Journal of Money Laundering Control Vol. 7 No.

The Prevention of Money Laundering in India

B. V. Kumar
India was probably one of the rst countries to introduce anti-money laundering legislation, as a wartime and post-wartime measure, to conserve scarce foreign exchange resources and prevent capital ight, triggered either due to anticipated political, economic and cultural uncertainties or due to major historical and political upheavals.1 A system of exchange control was set on the outbreak of war in September 1939 for the purpose of conserving and directing to the best use the limited supplies of foreign exchange available. The control was made eective through a series of rules under the Defence of India Act 1939. These rules expired on the 30th September, 1946, but have been retained in force for another six months under the Emergency Provisions (Continuance) Ordinance 1946. The shortage of foreign exchange was expected to continue in view of the disruption of the internal economy of so many nations, and the interruption of established channels of trade. It was therefore felt necessary that the system of exchange control should be continued in the general interests of the country. The adherence of India to the International Monetary Fund required her to take certain measures to regulate transactions in foreign exchange in order to full the obligations of membership. Legislation was, therefore, necessary to give the central government powers to continue to control transactions in foreign exchange, securities and gold. The Foreign Exchange Regulation Act 1947, embodies the nancial provisions of the Defence of India Rules relating to exchange controls with certain modications and amendments which experience has shown to be desirable in the interest of clarity and eectiveness, and also certain additions such as the section relating to the import of currency and gold and the control over the proceeds of exports, which are essentially exchange, control matters,2 although administered by the Commissioners of Customs for practical convenience. The provisions of the Act have been drafted in such a manner that the degree of restriction on foreign exchange transactions can be relaxed or increased by executive orders, either generally or for particular foreign currencies, in accordance with needs of trade and nance or international agreements thus ensuring that ights of capital or wild speculation, which proves so injurious to foreign trade in the period between the two wars, can be immediately controlled.3 Under the relevant provisions continued by the Emergency Provisions (Continuance) Ordinance 1946, exemptions in respect of transactions within the so-called Sterling Area have been given by means of a denition of that expression. A similar method has been adopted in the Exchange Control Act 1946, enacted by British Parliament in which a Schedule of `Scheduled Territories' has been included. The 1947 Act contains no such schedule but has provision for the making of necessary exemptions by executive orders.4 The Act was originally a temporary measure, which was to expire on 30th September, 1946. However, the Act was amended in the light of the experience gained and for removing certain diculties which were experienced in the working of the Act, and it was placed permanently on the Statute Book, by Act 39 of 1957. The law was subsequently revised, amended and consolidated to regulate certain payments and dealings in foreign exchange in 1973. The 1947 Act was repealed and the Foreign Exchange Regulation Act 1973, was enacted. When India was partitioned millions of people were displaced and most of them had to leave their assets behind. However, a few of them were wise enough to utilise the underground banking systems, which were in their formative stage. People who sold their properties in Pakistan received compensatory payments in India and, vice-versa, people who sold their properties in India received compensatory payments in Pakistan. Later when a number of persons of Indian origin had to leave Burma, Malaysia, Sri Lanka, Uganda and other East African countries for political reasons, they utilised the underground banking systems to salvage their assets. With the expertise thus acquired for a necessity, certain ethnic groups perfected the system and realised the immense potential and possibilities of using this `vehicle' for organising ight capital operations. Over the years the following modus operandi is being followed for laundering and transnational transfer of funds involved in crime:

Journal of Money Laundering Control Vol. 7, No. 2, 2003, pp. 158169 # Henry Stewart Publications ISSN 1368-5201

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(a) Transfers through the hawala system; (b) Under-invoicing of exports and over-invoicing of imports; (c) Non-repatriation of export proceeds a method usually used for ight capital operations; (d) Smuggling of currency Indian and foreign. Indian currency notes of high denominations, particularly currency notes of Rs 500 denomination are smuggled through couriers to countries like Dubai, Singapore and Hong Kong where they are converted into convertible foreign exchange at a discount. Similarly, foreign exchange acquired locally from unauthorised sources is smuggled out of the country through couriers; (e) Import of worthless goods; (f ) Export of paintings, antiquities and artefacts; (g) Funds transferred out of India by adopting one of the above methods are deposited initially in tax havens with the help of nancial and tax consultants. Such funds are subsequently transferred to shell corporations. From these shell corporations, funds are reinvested in India through Overseas Corporate Bodies (OCBs) set up for the purpose, in places like Mauritius, Singapore, Hong Kong etc.5 The Foreign Exchange Regulation Act 1973, extends to the whole of India and it also applies to all citizens outside India of Companies or bodies corporate, registered or incorporated in India. The principal transactions regulated by the Act are as follows: (i) (ii) (iii) (iv) (v) (vi) Purchasing, borrowing or otherwise acquiring foreign exchange (s. 8(1)) Sale, transfer, exchange or lending of foreign exchange (s. 8(1)) Maintenance of foreign currency accounts (s. 8(1)) Utilisation of foreign exchange acquired with Reserve Bank's permission (s. 8(3) and (4)) Making direct or indirect payments to nonresidents (s. 9(1)(a)) Acknowledging a debt or doing other thing so that a right to receive a payment is created or transferred in favour of a non-resident person (ss. 9(1)(c) and 73(1)(e)). Making payments in India by order or on behalf of non-residents (s. 9(1)(d)). Receiving payments from outside India

(ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) (xviii) (xvix) (xx)

(xxi) (xxii)

(xxiii) (xxiv)

otherwise through authorised dealers (s. 9(1)(b)). Making remittance by Indian citizens abroad otherwise than through normal banking channels (s. 9(3)). Owning and holding of foreign exchange (s. 14). Right to receive foreign exchange or payment from any person resident outside India (s. 16). Procedure for export declaration and realisation of proceeds of exports (s. 18). Acquiring, holding or transferring foreign securities (s. 19 (1)(b), (c) and (e)). Issuing or transferring any Indian security to non-residents (ss. 19(1)(b), (c) and (d)). Restriction on settlement or gift in favour of non-residents (s. 24). Acquiring, holding and transferring any immovable property outside India (s. 25). Doing any act so that controlling interest in respect of any business outside India is transferred to non-residents (s. 26(3)) Transferring or creating any interest in any business in India in favour of non-residents (s. 26(4) and (5)). Giving a guarantee in respect of debt of a nonresident to other non-resident (s. 26(6)). Acting or accepting appointment, as agents in India or as technical or management advisers in India, by non-residents and foreign nationals (s. 28). Use of trademarks of foreign companies in India (s. 28(1)(c)). Establishing, acquiring or carrying of business in India or purchasing shares in India by non-residents, foreign nationals and foreign companies (s. 29). Taking up employment or practising any profession in India by foreign nationals (s. 30). Acquiring, holding and transferring immovable properties in India by foreign nationals and foreign concerns (s. 31).

(vii) (viii)

THE FOREIGN EXCHANGE MANAGEMENT ACT 1999

As a prelude to liberalisation in trade/industrial policies and for creating a more conducive climate for attracting foreign direct investment, the law was

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amended through an ordinance on 8th January, 1993. The ordinance was replaced by the Foreign Exchange Regulations (Amendment) Act 1993. The Foreign Exchange Regulation Act (FERA) 1973 was rescinded and in its place two Bills were introduced in the Parliament, viz. the Foreign Exchange Management Bill 1998 and the Prevention of Money Laundering Bill 1998. The Foreign Exchange Management Bill 1998 was introduced in Parliament on 4th August, 1998 to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of the foreign exchange market in India. According to the Statement of Objects and Reasons, this law is being enacted as part of the ongoing process of economic liberalisation relating to foreign investments and foreign trade for closer interaction with the world economy. For this purpose a further review of the Foreign Exchange Regulation Act 1973, was undertaken in the light of subsequent developments and experience in relation to foreign trade and investment. It was subsequently felt that a better course would be to repeal the existing FERA 1973 and enact new legislation. Keeping in view the changed environment, the government of India decided to repeal the existing law and introduce a very liberalised version of the earlier enactment. Most of the draconian clauses were replaced/repealed. Further, the law would be administered only by the Reserve Bank of India and not the Foreign Exchange Enforcement Directorate. Simultaneously, another Bill was introduced in Parliament: The Prevention of Money Laundering Bill 1998. The Foreign Exchange Management Act 1999 (FEMA) was passed by Parliament and received the assent of the President of India on 29th December, 1999 and it came into eect on 1st January, 2000. With the introduction of the FEMA, the 1973 Act was repealed under s. 49. Further, s. 49 of the FEMA provides that notwithstanding anything contained in any other law for the time being in force, no court will take cognisance of an oence under the repealed Act and no adjudicating ocer will take notice of any contravention under s. 51 of the repealed Act after the expiry of two years (ie 1st January, 2002) from the date of commencement of this Act.

The object of introducing the FEM Act 1999 can be briey stated as follows:    Consolidation and amendment of the law relating to the foreign exchange. Facilitating external trade and payment. Orderly development and maintenance of foreign exchange market in India.

Earlier under the FERA 1973 the Enforcement Directorate was vested with unbridled powers to arrest any person, search any premises, seize documents, initiate proceedings against any person for contravention of FERA or even for making preparations for committing the contravention of FERA. The contravention of FERA was a criminal oence and the proceedings were governed by the Code of Criminal Procedure. The remarkable feature of FEMA is that contravention of FEMA is no longer a criminal oence and only civil proceedings can be initiated. Civil imprisonment is only provided as the last resort when the recovery of nes has failed. This makes the legislation more humane and rational when compared to the earlier draconian statute. FEMA represent a paradigm shift from control to management. When FERA 1973 was in force, control was exercised by making it mandatory that prior permission was obtained before undertaking a transaction in a foreign exchange. FEMA has done away with the regime of control and accepted the more democratic form ling the returns before the concerned authorities. The opening up of the Indian economy is reected in this paradigm shift. In order to administer FERA 1973 the Exchange Control Department of the Reserve Bank of India was vested with the powers to notify various regulations for administering the provisions of the law. Under these powers the bank notied the following Regulations.      Foreign Exchange Management (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules 2000. Foreign Exchange (Authentication of Documents) Rules 2000. Foreign Exchange Management (Current Account Transactions) Rules 2000. Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules 2000. Foreign Exchange (Compounding Proceedings) Rules 2000.

