Anti-Money Laundering: formula sheet

Key formulas

Three stages of laundering

Placement → Layering → Integration

Placement puts cash into the system; layering hides the trail; integration returns it as apparently clean money. Real cases may overlap or skip stages.

Offence of money-laundering (Section 3, PMLA)

Directly or indirectly attempts / knowingly assists / knowingly is a party / is actually involved in any process or activity connected with proceeds of crime (concealment, possession, acquisition, use, projecting or claiming as untainted property)

The Explanation says the activity is continuing, until the person enjoys the proceeds in any of these ways.

Punishment (Section 4, PMLA)

Rigorous imprisonment of 3 to 7 years, and liable to fine

Where the proceeds relate to an offence under paragraph 2 of Part A of the Schedule, the upper limit is 10 years. The fine has no stated upper limit in the text.

Offence under Section 3

Offence = (attempt to indulge OR knowingly assists OR knowingly a party OR actually involved) + process or activity connected with proceeds of crime

Direct or indirect involvement is covered. Knowledge is required for assisting and for being a party.

Six listed activities

Concealment | Possession | Acquisition | Use | Projecting as untainted | Claiming as untainted

Involvement in one or more of these is enough. The Explanation says 'in any manner whatsoever'.

Continuing activity

Offence continues until the person ceases to enjoy the proceeds by concealment, possession, acquisition, use, projecting or claiming it as untainted

Added by the 2019 amendment as an Explanation clarifying the law.

Punishment (Section 4)

Rigorous imprisonment: minimum 3 years, up to 7 years, plus fine

Up to 10 years where the proceeds relate to an offence under paragraph 2 of Part A of the Schedule.

Trial (Section 44)

Offence under Section 4 and connected scheduled offence: triable by the Special Court for the area where the offence was committed

Special Court takes cognizance of the Section 3 offence on a complaint by an authorised authority, without committal.

Basic punishment

Rigorous imprisonment: minimum 3 years, maximum 7 years, plus liability to fine

Fine has no statutory upper limit after the 2013 omission of the five lakh cap.

Proviso (Schedule Part A, paragraph 2)

Rigorous imprisonment: minimum 3 years, maximum 10 years, plus liability to fine

Only the maximum rises. The minimum remains three years.

Section 3 versus Section 4

Section 3 = offence (what is done); Section 4 = punishment (what follows)

Section 3 covers concealment, possession, acquisition, use, projecting or claiming as untainted property.

Trial and cognizance

Section 44: Special Court tries; Section 45 second proviso: written complaint by Director or authorised officer

Applies to offences punishable under Section 4.

Enabling power

Central Government + notification → Inter-ministerial Co-ordination Committee

The Act says "may". Constitution is by notification, not by the section text itself.

Purposes under Section 72A

(a) operational co-operation; (b) policy co-operation and co-ordination; (c) consultation with authorities, financial sector and other sectors; (d) developing and implementing AML/CFT policies; (e) any other matter notified

Five purposes. Memory aid: Operational, Policy, Consultation, Development, Other.

Parties in purpose (a)

Government, law enforcement agencies, FIU-IND, regulators or supervisors

These are the bodies whose operational co-operation the committee promotes.

Insertion

Inserted by Act 23 of 2019, w.e.f. 1-8-2019

Useful as a one-line fact. Do not confuse it with the 2013 amendments.

Transaction records: retention

Retain for 5 years from the date of transaction between client and reporting entity

Section 12(3). Records must let the entity reconstruct individual transactions.

Client identity records: retention

Retain for 5 years after the business relationship ended or the account closed, whichever is later

Section 12(4). Covers identity documents, beneficial owners, account files and business correspondence.

Reporting to the Director

Furnish information on attempted or executed transactions within the prescribed time

Section 12(1)(b). The nature, value and time limit come from the rules.

Enhanced due diligence information: retention

Retain for 5 years from the date of transaction

Section 12AA(4). Note the start point differs from client identity records.

Enhanced due diligence steps

Verify identity (Aadhaar authentication) + examine ownership, financial position and source of funds + record purpose and intended nature of relationship

Section 12AA(1), before each specified transaction. If the client fails, do not allow the transaction (Section 12AA(2)).

Director's penalty

₹10,000 ≤ penalty ≤ ₹1,00,000 for each failure

Section 13(2)(d). Other options: written warning, specific directions, periodic reports.

Confidentiality

Information maintained, furnished or verified is kept confidential unless another law provides otherwise

Section 12(2).

Notice under section 8(1)

Notice period ≥ 30 days

Served on the person; copy to the beneficial holder if property is held on behalf of another; served on all joint holders.

