89012509 money laundering final (1)

7/18/2019 89012509 Money Laundering Final (1)

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Money Laundering: India And The World

Submitted By Supervised By

Devagya Jha Dr. Radha Seshan

National Law University Delhi

!"#$



TA%L& '( )'NT&NTS

Chapter I: Introduction...............................................................................................................1

Chapter II: Action at the International level to combat Money Laundering..............................3

inancial !as" orce..............................................................................................................3

Basel #rinciples......................................................................................................................$

%nited &ations Convention against Illicit !ra''ic in &arcotic (rugs and #sychotropic

Substances..............................................................................................................................)

%nited &ations Convention against Corruption.....................................................................)

Chapter III: Anti*Money Laundering Legislations in India.......................................................+

#revention o' Money Laundering Act, --..........................................................................+

!he #MLA Amendment Bill, -11......................................................................................1

Chapter I/: 0ther Legislations (ealing ith Money*Laundering...........................................1-

!he oreign 2change Management Act, 1444...................................................................1-

!he Benami !ransactions 5#rohibition6 Act.........................................................................13

!he &arcotic (rugs and #sychotropic Substances Act, 14+7..............................................1$

Chapter /: Analyis o' the 8am 9ethmalani #IL.......................................................................1)

Chapter /I: !he 8eserve Ban" o' India and Anti*Money Laundering Measures....................-7

Chapter /II: Conclusion..........................................................................................................-+

Bibliography..............................................................................................................................ii



)*A+T&R I: INTR'DU)TI'N

Money laundering re'ers to the conversion o' money that is illegally obtained, so as to ma"e

it appear to originate 'rom a legitimate source.1 Article 1 o' the 2C (irective de'ines the term

money laundering as the conversion o' property, "noing that such property is derived 'rom

serious crime, 'or the purpose o' concealing or disguising the illicit origin o' the property or

o' assisting any person ho is involved in the committing such an o''ence or o''ences to

evade the legal conse;uences o' his action, and the concealment or disguise o' the true

nature, source, location, disposition, movement, rights ith respect to, or onership o'

property, "noing that such property is derived 'rom serious crime<.-

Money laundering is not a single act but is in 'act a process that is accomplished in three

basis steps: placing, layering and integrating o' illegal proceeds.3 !he 'irst stage involves the

removal o' cash 'rom the location o' ac;uisition and introducing it into the 'inancial system.

!he second stage is the conversion o' money in as many ban"s as possible, especially abroad.

!he third stage is the reinvesting or integrating o' this money into the economy, ta"ing the

shape o' legitimate businesses.$

In countries li"e India, money laundering ta"es place through over invoicing o' eports,

under invoicing o' imports, investment through shell companies and etensive use o' hawala

1 http:==eb.orldban".org= 5last accessed on Apr. -, -176.

- 2C (irective on #revention o' the use o' the inancial System 'or the #urpose o' Money

Laundering, 1441, available at http:==eur*le.europa.eu= 5last accessed on April 1), -176.

3 #2!28 8 2%!28 A&( 2(>I& M. !8%MA&, C?ASI&@ (I8! M0&2: !?2 I@?! A@AI&S! M0&2 LA%&(28I&@, 3 5Institute o' Macro*2conomics6 available at http:==boo"s.google.co.in=boo"shlenDlrDidA/EC4!(SMCDoi'ndDpg#811Dd;preventionFo'FmoneyFlaunderingDotsv-Gra-y)! bDsigE>-48(>SuABBa4p0"4y7Hd2JKvonepageD;prevention-o'-money

-launderingD''alse 5last accessed Apr. 4, -176.

$ @roup -, !he 2conomic Crime including Money Laundering: Its Legal and inancial

Implications, available at

http:==.una'ei.or.Ep=english=pd'=8S&o)=&o)-)[email protected]' 5last accessed on

Apr.+, -176.

1



channels in the transmission o' money.7 ?oever, hawala transactions usually re'erred to as

Nalternative remittance systemO is the most common 'orm o' money laundering. It is the

trans'er or remittance 'rom one party to another, ithout the use o' a 'ormal 'inancial

institution such as ban" or money echange and thus is an in'ormal ay o' moving money

ithout leaving traces o' records.) Hawala transactions are popular because they are o'ten

'aster, more reliable, sometimes o''er a better echange rate, and can be much cheaper than

trans'ers through licensed 'inancial institutions.

Money Laundering is a menace because it threatens national governments and international

relations beteen them through corruption o' o''icials and legal systems. It undermines 'ree

enterprise and threatens 'inancial stability by croding out the private sector, because

legitimate businesses cannot compete ith the loer prices 'or goods and services that

businesses using laundered 'unds can o''er. Money Laundering serves as an important mode

o' terrorism 'inancing.+ Because o' its devastating e''ects, 'ighting money laundering should

be a priority 'or all countries. At the international level to combat e''orts to combat money

laundering began in 14++ ith to important initiatives: !he Basel Committee on Ban"ing

8egulations and Supervisory #ractices and the %nited &ations Convention against Illicit

!ra''ic in &arcotic (rugs and #sychotropic Substances. In India, the #revention o' Money

Laundering Act as enacted in -- in addition to the other legislations that ere already in

place li"e the oreign 2change Management Act, !he Benami !ransactions 5#rohibition6

Act. 0ther "ey players in the e''ort to combat money laundering are the 8eserve Ban" o'

India, the Securities and 2change Board o' India and the inancial Intelligence %nit* India.

7 Ibid.

) 9ohn . >ilson, Hawala and Other Informal Payments Sytems: An Economic Perspective,

available at http:==.im'.org=eternal=np=leg=sem=--=cdm'l=eng=ilson.pd' 5last

accessed on April 1, -176.

https:==.interpol.int=#ublic=inancialCrime=MoneyLaundering=haala=de'ault.asp 5Last

accessed April 1, -176.

