Prevention of Money Laundering: formula sheet

Key formulas

Section 3 offence (elements)

Offence = attempt / knowing assistance / knowing party / actual involvement + process or activity connected with proceeds of crime

The mental element is 'knowingly' for assisting and being a party. Attempt and actual involvement are also covered.

Six listed activities

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

Any one is enough, in any manner whatsoever (Explanation (i)).

Continuing activity

Offence continues till the person directly or indirectly enjoys the proceeds by concealment, possession, acquisition, use, projecting or claiming

Explanation (ii) to Section 3.

Punishment (Section 4)

Rigorous imprisonment 3 to 7 years + fine; up to 10 years if proceeds relate to an offence under paragraph 2 of Part A of the Schedule

The minimum is three years. The fine has no stated upper limit in the text.

Stages of laundering

Placement → Layering → Integration

A conceptual model, not a statutory test.

Burden of proof (Section 24)

Person charged under Section 3: Authority or Court shall presume proceeds are involved in money-laundering unless the contrary is proved. Any other person: may presume

Applies in proceedings relating to proceeds of crime.

Trial (Section 44)

Special Court tries the offence on a complaint by an authorised authority

Its jurisdiction does not depend on orders passed in the scheduled offence, and trying both is not a joint trial.

General punishment under Section 4

Rigorous imprisonment: minimum 3 years, maximum 7 years + fine

Applies to every person who commits the offence of money-laundering, unless the proviso applies.

Proviso to Section 4

Proceeds relate to offence under paragraph 2 of Part A of the Schedule: maximum 7 years becomes 10 years

Minimum stays three years. Fine is still payable.

Fine under Section 4

Fine: no maximum stated in the section

The ₹5 lakh cap was omitted w.e.f. 15-2-2013.

Section 3 versus Section 4

Section 3 = offence (definition); Section 4 = punishment

Section 4 applies only to a person who has committed the offence as defined in Section 3.

Authority to attach (s.5(1))

Director or officer not below Deputy Director authorised by the Director

Reasons for belief must be recorded in writing, on the basis of material in his possession.

Two grounds for provisional attachment

(a) person in possession of proceeds of crime AND (b) likely to be concealed, transferred or dealt with so as to frustrate confiscation proceedings

Both conditions must be met.

Period of provisional attachment

Not exceeding 180 days from the date of the order

Days when the High Court stays the proceedings are excluded, and a further period up to 30 days from the vacation of the stay is counted.

Forwarding to Adjudicating Authority (s.5(2))

Immediately after attachment, in a sealed envelope, with the material

Done by the Director or officer not below Deputy Director.

Complaint after attachment (s.5(5))

Within 30 days of attachment, file a complaint stating facts before the Adjudicating Authority

Different from the 180-day life of the order.

When attachment ceases (s.5(3))

On expiry of the period in s.5(1) or on the date of an order under s.8(3), whichever is earlier

Attachment does not outlast the earlier of the two events.

Immovable property enjoyment (s.5(4))

Person interested may continue to enjoy attached immovable property

Person interested includes all persons claiming or entitled to claim any interest.

Retention after seizure or freezing (s.17(4))

Apply to Adjudicating Authority within 30 days of seizure or freezing

Seeks retention of seized record or property, or continuation of the freezing order.

Verification of identity

Section 11A(1): Aadhaar authentication (banking company) OR Aadhaar offline verification OR passport OR other notified officially valid document

Applies to clients and beneficial owners. Other entities may do Aadhaar authentication only if notified by the Central Government.

Voluntary choice and no denial

Section 11A(3): use of identification modes is voluntary; no service denied for lack of Aadhaar

Under section 11A(2), if Aadhaar authentication is used, the other modes must also be offered.

No storage rule

Section 11A(4): do not store core biometric information or Aadhaar number

Applies when authentication or offline verification is used.

Transaction records

Section 12(1)(a) and 12(3): keep records to reconstruct individual transactions for five years from the date of transaction

Includes transactions covered by the reporting duty.

Identity records

Section 12(1)(e) and 12(4): keep identity documents, account files and business correspondence for five years after the relationship ends or the account is closed, whichever is later

The clock starts at the end of the relationship, not at account opening.

