Okay, here are some detailed notes on the Prevention of Money Laundering Act (PMLA), 2002,

designed for exam preparation and answer writing, incorporating the provided case laws and
amendments:

Topic: The Prevention of Money Laundering Act (PMLA), 2002

1. Need for Combating Money Laundering

●​ Threat to National Security: Money laundering funds illicit activities like terrorism, drug
trafficking, and organized crime, destabilizing nations and posing a severe threat to national
security.
●​ Economic Distortion: Laundered money distorts markets, creates unfair competition, and
can lead to inflation and instability in the financial system.
●​ Erosion of Trust in Institutions: Widespread money laundering erodes public trust in
financial institutions, banks, and the government.
●​ Undermining Governance and Rule of Law: Money laundering facilitates corruption,
weakens the rule of law, and undermines democratic institutions.
●​ Impact on International Relations: Cross-border money laundering can strain international
relations and hinder cooperation on global security issues.
●​ Loss of Revenue: Tax evasion, a frequent companion of money laundering, deprives the
government of essential revenue needed for public services and development.

2. Magnitude of Money Laundering, its Steps, and Various Methods

●​ Magnitude: Money laundering is a global problem of immense scale. Estimates suggest that
trillions of dollars are laundered annually worldwide.
●​ Steps (Typically Three-Stage Process):
○​ Placement: Introducing "dirty money" into the legitimate financial system. This is the
riskiest stage.
■​ Methods: Structuring (smurfing), bulk cash smuggling, using cash-intensive businesses,
etc.
○​ Layering: Separating the illicit proceeds from their source through complex transactions to
obscure the audit trail.
■​ Methods: Wire transfers, shell companies, offshore accounts, purchasing assets like
real estate or precious metals, etc.
○​ Integration: Making the laundered funds appear legitimate so they can be freely used.
■​ Methods: Repatriating funds through loans or investments, using legitimate businesses
as fronts, etc.
●​ Methods (Some Common Techniques):
○​ Structuring (Smurfing): Breaking down large sums of money into smaller deposits below
reporting thresholds.
○​ Bulk Cash Smuggling: Physically transporting large amounts of cash across borders.
○​ Cash-Intensive Businesses: Using businesses like restaurants, casinos, or retail stores
to commingle illicit cash with legitimate revenue.
○​ Trade-Based Money Laundering (TBML): Over- or under-invoicing goods to transfer
value across borders.
○​ Shell Companies and Trusts: Creating legal entities with no real business purpose to
hide the true ownership of funds.
○​ Offshore Accounts: Utilizing jurisdictions with strict bank secrecy laws.
 ○​ Real Estate: Purchasing and selling properties to launder funds.
○​ Precious Metals and Stones: Converting cash into easily transportable and valuable
assets.
○​ Hawala and other Alternative Remittance Systems: Using informal value transfer
systems based on trust.
○​ Cryptocurrencies: The anonymity and pseudo-anonymity of cryptocurrencies can be
exploited for money laundering.
○​ Black Salary : Bribing official through un-accounted (Black) salary.
○​ Election Funding : Funding political parties through laundered money.

3. The Prevention of Money Laundering Act, 2002

(i) Definition of "Money Laundering" - Ss. 3 & 2(1)(p)

●​ Section 3 (Offence of Money Laundering): Whosoever directly or indirectly attempts to
indulge or knowingly assists or knowingly is a party or is actually1 involved in any process or
activity connected with the proceeds of crime including its concealment, possession,
acquisition, or use and projecting or claiming it as untainted property shall be guilty2 of the
offence of money3 laundering.
●​ Section 2(1)(p): "Money-laundering" has the meaning assigned to it in section 3.
●​ Key Elements of the Offence:
○​ Proceeds of Crime: This refers to any property derived or obtained, directly or indirectly,
as a result of criminal activity relating to a scheduled offense. The scheduled offences are
mentioned in the schedule to the PMLA Act.
○​ Involvement in a Process or Activity: This covers a wide range of actions related to the
proceeds of crime, including concealment, possession, acquisition, use, projection, or
claiming.
○​ Projecting or Claiming as Untainted: The act of making the proceeds of crime appear as
legitimate property.
○​ Knowing Assistance, Party to, or Involvement: Mens Rea (guilty mind) is established by
knowledge of the connection to proceeds of crime.

(ii) Punishment for Money Laundering (Sec. 4)

●​ Rigorous Imprisonment: 3 to 7 years.
●​ Fine: No upper limit specified, giving the court discretion to impose a fine commensurate with
the severity of the offense.
●​ Enhanced Punishment: If the proceeds of crime relate to an offense under the Narcotic
Drugs and Psychotropic Substances Act, 1985, the maximum imprisonment can be extended
to 10 years.