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Foreign Exchange Management (Permissible Capital Account Transactions) Regulations 2000. Foreign Exchange Management (Issue of Security in India by a Branch, Oce or Agency of a Person President Outside India) Regulations 2000. Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations 2000. Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations 2000. Foreign Exchange Management (Deposit) Regulations 2000. Foreign Exchange Management (Export and Import of Currency) Regulations 2000. Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations 2000. Foreign Exchange Management (Guarantees) Regulations 2000. Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000. Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations 2000. Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations 2000. Foreign Exchange Management (Insurance) Regulations 2000. Foreign Exchange Management (Remittance of Assets) Regulations, 2000. Foreign Exchange Management (Manner of Receipt and Payment) Regulations 2000. Debit cards, ATM Cards etc. Payment dealings. Transactions in Indian rupees. Dealing or transfer of any Foreign Exchange Security. Foreign Exchange Management (Transfer of issue of any Foreign Security) Regulations 2000. Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations 2000. Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2000 Foreign Exchange Management (Establishment in India of Branch or Oce or Other Place of

  

Business) Regulations 2000. Foreign Exchange Management (Export of Goods and Services) Regulations 2000. Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations 2000. Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations 2000.

THE PREVENTION OF MONEY LAUNDERING ACT 2002

In the Statement of Objects and Reasons, it was mentioned that money laundering poses a serious threat not only to the nancial systems of countries, but also to their integrity and sovereignty. Some of the initiatives taken by the international community to obviate such a threat are outlined below: (a) The United Nations Convention Against Illicit Trac in Narcotic Drugs and Psychotropic Substances 1988, to which India is a party, calls for preventing the laundering of proceeds of drug crimes and other connected activities and conscation of proceeds derived from such oence. (b) The Basel Statement of Principles, enunciated in 1989, outlined basic policies and procedures that banks should follow in order to assist the law enforcement agencies in tackling the problem of money laundering. (c) The meeting of the Financial Action Task Force (FATF) held in Paris from 14th to 16th July, 1989, to examine the problem of money laundering has made Forty Recommendations, which provide the foundation material for comprehensive legislation to combat the problem of money laundering. The recommendations were classied under various heads. Some of the important heads are: (i) (ii) (iii) (iv) (v) declaration of laundering of monies earned through serious crimes, a criminal oence; to work out modalities of disclosure by nancial institutions regarding reportable transactions; conscation of the proceeds of crime; declaring money laundering to be an extraditable oence; and promoting international cooperation in the investigation of money laundering.

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(d) The Political Declaration and Global Programme of Action adopted by the UN General Assembly by its Resolution No. S-17/2 of 23rd February, 1990, calls upon, inter alia, the member states to develop mechanisms to prevent nancial institutions from being used for laundering of drugrelated money and enactment of legislation to prevent such laundering. (e) The United Nations in the Special Session on `Countering World Drug Problem Together' concluded 8th to 10th June, 1998 has made another declaration regarding the need to combat money laundering. India is a signatory to this declaration. Keeping in mind the above, a comprehensive legislation providing, inter alia, for preventing and punishing oences relating to money laundering and connected activities, conscation of proceeds of crime, disclosure of such transactions by nancial institutions, setting up of agencies and mechanisms for coordinating measures necessary for combating money laundering etc, was introduced on 4th August, 1998 in Parliament. The Bill, however, went through rough weather and, therefore, was referred to the Parliamentary Standing Committee on Finance, which presented its report on 4th March, 1999 to the Lok Sabha (Lower House). Some of the recommendations of the Standing Committee of Finance were accepted by the government of India and certain changes were incorporated in the Prevention of Money Laundering Bill 1998. The Bill was nally passed by both Houses of Parliament, in the Winter Session of 2002, after a gap of nearly four years. The passage of the Bill was expedited after a meeting of the G20 countries, held in Delhi, took a critical note of the delay.

exhaustive manner. A person commits the oence of money laundering if he: (a) acquires, owns, possesses or transfers any proceeds of crime; or (b) enters into any transaction which is related to proceeds of crime either directly or indirectly; or (c) conceals or aids in the concealment of the proceeds of crime. The essential ingredients of these denitions are that: (i) a crime has been committed; (ii) there are proceeds of or gains from the crime; and (iii) there is a transaction in respect of the proceeds of the gains.