Furnishing information

Section 12(1)(b): furnish to the Director, within the prescribed time, information on prescribed transactions, whether attempted or executed

Nature, value and time are set by rules (section 73(2)(i)).

Confidentiality

Section 12(2): information maintained, furnished or verified is confidential, save as otherwise provided by law

Do not state it as absolute.

Enhanced due diligence

Section 12AA(1): before each specified transaction - (a) Aadhaar authentication, (b) examine ownership and financial position including source of funds, (c) record purpose and intended nature of relationship

If the client fails, the transaction must not be allowed (section 12AA(2)). Records are kept for five years from the date of transaction (section 12AA(4)).

Specified transaction

Cash withdrawal or deposit above a prescribed amount; foreign exchange transaction above a prescribed amount; high value imports or remittances; other prescribed transactions

Amounts are prescribed by rules, so do not quote figures unless the question gives them.

Appointment of authorities

Section 49: Central Government appoints authorities; may authorise Director/Addl./Joint/Deputy/Assistant Director to appoint authorities below the rank of Assistant Director

Powers are exercised subject to conditions and limitations imposed by the Central Government.

Who may appeal (section 26)

Director or any person aggrieved by an Adjudicating Authority order → Appellate Tribunal; reporting entity aggrieved by Director's order under section 13(2) → Appellate Tribunal

Two routes: section 26(1) and section 26(2).

Time limit for appeal

45 days from the date a copy of the order is received

The Tribunal may allow a late appeal after hearing the appellant, if there was sufficient cause.

Disposal target

Endeavour to dispose of the appeal within 6 months from the date of filing

Section 26(6). It is an endeavour, not a rigid bar.

Tribunal's orders on appeal

Confirm, modify or set aside the order appealed against

Only after giving the parties an opportunity of being heard (section 26(4)).

Tribunal's procedure (section 35)

Not bound by CPC, 1908; guided by natural justice; regulates its own procedure

Has civil court powers such as summoning witnesses, discovery, affidavits, review and ex parte decisions.

Special Court trial (section 44)

Offence under section 4 + connected scheduled offence → Special Court of the area; trial as in a Court of Session

Cognizance on complaint by an authorised authority, without committal.

Death or insolvency (section 72)

Legal representatives or official assignee/receiver may file or continue the appeal

Applies to Tribunal appeals and High Court appeals under section 42.

Section 24(a) – charged person

Person charged under s.3 → Authority/Court SHALL presume proceeds are involved in money-laundering, unless contrary is proved

Mandatory but rebuttable. The accused must prove the contrary.

Section 24(b) – any other person

Any other person → Authority/Court MAY presume

Discretionary. 'Shall' versus 'may' is the examinable point.

Section 56 – agreements

Central Government may agree with a foreign Government to (a) enforce the Act, (b) exchange information for prevention and investigation

Implemented by notification in the Official Gazette.

Section 57 – outward letter of request for evidence

Application by Investigating Officer or superior officer → Special Court satisfied → letter of request to court or authority in contracting State

Evidence received is deemed collected during investigation (s.57(3)).

Section 58 – inward letter of request

Request from contracting State → Central Government may forward to Special Court or any authority under the Act

Executed under this Act or any other law in force.

Section 60 – property

Outward: Special Court on application by Director or Administrator. Inward: Central Government forwards to Director

Chapter III (attachment, adjudication, confiscation) and Chapter V (survey, search, seizure) apply to the property: s.60(6).

Section 59 – summons, warrants and conditions for transferred prisoners

Special Court (offence under s.4) sends summons/warrant in duplicate to foreign court; foreign ones are executed in India as if from an Indian court. Where a person transferred to a contracting State under s.59(2) is a prisoner in India (s.59(3)): Special Court or Central Government may impose conditions. Where a person transferred to India under s.59(1) is a prisoner in a contracting State (s.59(4)): Special Court ensures the conditions of transfer are complied with; custody as the Central Government directs in writing

Arrest on a foreign warrant is dealt with under section 19. Section 59(3) and (4) only deal with conditions that apply to prisoners who are transferred. They do not lay down a procedure for transfer.