+ #eter 9. Juir", Money a!nderin": M!ddyin" the Macro#economy, available at

http:==.im'.org=eternal=pubs='t='andd=144=3=pd'=;uir".pd' 5Last accessed April 1,

-176.

-



)*A+T&R II: A)TI'N AT T*& INT&RNATI'NAL L&,&L T' )'M%AT M'N&- LAUND&RIN

(INAN)IAL TAS/ ('R)&

!he inancial Action !as" orce4 is an inter*governmental body hich sets standards, and

develops and promotes policies to combat money laundering and terrorist 'inancing.1 !he

main emphasis o' anti*money laundering measures remains on securing documentation o'

'inancial 'los, and critical analysis o' this 'inancial 'lo.11 !he orce has provided 'orty

8ecommendations and &ine Special 8ecommendations that provide a complete set o' counter measures against money laundering. !hey set out the principles 'or action and allo countries

a measure o' 'leibility in implementing these principles according particular circumstances

and constitutional 'rameor"s.1- !hese 8ecommendations have been recogniHed, endorsed

and adopted by many international bodies as the international standards 'or combating Money

Laundering.13 A! regularly revies its members 'or compliance through annual sel'*

assessment eercises and periodic mutual evaluations o' its members. 2specially a'ter the

attac"s on the !in !oers on September 11, -11, the A! has been adopting the Ncarrot*

and*stic"O approach P on one hand, the A! has increased its interaction ith critics, and on

the others, have increased the threat o' punitive measures against problematic Eurisdictions.1$

4 ?ereina'ter, the (AT(<.

1 http:==.'at'*ga'i.org=pages=,3$1,en3--7343--3)+3)11111,.html, 5last

accessed April 1, -176.

11 Mar" #ieth, $he Prevention of Money a!nderin": A %omparative Analysis, ) 2ur. 9. Crime Crim. L. DCrim. 9ust. 174 5144+6.

1- /iEay Gumar Singh, %ontrollin" Money a!nderin" in India#Problems and Perspectives,

available at http:==.igidr.ac.in=money=m'c*11=Singh/iEay.pd' 5last accessed April 1,

-176.

13 (eboshree BannerEee, Prevention of Money a!nderin" Act: %ritical Analysis, available

at http:==.legalserviceindia.com=article=l11*#revention*0'*Money*Laundering*Act.html,

5last accessed April 14, -176.

1$ @eorge #eter @illigan, Overview: Mar&ets, Offshore Soverei"nty and Onshore e"itimacy,

3), @L0BAL I&A&CIAL C8IM2: !28808ISM , M0&2 LA%&(28I&@ A&( 0S?082

3



India became the 3$th member o' the A! in 9une -1 a'ter 'ive years o' being an

NobserverO.17India has amended the #MLA, -- and the %nla'ul Activities 5#revention6

Act, 14) to bring them in line ith the main recommendations o' the A!. A! is

important to India because India needs the comprehensive tool"it 'or la en'orcement

agencies to be able to trac" the money behind terrorist attac"s and to enable India to emerge

as an eporter o' 'inancial services.1)

As a member o' the A!, India also accepted an enhanced responsibility as the Asia #aci'ic

8egional 8evie @roup Co*chair. India underent its 'irst Asia #aci'ic @roup 1 mutual

evaluation in -7 and a Eoint A#@ and A! mutual evaluation in -+. 1+ !he A! report

suggests that hile measures have been ta"en to curb the menace o' money laundering in

India, a 'e "ey recommendations need to be included 'or a more e''ective response to this

problem li"e address the technical shortcomings in the criminalisation o' both money

laundering and terrorist 'inancing and in the domestic 'rameor" o' con'iscation and

provisional measuresQ a stricter sanctioning regime that allos 'or e''ective, proportionate

and dissuasive sanctions 'or 'ailures to comply ith Anti Money Laundering re;uirements14

C2&!82S, 5(onato Masciandaro ed. -$6, available at http:==boo"s.google.co.in=boo"s

hlenDlrDidiRuCR%pn4$CDoi'ndDpg#8Dd;preventionFo'FmoneyFlaunderingD

ots@?S8cG1Dsigrm(;oLu($)'IcR(>sJ@(dv?9oKvonepageD;D''alse 5last

accessed Apr. 4, -176.

17 India 'oins select cl!b to co!nter financial fra!ds, !?2 ?I&(%, 9une 3, -1, available at

http:==.thehindu.com=nes=article$4-$11.ece, 5last accessed April 14, -176.

1) G.#.Grishnan, India on the (A$( hi"h table, !?2 2C0&0MIC !IM2S, August 1, -1,

available at http:==articles.economictimes.indiatimes.com=-1*+*

1=nes=-)-14-1'at'*money*laundering*'inancial*action*tas"*'orce, 5last accessed on

April -, -176.

1 ?ereina'ter, the A+<.

1+ Prevention of Money a!nderin" Act bein" amended, !?2 ?I&(%, 9uly 14, -11,

available at http:==.thehindu.com=nes=national=article--77)+7.ece, 5last accessed April

-, -176.

14 M!t!al Eval!taion of India, available at http:==.'at'*

ga'i.org=document=1=,3$),en3--7343--3)4)3$77+-$11111,.html, 5last

$



%AS&L +RIN)I+L&S

In recognition o' the vulnerability o' the 'inancial sector to misuse by criminals, the Basel

Committee on Ban"ing and Supervisory #ractices issued a Statement o' #rinciples 5the NBasel

#rinciplesO6 in (ecember 14++.- !his as a signi'icant step toards preventing the use o' the

ban"ing sector 'or money laundering purposes, as it set out a number o' principles that

ban"ing institutions should comply ith li"e: customer identi'ication, compliance ith

legislation, con'ormity ith high ethical standards and local las and regulations, 'ull co*

operation ith national la en'orcement authorities to the etent permitted ithout breaching

customer con'identiality, etc.-1 !here'ore, the Basel #rinciples stress on co*operation ithin

the con'ines o' the duties o' client con'identiality. !he compliance ith these #rinciples

represented a maEor sel' regulatory initiative ithin the 'inancial sector.

