Upload
devagya-jha
View
6
Download
0
Embed Size (px)
DESCRIPTION
economics
Citation preview
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 1/34
Money Laundering: India And The World
Submitted By Supervised By
Devagya Jha Dr. Radha Seshan
National Law University Delhi
!"#$
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 2/34
TA%L& '( )'NT&NTS
Chapter I: Introduction...............................................................................................................1
Chapter II: Action at the International level to combat Money Laundering..............................3
inancial !as" orce..............................................................................................................3
Basel #rinciples......................................................................................................................$
%nited &ations Convention against Illicit !ra''ic in &arcotic (rugs and #sychotropic
Substances..............................................................................................................................)
%nited &ations Convention against Corruption.....................................................................)
Chapter III: Anti*Money Laundering Legislations in India.......................................................+
#revention o' Money Laundering Act, --..........................................................................+
!he #MLA Amendment Bill, -11......................................................................................1
Chapter I/: 0ther Legislations (ealing ith Money*Laundering...........................................1-
!he oreign 2change Management Act, 1444...................................................................1-
!he Benami !ransactions 5#rohibition6 Act.........................................................................13
!he &arcotic (rugs and #sychotropic Substances Act, 14+7..............................................1$
Chapter /: Analyis o' the 8am 9ethmalani #IL.......................................................................1)
Chapter /I: !he 8eserve Ban" o' India and Anti*Money Laundering Measures....................-7
Chapter /II: Conclusion..........................................................................................................-+
Bibliography..............................................................................................................................ii
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 3/34
)*A+T&R I: INTR'DU)TI'N
Money laundering re'ers to the conversion o' money that is illegally obtained, so as to ma"e
it appear to originate 'rom a legitimate source.1 Article 1 o' the 2C (irective de'ines the term
money laundering as the conversion o' property, "noing that such property is derived 'rom
serious crime, 'or the purpose o' concealing or disguising the illicit origin o' the property or
o' assisting any person ho is involved in the committing such an o''ence or o''ences to
evade the legal conse;uences o' his action, and the concealment or disguise o' the true
nature, source, location, disposition, movement, rights ith respect to, or onership o'
property, "noing that such property is derived 'rom serious crime<.-
Money laundering is not a single act but is in 'act a process that is accomplished in three
basis steps: placing, layering and integrating o' illegal proceeds.3 !he 'irst stage involves the
removal o' cash 'rom the location o' ac;uisition and introducing it into the 'inancial system.
!he second stage is the conversion o' money in as many ban"s as possible, especially abroad.
!he third stage is the reinvesting or integrating o' this money into the economy, ta"ing the
shape o' legitimate businesses.$
In countries li"e India, money laundering ta"es place through over invoicing o' eports,
under invoicing o' imports, investment through shell companies and etensive use o' hawala
1 http:==eb.orldban".org= 5last accessed on Apr. -, -176.
- 2C (irective on #revention o' the use o' the inancial System 'or the #urpose o' Money
Laundering, 1441, available at http:==eur*le.europa.eu= 5last accessed on April 1), -176.
3 #2!28 8 2%!28 A&( 2(>I& M. !8%MA&, C?ASI&@ (I8! M0&2: !?2 I@?! A@AI&S! M0&2 LA%&(28I&@, 3 5Institute o' Macro*2conomics6 available at http:==boo"s.google.co.in=boo"shlenDlrDidA/EC4!(SMCDoi'ndDpg#811Dd;preventionFo'FmoneyFlaunderingDotsv-Gra-y)! bDsigE>-48(>SuABBa4p0"4y7Hd2JKvonepageD;prevention-o'-money
-launderingD''alse 5last accessed Apr. 4, -176.
$ @roup -, !he 2conomic Crime including Money Laundering: Its Legal and inancial
Implications, available at
http:==.una'ei.or.Ep=english=pd'=8S&o)=&o)-)[email protected]' 5last accessed on
Apr.+, -176.
1
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 4/34
channels in the transmission o' money.7 ?oever, hawala transactions usually re'erred to as
Nalternative remittance systemO is the most common 'orm o' money laundering. It is the
trans'er or remittance 'rom one party to another, ithout the use o' a 'ormal 'inancial
institution such as ban" or money echange and thus is an in'ormal ay o' moving money
ithout leaving traces o' records.) Hawala transactions are popular because they are o'ten
'aster, more reliable, sometimes o''er a better echange rate, and can be much cheaper than
trans'ers through licensed 'inancial institutions.
Money Laundering is a menace because it threatens national governments and international
relations beteen them through corruption o' o''icials and legal systems. It undermines 'ree
enterprise and threatens 'inancial stability by croding out the private sector, because
legitimate businesses cannot compete ith the loer prices 'or goods and services that
businesses using laundered 'unds can o''er. Money Laundering serves as an important mode
o' terrorism 'inancing.+ Because o' its devastating e''ects, 'ighting money laundering should
be a priority 'or all countries. At the international level to combat e''orts to combat money
laundering began in 14++ ith to important initiatives: !he Basel Committee on Ban"ing
8egulations and Supervisory #ractices and the %nited &ations Convention against Illicit
!ra''ic in &arcotic (rugs and #sychotropic Substances. In India, the #revention o' Money
Laundering Act as enacted in -- in addition to the other legislations that ere already in
place li"e the oreign 2change Management Act, !he Benami !ransactions 5#rohibition6
Act. 0ther "ey players in the e''ort to combat money laundering are the 8eserve Ban" o'
India, the Securities and 2change Board o' India and the inancial Intelligence %nit* India.
7 Ibid.
) 9ohn . >ilson, Hawala and Other Informal Payments Sytems: An Economic Perspective,
available at http:==.im'.org=eternal=np=leg=sem=--=cdm'l=eng=ilson.pd' 5last
accessed on April 1, -176.
https:==.interpol.int=#ublic=inancialCrime=MoneyLaundering=haala=de'ault.asp 5Last
accessed April 1, -176.
+ #eter 9. Juir", Money a!nderin": M!ddyin" the Macro#economy, available at
http:==.im'.org=eternal=pubs='t='andd=144=3=pd'=;uir".pd' 5Last accessed April 1,
-176.
-
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 5/34
)*A+T&R II: A)TI'N AT T*& INT&RNATI'NAL L&,&L T' )'M%AT M'N&- LAUND&RIN
(INAN)IAL TAS/ ('R)&
!he inancial Action !as" orce4 is an inter*governmental body hich sets standards, and
develops and promotes policies to combat money laundering and terrorist 'inancing.1 !he
main emphasis o' anti*money laundering measures remains on securing documentation o'
'inancial 'los, and critical analysis o' this 'inancial 'lo.11 !he orce has provided 'orty
8ecommendations and &ine Special 8ecommendations that provide a complete set o' counter measures against money laundering. !hey set out the principles 'or action and allo countries
a measure o' 'leibility in implementing these principles according particular circumstances
and constitutional 'rameor"s.1- !hese 8ecommendations have been recogniHed, endorsed
and adopted by many international bodies as the international standards 'or combating Money
Laundering.13 A! regularly revies its members 'or compliance through annual sel'*
assessment eercises and periodic mutual evaluations o' its members. 2specially a'ter the
attac"s on the !in !oers on September 11, -11, the A! has been adopting the Ncarrot*
and*stic"O approach P on one hand, the A! has increased its interaction ith critics, and on
the others, have increased the threat o' punitive measures against problematic Eurisdictions.1$
4 ?ereina'ter, the (AT(<.
1 http:==.'at'*ga'i.org=pages=,3$1,en3--7343--3)+3)11111,.html, 5last
accessed April 1, -176.
11 Mar" #ieth, $he Prevention of Money a!nderin": A %omparative Analysis, ) 2ur. 9. Crime Crim. L. DCrim. 9ust. 174 5144+6.
1- /iEay Gumar Singh, %ontrollin" Money a!nderin" in India#Problems and Perspectives,
available at http:==.igidr.ac.in=money=m'c*11=Singh/iEay.pd' 5last accessed April 1,
-176.