Section 60(7) – confiscated property

Central Government may return the property to the requesting State or compensate it by disposal on agreed terms

Reasonable expenses of investigation, prosecution or proceedings are deducted.

Section 61 – form and manner

Every letter of request, summons or warrant sent to or received from a contracting State → in the form and manner the Central Government notifies

Applies in both directions. Section 57(2) separately lets the Central Government specify how a letter of request for evidence is transmitted.

Quick revision

• Section 4: rigorous imprisonment of at least three years, up to seven years, plus liability to fine.
• Proviso to section 4: for proceeds of crime relating to an offence in paragraph 2 of Part A of the Schedule, the maximum becomes ten years.
• Section 8(1): the Adjudicating Authority may serve a notice of not less than thirty days asking the person to show the sources of income and why the property should not be confiscated.
• Section 8(2): the Adjudicating Authority considers the reply, hears the aggrieved person and the Director, and records a finding whether the property is involved in money-laundering.
• Section 8(3): confirmed attachment continues during investigation for up to 365 days, or during court proceedings, and becomes final after a confiscation order.
• The 365-day period excludes any time when a court has stayed the investigation.
• Section 8(5): on conclusion of trial, if the Special Court finds money-laundering, the property stands confiscated to the Central Government.
• Section 8(6): if the Special Court finds no money-laundering or no involvement of the property, it orders release to the person entitled.
• Section 8(7): if the trial cannot be held or concluded (for example, death or proclaimed offender), the Special Court decides confiscation or release on the Director's or a claimant's application.
• Section 8(8): the Special Court may direct restoration to a claimant with a legitimate interest who suffered quantifiable loss, if acting in good faith.
• Section 23: if some inter-connected transactions are proved to be involved in money-laundering, the rest are presumed to be part of them unless proved otherwise.
• Section 56: the Central Government may enter into agreements with other countries; section 60: Special Court may issue a letter of request to a court in a contracting State.

Common mistakes

• Saying the three stages must all be proved for the offence. Fix: Write that the stages are a concept. The legal test is in Section 3: involvement in a listed activity connected with proceeds of crime.
• Treating the scheduled offence and money-laundering as the same offence. Fix: State that money-laundering is a separate offence. It concerns dealing with the proceeds of the scheduled offence.
• Writing that the fine may extend to ₹5 lakh. Fix: Say the fine is payable and note that the ₹5 lakh limit was omitted w.e.f. 15 February 2013.
• Saying the minimum jail term is seven years or ten years. Fix: The minimum is always three years. Seven and ten are the maximums.
• Mixing up the 180-day and 30-day periods in section 5. Fix: Remember: 180 days is how long the order lasts. 30 days is the deadline to file the complaint before the Adjudicating Authority.
• Saying any officer can attach property. Fix: Write: Director or an officer not below the rank of Deputy Director authorised by the Director.
• Saying every reporting entity can use Aadhaar authentication. Fix: Only a banking company can under section 11A(1)(a). Others may do so only if the Central Government permits by notification. All can use offline verification.
• Treating the five-year period as the same for every record. Fix: Transaction records run five years from the date of transaction. Identity records run five years after the relationship ends or the account closes, whichever is later.
• Counting the 45 days from the date of the order. Fix: Section 26(3) runs from the date a copy of the order is received. Quote those words.
• Saying the Appellate Tribunal can never admit a late appeal. Fix: Add that the Tribunal may entertain a late appeal after hearing the appellant if there was sufficient cause.

Exam tips

• Start every answer with Section 3 and its listed activities. Examiners expect the provision first.
• Always name the scheduled offence and proceeds of crime in case-based answers. They are the base of the offence.
• Learn the six activities and the continuing-activity Explanation as a fixed list.
• Write the punishment accurately: three to seven years, and up to ten years in the paragraph 2 of Part A case, with fine.
• End with a one-line conclusion that says whether Section 3 is attracted.
• Learn the numbers as a set: 3 minimum, 7 maximum, 10 under the proviso.
• Always write "rigorous imprisonment" and "and also fine". Examiners look for both.
• In case-study questions, first prove the Section 3 activity from the facts, then apply Section 4.