The punishment for money laundering

Section 4 seeks to provide punishment for money laundering. Whoever commits the oence of money laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to ne which may extend to 5 lakh rupees. However, where the proceeds of crime involved in money laundering relates to an oence, under the Narcotic Drugs and Psychotropic Substances Act 1985, the punishment may extend up to ten years of rigorous imprisonment.

Attachment, adjudication and conscation

The oence of money laundering

The oence of money laundering was dened as follows: `Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of oence of money laundering.' The term money laundering has been dened in an

Section 5 seeks to provide for attachment of property involved in money laundering. Where the Director or any other ocer not below the rank of Deputy Director authorised by him for purposes of this section, has reason to believe that: (a) any person is in possession of any proceeds of crime; (b) such a person has been charged of having committed a scheduled oence; and (c) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to conscation of such proceeds of crime under this Chapter;

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he may, by order in writing, provisionally attach such property for a period not exceeding 90 days from the date of the order, in the manner provided in the Second Schedule to the Income Tax 1961, and the Director or the ocer so authorised by him, as the case may be, will be deemed to be an ocer under sub-rule (e) of rule 1 of that Schedule. The clauses stipulating the Director or other ocer not below the rank of Deputy Director to attach property involved in money laundering as per subs. (1) are cumulative in nature. The person alleged should be in possession of proceeds of crime and he should have been charged of having committed a scheduled oence by a competent authority like the police. The Director, or any other ocer not below the rank of Deputy Director must, immediately after attachment of the property, forward a copy of the order, along with the material in his possession, to the adjudicating authority in a sealed envelope, in the manner as may be prescribed and such adjudicating authority must keep the order and material for any period as may be prescribed.

Adjudicating authorities, composition, powers etc

Under s. 6, the government will, by notication, appoint one or more adjudicating authorities to exercise the jurisdiction, powers and authority to adjudicate in a quasi judicial manner whether the attached property is involved in money laundering or not. An adjudicating authority shall consist of a chairperson and two other members having experience in the eld of law, administration, nance or accountancy. Under s. 8, the adjudicating authority is expected to follow the principles of natural justice, and for this purpose, he may serve a notice of not less than 30 days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money laundering and conscated by the central government. Where the property is held jointly by more than one person then the notice will be served to all persons holding such property. The adjudicating authority will, after considering the reply, if any, to the notice issued by it, and after hearing the aggrieved person and the authorised ocer and after taking into

account all relevant materials placed on record, record a nding whether the attached properties are involved in money laundering or not. If the adjudicating authority decides that the property is involved in money laundering, he shall by an order conrm in writing, the attachment of the property. Thereafter the attachment shall continue during the duration of the proceedings relating to any scheduled oence before a court and shall become nal after the guilt of the person is proved in the trial court and the order of such trial court becomes nal. When the concerned person is acquitted on the conclusion of trial for any scheduled oence then the attachment of property shall cease to have eect. Once a crime relating to a property is proved in the competent court of law, the Adjudicating Authority will pass an order in writing conscating such property after hearing the concerned persons. Under s. 9, where an order of conscation has been made in respect of any property of any person, all the rights and title in such property will vest absolutely in the central government, free from all encumbrances. Under s. 10, the central government may appoint administrators to receive and manage the conscated property according to conditions that may be prescribed by rules. Further, the administrator shall also take such measures as the central government may direct to dispose of the property, which is vested in the central government. Under s. 11, the adjudicating authority will have the same powers as are vested in a civil court under the Code of Civil Procedure 1908 while trying a suit in respect of discovery and inspection, enforcing the attendance of any person, compelling the production of records, receiving evidence on adavits, issuing commissions for examination of witnesses and documents and any other matters which may be prescribed. Further, the persons so summoned will be bound to attend in person or through authorised agents and must also be bound to state the truth upon any subject respecting which they are examined and make statement or produce the required documents. Every proceeding under this section shall be deemed to be a judicial proceeding.

Obligations of nancial institutions and intermediaries

Under s. 12, it is obligatory for every nancial institution and intermediary to maintain a record of transactions integrally connected to each other and

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where such series of transactions take place within a month, they are required to furnish information of these transactions to the Director within such time as may be prescribed. The nancial institutions and intermediaries would also be required to verify and maintain the records of the identity of all its clients in the prescribed manner for a period of ve years from the date of cessation of transactions between the clients and nancial institutions. Further, where the principal ocer of a banking company or a nancial institution or an intermediary, as the case may be has reason to believe that a single transaction or series of transactions integrally connected to each other have been valued below the prescribed value so as to defeat the provisions of this section, the ocer must furnish information in respect of such transactions to the Director within the prescribed time. Under s. 13, if the Director, in the course of any inquiry nds that a banking company, nancial institution, or an intermediary or any of its ocers have failed to comply with the provisions contained in s. 12 then he may, by an order, levy a ne on such banking company or nancial institution or intermediary which shall not be less than 10,000 rupees but may extend to 1 lakh rupee for each failure. Under s. 14 no civil proceedings can be instituted against the banking companies, nancial institutions, intermediaries and their ocers for furnishing information to the Director under s. 12.