13 (eboshree BannerEee, Prevention of Money a!nderin" Act: %ritical Analysis, available
at http:==.legalserviceindia.com=article=l11*#revention*0'*Money*Laundering*Act.html,
5last accessed April 14, -176.
1$ @eorge #eter @illigan, Overview: Mar&ets, Offshore Soverei"nty and Onshore e"itimacy,
3), @L0BAL I&A&CIAL C8IM2: !28808ISM , M0&2 LA%&(28I&@ A&( 0S?082
3
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 6/34
India became the 3$th member o' the A! in 9une -1 a'ter 'ive years o' being an
NobserverO.17India has amended the #MLA, -- and the %nla'ul Activities 5#revention6
Act, 14) to bring them in line ith the main recommendations o' the A!. A! is
important to India because India needs the comprehensive tool"it 'or la en'orcement
agencies to be able to trac" the money behind terrorist attac"s and to enable India to emerge
as an eporter o' 'inancial services.1)
As a member o' the A!, India also accepted an enhanced responsibility as the Asia #aci'ic
8egional 8evie @roup Co*chair. India underent its 'irst Asia #aci'ic @roup 1 mutual
evaluation in -7 and a Eoint A#@ and A! mutual evaluation in -+. 1+ !he A! report
suggests that hile measures have been ta"en to curb the menace o' money laundering in
India, a 'e "ey recommendations need to be included 'or a more e''ective response to this
problem li"e address the technical shortcomings in the criminalisation o' both money
laundering and terrorist 'inancing and in the domestic 'rameor" o' con'iscation and
provisional measuresQ a stricter sanctioning regime that allos 'or e''ective, proportionate
and dissuasive sanctions 'or 'ailures to comply ith Anti Money Laundering re;uirements14
C2&!82S, 5(onato Masciandaro ed. -$6, available at http:==boo"s.google.co.in=boo"s
hlenDlrDidiRuCR%pn4$CDoi'ndDpg#8Dd;preventionFo'FmoneyFlaunderingD
ots@?S8cG1Dsigrm(;oLu($)'IcR(>sJ@(dv?9oKvonepageD;D''alse 5last
accessed Apr. 4, -176.
17 India 'oins select cl!b to co!nter financial fra!ds, !?2 ?I&(%, 9une 3, -1, available at
http:==.thehindu.com=nes=article$4-$11.ece, 5last accessed April 14, -176.
1) G.#.Grishnan, India on the (A$( hi"h table, !?2 2C0&0MIC !IM2S, August 1, -1,
available at http:==articles.economictimes.indiatimes.com=-1*+*
1=nes=-)-14-1'at'*money*laundering*'inancial*action*tas"*'orce, 5last accessed on
April -, -176.
1 ?ereina'ter, the A+<.
1+ Prevention of Money a!nderin" Act bein" amended, !?2 ?I&(%, 9uly 14, -11,
available at http:==.thehindu.com=nes=national=article--77)+7.ece, 5last accessed April
-, -176.
14 M!t!al Eval!taion of India, available at http:==.'at'*
ga'i.org=document=1=,3$),en3--7343--3)4)3$77+-$11111,.html, 5last
$
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 7/34
%AS&L +RIN)I+L&S
In recognition o' the vulnerability o' the 'inancial sector to misuse by criminals, the Basel
Committee on Ban"ing and Supervisory #ractices issued a Statement o' #rinciples 5the NBasel
#rinciplesO6 in (ecember 14++.- !his as a signi'icant step toards preventing the use o' the
ban"ing sector 'or money laundering purposes, as it set out a number o' principles that
ban"ing institutions should comply ith li"e: customer identi'ication, compliance ith
legislation, con'ormity ith high ethical standards and local las and regulations, 'ull co*
operation ith national la en'orcement authorities to the etent permitted ithout breaching
customer con'identiality, etc.-1 !here'ore, the Basel #rinciples stress on co*operation ithin
the con'ines o' the duties o' client con'identiality. !he compliance ith these #rinciples
represented a maEor sel' regulatory initiative ithin the 'inancial sector.
In 144, in consultation ith the supervisory authorities o' a 'e non @*1 countries
including India, it dre up the -7 Core #rinciples 'or 2''ective Ban"ing Supervision< hich
ere in the nature o' minimum re;uirements intended to guide supervisory authorities hich
ere see"ing to strengthen their current supervisory regime.-- !he #rinciples deal ith
aspects li"e permissible activities o' institutions that are licensed and subEect to supervision
as ban"s must be clearly de'ined-3Q the licensing authority must have the right to set criteria
accessed April -, -176
- Money a!nderin" Prevention, available at
http:==.'incen.gov='inancialinstitutions=msb=materials=en=preventionguide.htmlKInterna
tional Money Laundering 2''orts, 5last accessed April -, -176.
-1(0%@ ?0#!0&, M0&2 LA%&(28I&@: A C0&CIS2 @%I(2 08 ALL B%SI&2SS2S, available
at http:==boo"s.google.co.in=boo"s
idIat3nhnv#ACDpg#A1Dlpg#A1Dd;baselFconventionFandFmoneyFlaunderingDs
ourceblDots>y@mae;Dsig9G2;M(&ae>un@AgbC4oSbG1sDhlenDsaRD
ei*GA!Lu2s!MrJ'4m*HRBDvedCCoJ)A2AAKvonepageD;basel
-convention-and-money-launderingD''alse, 5last accessed April -, -176.
-- Gishori 9 %deshi, Implementation of )asel II# an Indian Perspective, available at
http:==.bis.org=revie=r$)11g.pd', 5last accessed March 17, -176.
-3 #rinciple*II o' Core #rinciples 'or 2''ective Ban"ing Supervision<Q !he permissible
activities o' a ban"ing company are listed in Section )516 o' the Ban"ing 8egulation Act,
7
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 8/34
and reEect applications o' establishments that do not meet the standards set-$Q ban"ing
supervisors must have the authority to revie and reEect any proposals to trans'er signi'icant
onership or control in eisting ban"s to other parties -7Q evaluation o' a ban"Os policies and
procedures related to granting o' loans and ma"ing o' investments-) among other things. !he
8eserve ban" o' India had assessed its on position ith respect to the #rinciples in 144+.
!he assessment had shon that most o' the Core #rinciples ere already enshrined in our
eisting legislation ith some gaps identi'ied mainly in the areas o' ris" management in
ban"s, inter*agency co*operation ith other domestic=international regulators and
consolidated supervision. - Internal or"ing groups ere set up to suggest measures to
bridge these gaps. -+
A 'urther paper as issued by the Committee in 0ctober -1 covering customer due
diligence 'or ban"s. It addressed veri'ication and Gno our Customer 5GC6 standards ith
a cross*border aspect. !his mandates the ban" to ta"e reasonable e''orts to determine their
14$4. Section )5-6 speci'ically prohibits a ban"ing company'rom carrying on any 'orm o'
business other than those re'erred to in Section )516.
-$ #rinciple*III o' Core #rinciples 'or 2''ective Ban"ing Supervision<Q Section -- o' the
Ban"ing 8egulation Act provides that a company intending to carry on ban"ing business
must obtain a licence 'rom 8BI ecept such o' the ban"s 5public sector ban"s and 88Bs6,
hich are established under speci'ic enactments. !he 8BI issues licence only a'ter tests o'
entry< are 'ul'illed. !hese tests include minimum capital, onership structure, ban"Os
operating plans and controls, ability o' the ban" to pay its present and 'uture depositors in
'ull, ;uality o' management and hether the licensing o' the ban" ould be in the public
interest.
-7 #rinciple*I/ o' Core #rinciples 'or 2''ective Ban"ing Supervision<Q Section 1-5-6 o' the
Ban"ing 8egulation Act restricts shareholders in a ban"ing company 'rom eercising voting
rights on poll in ecess o' ten per cent o' the total voting rights o' all the shareholders o' the
ban"ing company.
