ML) and terrorist financing (TF).
Slide7Objectives of FATF Standards Provide a comprehensive set of measures to enable all countries to implement effective anti-money laundering (AML) / counter-terrorist financing (CFT) systems that will protect the world-wide financial system from misuse by organised crime and terrorist financiers.Foster good governance and longer term economic development.
Slide8Overview of the standardsThe 40 Recommendations Legal systems: criminalisation of money laundering, international cooperation.Comprehensive set of preventative measures to be taken by financial institutions and non-financial businesses and professions (customer due diligence, record keeping).Institutional framework and other measures (reporting of suspicious transactions, compliance, regulation and supervision, sanctions).International cooperation: mutual legal assistance, extradition, information sharing.
Slide9Overview of the standards (continued)The 9 Special Recommendations on Terrorist FinancingRatify United Nations instruments.Criminalise terrorist financing.Freeze and confiscate assets.Report suspicious transactions.International cooperation.Protect against abuse of alternative remittance systems and abuse of non-profit organisations.Ensure originator information on wire transfersDetect cash couriers.
Slide1010FATF issued revised Recommendation in Feb 2012 .The new recommendations are 40 in numbers and subsumes the earlier 40+9 recommendations
Slide11Parliamentary History of the Law.The PML bill, 1998 was introduced in Lok Sabha on 04-08-1998.Referred to Standing committee on finance on 05-08-1998.The committee submitted its report on 04-03-1999.The bill was presented in Rajya Sabha on 08-03-1999.
Slide12Parliamentary History of the Law.The PML, Bill 1999 was presented in Lok Sabha on 29-10-1999.The PML, Bill 1999 was passed in Lok Sabha on 02-12-1999.Rajya Sabha referred the bill to Select committee.The committee finalised its report on 24th July, 2000.The present act after being passed by both the houses received the assent of the president on 17th January, 2003.
Slide13Preamble to PMLA 2002 “An Act to prevent money laundering and to provide for confiscation of property derived from, or involved in money laundering and for matters connected or incidental thereto”13
Slide14PMLA 2002: Key ConceptsOffence of Money Laundering – attempt to indulge or knowingly assist or knowingly is a party or is actually involved in any process or activity connected to proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property .Proceeds of Crime - Assets obtained as a result of Criminal activity related to Scheduled Offence14
Slide152. PLACEMENT3.LAYERING
4.INTEGRATION
The last stage in the laundering process.
Occurs when the laundered proceeds are distributed back to the criminal.
Creates appearance of legitimate wealth.
Involves distancing the money from its criminal source:
movements of
money
into different accounts
movements of money to different countries
Increasingly difficult to detect
Initial introduction of criminal proceeds into the stream of commerce
Most vulnerable stage of money laundering process
1.
Predicate Crimes
Corruption and Bribery
Fraud
Organized crime
Drug and human trafficking
Environmental crime
Terrorism
Other serious crimes…
Money Laundering Cycle
Slide16Simple Bribe and Money Laundering TransactionCompany ANeeds to generate $1 million for bribe to Minister.Uses invoices from company in Country 2
Country 1
Country 2
Company Bank Account
Country 3
Company owned by Minister’s cousin
Country
1
$500,000 - Purchase of Real Estate
Slide17PMLA Administered by:Financial Intelligence Unit for verification of identity of clients, maintenance of records and reporting Enforcement Directorate for investigation of and prosecution for money-laundering offences17
Slide18Scheduled offenceInvestigation by Police/CBI/NCB/ Forest Deptt. Complaint (Chargesheet) filed in the Jurisdictional CourtIntelligence from FIU/Other sourcesInvestigation by ED
Provisional attachment of Property
Complaint to court
Adjudicating Authority
Confirmation of Prov. Attachment
Confiscation of Tainted property
Special court
Conviction for ML
Conviction in
Scheduled
offence
Flow of Events
18
Slide19Scheduled OffencesSchedule to PMLA has 156 Offences under 28 criminal acts Indian Penal Code (IPC)Narcotic Drugs And Psychotrophic Substances Act (NDPS)Unlawful Activities (Prevention) Act (UAPA)Explosive Substances Act19
Slide20Scheduled OffencesArms ActWild life Protection ActImmoral Traffic ActPrevention of Corruption ActThe Explosive ActSEBI ActCustoms ActBonded Labour System (Abolition) ActChild Labour (Prohibition and regulation)Act
Trans Plantation of Human Organ ActThe Juvenile Justice Act
The Emigration Act
The Passports Act
The Foreigners Act
20
The Copyright Act
The Trade Marks Act
The Information Technology Act
The Biological Diversity Act
The Protection of Plant Varieties And
Farmers Right Act
The Environmental Protection Act
The Water (Prevention and Control of
Pollution) Act
The Air (Prevention and Control of
Pollution) Act
Slide21PMLA: A multi-agency perspective 21Customs / DRIATSNCBEDSEBI
Police/CBI
CBI/ACB
Other
Slide22Legal Obligation under PMLA towards FIUPMLA impose obligations on following reporting entities:banking companiesfinancial institutionsintermediaries of the securities marketPersons carrying on designated business or profession to maintain recordsfurnish informationverify identity of clientsSection 12
Slide23“Banking Company” under PMLA includes:All nationalized banks, private Indian banks and private foreign banksAll co-operative banks viz. primary co-operative banks, state co-operative banks and central (district level) co-operative banksState Bank of India and its associates and subsidiariesRegional Rural Banks
Slide24“Financial Institution” under PMLA includes:Financial Institutions as defined in Section 45-I of the RBI Act namely EXIM Bank, NABARD, NHB, SIDBI, IFCI Ltd., IDFC Ltd., IIBI Ltd. and TFCI Ltd. Insurance companiesHire Purchase companiesChit fund companies as defined in the Chit Funds Act.