After completion of the survey the authority concerned shall forward a copy of the reasons so recorded along with the material in his possession in a sealed envelope to the adjudicating authority in the manner prescribed.

Search and seizure

Summons Power of survey

Section 16 confers powers on an authority to carry out a survey of the premises on the basis of material in his possession or if he has reason to believe that any oence of money laundering has been committed he may enter any place to inspect any records to check or verify whether the proceedings of crime or any transactions related to the proceedings of crime which may be found therein. The authority acting under this section may (1) place marks of identication on the records inspected by him and make or cause to be made extracts or copies therefrom. (2) Make an inventory of any property checked or veried by him, and (3) Record the statement of any person present in the place, which may be useful for, or relevant to, any proceeding under this Act.

Section 17 empowers the Director to authorise search and seizure operations in a premises, provided that he has reason to believe that any person has committed an act of money laundering or is in possession of records pertaining to money laundering. The Director may authorise any ocer subordinate to him to enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept, and to break open any lock where the keys are not available to seize any record or property It is further sought to be provided that such search may be authorised in drug-related cases soon after the case regarding the oence is sent by the police ocer or a complaint is led by the designated ocer before the court for taking cognisance of the oence. In other cases it is proposed that search may be authorised only after, based on the outcome of the investigations, a report has been forwarded under s. 173 of the Code of Criminal Procedure 1973 before the competent magistrate. It is further provided (see subs. (2)) that if in the course of search it is found that evidence of money laundering is available, which is likely to be tampered with, then the ocer may seize the evidence on the footing that he has been authorised by the Director to carry out a search and seizure operation. However, he will have to record his reasons for taking this action in writing and communicate the same along with the result of the search to the Director immediately after the search. It is further provided in subs. (3) that the authority must make an application for retention of seized property or record, within thirty days of such seizure to the Adjudicating Authority. Section 18 authorises an ocer empowered in this way to search a person if he has reason to believe that such a person is in possession of or has secreted about his person any record or proceeds of crime, which may be useful for any proceeding under the Act. Section 19 empowers an authorised ocer to arrest a person if he has reason to believe that the person is guilty of an oence under this Act.

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Section 20 makes provisions regarding retention of property seized in the course of search of premises or persons. The property seized during search of premises or search of persons, if required for adjudication, can be retained for a period not exceeding three months. If retention is required for a longer period, specic permission of the adjudicating authority has to be taken. Before giving such permission the adjudicating authority has to satisfy himself that the aforesaid assets are involved in money laundering and they are required for adjudication. After the date of passing of the order of conscation, the adjudicating authority must direct the release of such assets, which are not involved in money laundering. However, the director is sought to be empowered, under subs. (5) to retain the assets even beyond the date of order of adjudication where an appeal is led against the order within 45 days from the date of the order of the adjudicating authority. On expiry of the period specied in subs. (1), the property shall be returned to the person from whom such property was seized unless the adjudicating authority permits retention of the property beyond the said period. The adjudicating authority, before authorising the retention of the property beyond the period specied in subs. (1), shall satisfy himself that the property is, prima facie, involved in money laundering and the property is required for the purpose of adjudication under s. 8. After passing the order of conscation under subs. (6) of s. 8, the adjudicating authority must direct the release of all properties other than the properties involved in money laundering to the person from whom such properties were seized. Notwithstanding anything contained in subs. (5), the Director or any ocer authorised by him in this behalf may withhold the release of any property until ling of appeal under s. 26 or 45 days from the date of order under subs. (5), whichever is earlier, if he is of the opinion that such property is relevant for the proceedings before the appellate tribunal. Under s. 21, similar provisions have been made in respect of retention of records seized during the search under ss. 17 and 18. Under s. 22, if any records or property are found in the possession or control of any person, it is presumed that such records or property belongs to such person; the contents of such records are true; and the signature and every other part of the records which purport to be in the handwriting of any particular person or in that person's handwriting and contain the true

accounts of the transactions mentioned therein. Further, in case a document is received in the prescribed manner from outside India, it will be presumed that the handwriting and signatures are correct and that it has been properly recorded and conveyed. Section 23 provides a presumption that where money laundering involves two or more interconnected transactions and one or more such transaction is proved to be involved in money laundering, then for the purposes of adjudication or conscation, it shall be presumed that the remaining transactions form part of such interconnected transactions unless proved otherwise. Under s. 24, when a person is accused of having committed the oence under s. 3, the burden of proving that the proceeds of crime are untainted property shall be on the accused. In other words, this section provides the presumption regarding the existence of mens rea being the culpable mental state of the accused in civil and criminal proceedings but the accused will be at liberty to rebut this presumption as a defence.