-) #rinciple*/II o' Core #rinciples 'or 2''ective Ban"ing Supervision<Q %nder Section -1 o'
the Ban"ing 8egulation Act, the 8BI is charged ith the responsibility o' determining the
policy relating to advances by ban"s and o' giving directions to them in this regard.
- %ore Principles of Effective )an&in" S!pervision, 0ctober 1444, available at
http:==.rbi.org.in=upload=publications=pd's=1117.pd', 5last accessed Mar. 17, -176.
-+ Ibid.
)
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 9/34
customerOs true identity, and have e''ective procedures 'or veri'ying the bona'ides o' a ne
customer .-4
UNIT&D NATI'NS )'N,&NTI'N AAINST ILLI)IT TRA((I) IN NAR)'TI) DRUS AND
+S-)*'TR'+I) SU%STAN)&S
!his %& Convention as one o' the historic conventions inasmuch as the parties to the
Convention recogniHed the lin"s beteen illicit drug tra''ic and other related organised
criminal activities hich undermine the legitimate economies and threaten the stability,
security and sovereignty o' States and that illicit drug tra''ic"ing is an international criminal
activity that generates large pro'its and ealth, enabling transnational, criminal organiHations
to penetrate, contaminate and corrupt the structures o' government, legitimate commercial
and 'inancial businesses and society at all levels.3 !he broad obEective o' the #rogramme as
to strengthen the ability o' Member States to implement measures against money*laundering
and the 'inancing o' terrorism and to assist them in detecting, seiHing and con'iscating illicit
proceeds, as re;uired pursuant to %nited &ations instruments and other globally accepted
standards, by providing relevant and appropriate technical assistance upon re;uest.31
UNIT&D NATI'NS )'N,&NTI'N AAINST )'RRU+TI'N
!he %&CAC is one o' the most comprehensive anti*corruption instruments. It criminaliHes
money laundering3- thus ma"ing it one o' the uni;ue instruments that addresses both
corruption and money laundering simultaneously. !he scheme o' the convention is premised
on the 'act that an e''ective anti*money laundering regime can ma"e a signi'icant contribution
to the 'ight against corruption in at least to ays: it could help uncover evidence o' criminal
activity through identi'ication o' suspicious movements o' 'inancial assets, thus increasing
the chances o' a success'ul prosecution o' the perpetrator o' the crimeQ it also enables the
tracing o' criminal proceeds to 'acilitate their preservation, recovery and ultimate return to
-4 /iEay Gumar Singh, s!pra note 1-.
3(0%@ ?0#!0&, s!pra note -1.
31 *+O% on money#la!nderin" and co!nterin" the financin" of terrorism, available at
http:==.unodc.org=unodc=en=money*laundering=inde.html, 5last accessed Mar. 17, -176.
3- Article -3 o' the %&CAC.
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 10/34
their right'ul oner. 33 !he scope o' Article -3 is not limited to laundering o' money and
instead its 'ocus is the conversion or trans'er o' property thus a''ecting all manner o' bene'its
'rom cash, company shares etc. 3$
!he lin" beteen corruption and money laundering as also brought out in the recent
movement 'or the 'ormation o' Lo"pal led by Anna ?aHare here initiating measures to bring
bac" blac" money as seen as an integral part o' the 'ight against corruption.
33 Indira Carr and Miriam @oldby, $he *+ Anti#%orr!ption %onvention and Money
a!nderin" , available at http:==idec.gr=iier=ne=C088%#!I0&-C0&282&C2=!he
-%&-Anti*corruption-convention-and-money-laundering*I&(I8A
-CA88.pd', 5last accessed Apr. + -176.
3$ Ibid.
+
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 11/34
)*A+T&R III: ANTI0M'N&- LAUND&RIN L&ISLATI'NS IN INDIA
+R&,&NTI'N '( M'N&- LAUND&RIN A)T !""!
!he #revention o' Money Laundering Act, --37 as enacted on the 1th o' 9une, -3 and
came into e''ect 'rom the 1sts o' 9uly, -7 ith the aim o' preventing money laundering and
providing 'or the con'iscation o' property hich had been derived 'rom money laundering.3)
!he Act provides 'or the prosecution o' individuals and legal entities indulging in money
laundering, and 'or the con'iscation and attachment o' property obtained through moneylaundering.
!he #MLA contains 7 sections divided into ten chapters, and also contains a Schedule
divided into #art A and #art B.
Chapter I o' the Act deals ith the preliminary provisions, such as the etent o' the Act and
the interpretational clause. Chapter II lays don the o''ence o' money*laundering. Section -
is the de'initional clause, hoever, it is Section 3 o' the #MLA that de'ines the o''ense o'
money laundering, and ma"es the direct or indirect attempt to indulge or "noingly assist, or
be "noingly involved in any process or activity connected ith the proceeds o' crime3 an
o''ence. !he o''ences are divided into #arts A and B o' the Schedule to the #MLA.
Section $ o' the Act lays don the punishment 'or money*laundering as rigorous
imprisonment 'or a period beteen three to seven years, and a 'ine o' 'ive la"h rupees.
?oever, i' a person is convicted under #aragraph - o' the Schedule3+, the term o'
incarceration can be etended to 1 years.
37 ?ereina'ter, 1the +MLA2.
3) G.#. Grishnan, e"al -e"ime for AM Anti Money a!nderin"/ in India, available at
http:==.icrier.org=pd'=pptinpd'=amlppt'oricrier.pd' 5last visited April 1, -176.
3 #roceeds o' Crime is de'ined in Section - 5u6 o' the #MLA as:5u6 proceeds o' crime< means any property
derived or obtained, directly or indirectly, by any person as a result o' criminal activity related to a scheduledo''ence or the value o' such property.
4
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 12/34
Chapter III o' the #MLA deals ith the attachment, adEudication and con'iscation o' property.
!he adEudicating authority appointed by the Central @overnment under section $+ o' the
#MLA is empoered under section 7 to attach or seiHe property. ?oever, the Authority is
alloed to attach property 'or 4 days only i' the person involved has committed a crime
'alling under the Schedule o' the , and i' a report has been 'orarded to a Magistrate under
section 13 o' the Criminal #rocedure Code, or i' a Special Court has ta"en cogniHance o' the
matter.
Chapter I/ o' the #MLA prescribes the obligations o' ban"ing companies, 'inancial
institutions and intermediaries. Ban"ing Company< under #MLA includes all nationaliHed
ban"s, private Indian ban"s and private 'oreign ban"s, all co*operative ban"s, the State Ban"
o' India and 8egional 8ural Ban"s.34 Intermediary< under #MLA includes persons
registered under Section 1- o' the Securities and 2change Board o' India 5S2BI6 Act, 144-.
Section 1- 516 mandates these institutions to 5a6 to maintain records detailing the nature and
value o' transactions hich may be prescribed, hether it be in a single transaction or a series
o' transactions integrally connected to each other ta"ing place under a monthQ 5b6 to 'urnish
in'ormation o' these transactions to the (irector ithin a prescribed time period and to
records o' the identity o' all its clients. Section 1- 5-6 mandates that these records be
maintained 'or a period o' 1 years. %nder the provisions o' Section 13, a 'ine may be levied
by the authority prescribed by the Central @overnment upon such ban"s and 'inancial
institutions hich do not comply ith the provisions o' Section 1-.
Chapter / o' the #MLA deals ith provisions relating to search, summons and seiHure.
Section 1) lays out the poer to enter any place to investigate given to Authority, hile
Section 1 gives the poer to the Authority under the #MLA to seiHe any property. %nder
ssection -$ o' the Act also puts the burden o' proo' on the accused to prove that the proceeds
o' crime are untainted property.
Chapter /I o' the Act contemplates the setting up o' an Appellate !ribunal to hear appeals on
matters adEudicated upon by the authority appointed under the Act, hereas Chapter /II lays
3+ #aragraph - o' the Schedule lists out o''ences under the &arcotic (rugs and #sychotropic Substances Act,14+7.