In 144, in consultation ith the supervisory authorities o' a 'e non @*1 countries

including India, it dre up the -7 Core #rinciples 'or 2''ective Ban"ing Supervision< hich

ere in the nature o' minimum re;uirements intended to guide supervisory authorities hich

ere see"ing to strengthen their current supervisory regime.-- !he #rinciples deal ith

aspects li"e permissible activities o' institutions that are licensed and subEect to supervision

as ban"s must be clearly de'ined-3Q the licensing authority must have the right to set criteria

accessed April -, -176

- Money a!nderin" Prevention, available at

http:==.'incen.gov='inancialinstitutions=msb=materials=en=preventionguide.htmlKInterna

tional Money Laundering 2''orts, 5last accessed April -, -176.

-1(0%@ ?0#!0&, M0&2 LA%&(28I&@: A C0&CIS2 @%I(2 08 ALL B%SI&2SS2S, available

at http:==boo"s.google.co.in=boo"s

idIat3nhnv#ACDpg#A1Dlpg#A1Dd;baselFconventionFandFmoneyFlaunderingDs

ourceblDots>y@mae;Dsig9G2;M(&ae>un@AgbC4oSbG1sDhlenDsaRD

ei*GA!Lu2s!MrJ'4m*HRBDvedCCoJ)A2AAKvonepageD;basel

-convention-and-money-launderingD''alse, 5last accessed April -, -176.

-- Gishori 9 %deshi, Implementation of )asel II# an Indian Perspective, available at

http:==.bis.org=revie=r$)11g.pd', 5last accessed March 17, -176.

-3 #rinciple*II o' Core #rinciples 'or 2''ective Ban"ing Supervision<Q !he permissible

activities o' a ban"ing company are listed in Section )516 o' the Ban"ing 8egulation Act,

7



and reEect applications o' establishments that do not meet the standards set-$Q ban"ing

supervisors must have the authority to revie and reEect any proposals to trans'er signi'icant

onership or control in eisting ban"s to other parties -7Q evaluation o' a ban"Os policies and

procedures related to granting o' loans and ma"ing o' investments-) among other things. !he

8eserve ban" o' India had assessed its on position ith respect to the #rinciples in 144+.

!he assessment had shon that most o' the Core #rinciples ere already enshrined in our

eisting legislation ith some gaps identi'ied mainly in the areas o' ris" management in

ban"s, inter*agency co*operation ith other domestic=international regulators and

consolidated supervision. - Internal or"ing groups ere set up to suggest measures to

bridge these gaps. -+

A 'urther paper as issued by the Committee in 0ctober -1 covering customer due

diligence 'or ban"s. It addressed veri'ication and Gno our Customer 5GC6 standards ith

a cross*border aspect. !his mandates the ban" to ta"e reasonable e''orts to determine their

14$4. Section )5-6 speci'ically prohibits a ban"ing company'rom carrying on any 'orm o'

business other than those re'erred to in Section )516.

-$ #rinciple*III o' Core #rinciples 'or 2''ective Ban"ing Supervision<Q Section -- o' the

Ban"ing 8egulation Act provides that a company intending to carry on ban"ing business

must obtain a licence 'rom 8BI ecept such o' the ban"s 5public sector ban"s and 88Bs6,

hich are established under speci'ic enactments. !he 8BI issues licence only a'ter tests o'

entry< are 'ul'illed. !hese tests include minimum capital, onership structure, ban"Os

operating plans and controls, ability o' the ban" to pay its present and 'uture depositors in

'ull, ;uality o' management and hether the licensing o' the ban" ould be in the public

interest.

-7 #rinciple*I/ o' Core #rinciples 'or 2''ective Ban"ing Supervision<Q Section 1-5-6 o' the

Ban"ing 8egulation Act restricts shareholders in a ban"ing company 'rom eercising voting

rights on poll in ecess o' ten per cent o' the total voting rights o' all the shareholders o' the

ban"ing company.

-) #rinciple*/II o' Core #rinciples 'or 2''ective Ban"ing Supervision<Q %nder Section -1 o'

the Ban"ing 8egulation Act, the 8BI is charged ith the responsibility o' determining the

policy relating to advances by ban"s and o' giving directions to them in this regard.

- %ore Principles of Effective )an&in" S!pervision, 0ctober 1444, available at

http:==.rbi.org.in=upload=publications=pd's=1117.pd', 5last accessed Mar. 17, -176.

-+ Ibid.

)



customerOs true identity, and have e''ective procedures 'or veri'ying the bona'ides o' a ne

customer .-4

UNIT&D NATI'NS )'N,&NTI'N AAINST ILLI)IT TRA((I) IN NAR)'TI) DRUS AND

+S-)*'TR'+I) SU%STAN)&S

!his %& Convention as one o' the historic conventions inasmuch as the parties to the

Convention recogniHed the lin"s beteen illicit drug tra''ic and other related organised

criminal activities hich undermine the legitimate economies and threaten the stability,

security and sovereignty o' States and that illicit drug tra''ic"ing is an international criminal

activity that generates large pro'its and ealth, enabling transnational, criminal organiHations

to penetrate, contaminate and corrupt the structures o' government, legitimate commercial

and 'inancial businesses and society at all levels.3 !he broad obEective o' the #rogramme as

to strengthen the ability o' Member States to implement measures against money*laundering

and the 'inancing o' terrorism and to assist them in detecting, seiHing and con'iscating illicit

proceeds, as re;uired pursuant to %nited &ations instruments and other globally accepted

standards, by providing relevant and appropriate technical assistance upon re;uest.31

UNIT&D NATI'NS )'N,&NTI'N AAINST )'RRU+TI'N

!he %&CAC is one o' the most comprehensive anti*corruption instruments. It criminaliHes

money laundering3- thus ma"ing it one o' the uni;ue instruments that addresses both

corruption and money laundering simultaneously. !he scheme o' the convention is premised

on the 'act that an e''ective anti*money laundering regime can ma"e a signi'icant contribution

to the 'ight against corruption in at least to ays: it could help uncover evidence o' criminal

activity through identi'ication o' suspicious movements o' 'inancial assets, thus increasing

the chances o' a success'ul prosecution o' the perpetrator o' the crimeQ it also enables the

tracing o' criminal proceeds to 'acilitate their preservation, recovery and ultimate return to

-4 /iEay Gumar Singh, s!pra note 1-.