Adjudication finding, section 8(2)

Reply + hearing (aggrieved person and Director) + all material on record → finding

A third-party claimant must also be given a hearing.

Duration of confirmed attachment, section 8(3)

Investigation: ≤ 365 days, or until proceedings before a court end; final after Special Court confiscation order

Period during which a court stays the investigation is excluded in computing 365 days.

Confiscation after trial, section 8(5) and (6)

Offence found → confiscation to Central Government; no offence or property not involved → release to person entitled

Both orders are passed by the Special Court.

No trial possible, section 8(7)

Death, proclaimed offender or other reason → Special Court passes orders on Director's or claimant's application

Orders on confiscation or release are made having regard to the material before it.

Restoration, section 8(8)

Legitimate interest + quantifiable loss + good faith + reasonable precautions + not involved → restoration

The Special Court may direct the Central Government to restore the property, or part of it.

Appellate Tribunal powers, section 35

Not bound by CPC; guided by natural justice; civil court powers for listed matters

Powers include summoning, discovery, affidavits and reviewing its decisions. Its orders are executable as a civil court decree.

Foreign requests, sections 58B and 60

Letter of request → Central Government → Director → Special Court

Covers property in India linked to a contracting State, and Indian orders executed abroad.

Quick revision

• Section 3: whoever directly or indirectly attempts, knowingly assists, knowingly is a party, or is actually involved in a process connected with proceeds of crime is guilty.
• Six activities: concealment, possession, acquisition, use, projecting as untainted, claiming as untainted.
• Money-laundering is a continuing activity until the person stops enjoying the proceeds in any such way.
• Section 4: rigorous imprisonment of at least 3 years, up to 7 years, and liability to fine.
• Proviso to section 4: up to 10 years where the proceeds relate to an offence under paragraph 2 of Part A of the Schedule.
• Section 5: attachment by the Director or an officer not below Deputy Director, with reasons recorded in writing.
• Provisional attachment lasts for a period not exceeding 180 days from the date of the order.
• After attachment, a copy of the order goes to the Adjudicating Authority in a sealed envelope, and a complaint is filed within 30 days.
• The person interested in an attached immovable property can continue to enjoy it.
• Section 23: if one of two or more inter-connected transactions is proved to be laundering, the rest are presumed to be part of it unless proved otherwise.
• Section 60: the Special Court may issue a letter of request to a court or authority in a contracting State to execute attachment or confiscation orders.
• Section 72A: the Central Government may constitute an Inter-ministerial Co-ordination Committee by notification, for coordination on anti money-laundering and countering the financing of terrorism.

Common mistakes

• Saying money laundering is only about cash from drug trade. Fix: Say it covers proceeds of any crime that is relevant under the Act, including fraud and corruption.
• Mixing up layering and integration. Fix: Layering hides the trail. Integration is when the money finally comes back to the launderer as clean-looking wealth.
• Thinking only the person who committed the original crime can be guilty. Fix: Section 3 covers anyone who assists, is a party to, or is involved in activity connected with the proceeds, directly or indirectly.
• Treating only concealment as laundering. Fix: Remember all six: concealment, possession, acquisition, use, projecting and claiming as untainted.
• Saying the maximum is ten years in every case. Fix: Ten years applies only under the proviso. The normal maximum is seven years.
• Saying the minimum becomes five years or seven years under the proviso. Fix: The proviso replaces only the words "which may extend to seven years". The minimum stays at three years.
• Saying the Act fixes the list of members of the committee. Fix: Remember that Section 72A only empowers the Central Government to constitute the committee by notification. Do not name members unless the question supplies them.
• Writing that the Government "shall" constitute the committee. Fix: The section says "may". It is an enabling provision.
• Applying one retention period start date to all records. Fix: Transaction records run from the transaction date. Client identity records run from the end of the relationship or account closure, whichever is later.
• Saying the penalty is a flat ₹1,00,000. Fix: Write it as not less than ₹10,000 and up to ₹1,00,000 for each failure.

Exam tips

• In case scenarios, label each transaction with its stage first, then pick the answer.
• When a question mentions 'knowingly', link it to the knowledge requirement in Section 3.
• For descriptive answers, use the three stages as headings and give one method under each. This is easy to mark.
• Learn the Section 4 punishment exactly: 3 to 7 years, and 10 years for the paragraph 2, Part A offences.
• Include one line on economic impact when the question says 'discuss' or 'explain'.
• Quote the six activities in the exact list. Examiners look for all six.
• In case scenarios, label each fact against an activity such as possession or use.
• Mention the continuing-activity Explanation when the facts show an old crime and ongoing enjoyment.