34 Section -5e6 o' the #MLA.
1
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 13/34
don that special courts can be designated 'or trying o''ences under the #MLA. Chapter /III
contains the provisions relating to the appointment o' authorities under the Act, and certain
provisions relating to Eurisdiction and other appointment o' special o''icers.
Chapter IR o' the #MLA deals ith reciprocal arrangements 'or assistance in matters and
also lays don the procedure 'or attachment and con'iscation o' property, hereas Chapter R
contains miscellaneous provisions.
T*& +MLA AM&NDM&NT %ILL !"##
!he #MLA Amendment Bill -11 as introduced by #ranab Mu"herEee in the Lo" Sabha on
(ecember -, -11. !he Bill toughens the stance on money laundering, and introduces 1
"ey amendments to the Act.
!he Statement o' 0bEects and 8easons states that the introduction o' such an amendment as
necessary since problem o' money*laundering is no longer restricted to the geo political
boundaries o' any country, it is necessary to have a stricter enactment in place. Another
reasons given 'or the amendment is that India has become a member o' the inancial Action
!as" orce and Asia #aci'ic @roup on money*laundering, and the Bill is the e''ort o' theIndian government to bring anti*money laundering legislations at par ith international
standards.
!here are several changes to the de'initional clause under the Bill. Section -5ia6 introduced
the concept o' Ncorresponding laO, lin"ing the provisions o' Indian la to the la o' 'oreign
countries. Section -5a6 also introduced the concept o' Nreporting entityO, hich includes a a
ban"ing company, 'inancial institution, intermediary or a person carrying on a designated
business or pro'ession. !he de'inition o' o''ence under section 3 o' the #MLA ill be
epanded to include activities li"e concealment, ac;uisition, possession and use o' proceeds
o' crime, and ould also do aay ith the eisting cap o' 'ive la"h rupees on penalties 'or
violations under Section $.$ Section 7 o' the #MLA, dealing ith provisional attachment,
also stands amended, ith the days o' provisional attachment etended to 1+ days, instead
$ A copy o' the #MLA Amendment Bill can be accessed at
http:==.prsindia.org=billtrac"=the*prevention*o'*money*laundering*bill*-11*-1$3=, 5last
accessed Mar. -, -176.
11
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 14/34
o' 4 as it stands today. A ne section 1- also has been inserted in the Bill, 'or it see"s to
ma"e all the reporting entities to "eep a record o' all transactions, and to veri'y the identities
o' their customers. !he time period, hoever, remains 1 years, hoever, the reporting
entities can be made responsible i' they do not "eep or 'urnish the in'ormation to the
Authority as and hen re;uired.$1 !he Bill provides 'or an amendment in Section -$ as ell,
as a presumption that the money involved in proceedings 'or money laundering shall be
raised$-, and also provides 'or summary attachment and con'iscation o' property even i' there
is no conviction. !he Bill also contemplating merging Schedule A and B so as to erase the
monetary threshold beteen the di''erent "inds o' o''ences under the #MLA.
$1 Ibid.
$- Id.
1-
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 15/34
)*A+T&R I,: 'T*&R L&ISLATI'NS D&ALIN WIT* M'N&-0LAUND&RIN
T*& ('R&IN &3)*AN& MANA&M&NT A)T #444
It prescribes chec"s and limitations on certain 'oreign echange remittances. 0''ences under
the oreign 2change Management Act, 1444$3 are not scheduled o''ences under the #MLA.
!he rationale behind this is that only the most violent and important crimes have been
mentioned under the #MLA since the #MLA gives massive poers o' arrest to la
en'orcement agencies. An eample o' the o''enders targeted under the #MLA ould be the
ma'ia dealing in murder, etortion, terrorism and prostitution ho have immense li;uid
ealth that they ant to launder. Since the poers under the #MLA are so over*reaching, the
list o' scheduled o''ences thereunder has deliberately been "ept short, and 2MA o''ences
have been ecluded 'rom their ambit.$$ 2ven so, money*laundering is regarded as an
egregious crime under the 2MA as ell, a consideration that is especially important in the
assessment o' hether or not an o''ence can be compounded. $7
Interestingly, the enactment o' the 2MA is oed in large part to the passing o' the #MLA
since it sought to rela the regulatory structure 'or 'oreign echange, a step that as only
alloed hen there as assurance that despite this relaation, illegal transactions o' drug
peddlers, terrorists, arm smugglers and other perpetrators o' heinous economic crimes ould
not go unpunished. $)
Among the most 'amous controversies involving money laundering under the 2MA is the
case 'iled in August, -11, by the 2n'orcement (irectorate against S 9aganmohan 8eddy,
son o' 'ormer Andhra #radesh Chie' Minister, S 8aEase"har 8eddy. $
$3 ?ereina'ter 2MA.<
$$ (EMA and Money a!nderin", available at http:==.rashminsanghvi.com='emaboo").htm 5last
accessed April , -176
$7 -)I %irc!lar 0 the compo!ndin" of contravention !nder (EMA , available at
http:==.layersclubindia.com=articles=printthispage.asparticleid33) 5last accessed April ), -176
$) Money a!nderin" !nder the (EMA re"ime , available at http:==.ieo.org=budget4+=sp1-.htm 5last
accessed April , -176
$ E files (I- in Hyd on Money la!nderin" and (EMA violations a"ainst 1S 2a"an , available at
http:==telugudesam.org=tdpcms=inde.phpoptioncomcontentDviearticleDid1$- 5last accessed April ,
13
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 16/34
T*& %&NAMI TRANSA)TI'NS 5+R'*I%ITI'N6 A)T
!he ord NbenamiO is #ersian 'or Nproperty ithout a nameO.$+ A benami transaction is one
here property is trans'erred or purchased in the name o' one person but another person is
paid consideration 'or the trans'er. It thus becomes a sa'e ay o' par"ing ill*gotten ealth. In
'act, the role played by benami transactions is more versatile than Eust that, and etends to ta
evasion, de'rauding creditors and sometimes serving as a means 'or ma'ia dons to operate
through aliases.$4
!he Benami !ransactions 5#rohibition6 Act, 14++,7 prohibits the purchase o' property in the
name o' another person ho does not pay 'or the property, and prescribes a punishment o'
upto three years 'or a person ho commits this o''ence. ?oever, the B!#A has been
considered largely ine''ective and is sought to be replaced by the Benami !ransactions
5#rohibition6 Bill, -11, hich as introduced in the Lo" Sabha last year. 0ne o' the maEor
reasons cited 'or its ine''iciency as that the manner in hich it had been dra'ted made the
'ormulation o' rules thereunder impossible.71
?oever, the Bill has been subEect to substantial criticism on many counts. or eample, it
still allos benami transactions in the name o' spouse, brother, sister or any lineal ascendant
or descendant.7- It has reduced the maimum term o' imprisonment 'or entering into a benami
transaction 'rom three years to to years.73 8ecognising the neus beteen money laundering
-176
$+Meghna Bhas"ar, )enami $ransactions Prohibition / )ill, 3455 , available at
http:==Eurisonline.in=-11=4=benami*transactions*prohibition*bill*-11= 5last accessed April +, -176
$4 /. Gumarasamy, )!t $hat6s +ot Mine7 , available at
http:==.telegraphindia.com=1114-+=Esp=opinion=story1$7)-+.Esp 5last accessed April , -176
7 ?ereina'ter B!#A<
71 Introd!cin" the )$PA )ill , available at http:==.caclubindia.com=nes=introduction*o'*the*benami*transactions*prohibition*bill*-11*4++.asp 5last accessed April , -176
7-Bill 'or stricter control o' benami transactions introduced , available at
http:==.thehindu.com=nes=national=article-3)4+.ece 5last accessed April , -176
73 SanEeev Sirohi, Benami !ransactions #rohibition Bill -11 P A Critical Analysis , available at
http:==goindocal.com=benami*transactions*prohibition*bill*-11*-74)*a*critical*analysisgo*37-.htm 5lastaccessed April , -176
1$
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 17/34
and benami transactions, the Bill see"s to ma"e the AdEudicating Authority and the Appellate
!ribunal established under the #MLA responsible 'or eamining disputes around benami
transactions as ell.7$ !his ill give a chance to the accused to present his case be'ore it goes
to the court.