3(0%@ ?0#!0&, s!pra note -1.

31 *+O% on money#la!nderin" and co!nterin" the financin" of terrorism, available at

http:==.unodc.org=unodc=en=money*laundering=inde.html, 5last accessed Mar. 17, -176.

3- Article -3 o' the %&CAC.



their right'ul oner. 33 !he scope o' Article -3 is not limited to laundering o' money and

instead its 'ocus is the conversion or trans'er o' property thus a''ecting all manner o' bene'its

'rom cash, company shares etc. 3$

!he lin" beteen corruption and money laundering as also brought out in the recent

movement 'or the 'ormation o' Lo"pal led by Anna ?aHare here initiating measures to bring

bac" blac" money as seen as an integral part o' the 'ight against corruption.

33 Indira Carr and Miriam @oldby, $he *+ Anti#%orr!ption %onvention and Money

a!nderin" , available at http:==idec.gr=iier=ne=C088%#!I0&-C0&282&C2=!he

-%&-Anti*corruption-convention-and-money-laundering*I&(I8A

-CA88.pd', 5last accessed Apr. + -176.

3$ Ibid.

+



)*A+T&R III: ANTI0M'N&- LAUND&RIN L&ISLATI'NS IN INDIA

+R&,&NTI'N '( M'N&- LAUND&RIN A)T !""!

!he #revention o' Money Laundering Act, --37 as enacted on the 1th o' 9une, -3 and

came into e''ect 'rom the 1sts o' 9uly, -7 ith the aim o' preventing money laundering and

providing 'or the con'iscation o' property hich had been derived 'rom money laundering.3)

!he Act provides 'or the prosecution o' individuals and legal entities indulging in money

laundering, and 'or the con'iscation and attachment o' property obtained through moneylaundering.

!he #MLA contains 7 sections divided into ten chapters, and also contains a Schedule

divided into #art A and #art B.

Chapter I o' the Act deals ith the preliminary provisions, such as the etent o' the Act and

the interpretational clause. Chapter II lays don the o''ence o' money*laundering. Section -

is the de'initional clause, hoever, it is Section 3 o' the #MLA that de'ines the o''ense o'

money laundering, and ma"es the direct or indirect attempt to indulge or "noingly assist, or

be "noingly involved in any process or activity connected ith the proceeds o' crime3 an

o''ence. !he o''ences are divided into #arts A and B o' the Schedule to the #MLA.

Section $ o' the Act lays don the punishment 'or money*laundering as rigorous

imprisonment 'or a period beteen three to seven years, and a 'ine o' 'ive la"h rupees.

?oever, i' a person is convicted under #aragraph - o' the Schedule3+, the term o'

incarceration can be etended to 1 years.

37 ?ereina'ter, 1the +MLA2.

3) G.#. Grishnan, e"al -e"ime for AM Anti Money a!nderin"/ in India, available at

http:==.icrier.org=pd'=pptinpd'=amlppt'oricrier.pd' 5last visited April 1, -176.

3 #roceeds o' Crime is de'ined in Section - 5u6 o' the #MLA as:5u6 proceeds o' crime< means any property

derived or obtained, directly or indirectly, by any person as a result o' criminal activity related to a scheduledo''ence or the value o' such property.

4



Chapter III o' the #MLA deals ith the attachment, adEudication and con'iscation o' property.

!he adEudicating authority appointed by the Central @overnment under section $+ o' the

#MLA is empoered under section 7 to attach or seiHe property. ?oever, the Authority is

alloed to attach property 'or 4 days only i' the person involved has committed a crime

'alling under the Schedule o' the , and i' a report has been 'orarded to a Magistrate under

section 13 o' the Criminal #rocedure Code, or i' a Special Court has ta"en cogniHance o' the

matter.

Chapter I/ o' the #MLA prescribes the obligations o' ban"ing companies, 'inancial

institutions and intermediaries. Ban"ing Company< under #MLA includes all nationaliHed

ban"s, private Indian ban"s and private 'oreign ban"s, all co*operative ban"s, the State Ban"

o' India and 8egional 8ural Ban"s.34 Intermediary< under #MLA includes persons

registered under Section 1- o' the Securities and 2change Board o' India 5S2BI6 Act, 144-.

Section 1- 516 mandates these institutions to 5a6 to maintain records detailing the nature and

value o' transactions hich may be prescribed, hether it be in a single transaction or a series

o' transactions integrally connected to each other ta"ing place under a monthQ 5b6 to 'urnish

in'ormation o' these transactions to the (irector ithin a prescribed time period and to

records o' the identity o' all its clients. Section 1- 5-6 mandates that these records be

maintained 'or a period o' 1 years. %nder the provisions o' Section 13, a 'ine may be levied

by the authority prescribed by the Central @overnment upon such ban"s and 'inancial

institutions hich do not comply ith the provisions o' Section 1-.

Chapter / o' the #MLA deals ith provisions relating to search, summons and seiHure.

Section 1) lays out the poer to enter any place to investigate given to Authority, hile

Section 1 gives the poer to the Authority under the #MLA to seiHe any property. %nder

ssection -$ o' the Act also puts the burden o' proo' on the accused to prove that the proceeds

o' crime are untainted property.

Chapter /I o' the Act contemplates the setting up o' an Appellate !ribunal to hear appeals on

matters adEudicated upon by the authority appointed under the Act, hereas Chapter /II lays

3+ #aragraph - o' the Schedule lists out o''ences under the &arcotic (rugs and #sychotropic Substances Act,14+7.

