Money Laundering Prevention Act 2064 (AML Act Note)

What is money laundering act?

• Money laundering is the process of concealing the source of illicit property.
• It is the act of decorating the illegal property with the veil and legitimate sources.
• It is the act of converting or changing the source and nature of the black (illegally earned proceeds) into the clean or white property.
• It is a serious financial crime. It is also known as white-collar crime.

white collar crime is financially motivated, nonviolent crime committed by businesses and government professionals

Features of Money Laundering Act

1. Organized crime – There are multiple parties involved in many laundering. A single person can not commit many laundering.
2. It may cross border crime – involvement of two more countries
3. Essence/presence of illicit property – there must be black money
4. It is white collar crime 
5. Followed by 3 major steps – It must be in the cyclic form of placement, layering, integration.

#Placement – Placement is the process of scattering illicit money in different places as much as possible. This is usually done in those areas where there is no need for revealing income source.

#Layering – Layering is the process of creating multiple transactions so as to cover up the illicit property.

#Integration – Integration is the process of mixing up illicit money with a legal/white/clean property.

Placement, layering, and Integration are also called money laundering cycle. 

6. It is predicated offense – this crime is committed only after other crime

What are the money laundering and terrorist financing offense?

#Money Laundering Offence 

1. Acts of converting, transferring property by any mean knowing that it is proceeds of crime.
2. Acts of concealing or changing the nature, source, position, ownership of property knowing that it is proceeds of crime.
3. Acts of acquiring, using, or processing illicit property knowing that is proceeds of crime.
4. Conspire, abet, assist, facilitation and association to money laundering.

#Terrorist Financing Offence 

1. Acts of providing or collecting funds by knowing, willful, illegally, directly or indirectly with the intention of use in terrorist financing.
2. Acts os support or attempt to support terrorist activity.
3. Conspire, abet, assist, facilitation to support any resources or participate as an accomplice to commit terrorist activity of financing.

Punishment Provisions of Money Laundering & Terrorist Financing

For Natural Person

1. For money laundering offense – fine 2 times the amount of crime and 2-10 years of imprisonment.
2. For terrorist financing offense – fine 3 times and 3-20 years of imprisonment.
3. If the claim amount is not clear – fine up to 1 crore and 3-20 years of imprisonment.
4. For accomplice – half the punishment of main convicted.
5. For higher authority or reporting unit, a civil servant- 10% more punishment.
6. Confiscation of all the crime amount of money laundering and terrorist financing.

For Artificial Person (Organization)

1. Fine 5 times the amount fine for a natural person and restriction of public procurement for a specific period of time.
2. Restriction to produce and purchase for a specific period of time.
3. Recovery of all the losses.
4. Cancellation of license.
5. De-registration of company.

Major provisions of the Money Laundering Prevention Act

1. Reporting unit and reporting procedure – Reporting units are those institutions which are assigned to report their financial transactions. It includes – all the financial and non-financial firms, professional and businesses. (e.g. B&FIs, Casinos, Real Estate)
2. It defines money laundering and terrorist financing offenses.
3. Restriction to open account of a fictitious person (imaginary person).
4. Restriction to make anonymous transactions.
5. Restriction to operate shell Banking. (Shell banking – carrying out banking operation by registering in registrar office but without physical existence)
6.  Provision of customer due diligence (CDD) – All the B&FIs and other firms who carry out the financial transaction must use Know Your Customer (KYC) to maintain customer due diligence (CDD).
7. Monitoring and record keeping of cross border corresponding baking.  (Corresponding Baking – correspond ko aadharma euta deshko bank le arko deshko bank lai transaction garaune)
8. Institutional provision for the prevention of Money Laundering and Terrorist Financing. (DLMI, FIU)
9. Provision of seizing confiscation of suspicious property and visa/travel documents of a suspicious person while investigation.
10. Provision of punishment of ML and TF offense as per natural person and legal person.
11. Free/open time limitation for ML and TF case to case the file.
12. Provision of rewarding to information providers as 10 lakhs or 10% of the crime amount whichever is less.
13. Provision relating punishment of to false FIR providers as up to 10,000 fines.
14. Provision to prepare “National Risk Assessment Report” periodically.
15. Provision of reporting of suspicious transaction to FIU promptly by report unit.

Major Achievements After Formation of MLP Act 2064

1. Reporting unit.
2. Max. use of KYC for CDD.
3. Need to disclose the source of income properly.
4. Restriction to operate shell banking.
5. Establishment and operation of FIU (Financial Information Unit).
6. Establishment od DMLI (Department of Money Laundering Investigation).
7. Support to control capital flight.
8. Compliance with other laws.
9. Support to promote financial good governance.
10. Support to control ML and TF.

Weaknesses of MLP Act 2064

1. Lack of specialization in investigation
2. The dilemma in functional jurisdiction
3. Complex provision
4. Open border
5. Maximum use of Indian currency
6. Problem in compliance with other legal provisions
7. Political and crime nexus provision