T*& NAR)'TI) DRUS AND +S-)*'TR'+I) SU%STAN)&S A)T #478
!he Act provides 'or con'iscating sale proceeds 'rom selling any narcotic drug or
psychotropic substance, and 'or the seiHure o' any goods used to conceal such drugs, and also
provides 'or the 'or'eiture o' any illegally ac;uired property. 0''ences under the &arcotic
(rugs and #sychotropic Substances Act, 14+7 'ind a place in #aragraph - o' #art I o' the
Schedule to the #MLA.77 It is 'eared that the con'erral o' etensive poers by the Supreme
Court in August, -11 on the Special Investigation !eam set up to unearth blac" money ill
destabilise the hole structure that has been set up by money laundering las such as the
&(#S Act.7)
T*& UNLAW(UL A)TI,ITI&S 5+R&,&NTI'N6 A)T #49
Amended in -+, the Act empoers the Central @overnment to seiHe and attach 'unds and
other 'inancial assets or economic resources held by engaged in or suspected to be engaged in
terrorism and prohibit any individual or entity 'rom ma"ing any 'unds, 'inancial assets or
economic resources or related services available 'or the bene'it o' these individuals under
Section 71 A. As on March, -11, 11 out o' the 1-)4 cases being investigated by the
2n'orcement (irectorate in connection ith money laundering 'ell under the %nla'ul
7$ )ill for Stricter %ontrol Over )enami eals Introd!ced, available at http:==.business*
standard.com=india=nes=bill*'or*stricter*control*over*benami*deals*introduced=$$)31= 5last accessed April +,-176
77 Synopsis: PMA 3443 , available at http:==.caclubindia.com=articles=prevention*o'*money*laundry*act*--*a*synopsis*1)$).asp 5last accessed April , -176
7) Hasan Ali and Money a!nderin", available at http:==articles.timeso'india.indiatimes.com=-11*+*-7=india=-44-)31-1blac"*money*money*laundering*act*hasan*ali*"han 5last accessed April +, -176
17
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 18/34
Activities 5#revention6 Act, 14)7.7+ More amendments ere announced last year to bring
the %A#A in line ith A! standards74 as ell as IndiaOs other international obligations.)
>hile this commitment has been rea''irmed ever since the announcement as 'irst made, )1 no
concrete action seems to have been ta"en on this 'ront.
7 ?ereina'ter %A#A.<
7+ Anti Money#a!nderin" (ramewor&, India, available athttp:==socialissuesindia.ordpress.com=-11=4=+=anti*money*laundering*'rameor"*in*india= 5last accessedApril +, -176
74 /i"ash adav, PMA 3443: -e#en"ineered , available at http:==.redi''.com=business=report=india*tea"ing*las*to*chec"*money*laundering=-1114.htm 5last accessed April , -176
) Money la!nderin" law to be modified: M!&her'ee news , available at http:==.domain*
b.com=economy=general=-1114mu"herEee.html 5last accessed April , -176
)1@ovt mulls >hite #aper on blac" money: inance Ministry , available at http:==.thehindu.com=nes=national=article-)74).ece 5last accessed April +, -176
1)
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 19/34
)*A+T&R ,I: ANAL-IS '( T*& R AM J&T*MALANI +IL
R AM J ETHMALANI V . U NION OF I NDIA62
!his landmar" case in the area o' money laundering la mar"s the only real attempt o' the
Supreme Court to actively curb money laundering, by mandating e''icacious measures. !he
'acts o' the case arise in the 'olloing bac"ground.
!he cases o' ?asan Ali and his accomplice !apuria stand out as particularly egregious
instances o' the lac" o' implementation o' the money*laundering las in India. ?asan Ali, 73*
year*old, son o' ?yderabad 2cise 0''icer is "non to have unaccounted money to the tune
o' 8s. -, to 37, crore. ?is account at the Siss Ban", %BS holds up to %S( + billion,
and he is liable 'or a ta de'ault o' about 8s. 7, crore in India.
A >rit petition as 'iled in based on reports in the media and scholarly articles,
regarding the lac" o' action ta"en by the State authorities in countering the large sums o'
unaccounted money in 'oreign ban"s, particularly those in Eurisdictions that are ta havens
ith strong privacy las. !he main contention as that the 'undamental rights o' the people
under Articles -1, 1$, 14 ere violated by selectively disregarding such large scale ta
evasion on the part o' persons li"e ?assan Ali.
The +etition
!he #etitioners contended that such a dereliction o' duty to en'orce the ta de'ault on the part
o' State authorities re'lects a complete lac" o' control over unla'ul activities o' to "inds,
one, ta evasion and to, those criminal activities that are 'unded by the blac" money
economy. Moreover, such blac" money in siss ban"s as laundered and rerouted bac" into
India 'or illegal activities, thus contributing to the creation o' netor"s o' international
'inance. Large scale criminal activities li"e terrorism, arms smuggling, narcotic trade and
similar activities hich are 'uelled by the blac" economy are also detrimental to the security
and integrity o' India. !he petitioners also contended that this money as ;uite li"ely to be
)- -115)6 SCAL2 )41
1
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 20/34
that o' poer'ul persons and the lac" o' action on the part o' the State indicated gross apathy
toards prosecution o' individuals.
#articularly, ?assan Ali Ghan D !apuria had been served ith an Income !a demand to the
tune o' 8s. $, crore and -,7+ crore respectively. !he 2n'orcement (irectorate 52(6
had, in -, reported that ?assan Ali indulged in dealings amounting to %S( 1.) billion
beteen -1*7. !he 2( also carried out a raid in ?assan AliOs #une residence, hich led to
the discovery o' evidence o' deposits o' %S( +.$ billion ith %BS Ban", urich.
(espite this, hoever, no investigation had been commenced by the State into the matter. !he
petitioners had contended that the %nion o' India had 'altered on several levels:
a6 Both ?assan Ali and !apuria ere in India and hence 'alling ithin the Eurisdiction o'
Indian Courts and investigative authorities
b6 %nion o' India, despite repeated 8!I applications, as not divulging in'ormation
regarding the Indian account*holders in Siss Ban"s
c6 !he Siss Ban", %BS, urich, one o' the biggest ealth management companies in
the orld, had in particular, 'allen in bad light ith the Indian authorities as it as
involved in several untoard scams earlier in the decade.
Issues
0n this premise and based on the speci'ic arguments advanced by the #etitioners, there ere
to main issues ere sought to be addressed by the Court:
16 >hether the Supreme Court must constitute a Special Investigation !eam 5SI!6 under
a 'ormer Supreme Court 9udge to monitor investigations cases o' blac" money
-6 >hether the Court must mandate that the %nion must endeavour to 'irst obtain and
then disclose the list o' Indian ban" account holders in ban"s in Liechtenstein
Argu;ents o< the +etitioners:
8e: Constitution o' SI!
!he petitioners argued that an SI! ought to be constituted under the supervision o' 'ormer
Supreme Court Eudges to continually monitor investigation and prosecution o' blac" money
cases.
8e: (isclosure o' ban" account in'ormation in ban"s in Liechtenstein
1+
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 21/34
!he council 'or the #etitioners submitted that a 'e years ago, an employee o' a ban" in
Liechtenstein had o''ered to divulge names o' ban" account holders to the government o'
@ermany. @ermany had secured these names on had conse;uently initiated proceedings
against ) individuals. !he government o' @ermany had also o''ered the list o' names to
other countries i' they chose to initiate prosecutions against these individuals, outside the
'rameor" o' the Indo*@erman (ouble !a Avoidance Agreement. In this light, it as
unclear hy, despite several 8!I applications, the %nion had not revealed the names o' these
account holders. Moreover, no steps to recover moneys or punish these individuals had been
ta"en so 'ar.