Appellate tribunal

Section 25 authorises the central government to establish an appellate tribunal by notication to hear appeals against the orders of the adjudicating authority and the authorities under this Act. Sections 26 to 40 deal with the procedure of ling appeals with the appellate tribunal, composition of the appellate tribunal, appointment of the chairperson and members of the tribunal, their conditions of service etc.

Special courts

Under s. 43 the central government in consultation with the Chief Justice of the High Court, will, for trial of oences punishable under this Act, by notication, designate one or more courts of session as special court or special courts. Under s. 45 every oence punishable under this Act will be cognisable and no person accused of an oence punishable for a term of imprisonment of more than three years under this Act, will be released on bail unless the Public Prosecutor has been given an opportunity to oppose the application for release.

Certain ocers to assist in inquiry etc

Under s. 54, the following ocers have been empowered and required to assist the authorities in the enforcement of this Act:

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Ocers of the Customs and Central Excise Departments; Ocers appointed under subs. (1) of s. 5 of the Narcotic Drugs and Psychotropic Substances Act 1985; Income Tax authorities under subs. (1) of s. 117 of the Income Tax Act 1961; Ocers of the stock exchange recognised under s. 4 of the Securities Contracts (Regulations) Act 1956; Ocers of the Reserve Bank of India constituted under subs. (1) of s. 3 of the Reserve Bank of India Act 1934; Police ocers; Ocers of enforcement appointed under s. 4 of the Foreign Exchange Management Act 1999; Ocers of the Securities and Exchange Board of India established under s. 3 of the Securities and Exchange Board of India Act 1992; Ocers of any other body corporate constituted or established under a Central Act or State Act; Such other ocers of the central government, state government, local authorities or banking companies as the central government may, by notication, specify, in this area.

contracting state, competent to deal with such request to: (i) examine facts and circumstances of the case (ii) take such steps as the special court may specify in such letter of request and (iii) forward all the evidence so taken or collected to the special court issuing such letter of request. Every statement recorded or document or thing received under this section will be deemed to be evidence collected during the course of investigation. Reciprocally, if a letter of request is received from a court or an authority in a contracting state, requesting for the attachment, or conscation of the property in India derived or obtained, directly or indirectly by any person from the commission of an oence of money laundering in the contracting state, by the central government, such letter of request is forwarded to the Director, for execution of the request. The Director shall on receipt of the letter of request direct any authority under this Act to take all steps necessary for tracing and identifying such property. Further, the provisions of this Act, relating to attachment, adjudication, conscation and vesting of property in central government, survey, searches and seizures will apply to the property in respect of which a letter of request is received from a court or contracting state for attachment or conscation of property. It can be seen from the above that the Prevention of Money Laundering Act 2002 is comprehensive and covers forfeiture of the property generated in serious crime. REFERENCES
(1)

Mutual assistance

This part concerns the mutual assistance between India and other countries in matters relating to exchange of information, investigation, conscation of illegally acquired property etc. Sections 55 to 60 deal with reciprocal arrangements between India and other states for assistance in matters relating to exchange of information, investigation, conscation of illegally acquired property and prosecution of oences and related matters in the prevention of money laundering. If in the course of an investigation into an oence or other proceedings under this Act, an application is made to a special court by the investigating ocer or any ocer superior in rank to the investigating ocer that any evidence is required in connection with investigation into an oence or proceedings under this Act and he is of the opinion that such evidence may be available in any place in a contracting state, and the special court on being satised that such evidence is required in connection with the investigation into the oence or proceedings under this Act, may issue a letter of request to a court or an authority in the

(2) (3) (4) (5)

See Kumar, B. V. (1992) `Flight Capital Operations and the Developing World; Underground Financial Systems and Drugs and Dirty Money', Proceedings of the Tenth International Symposium on Economic Crime, held at Jesus College, Cambridge, July. Objects and Reasons appended to the Bill: The Foreign Exchange Regulation Act 1947. Gazette of India, 9th November, 1946, Part V, p. 303. Report of the Select Committee on the Bill presented to the Legislative Assembly on 3rd February, 1947, see Gazette of India, 15th February 1947, Part V, p. 55. Kumar, B. V. (1997) `India: The Misuse and Abuse of Legal Provisions in Money Laundering', Journal of Money Laundering Control, Vol. 1, No. 2, pp. 194198.

B. V. Kumar, Member, Central Board of Excise & Customs, and Additional Secretary to the Government of India (Retd).

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Appendix A THE SCHEDULE PART A Paragraph 1 Oences under the Indian Penal Code
Section Description of oence 121 121A Waging or attempting to wage war, or abetting waging of war, against the Government of India and conspiracy to commit such oences. Conspiracy to commit oences punishable by s. 121 against the state.

364A 384 to 389 392 to 402 467 489A 489B

Kidnapping for ransom, etc. Oences relating to extortion. Oences relating to robbery and dacoity. Forgery of a valuable security, will or authority to make or transfer any valuable security, or to receive any money, etc. Counterfeiting currency notes or bank notes. Using as genuine, forged or counterfeit currency notes or bank notes.