34 Section -5e6 o' the #MLA.

1



don that special courts can be designated 'or trying o''ences under the #MLA. Chapter /III

contains the provisions relating to the appointment o' authorities under the Act, and certain

provisions relating to Eurisdiction and other appointment o' special o''icers.

Chapter IR o' the #MLA deals ith reciprocal arrangements 'or assistance in matters and

also lays don the procedure 'or attachment and con'iscation o' property, hereas Chapter R

contains miscellaneous provisions.

T*& +MLA AM&NDM&NT %ILL !"##

!he #MLA Amendment Bill -11 as introduced by #ranab Mu"herEee in the Lo" Sabha on

(ecember -, -11. !he Bill toughens the stance on money laundering, and introduces 1

"ey amendments to the Act.

!he Statement o' 0bEects and 8easons states that the introduction o' such an amendment as

necessary since problem o' money*laundering is no longer restricted to the geo political

boundaries o' any country, it is necessary to have a stricter enactment in place. Another

reasons given 'or the amendment is that India has become a member o' the inancial Action

!as" orce and Asia #aci'ic @roup on money*laundering, and the Bill is the e''ort o' theIndian government to bring anti*money laundering legislations at par ith international

standards.

!here are several changes to the de'initional clause under the Bill. Section -5ia6 introduced

the concept o' Ncorresponding laO, lin"ing the provisions o' Indian la to the la o' 'oreign

countries. Section -5a6 also introduced the concept o' Nreporting entityO, hich includes a a

ban"ing company, 'inancial institution, intermediary or a person carrying on a designated

business or pro'ession. !he de'inition o' o''ence under section 3 o' the #MLA ill be

epanded to include activities li"e concealment, ac;uisition, possession and use o' proceeds

o' crime, and ould also do aay ith the eisting cap o' 'ive la"h rupees on penalties 'or

violations under Section $.$ Section 7 o' the #MLA, dealing ith provisional attachment,

also stands amended, ith the days o' provisional attachment etended to 1+ days, instead

$ A copy o' the #MLA Amendment Bill can be accessed at

http:==.prsindia.org=billtrac"=the*prevention*o'*money*laundering*bill*-11*-1$3=, 5last

accessed Mar. -, -176.

11



o' 4 as it stands today. A ne section 1- also has been inserted in the Bill, 'or it see"s to

ma"e all the reporting entities to "eep a record o' all transactions, and to veri'y the identities

o' their customers. !he time period, hoever, remains 1 years, hoever, the reporting

entities can be made responsible i' they do not "eep or 'urnish the in'ormation to the

Authority as and hen re;uired.$1 !he Bill provides 'or an amendment in Section -$ as ell,

as a presumption that the money involved in proceedings 'or money laundering shall be

raised$-, and also provides 'or summary attachment and con'iscation o' property even i' there

is no conviction. !he Bill also contemplating merging Schedule A and B so as to erase the

monetary threshold beteen the di''erent "inds o' o''ences under the #MLA.

$1 Ibid.

$- Id.

1-



)*A+T&R I,: 'T*&R L&ISLATI'NS D&ALIN WIT* M'N&-0LAUND&RIN

T*& ('R&IN &3)*AN& MANA&M&NT A)T #444

It prescribes chec"s and limitations on certain 'oreign echange remittances. 0''ences under

the oreign 2change Management Act, 1444$3 are not scheduled o''ences under the #MLA.

!he rationale behind this is that only the most violent and important crimes have been

mentioned under the #MLA since the #MLA gives massive poers o' arrest to la

en'orcement agencies. An eample o' the o''enders targeted under the #MLA ould be the

ma'ia dealing in murder, etortion, terrorism and prostitution ho have immense li;uid

ealth that they ant to launder. Since the poers under the #MLA are so over*reaching, the

list o' scheduled o''ences thereunder has deliberately been "ept short, and 2MA o''ences

have been ecluded 'rom their ambit.$$ 2ven so, money*laundering is regarded as an

egregious crime under the 2MA as ell, a consideration that is especially important in the

assessment o' hether or not an o''ence can be compounded. $7

Interestingly, the enactment o' the 2MA is oed in large part to the passing o' the #MLA

since it sought to rela the regulatory structure 'or 'oreign echange, a step that as only

alloed hen there as assurance that despite this relaation, illegal transactions o' drug

peddlers, terrorists, arm smugglers and other perpetrators o' heinous economic crimes ould

not go unpunished. $)

Among the most 'amous controversies involving money laundering under the 2MA is the

case 'iled in August, -11, by the 2n'orcement (irectorate against S 9aganmohan 8eddy,

son o' 'ormer Andhra #radesh Chie' Minister, S 8aEase"har 8eddy. $

$3 ?ereina'ter 2MA.<

$$ (EMA and Money a!nderin", available at http:==.rashminsanghvi.com='emaboo").htm 5last

accessed April , -176

$7 -)I %irc!lar 0 the compo!ndin" of contravention !nder (EMA , available at

http:==.layersclubindia.com=articles=printthispage.asparticleid33) 5last accessed April ), -176

$) Money a!nderin" !nder the (EMA re"ime , available at http:==.ieo.org=budget4+=sp1-.htm 5last

accessed April , -176

$ E files (I- in Hyd on Money la!nderin" and (EMA violations a"ainst 1S 2a"an , available at

http:==telugudesam.org=tdpcms=inde.phpoptioncomcontentDviearticleDid1$- 5last accessed April ,