Argu;ents o< the Res=ondents
8e: Constitution o' SI!
!he Solicitor @eneral responded to the arguments o' the #etitioner by submitting that the
%nion o' India had done everything in their poer toards prosecution and investigation o'
blac" money cases. >hile they had no principal obEection against the submission o' the
petition, they argued that a Court monitored investigation as permissible but 0G but not a
SI!. !hey submitted that there as already a ?igh Level Committee constituted under the
(ept o' 8evenue in the Ministry o' inance, hich as a body that as capable o' eercising
all the 'unctions and poers sought to be entrusted to the SI! proposed by the #etitioners.
Moreover, the 8espondents submitted that cases o' money laundering necessarily involve
many Eurisdictions as these ban" accounts ere located in di''erent countries ith las and
(ouble !a Avoidance Agreements that protected the privacy o' these account holders.
8e: (isclosure o' ban" account in'ormation in ban"s in Liechtenstein
!he Solicitor @eneral responded to the case o' the #etitioners by submitting that the list o'
names o' ban" account*holders in the possession o' the Indian @overnment ere obtained
through the (!AA ith @ermany, as @ermany had speci'ically as"ed the %nion o' India to
ta"e the said in'ormation through the (!AA. !he (!AA speci'ically contained a prohibition
on disclosure o' in'ormation obtained through the (!AA, through its con'identiality clause.
Any actions on the part o' the %nion in breach o' this (!AA ould EeopardiHe IndiaOs
relations ith @ermany,
14
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 22/34
Moreover, the disclosure o' the names o' all the account*holders ould be in gross violation
o' the right o' privacy o' individuals ho ere using these Siss Ban" accounts 'or
legitimately earned money, thus 'alling outside the purvie o' a potential investigation or
prosecution 'or money laundering. !he State argued that even i' it ere to disclose this list,
only those names o' persons against hom investigation had been commenced and
proceedings had been initiated ould be disclosed.
Judg;ent
8e: Constitution o' the SI!
!he Supreme Court recogniHed that although a ?igh Level Committee had been set up ith
etensive poers, the charge*sheet o' ?assan Ali had not even been vetted by this committee,
nor as the Committee monitoring the investigation and ensuring speedy progress. Moreover,
the Court opined that hile these matters may actually be spread over several Eurisdictions,
even as regards those persons ithin Indian Eurisdiction, against hom su''icient evidence
eists in the hands o' the Indian authorities, the @overnment had not done enough.
!hus, the Court held that the %nion o' India ought to constitute an SI! ith very broad
poers o' investigation and prosecution o' blac" money cases. !he SI! ould be re;uired to
constantly report developments to the Supreme Court. It ould comprise o' all the members
o' the ?igh Level Committee along ith the (irector o' the 8esearch and Analysis >ing
58A>6, viH.:
i. (irector, 8A>
ii. !o 'ormer Eudges o' the SC
iii. Secretary, (epartment o' 8evenue, as the ChairmanQ
iv. (eputy @overnor, 8eserve Ban" o' IndiaQ
v. (irector 5IB6Qvi. (irector, 2n'orcement (irectorateQ
vii. (irector, CBIQ
viii. Chairman, CB(!Q
i. (@, &arcotics Control BureauQ
. (@, 8evenue IntelligenceQ
i. (irector, inancial Intelligence %nitQ and
ii. 9S 5! D !8*I6, CB(!.
8e: (isclosure o' ban" account in'ormation in ban"s in Liechtenstein
-
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 23/34
Article -)516 o' the (!AA 5on 2change o' In'ormation6 on con'identiality o' in'ormation
echanged under the (!AA reads as 'ollos:
$he competent a!thorities of the %ontractin" States shall e8chan"e s!ch
information as is necessary for carrying ou !e "ro#isions of !is Agree$en .
Any information received by a %ontractin" State shall be treated as secret in the
same manner as information obtained !nder the domestic laws of that State and
shall be disclosed only to persons or a!thorities incl!din" co!rts and
administrative bodies/ involved in the assessment or collection of, the
enforcement or prosec!tion in respect of, or the determination of appeals in
relation to, the ta8es covered by this A"reement. $hey may disclose the
information in p!blic co!rt proceedin"s or in '!dicial proceedin"s.
!hus, it as clear that Article -) o' the (!AA governed only echange o' in'ormation that
as underta"en 'or the purpose o' carrying out the provisions o' the Agreement<. Since the
list o' names o' ban" account holders in Liechtenstein as not in'ormation necessary 'or
carrying out provisions< o' the Indo*@erman (!AA, the Court held that Liechtenstein as
not covered ithin the ambit o' the Indo*@erman (!AA. !he Court also held that the 'act
that @ermany as"ed India to treat the in'ormation as granted under Article -) o' the (!AA is
immaterial.
Moreover, there as no >ar o< se?re?y i;=osed on disclosing such in'ormation 'or the
purpose o' ?ourt =ro?eedings. !he Court struc" don the argument o' the %nion that these
court proceedings ere limited to merely ta proceedings, on the basis that such a reading o'
Article -)516 ould render the last sentence in the Article redundant. or this, the Court cited
Article 31 o' the /ienna Convention on the La o' !reaties to state that the treaty should be
interpreted so as to give the ords used its ordinary meaning.
!he Court also pre*empted arguments on part o' the State that the burden o' establishing case
against blac" money ould lie on the #etitioners, thus re;uiring petitioners to produce
in'ormation on ban" accounts harbouring blac" money, by holding that the burden o'
protecting 'undamental rights lay on the State. !he State ould thus be re;uired to obtain and
disclose all in'ormation toards the prosecution o' blac" money cases, in order to uphold the
'undamental rights o' the rest o' the honest ta*paying individuals.
-1
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 24/34
0n the right to "no< under Article 145-6, the Court recogniHed that the countervailing right
to privacy o' the ban" account holders as a 'undamental right read into Article -1 by the
Supreme Court in case la. !his 'undamental right to privacy guaranteed to persons ensures
ithin its ambit that hu;an >eings <ree o< =u>li? s?rutiny i< they are a?ting in ?on<or;ity
with law. There<ore the right o< =ersons under Arti?le $! to =etition the ?ourt in =u>li?
interest against ;oney laundering ;ust >e >alan?ed >y the right under Arti?le !# o<
a??ount holders in Swiss %an@s. !here'ore the Court held that the State ta authorities
cannot be mandated to disclose account details o' all account holders, even in the absence o'
investigation to reveal that the account holders are suspected o''enders under the #MLA.
overn;ents Res=onse to the Judg;ent
!he establishment o' the SI! ith unprecedented poers to investigate in this case as not
reacted to positively by the Centre, and speci'ically, the inance Ministry.
Attorney @eneral @oolam /ahanvati, presenting the CentreOs case be'ore a bench consisting
o' 9ustices Gabir and &iEEar, re;uested a modi'ication o' the terms o' creation o' this body,
claiming that it ould result in the ultimate destabiliHation o' a large number o' probe
mechanisms set up under di''erent las including the &(#S Act, the I! Act, the 2MA and
others by creating a Nsuper*'orceO, especially one ith a composition as limited as that o' the
SI!,. !his argument stemmed 'rom the 'act that such members as the 8BI (eputy (irector
ere epected to ta"e up duties as heavy as investigating the maEority o' all money
laundering cases in the country, despite clearly having their on 'unctions to discharge. )3
urther, concerns ere related about the 'itness o' certain members, such as the 8A>
(irector, being a nameless, 'aceless entity, to sit at the helm o' a court*appointed body. !he
Centre too" strong obEection to the 'act that an etremely high*level, etremely poer'ul
body, ith multi*Eurisdictional operation ould render redundant several legislatively created
committees and bodies, could be created ithout any parliamentary consideration. !he plea
as obEected to on the grounds that it as a revie in disguise, and the necessity o' the body
as created by the slo movement at the centre.)$
)3 on9t ma&e blac& money SI$ a s!per force: %entre tells S% , available at
http:==articles.timeso'india.indiatimes.com=-11*+*-7=india=-44-)31-1blac"*money*
money*laundering*act*hasan*ali*"han 5last accessed April 4, -176
--
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 25/34
!he response o' the @overnment to this groundbrea"ing Eudgment o' the Supreme Court as
the 'iling o' a recall petition in 2ethmalani v. *OI ; be'ore Altamas Gabir and S. S. &iEEar, 99.