Paragraph 2 Oences under the Arms Act 1959

Section Description of oence 25 To manufacture, sell, transfer, convert, repair or test or prove or expose or oer for sale or transfer or have in his possession for sale, transfer, conversion, repair, test or proof, any arms or ammunition in contravention of s. 5 of the Arms Act 1959. To acquire, have in possession or carry any prohibited arms or prohibited ammunition in contravention of s. 7 of the Arms Act 1959. Contravention of s. 24A of the Arms Act 1959 relating to prohibition as to possession of notied arms in disturbed areas, etc. Contravention of s. 24B of the Arms Act 1959 relating to prohibition as to carrying of notied arms in or through public places in disturbed areas. Other oences specied in s. 25. To do any act in contravention of any provisions of s. 3, 4, 10 or 12 of the Arms Act 1959 in such manner as specied in subs. (1) of s. 26 of the said Act. To do any act in contravention of any provisions of s. 5, 6, 7 or 11 of the Arms Act 1959 in such manner as specied in subs. (2) of s. 26 of the said Act. Other oences specied in s. 26. Use of arms or ammunitions in contravention of s. 5 or use of any arms or ammunition in contravention of s. 7 of the Arms Act 1959. Use and possession of re arms or imitation re arms in certain cases. Knowingly purchasing arms from unlicensed person or for delivering arms, etc to person not entitled to possess the same. Contravention of any condition of a licence or any provisions of the Arms Act 1959 or any rule made thereunder.

Paragraph 2 Oences under the Narcotic Drugs and Psychotropic Substances Act 1985
Section Description of oence 15 22 23 24 25A 27A 29 Contravention in relation to poppy straw. Contravention in relation to psychotropic substances. Illegal import into India, export from India or transhipment of narcotic drugs and psychotropic substances. External dealings in narcotic drugs and psychotropic substances in contravention of s. 12 of the Narcotic Drugs and Psychotropic Substances Act 1985. Contravention of orders made under s. 9A of the Narcotic Drugs and Psychotropic Substances Act 1985. Financing illicit trac and harbouring oenders. Abetment and criminal conspiracy.

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PART B Paragraph 1 Oences under the Indian Penal Code

Section 302 304 307 308 327 Description of oence Murder. Culpable homicide not amounting to murder, if act by which the death is caused is done with the intention of causing death. Attempt to murder. Attempt to commit culpable homicide. Voluntarily causing hurt to export property, or a valuable security, or to constrain to do anything which is illegal or which may facilitate the commission of the oence. Voluntarily causing grievous hurt to export property, or a valuable security, or to constrain to do anything which is illegal or which may facilitate the commission of the oence. 28 29 30

Paragraph 3 Oences under the Wild Life (Protection) Act 1972

Section Description of oence 51; read with s. 17A Contravention of provisions of s. 17A relating to prohibition of picking, uprooting, etc of specied plants.

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51; read with s. 39 51; read with s. 44 51; read with s. 48 51; read with s. 49B

Contravention of provisions of s. 39 relating to wild animals, etc to be government property. Contravention of provisions of s. 44 relating to dealings in trophy and animals articles without licence prohibited. Contravention of provisions of s. 48 relating to purchase of animal, etc by licence. Contravention of provisions of section 49B relating to prohibition of dealings in trophies animals articles, etc. derived from scheduled animals.

Secretary to that Government, specially empowered for the purposes of this section by that Government may, if satised, with respect to any person (including a foreigner), that, with a view to preventing him from acting in any manner prejudicial to the conservation or augmentation of foreign exchange or with a view to preventing him from (i) smuggling goods, or (ii) abetting the smuggling of goods, or (iii) engaging in transporting or concealing or keeping smuggled goods, or (iv) dealing in smuggled goods otherwise than by engaging in transporting or concealing or keeping smuggled goods, or (v) harbouring persons engaged in smuggling goods or in abetting the smuggling of goods, it is necessary so to do, make an order directing that such person be detained. Under this Act the maximum period for which a person shall be detained in pursuance of any detention order is one year from the date of issue of such order. However, in certain cases, the detention can be extended to a period of two years.

Paragraph 4 Oences under the Immoral Trac (Prevention) Act 1956

Section Description of oence 5 6 8 9 Procuring, inducing or taking person for the sake of prostitution. Detaining a person in premises where prostitution is carried on. Seducing or soliciting for purpose of prostitution. Seduction of a person in custody.

Prevention of Illicit Trac in Narcotic Drugs and Psychotropic Substances Act 1988

Paragraph 5 Oences under the Prevention of Corruption Act 1988

Section Description of oence 7 8 9 10 Public servant taking gratication other than legal remuneration in respect of an ocial Act. Taking gratication in order, by corrupt or illegal means, to inuence public servant. Taking gratication for exercise of personal inuence, with public servant. Abetment by public servant of oences dened in ss. 8 or 9 of the Prevention of Corruption Act 1988.