13

http://www.rashminsanghvi.com/femabook6.htm

http://www.lawyersclubindia.com/articles/print_this_page.asp?article_id=3036

http://www.ieo.org/budget98/sp012.htm

http://telugudesam.org/tdpcms/index.php?option=com_content&view=article&id=17742:%20ED%20files%20FIR%20in%20Hyd%20on%20Money%20laundering%20and%20FEMA%20violations%20against%20YS%20Jagan

http://telugudesam.org/tdpcms/index.php?option=com_content&view=article&id=17742


http://www.rashminsanghvi.com/femabook6.htm

http://www.lawyersclubindia.com/articles/print_this_page.asp?article_id=3036

http://www.ieo.org/budget98/sp012.htm

http://telugudesam.org/tdpcms/index.php?option=com_content&view=article&id=17742:%20ED%20files%20FIR%20in%20Hyd%20on%20Money%20laundering%20and%20FEMA%20violations%20against%20YS%20Jagan




T*& %&NAMI TRANSA)TI'NS 5+R'*I%ITI'N6 A)T

!he ord NbenamiO is #ersian 'or Nproperty ithout a nameO.$+ A benami transaction is one

here property is trans'erred or purchased in the name o' one person but another person is

paid consideration 'or the trans'er. It thus becomes a sa'e ay o' par"ing ill*gotten ealth. In

'act, the role played by benami transactions is more versatile than Eust that, and etends to ta

evasion, de'rauding creditors and sometimes serving as a means 'or ma'ia dons to operate

through aliases.$4

!he Benami !ransactions 5#rohibition6 Act, 14++,7 prohibits the purchase o' property in the

name o' another person ho does not pay 'or the property, and prescribes a punishment o'

upto three years 'or a person ho commits this o''ence. ?oever, the B!#A has been

considered largely ine''ective and is sought to be replaced by the Benami !ransactions

5#rohibition6 Bill, -11, hich as introduced in the Lo" Sabha last year. 0ne o' the maEor

reasons cited 'or its ine''iciency as that the manner in hich it had been dra'ted made the

'ormulation o' rules thereunder impossible.71

?oever, the Bill has been subEect to substantial criticism on many counts. or eample, it

still allos benami transactions in the name o' spouse, brother, sister or any lineal ascendant

or descendant.7- It has reduced the maimum term o' imprisonment 'or entering into a benami

transaction 'rom three years to to years.73 8ecognising the neus beteen money laundering

-176

$+Meghna Bhas"ar, )enami $ransactions Prohibition / )ill, 3455 , available at

http:==Eurisonline.in=-11=4=benami*transactions*prohibition*bill*-11= 5last accessed April +, -176

$4 /. Gumarasamy, )!t $hat6s +ot Mine7 , available at

http:==.telegraphindia.com=1114-+=Esp=opinion=story1$7)-+.Esp 5last accessed April , -176

7 ?ereina'ter B!#A<

71 Introd!cin" the )$PA )ill , available at http:==.caclubindia.com=nes=introduction*o'*the*benami*transactions*prohibition*bill*-11*4++.asp 5last accessed April , -176

7-Bill 'or stricter control o' benami transactions introduced , available at

http:==.thehindu.com=nes=national=article-3)4+.ece 5last accessed April , -176

73 SanEeev Sirohi, Benami !ransactions #rohibition Bill -11 P A Critical Analysis , available at

http:==goindocal.com=benami*transactions*prohibition*bill*-11*-74)*a*critical*analysisgo*37-.htm 5lastaccessed April , -176

1$

http://jurisonline.in/2011/09/benami-transactions-prohibition-bill-2011/


http://www.telegraphindia.com/1110928/jsp/opinion/story_14562807.jsp

http://www.caclubindia.com/news/introduction-of-the-benami-transactions-prohibition-bill-2011-9878.asp



http://www.thehindu.com/news/national/article2369780.ece

http://goindocal.com/benami-transactions-prohibition-bill-2011-%2596-a-critical-analysisgo-3052.htm



http://www.telegraphindia.com/1110928/jsp/opinion/story_14562807.jsp







and benami transactions, the Bill see"s to ma"e the AdEudicating Authority and the Appellate

!ribunal established under the #MLA responsible 'or eamining disputes around benami

transactions as ell.7$ !his ill give a chance to the accused to present his case be'ore it goes

to the court.

T*& NAR)'TI) DRUS AND +S-)*'TR'+I) SU%STAN)&S A)T #478

!he Act provides 'or con'iscating sale proceeds 'rom selling any narcotic drug or

psychotropic substance, and 'or the seiHure o' any goods used to conceal such drugs, and also

provides 'or the 'or'eiture o' any illegally ac;uired property. 0''ences under the &arcotic

(rugs and #sychotropic Substances Act, 14+7 'ind a place in #aragraph - o' #art I o' the

Schedule to the #MLA.77 It is 'eared that the con'erral o' etensive poers by the Supreme

Court in August, -11 on the Special Investigation !eam set up to unearth blac" money ill

destabilise the hole structure that has been set up by money laundering las such as the

&(#S Act.7)

T*& UNLAW(UL A)TI,ITI&S 5+R&,&NTI'N6 A)T #49

Amended in -+, the Act empoers the Central @overnment to seiHe and attach 'unds and

other 'inancial assets or economic resources held by engaged in or suspected to be engaged in

terrorism and prohibit any individual or entity 'rom ma"ing any 'unds, 'inancial assets or

economic resources or related services available 'or the bene'it o' these individuals under

Section 71 A. As on March, -11, 11 out o' the 1-)4 cases being investigated by the

2n'orcement (irectorate in connection ith money laundering 'ell under the %nla'ul

7$ )ill for Stricter %ontrol Over )enami eals Introd!ced, available at http:==.business*

standard.com=india=nes=bill*'or*stricter*control*over*benami*deals*introduced=$$)31= 5last accessed April +,-176

77 Synopsis: PMA 3443 , available at http:==.caclubindia.com=articles=prevention*o'*money*laundry*act*--*a*synopsis*1)$).asp 5last accessed April , -176

7) Hasan Ali and Money a!nderin", available at http:==articles.timeso'india.indiatimes.com=-11*+*-7=india=-44-)31-1blac"*money*money*laundering*act*hasan*ali*"han 5last accessed April +, -176

17

http://www.business-standard.com/india/news/bill-for-stricter-control-over-benami-deals-introduced/446310/



http://www.caclubindia.com/articles/prevention-of-money-laundry-act-2002-a-synopsis-10646.asp


http://articles.timesofindia.indiatimes.com/2011-08-25/india/29926312_1_black-money-money-laundering-act-hasan-ali-khan










Activities 5#revention6 Act, 14)7.7+ More amendments ere announced last year to bring

the %A#A in line ith A! standards74 as ell as IndiaOs other international obligations.)