It as argued by the State that the cases cited by the 9udges in the Eudgment o' -am
2ethmalani v. *nion of India , in the matter o' constitution o' the SI! ere incorrect, as these
cases did not actually constitute SI!s ultimately. !he State thus prayed that the Court modi'y
the order to remove that part o' the order that mandates the constitution o' the SI!.
!he Court hoever held that this petition as essentially a revie petition, and there'ore the
Supreme Court as precluded 'rom hearing a petition 'or modi'ication< or <recall<.
)ritiBue and )on?lusion
A very important area o' la here constitutional values 're;uently come in 'riction ith
each other is that o' Ncourt directed investigationsO. !his has pic"ed up pace in the recent
years as evidenced by the CourtOs ordering o' a C.B.I investigation 5&andigram 'iring
incident 'or instance6,appointing an S.I.! 5@uEarat 'a"e encounter case6 as ell as constituting
an SI! in the 9ethmalani #IL. 0rdering an investigation and supervising it are primarily
eecutive 'unctions and not Eudicial 'unctions, as NinvestigationO comes under N#oliceO hich
is a state subEect under Nla and orderO 52ntry -, List II6 o' the Seventh Schedule o' the Indian
Constitution. >here the court decides to direct or supervise an investigation through the
constitution o' an SI!, it ta"es up the mantle o' the eecutive, hich may prima 'acie be a
violation o' the principle o' separation o' poers). Moreover, since la and order is a state
subEect, directing and overseeing investigations comes under the legitimate, constitutional
domain o' the stateOs poers. !hus a court ordered investigation through an SI! is also in
breach o' the principle o' 'ederalism.
?oever, it is submitted that here the issue is a gross violation o' 'undamental rights, the
court must do everything it can to ensure a 'ree and 'air investigation, i' needed supervise it.
)$ <ovt str!""les with its many committees on blac& money, available at http:==.indianepress.com=nes=govt*struggles*ith*its*many*committees*on*b=+14+)=., 5last accessedApril , -176
)7 -11516SCAL273
)) -115)6 SCAL2 )41
) -am 2ethmalani v. *nion of India, -11 5$6 %9 --3 5SC6.
-3
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 26/34
!hat is precisely hat happened in State of =est )en"al v. %.P..->, here the court 'irst
held that there had been a complete abrogation o' 'undamental rights and under such
circumstances, the court thought it appropriate to order a C.B.I investigation. Citing
Minnerva Mills?, the court observed:
@$hree Articles of o!r %onstit!tion, and only three, stand between the heaven of
freedom into which $a"ore wanted his co!ntry to awa&e and the abyss of
!nrestrained power. $hey are Articles 5, 5?, 35 and B5 % has removed two sides
of that "olden trian"le which affords to the people of this co!ntry an ass!rance
that the promise held forth by the preamble will be performed by !sherin" an
e"alitarian era thro!"h the discipline of f!ndamental ri"hts, that is, witho!t
emasc!lation of the ri"hts to liberty and eC!ality which alone can help preserve
the di"nity of the individ!al.D
Articles 1$ and 14 do not con'er any 'anci'ul rights. !hey con'er rights hich are elementary
'or the proper and e''ective 'unctioning o' democracy. !hey are universally regarded by the
%niversal (eclaration o' ?uman 8ights. !he court in the past that opined that i' Articles 1$
and 14 are put out o' operation, Article 3- ill be drained o' its li'e blood. 0urs is a
controlled ConstitutionQ in that sense, Articles 1$, 14, -1 represent the 'oundational values
hich 'orm the basis o' the rule o' la, the essence o' hich is a part o' Basic Structure .
!hese are the principles o' constitutionality hich 'orm the basis o' Eudicial revie apart
'rom the rule o' la and separation o' poers1. @oing along these lines, it may be concluded
that here 'undamental rights in their essence are in'ringed to the etent that there is an
absolute abrogation o' their eistence, the court must, i' it considers necessary, order and
direct= supervise an investigation. !he poer o' Eudicial revie being an integral part o' the
basic structure o' the Constitution, no Act o' #arliament can eclude or curtail the poers o'
the Constitutional Courts ith regard to the en'orcement o' 'undamental rights-. !his
there'ore does not amount to in'ringement o' either the doctrine o' separation o' poer or the
'ederal structure.
Moreover, it is submitted that this case displays several conse;uentialist Eusti'ications
despite the above criticisms. ?assan AliOs o''ences have 'inally been investigated. In the
)+ %.P..-, AI8 -1 SC 1$)
)4 Minnerva Mills, 14+ AI8 1+4 5Supreme Court6, at T $.
Coelho, 5-6 - SCC 1.
1 %oelho, -6 - SCC 1.
- Minnerva Mills, 14+ AI8 1+4 5Supreme Court6.
-$
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 27/34
meantime, his bail application as granted by the Bombay ?C but this order as set aside by
Supreme Court in late -11.3
3 %nion o' India v. ?assan Ali Ghan, -11 5116 SCAL2 3-
-7
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 28/34
)*A+T&R ,II: T*& R &S&R,& %AN/ '( INDIA AND ANTI0M'N&- LAUND&RIN
M&ASUR&S
!he 8eserve Ban" o' India$ has introduced guidelines, ta"ing 'rom poers sourced to the
Section 37A o' the Ban"ing 8egulation Act, 14$4 and 8ule o' the #revention o' Money
Laundering 5 5Maintenance o' 8ecords o' the &ature and /alue o' !ransactions, the
#rocedure and Manner o' Maintaining and !ime 'or urnishing In'ormation and /eri'ication
and Maintenance o' 8ecords o' the Identity o' the Clients o' the Ban"ing Companies,
inancial Institutions and Intermediaries6 8ules, -7 to reduce 'inancial 'rauds and identi'ymoney*laundering transactions.7 !hese are applicable to both ban"s and &BCs under
separate noti'ications. !hese guidelines are "non as the Gno our Customer 5GC6
norms=Anti*Money Laundering 5AML6 standards=Combating o' inancing o' !errorism
5C!6 standards, here e can see that the need to Gno our Customer is derived 'rom the
aims o' combating money laundering, and 'inancing to terror organiHations. !hese standards
ere 'irst laid don in a preliminary 'orm in --, but they have been altered 're;uently
since then, and they are compiled in the 'orm o' to master circulars released every year on
9uly 1, -11, ith a sunset clause o' one year. !he most recent guidelines NGno our
CustomerO guidelines have been revisited in the contet o' the recommendations made by the
inancial Action !as" orce 5A!6 on Anti Money Laundering 5AML6 standards and on
Combating inancing o' !errorism 5C!6, as ell as the paper issued on Customer (ue
(iligence 5C((6 'or ban"s by the Basel Committee on Ban"ing Supervision.) %nder these
guidelines, a 'oreigner in India may remit %S( -7 'or his=her individual purposes.
$ ?ereina'ter, the 8BI<.
7 or a detailed guide on the GC procedures, re'er to
http:==rbidocs.rbi.org.in=rdocs=noti'ication=#(s=-C3)11.pd' .
) Ibid.
AEay Sha, Eval!atin" India6s Money a!nderin" e"islations, available at http:==.anti*moneylaundering.org=asiapaci'ic=India.asp 5last accessed April +, -176
-)
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 29/34
!hese guidelines essentially re;uire ban"s to lay don their on speci'ic sets o' policies and
standards in compliance ith a 'airly comprehensive list o' incorporations to be made. !hey
prescribe also circumstances hich ould lead to the general levels o' diligence re;uired
being enhanced or reduced, based on circumstances present.