(iii) Enforcement: Attachment (Sec. 5)

●​ Provisional Attachment: The Director or any other officer (not below the rank of Deputy
Director) authorized by him can provisionally attach property involved in money laundering for
180 days.
●​ Conditions for Attachment:
○​ Reason to believe (recorded in writing) that a person is in possession of proceeds of crime.
○​ Such proceeds are likely to be concealed, transferred, or dealt with in a manner that may
frustrate proceedings under the Act.
 ○​ The offence must relate to a scheduled offence.
●​ Adjudicating Authority's Confirmation: Within 30 days of attachment, a complaint must be
filed before the Adjudicating Authority.
●​ Retention of property: After considering the reply , if any , to the notice issued ,the
Adjudicating Authority may confirm the attachment made under sub-section (1) of section 5 or
retention of property or record seized or frozen under section 17 or section 18 and record a
finding to that effect, whereupon such attachment or retention4 shall—
○​ continue during the investigation for a period not exceeding three hundred and sixty-five
days or the pendency of the proceedings relating5 to any offence under this Act before a
court or under the corresponding law of any other country, before the competent court of
criminal jurisdiction outside India, as the6 case may be; and
○​ become final after an order of confiscation is passed under7 sub-section (5) or sub-section
(7) of section 8 or section 58B or sub-section (2A) of section 608 by the Special Court;

(iv) Survey, Search, & Seizure (Ss. 16, 17 & 18)

●​ Survey (Sec. 16): Authorised officers can enter and inspect any place within their jurisdiction
to verify records and gather information relevant to any proceedings under the Act.
●​ Search and Seizure (Sec. 17): The Director or authorized officer, based on reason to believe
(recorded in writing) that an offense of money laundering has been committed, can:
○​ Enter and search any building, place, vessel, vehicle, or aircraft.
○​ Break open locks.
○​ Seize records and property believed to be proceeds of crime or related to money
laundering.
○​ Place marks of identification on such records, make inventories, etc.
●​ Search of Persons (Sec. 18): Similar powers as Sec. 17 apply to the search of individuals.
●​ Safeguards: Searches are generally conducted in the presence of witnesses, and a list of
seized items is prepared and signed.

(v) Power to Arrest (Sec. 19)

●​ Authority: Director, Deputy Director, Assistant Director, or any other authorized officer.
●​ Grounds: Reason to believe (recorded in writing) that a person is guilty of an offense
punishable under the PMLA.
●​ Procedure:
○​ Inform the arrested person of the grounds of arrest.
○​ Forward a copy of the arrest order and material to the Adjudicating Authority in a sealed
envelope.
○​ Produce the arrested person before the Special Court or Judicial Magistrate within 24
hours.

(vi) Adjudication under the Act: Adjudication by Adjudicating Authorities (Sec. 8)

●​ Adjudicating Authority: Appointed by the Central Government, it is a quasi-judicial body
that reviews attachment orders and decides whether the property is involved in money
laundering.
●​ Process:
○​ The authority issues a notice (minimum 30 days) to the person whose property is attached,
asking them to show cause why the property should not be declared as involved in money
laundering.
 ○​ Considers the reply, hears the aggrieved person and the Director, and takes into account
all relevant material.
○​ By an order, declares whether the property is involved in money laundering.
○​ Confirms the attachment order or retention of seized property if found to be involved in
money laundering.
○​ If property is found to not be involved in money laundering the Adjudicating Authority will
direct the release of such property.
●​ Appeal: An appeal against the Adjudicating Authority's order lies with the Appellate Tribunal.

(vii) Special Courts (Ss. 43 to 47)

●​ Designation: Central Government, in consultation with the Chief Justice of the High Court,
designates one or more Courts of Session as Special Courts to try PMLA offenses.
●​ Jurisdiction: Special Courts have exclusive jurisdiction to try offenses under the PMLA.
●​ Cognizance of Offence: Special Courts can take cognizance of an offense without the
accused being committed to it for trial upon receiving a complaint in writing made by the
Director or any officer of the Central Government or a State Government authorised in writing
in this behalf by the Central Government by a general or special order made in this behalf by
that Government.9
●​ Procedure: Generally follow the procedure for trial of warrant cases before a Magistrate.
●​ Application of Code of Criminal Procedure,1973: The provision of CrPC shall apply to the
proceeding before a Special Court.
●​ Appeal: Appeals lie to the High Court.

(viii) Vesting of Property in Central Government (Sec. 9)

●​ Effect of Confiscation Order: Once an order of confiscation is passed by the Special Court
in respect of property attached or seized, all rights and title in such property vest absolutely in
the Central Government free from all encumbrances.
●​ Failure to Surrender: If a person fails to surrender confiscated property, the court may direct
them to surrender, and if they disobey, it can use means necessary to take possession.

(ix) Preventive Mechanisms under the Act: Obligation of banking companies, financial
institutions, and Intermediaries (Ss. 12 & 12A)
●​ Section 12:
○​ Record Keeping: Requires reporting entities (banking companies, financial institutions,
and intermediaries) to maintain records of all transactions (including cash and cross-border
wire transfers above a prescribed limit).
○​ Client Identification: Verify the identity of clients and beneficial owners.
○​ Information Furnishing: Furnish information about prescribed transactions to the Director
within the prescribed time.
○​ Retention of Records: Maintain records for a period of five years.
●​ Section 12A (2019 Amendment): Enhanced Due Diligence
○​ Empowers the Director to call for additional information from reporting entities for
verification of compliance.
○​ Reporting entities must undertake enhanced due diligence measures such as:
■​ Taking additional steps to examine the ownership and financial position of the client,
including the sources of funds.
■​ Recording the purpose behind conducting the specified transaction and the intended
 nature of the relationship between the transaction parties.10
●​ Purpose: To create a paper trail, deter money laundering, and assist in investigations.
●​ Consequences of Non-Compliance: Penalties for failing to comply with these obligations.