>hile this commitment has been rea''irmed ever since the announcement as 'irst made, )1 no

concrete action seems to have been ta"en on this 'ront.

7 ?ereina'ter %A#A.<

7+ Anti Money#a!nderin" (ramewor&, India, available athttp:==socialissuesindia.ordpress.com=-11=4=+=anti*money*laundering*'rameor"*in*india= 5last accessedApril +, -176

74 /i"ash adav, PMA 3443: -e#en"ineered , available at http:==.redi''.com=business=report=india*tea"ing*las*to*chec"*money*laundering=-1114.htm 5last accessed April , -176

) Money la!nderin" law to be modified: M!&her'ee news , available at http:==.domain*

b.com=economy=general=-1114mu"herEee.html 5last accessed April , -176

)1@ovt mulls >hite #aper on blac" money: inance Ministry , available at http:==.thehindu.com=nes=national=article-)74).ece 5last accessed April +, -176

1)

http://socialissuesindia.wordpress.com/2011/09/08/anti-money-laundering-framework-in-india/


http://www.rediff.com/business/report/india-tweaking-laws-to-check-money-laundering/20110719.htm



http://www.domain-b.com/economy/general/20110719_mukherjee.html











)*A+T&R ,I: ANAL-IS '( T*& R AM J&T*MALANI +IL

R AM J ETHMALANI V . U NION OF I NDIA62

!his landmar" case in the area o' money laundering la mar"s the only real attempt o' the

Supreme Court to actively curb money laundering, by mandating e''icacious measures. !he

'acts o' the case arise in the 'olloing bac"ground.

!he cases o' ?asan Ali and his accomplice !apuria stand out as particularly egregious

instances o' the lac" o' implementation o' the money*laundering las in India. ?asan Ali, 73*

year*old, son o' ?yderabad 2cise 0''icer is "non to have unaccounted money to the tune

o' 8s. -, to 37, crore. ?is account at the Siss Ban", %BS holds up to %S( + billion,

and he is liable 'or a ta de'ault o' about 8s. 7, crore in India.

A >rit petition as 'iled in based on reports in the media and scholarly articles,

regarding the lac" o' action ta"en by the State authorities in countering the large sums o'

unaccounted money in 'oreign ban"s, particularly those in Eurisdictions that are ta havens

ith strong privacy las. !he main contention as that the 'undamental rights o' the people

under Articles -1, 1$, 14 ere violated by selectively disregarding such large scale ta

evasion on the part o' persons li"e ?assan Ali.

The +etition

!he #etitioners contended that such a dereliction o' duty to en'orce the ta de'ault on the part

o' State authorities re'lects a complete lac" o' control over unla'ul activities o' to "inds,

one, ta evasion and to, those criminal activities that are 'unded by the blac" money

economy. Moreover, such blac" money in siss ban"s as laundered and rerouted bac" into

India 'or illegal activities, thus contributing to the creation o' netor"s o' international

'inance. Large scale criminal activities li"e terrorism, arms smuggling, narcotic trade and

similar activities hich are 'uelled by the blac" economy are also detrimental to the security

and integrity o' India. !he petitioners also contended that this money as ;uite li"ely to be

)- -115)6 SCAL2 )41

1



that o' poer'ul persons and the lac" o' action on the part o' the State indicated gross apathy

toards prosecution o' individuals.

#articularly, ?assan Ali Ghan D !apuria had been served ith an Income !a demand to the

tune o' 8s. $, crore and -,7+ crore respectively. !he 2n'orcement (irectorate 52(6

had, in -, reported that ?assan Ali indulged in dealings amounting to %S( 1.) billion

beteen -1*7. !he 2( also carried out a raid in ?assan AliOs #une residence, hich led to

the discovery o' evidence o' deposits o' %S( +.$ billion ith %BS Ban", urich.

(espite this, hoever, no investigation had been commenced by the State into the matter. !he

petitioners had contended that the %nion o' India had 'altered on several levels:

a6 Both ?assan Ali and !apuria ere in India and hence 'alling ithin the Eurisdiction o'

Indian Courts and investigative authorities

b6 %nion o' India, despite repeated 8!I applications, as not divulging in'ormation

regarding the Indian account*holders in Siss Ban"s

c6 !he Siss Ban", %BS, urich, one o' the biggest ealth management companies in

the orld, had in particular, 'allen in bad light ith the Indian authorities as it as

involved in several untoard scams earlier in the decade.

Issues

0n this premise and based on the speci'ic arguments advanced by the #etitioners, there ere

to main issues ere sought to be addressed by the Court:

16 >hether the Supreme Court must constitute a Special Investigation !eam 5SI!6 under

a 'ormer Supreme Court 9udge to monitor investigations cases o' blac" money

-6 >hether the Court must mandate that the %nion must endeavour to 'irst obtain and

then disclose the list o' Indian ban" account holders in ban"s in Liechtenstein

Argu;ents o< the +etitioners:

8e: Constitution o' SI!

!he petitioners argued that an SI! ought to be constituted under the supervision o' 'ormer

Supreme Court Eudges to continually monitor investigation and prosecution o' blac" money

cases.