Ban"s are re;uired to 'ollo GC policies incorporating 'our maEor elements+:4
5a6 Customer Acceptance #olicyQ
%nder this head, it is re;uired that no account be opened anonymous or in a 'ictitious name,
parameters o' ris" perception be ell*de'ined, circumstances o' agency be clear and ris"
pro'ile creation be done amongst other re;uirements.
5b6 Customer Identi'ication #roceduresQ
!he policy approved by the Board o' the ban" must be such that it should clearly spell out the
Customer Identi'ication #rocedure to be carried out at di''erent stages, and here there is
suspicion o' money laundering or terrorist 'inancing, a 'ull*scale due diligence must be
carried out. urther, periodic updation o' databases must be done.
5c6 Monitoring o' !ransactionsQ
Ban"s are re;uired to consistently revie the transactions being underta"en in order to
establish reasonable patterns, and hence to be able to notice aberrant interactions. urther,
updating o' ris" categoriHation must be done in time periods not eceeding ) months.
5d6 8is" Management
%nder this, ban"s must create ade;uate internal supervisory and auditing processes to deal
ith the need to cover proper management oversight, systems and controls, segregation o'
+ Master %irc!lar Fnow 1o!r %!stomer F1%/ norms G Anti#Money a!nderin" AM/
standardsG%ombatin" of (inancin" of $errorism %($/GObli"ation of ban&s !nder PMA,
3443, available at http:==rbidocs.rbi.org.in=rdocs=noti'ication=#(s=-C3)11.pd' 5last
accessed April ), -176
4 Supra &. -.
-
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 30/34
duties, training and other related matters by eplicitly allocating responsibility ithin the
ban" 'or ensuring that the ban"Os policies and procedures are implemented e''ectively.
!he 8BI has been stringently en'orcing both the GC guidelines and the AML guidelines,
and 'ined several co*operative ban"s 'or violating these guidelines.+
In addition to this, they have also come up ith a circular under the #MLA to regulate the
activities o' &BCs, Miscellaneous &on*Ban"ing Companies 5M&BCs6 and 8esiduary &on*
Ban"ing Companies 58&BCs6 in connection ith money laundering.+1 !hese mandate
"eeping records transactions eceeding a certain value, as ell as reporting all suspicious
transactions to the inancial Intelligence %nit in India. Suspicious activities include inter alia
transactions that do not ma"e economic sense, activities not consistent ith the customerOs business and provisions o' insu''icient or irregular in'ormation. ?oever, these have been
criticiHed in many instances as not being su''iciently 'riendly to those ho live in the
unorganiHed sectorQ to combat this, in March this year, the 8BI released a noti'ication
relaing their norms ith respect to veri'ication processes 'or lo*income persons. &o, in
case a person ho intends to "eep not more than 8s. 7, in his account, and not more than
8s. 1 la"h in all accounts combined, ishes to open an account, he may be veri'ied by the
process o' being introduced by some other person ho has been 'ully veri'ied through GC
procedures.+-
!he principles 'olloed by the 8BI also include the re;uirement to Gno our
2mployee<.+3 or instance, an employee ho leads a lavish li'estyle that cannot be supported
by his payscale may re;uire etra vigilance 'rom the employer.
+ -)I penalises M+S) for violatin" anti#money la!nderin" r!les, 22 &2>S, available at
http:==Heenes.india.com=business='inance=rbi*penalises*mnsbl*'or*violating*anti*money*
laundering*rules3137+.html 5last accessed April , -176
+1 Master %irc!lar, F1% <!idelines, Anti Money a!nderin" Standards, PMA, 3443 # Obli"ations of +)(%s
available at http:==.rbi.org.in=scripts=BS/ieMasCirculardetails.aspid)77 5last accessed April 7,-176
+- F1% norms to "et friendlier for +)(%s, I&A&CIAL 2R#82SS, available athttp:==.'inancialepress.com=nes="yc*norms*to*get*'riendlier*'or*nb'cs=1$7)43= 5last accessed April +,-176
+3 Ibid.
-+
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 31/34
-4
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 32/34
)*A+T&R ,III: )'N)LUSI'N
>hile it is clear that money laundering has been a maEor issue both nationally and
internationally, the success o' money laundering measures globally seems to have been rather
high P perhaps indicative o' the priority hich this proEect has been given. !he national
scenario ?oever, larger ;uestions have been as"ed recently P that o' hether 'ocusing on
money laundering as an end in itsel' is su''icient, and hether it is per'orming its tas" o'
coming close to ending terrorist 'unding or any other aims it is suspected to be channelled
into.+$ !he problem is eacerbated by the di''iculty o' ade;uately assessing the incidence o'
money laundering P by its nature, since it eists outside the boundaries o' the la, any
assessment is necessarily vague. &eer modalities o' laundering money are being uncovered
every day, and the innovativeness o' the schemes only is enhanced.
It is suggested that the maEor problem in catching money laundering today is a 'ailure o'
intelligence and coordination P un'ortunately, these are also to o' the most comple areas
'or improvement to be made, overlapping as they do ith civil liberties. In this, a balance
needs to be struc" P alays "eeping in mind the end purpose, and the 'reedoms guaranteed in
our constitutional scheme.
+$ 2ric @ouvin, )rin"in" o!t the )i" <!ns: $he *SA Patriot Act, Money a!nderin", and
the =ar on $errorism, available at papers.ssrn.com=sol3=papers.c'mabstractid1)+)+-,
5last accessed Apr. +, -176.
3
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 33/34
%I%LI'RA+*-
Boo"s re'erred
(0%@ ?0#!0&, M0&2 LA%&(28I&@: A C0&CIS2 @%I(2 08 ALL B%SI&2SS2S.
@L0BAL I&A&CIAL C8IM2: !28808ISM , M0&2 LA%&(28I&@ A&( 0S?082
C2&!82S, 5(onato Masciandaro ed. -$6.
#eter 8euter and 2din M. !ruman, C?ASI&@ (I8! M0&2: !?2 I@?! A@AI&S!
M0&2 LA%&(28I&@, 3 5Institute o' Macro*2conomics6.
Articles re'erred
(eboshree BannerEee, Prevention of Money a!nderin" Act: %ritical Analysis.
2ric @ouvin, )rin"in" o!t the )i" <!ns: $he *SA Patriot Act, Money a!nderin",
and the =ar on $errorism.
Indira Carr and Miriam @oldby, $he *+ Anti#%orr!ption %onvention and Money
a!nderin".
9ohn . >ilson, Hawala and Other Informal Payments Sytems: An Economic
Perspective.
G.#. Grishnan, e"al -e"ime for AM Anti Money a!nderin"/ in India.
G.#.Grishnan, India on the (A$( hi"h table.
Gishori 9 %deshi, Implementation of )asel II# an Indian Perspective.
Mar" #ieth, $he Prevention of Money a!nderin": A %omparative Analysis, ) 2ur. 9.
Crime Crim. L. D Crim. 9ust. 174 5144+6.
#eter 9. Juir", Money a!nderin": M!ddyin" the Macro#economy
/iEay Gumar Singh, %ontrollin" Money a!nderin" in India#Problems and
Perspectives
atish adav, Madh! Foda and associates la!ndered sta""erin" -s B;B crore.
AEay Sha, Eval!atin" India6s Money a!nderin" e"islations
Meghna Bhas"ar, )enami $ransactions Prohibition / )ill, 3455
/. Gumarasamy, )!t $hat6s +ot Mine7
SanEeev Sirohi, )enami $ransactions Prohibition )ill 3455 A %ritical Analysis
/i"ash adav, PMA 3443: -e#en"ineered
-
7/18/2019 89012509 Money Laundering Final (1)
http://slidepdf.com/reader/full/89012509-money-laundering-final-1 34/34
/ishas Gumar, S%, %)I co!rt reserve P% fate for (eb order
Miscellaneous Sources
%ore Principles of Effective )an&in" S!pervision, 0ctober 1444, 8eserve Ban" o'India.
*+O% on money#la!nderin" and co!nterin" the financin" of terrorism.