Slide25“Intermediary” under PMLA includes persons registered under Section 12 of the Securities and Exchange Board of India (SEBI) Act, 1992:Stock brokersSub-brokersShare transfer agentsBankers to an issueTrustees to trust deedRegistrars to issueMerchant bankersUnderwritersPortfolio ManagersInvestment advisersDepositoriesCustodian of securitiesForeign institutional investorsCredit rating agencies
Venture capital fundsCollective investment schemes including mutual funds
Slide26Persons carrying on designated business or profession under PMLA includes (i) a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino; (ii) a Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908 (16 of 1908) as may be notified by the Central Government; (iii) real estate agent, as may be notified by the Central Government; (iv) dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government; (v) person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government; or (vi) person carrying on such other activities as the Central Government may, by notification, so designate, from time-to-time;
Slide27Salient FeaturesEffective provisions for attachment and confiscation of proceeds of crimeProvisions for Overseas investigations and attachment of properties abroadSpecial Courts set up by Government across the Country for prosecutionProvision for disclosure by banks, financial institutions and intermediaries – Financial Intelligence Unit (FIU)Burden of proof on accused to prove that proceeds of crime are untaintedStatements recorded by ED Officers admissible as evidence27
Slide28PMLA – Institutional Set upPresently Gujarat State is under the jurisdiction of Mumbai Regional office and Ahmedabad zonal office.New Sub-Zonal Office headed by Deputy Director being set up in Surat. Court(s) of Sessions notified as Special Court under PMLA, 2002Principal District and sessions Judge, Ahmedabad (Rural)More Special courts are proposed28
Slide29Trade Based Money LaunderingThere are three main methods by which criminal organisations and terrorist financiers move money for the purpose of disguising its origins and integrating it into the formal economy. use of the financial system; physical movement of money (e.g. through the use of cash couriers); through the physical movement of goods through the trade system.. 29
Slide30Trade based money launderingTrade-based money laundering is defined as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins. In practice, this can be achieved through the misrepresentation of the price, quantity or quality of imports or exports. Moreover, trade-based money laundering techniques vary in complexity and are frequently used in combination with other money laundering techniques to further obscure the money trail. 30
Slide31Examples of Trade-BasedMoney Laundering• over- and under-invoicing of goods and services;• multiple invoicing of goods and services;• falsely described goods and services.
Slide32Cash for high-value ordersItems priced well over or under market valueMismatch between customer and items orderedBusiness transfers made for no apparent reasonThird-party financingPackaging inconsistent with contentsRouting is circuitous or economically illogical.Size or weight of goods is inconsistent with contentsIndicators and Trends
Trade-Based Money Laundering
Slide33Home Country
Foreign Country
1$ Million is moved from exporter to importer
Company I
Company E
Exporter Ships 1 million widgets @ $1 each whereas actual price is $2 each
Importer remits payment for 1 million widgets @ $1 each
Company I can sell extra widgets and can distribute 1 million as per direction of company E
Under voicing of Goods
Slide34Mechanics of a Black Market Peso Exchange AgreementDrug CartelDrugs
Peso broker
US
Dollars
Pesos
Pesos
Colombian Importer
Goods
Slide35Use of Gold BullionUSColombia
Cartel smuggles drugs into the US from Colombia
Proceeds from drug sales used to purchase gold bullion
Gold is recast into hardware
Cartel re-exports gold bullion into the US from Colombia
The “hardware” is exported to Colombia
Slide36Q & A36J.P Singh , Joint director, ED , AhmedabadMob.No-9099030707E.mail- jitendrapr.singh@nic.in