Under the Prevention of Illicit Trac in Narcotic Drugs and Psychotropic Substances Act 1988, similar provisions are available to detain persons, to prevent them from engaging themselves in illicit trac in narcotic drugs and psychotropic substances.

Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 1976

(a) Under subs. (2) of Section 2 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 1976, the property of a person can be forfeited, if such person is (i) convicted under the Sea Customs Act 1878 (8 of 1878), or the Customs Act 1962 (52 of 1962), of an oence in relation to goods of a value exceeding 1 lakh rupee; or (ii) convicted under the Foreign Exchange Regulation Act 1947 (7 of 1947), or the Foreign Exchange Regulation Act 1973 (46 of 1973), of an oence, the amount or value involved in which exceeds 1 lakh rupee; or (iii) having been convicted under the Sea Customs Act 1878 (8 of 1878), or the Customs Act 1962 (52 of 1962), has been convicted subsequently under either of those Acts; or (iv) having been convicted under the Foreign Exchange Regulation Act 1947 (7 of 1947), or the Foreign Exchange Regulation Act 1973 (46 of 1973), has been convicted subsequently under either of those Acts; (b) every person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act 1974 (52 of 1974): Provided that (i) such order of detention, being an order to which the provisions of s. 9 or s. 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under

Appendix B RELATED LEGISLATION Conservation of Foreign Exchange and Prevention of Smuggling Activities Act 1974 Power to detain
Under s. 3 of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act 1974, The Central Government or the State Government or any ocer of the Central Government, not below the rank of Joint Secretary to that Government, specially empowered for the purposes of this section by that Government, or any ocer of a State Government, not below the rank of a

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s. 8 of the said Act or before the receipt of the report of the Advisory Board or before making a reference to the Advisory Board; or (ii) such order of detention, being an order to which the provisions of s. 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under subs. (3) of s. 9, or on the report of the Advisory Board under s. 8, read with subs. (2) of s. 9, of the Act; or (iii) such order of detention, being an order to which the provisions of s. 12-A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the rst review under subs. (3) of that section, or on the basis of the report of the Advisory Board under s. 8, read with subs. (6) of s. 12-A, of that Act; or (iv) such order of detention has not been set aside by a court of competent jurisdiction; (c) every person who is a relative of a person referred to in clause (a) or clause (b); (d) every associate of a person referred to in clause (a) or clause (b); (e) any holder (hereafter in this clause referred to as the present holder) of any property which was at any time previously held by a person referred to in clause (a) or clause (b) unless the present holder, is or was a transferee in good faith for consideration. Under the provisions of this Act, a `relative' to a person means: (i) (ii) (iii) (iv) (v) (vi) spouse of the person; brother or sister of the person; brother or sister of the spouse of the person; any lineal ascendant or descendant of the person; any lineal ascendant or descendant of the spouse of the person; spouse of a person referred to in clause (ii), clause (iii), clause (iv) or clause (v); (vii) any lineal descendant of a person referred to in clause (ii) or clause (iii).

India or outside, proceed to take all steps necessary for tracing and identifying any property illegally acquired by any person. He may conduct an inquiry, investigation or survey in respect of a place, person, property, assets, documents, books of accounts in any Bank or public nancial institution or any other relevant matter. Further, if he has reason to believe that any property in relation to which such inquiry or investigation is being conducted is an illegally acquired property he may make an order for seizing such property. Under s. 68A of the Act, illegally acquired property is liable for forfeiture in respect of every person, (a) has been convicted of an oence punishable under this Act with imprisonment for term of ve years or more; (b) has been convicted of a similar oence by a competent court of criminal jurisdiction outside India; (c) in respect of whom an order of detention has been made under the Prevention of Illicit Trac in Narcotic Drugs and Psychotropic Substances Act 1988, or under the Jammu and Kashmir Prevention of Illicit Trac in Narcotic Drugs and Psychotropic Substances Act 1988. Provided that such order of detention has not been revoked on the report of the Advisory Board constituted under the said Acts or such order of detention has not been set aside by a court of competent jurisdiction; (d) is a relative of a person referred to in clause (a) or clause (b) or clause (c); (e) every associate of a person referred to in clause (a) or clause (b) or clause (c); (f ) any holder (hereafter in this clause referred to as the `present holder') of any property which was at any time previously held by a person referred to in clause (a) or clause (b) or clause (c) unless the present holder or as the case may be, any one who held such property after such person and before the present holder, is or was a transferee in good faith for adequate consideration.

Narcotic Drugs and Psychotropic Substances Act 1985

Benami Transaction Act 1988

Under s. 68 E and 68 F of the Act, every ocer empowered under the Act shall on receipt of information that any person was being charged with any oence, punishable, whether committed in

Under the Benami Transaction Act 1988, forfeiture of property can be ordered by the Competent Authority if a person holding title to such property is unable to explain the sources from which he acquired such property.

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