(x) Reciprocal Arrangements with other countries (Overview of Chapter IX, i.e., Ss. 55 to
61)
●​ Purpose: To facilitate international cooperation in combating money laundering.
●​ Key Provisions:
○​ Agreements with Foreign Countries (Sec. 56): The Central Government can enter into
agreements with other countries for enforcing the PMLA and exchanging information.
○​ Letter of Request (Sec. 57): Indian courts can issue letters of request to foreign courts for
assistance in investigations or proceedings.
○​ Assistance to a Contracting State (Sec. 58): Indian authorities can provide assistance to
foreign countries in investigations and proceedings relating to money laundering.
○​ Reciprocal Arrangements for Processes and Assistance for Transfer of Accused
Persons (Sec.58A):
○​ Attachment, Seizure, and Confiscation of Property in a Contracting State or India
(Sec. 58B):
○​ Procedure in respect of letter of request received from a country or place outside
India (Sec.59):
○​ Procedure for recovery of fines or confiscation of property (Sec.60):
○​ Procedure for transfer of accused persons (Sec.61):
●​ Impact: Enables cross-border investigations, seizure and confiscation of assets, and
extradition of offenders.

4. Case Laws

(i) Rose Valley Real Estate v. Union of India, (2015) 2 Cal LT 617 92
●​ Key Issue: Validity of attachment of bank accounts and properties of Rose Valley under the
PMLA.
●​ Court's Ruling: The Calcutta High Court upheld the attachment, emphasizing that the PMLA
is a special law aimed at preventing money laundering and that the authorities had acted
within their powers based on the materials on record. The court observed that the company
was involved in collecting money from the public through schemes that were prima facie
illegal.
●​ Significance: Highlights the wide scope of the PMLA's attachment provisions and the court's
deference to the authorities' assessment when there is a reasonable basis to believe that the
property is involved in money laundering.

(ii) P. Chidambaram v. Directorate of Enforcement, Supreme Court Judgment dated: 5

September, 2019
●​ Key Issue: Grant of anticipatory bail to former Finance Minister P. Chidambaram in a case
involving alleged money laundering related to the INX Media case.
●​ Court's Ruling: The Supreme Court denied anticipatory bail, holding that granting pre-arrest
bail in a money laundering case would hamper the investigation. The Court emphasized the
gravity of economic offenses and the need for custodial interrogation to unearth the truth.
●​ Significance: Demonstrates the court's strict approach towards bail in PMLA cases,
 especially when the accused is a high-profile individual and the allegations involve serious
economic offenses. It also highlights the importance of custodial interrogation in money
laundering investigations.

5. Amendments in the Prevention of Money Laundering Act, 2002 brought by The Finance
Act, 2019
●​ Explanation to Section 3: Clarifies that the concealment, possession, acquisition, or use of
proceeds of crime is a standalone offense, regardless of whether the scheduled offense is
proven.
●​ Explanation to Section 44(1)(d): The trial of the scheduled offence and the offence of
money laundering shall be done by the same court.
●​ Explanation to Section 45: Clarifies that all PMLA offenses are cognizable and non-bailable.
●​ Amendment to Section 45: The phrase "punishable for a term of imprisonment of more than
three years under Part A of the Schedule" was deleted. It is to be understood that the
limitation imposed earlier on the grant of bail concerning scheduled offenses has been
removed. Now the limitation applies only to offenses under the PMLA.
●​ Proviso to Section 5(1): The proviso was inserted to section 5(1) to permit attachment in
cases where the scheduled offense case is being investigated by a foreign country.
●​ Amendment to Section 8(3): Increased the time period during which the attached property
must remain attached from 90 to 365 days.
●​ Insertion of Section 12AA: Mandates enhanced due diligence by reporting entities.
●​ Amendment to Section 20: The attached property must now be retained for 365 days
(earlier 90 days).
●​ Amendment to Section 72(1): Empowers the central government to appoint the chairperson
and members of the appellate tribunal through a search-cum-selection committee.
●​ Impact of Amendments:
○​ Strengthened the investigative and enforcement powers of the authorities.
○​ Wider scope of the offense of money laundering.
○​ Stricter bail provisions.
○​ Increased compliance burden on reporting entities.
○​ Enhanced international cooperation.

Conclusion:

The PMLA is a powerful legislation with far-reaching consequences. Understanding its

provisions, the case law interpreting it, and the recent amendments is crucial for both legal
practitioners and anyone involved in financial transactions. These notes provide a framework for
exam preparation and answer writing, emphasizing the key concepts, procedures, and legal
principles related to the Prevention of Money Laundering Act, 2002. Remember to always refer
to the latest version of the Act and relevant judicial pronouncements for the most up-to-date
information.

I hope this helps!