AML regulations in India

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In recent times, money laundering and terrorism financing have attracted a lot of attention forcing governments and regulators, across the globe, to focus their energies on stopping the illicit flow of funds. However, combating this issue remains a major challenge for countries and financial institutions across the globe.

FATF – India

India became the 34th country member of the Financial Action Task Force in 2010. India is also a signatory to various United Nations Conventions, which deal with anti money laundering and countering financing of terrorism. India has also become member of various global bodies, such as the Basel Committee on Bank Supervision; Asia/Pacific Group on Money Laundering; Eurasian Group on Combating Money Laundering and Financing of Terrorism. These associations make sure that financial institutions in India strengthen their standards to meet not only regulatory expectations but also international expectations. The FATF Recommendations set out a comprehensive and consistent framework of measures, which countries should implement in order to combat money laundering and terrorism financing, as well as the financing of proliferation of weapons of mass destruction.

Indian Regulations

India has criminalised money laundering under both the Prevention of Money Laundering Act, 2002 (PMLA), as amended in 2005 and 2009, and the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act), as amended in 2001. The Prevention of Money Laundering Act 2002 (the PML Act), together with the rules issued thereunder and the rules and regulations prescribed by regulators, such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), set out the broad framework for the anti money laundering laws in India.

India has criminalised money laundering under both the Prevention of Money Laundering Act, 2002 (PMLA), as amended in 2005 and 2009, and the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act), as amended in 2001. The Prevention of Money Laundering Act 2002 (the PML Act), together with the rules issued thereunder and the rules and regulations prescribed by regulators, such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), set out the broad framework for the anti money laundering laws in India. 

 

Prior to the  enactment of the PML Act, a number of statutes inadequately addressed the issue in question. These statutes were The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, The Income Tax Act, 1961, The Benami Transactions (Prohibition) Act, 1988, The Indian Penal Code and Code of Criminal Procedure, 1973, The Narcotic Drugs and Psychotropic Substances Act, 1985, The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988. 

 

Under the provisions of the PML Act, the Financial Intelligence Unit of India (FIU-IND) was established in 2004 as the apex body for coordinating India’s AML efforts. Banks, financial institutions and financial intermediaries have to submit Cash Transaction Reports (CTR) and Suspicious Transaction Reports (STR) to FIU-IND. Similarly, there are various other regulatory bodies for different businesses in the financial sector, which lay down guidelines with regards to AML. FIU-IND is the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs. 

 

The PML Act not only criminalises the offence of money laundering, but also puts in place preventive measures. Under the PML Act, financial institutions and intermediaries, reference to which includes, non-banking financial companies (NBFCs), stockbrokers and payment system operators, are required to maintain records of transactions of a prescribed nature and above certain thresholds. The procedure and manner for providing such information is prescribed by the RBI in consultation with the central government. 

To assist financial institutions in their fight against money laundering and terrorist financing; regulators, Government agencies and regulatory associations have developed guidelines and recommendations that outline key controls and elements of an effective program. 

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