8e: (isclosure o' ban" account in'ormation in ban"s in Liechtenstein

1+



!he council 'or the #etitioners submitted that a 'e years ago, an employee o' a ban" in

Liechtenstein had o''ered to divulge names o' ban" account holders to the government o'

@ermany. @ermany had secured these names on had conse;uently initiated proceedings

against ) individuals. !he government o' @ermany had also o''ered the list o' names to

other countries i' they chose to initiate prosecutions against these individuals, outside the

'rameor" o' the Indo*@erman (ouble !a Avoidance Agreement. In this light, it as

unclear hy, despite several 8!I applications, the %nion had not revealed the names o' these

account holders. Moreover, no steps to recover moneys or punish these individuals had been

ta"en so 'ar.

Argu;ents o< the Res=ondents

8e: Constitution o' SI!

!he Solicitor @eneral responded to the arguments o' the #etitioner by submitting that the

%nion o' India had done everything in their poer toards prosecution and investigation o'

blac" money cases. >hile they had no principal obEection against the submission o' the

petition, they argued that a Court monitored investigation as permissible but 0G but not a

SI!. !hey submitted that there as already a ?igh Level Committee constituted under the

(ept o' 8evenue in the Ministry o' inance, hich as a body that as capable o' eercising

all the 'unctions and poers sought to be entrusted to the SI! proposed by the #etitioners.

Moreover, the 8espondents submitted that cases o' money laundering necessarily involve

many Eurisdictions as these ban" accounts ere located in di''erent countries ith las and

(ouble !a Avoidance Agreements that protected the privacy o' these account holders.


!he Solicitor @eneral responded to the case o' the #etitioners by submitting that the list o'

names o' ban" account*holders in the possession o' the Indian @overnment ere obtained

through the (!AA ith @ermany, as @ermany had speci'ically as"ed the %nion o' India to

ta"e the said in'ormation through the (!AA. !he (!AA speci'ically contained a prohibition

on disclosure o' in'ormation obtained through the (!AA, through its con'identiality clause.

Any actions on the part o' the %nion in breach o' this (!AA ould EeopardiHe IndiaOs

relations ith @ermany,

14



Moreover, the disclosure o' the names o' all the account*holders ould be in gross violation

o' the right o' privacy o' individuals ho ere using these Siss Ban" accounts 'or

legitimately earned money, thus 'alling outside the purvie o' a potential investigation or

prosecution 'or money laundering. !he State argued that even i' it ere to disclose this list,

only those names o' persons against hom investigation had been commenced and

proceedings had been initiated ould be disclosed.

Judg;ent

8e: Constitution o' the SI!

!he Supreme Court recogniHed that although a ?igh Level Committee had been set up ith

etensive poers, the charge*sheet o' ?assan Ali had not even been vetted by this committee,

nor as the Committee monitoring the investigation and ensuring speedy progress. Moreover,

the Court opined that hile these matters may actually be spread over several Eurisdictions,

even as regards those persons ithin Indian Eurisdiction, against hom su''icient evidence

eists in the hands o' the Indian authorities, the @overnment had not done enough.

!hus, the Court held that the %nion o' India ought to constitute an SI! ith very broad

poers o' investigation and prosecution o' blac" money cases. !he SI! ould be re;uired to

constantly report developments to the Supreme Court. It ould comprise o' all the members

o' the ?igh Level Committee along ith the (irector o' the 8esearch and Analysis >ing

58A>6, viH.:

i. (irector, 8A>

ii. !o 'ormer Eudges o' the SC

iii. Secretary, (epartment o' 8evenue, as the ChairmanQ

iv. (eputy @overnor, 8eserve Ban" o' IndiaQ

v. (irector 5IB6Qvi. (irector, 2n'orcement (irectorateQ

vii. (irector, CBIQ

viii. Chairman, CB(!Q

i. (@, &arcotics Control BureauQ

. (@, 8evenue IntelligenceQ

i. (irector, inancial Intelligence %nitQ and

ii. 9S 5! D !8*I6, CB(!.


-



Article -)516 o' the (!AA 5on 2change o' In'ormation6 on con'identiality o' in'ormation

echanged under the (!AA reads as 'ollos:

$he competent a!thorities of the %ontractin" States shall e8chan"e s!ch

information as is necessary for carrying ou !e "ro#isions of !is Agree$en .

Any information received by a %ontractin" State shall be treated as secret in the

same manner as information obtained !nder the domestic laws of that State and

shall be disclosed only to persons or a!thorities incl!din" co!rts and

administrative bodies/ involved in the assessment or collection of, the

enforcement or prosec!tion in respect of, or the determination of appeals in

relation to, the ta8es covered by this A"reement. $hey may disclose the

information in p!blic co!rt proceedin"s or in '!dicial proceedin"s.

!hus, it as clear that Article -) o' the (!AA governed only echange o' in'ormation that

as underta"en 'or the purpose o' carrying out the provisions o' the Agreement<. Since the

list o' names o' ban" account holders in Liechtenstein as not in'ormation necessary 'or

carrying out provisions< o' the Indo*@erman (!AA, the Court held that Liechtenstein as

not covered ithin the ambit o' the Indo*@erman (!AA. !he Court also held that the 'act

that @ermany as"ed India to treat the in'ormation as granted under Article -) o' the (!AA is

immaterial.

Moreover, there as no >ar o< se?re?y i;=osed on disclosing such in'ormation 'or the

purpose o' ?ourt =ro?eedings. !he Court struc" don the argument o' the %nion that these

court proceedings ere limited to merely ta proceedings, on the basis that such a reading o'

Article -)516 ould render the last sentence in the Article redundant. or this, the Court cited

Article 31 o' the /ienna Convention on the La o' !reaties to state that the treaty should be

interpreted so as to give the ords used its ordinary meaning.

!he Court also pre*empted arguments on part o' the State that the burden o' establishing case

against blac" money ould lie on the #etitioners, thus re;uiring petitioners to produce

in'ormation on ban" accounts harbouring blac" money, by holding that the burden o'

protecting 'undamental rights lay on the State. !he State ould thus be re;uired to obtain and

disclose all in'ormation toards the prosecution o' blac" money cases, in order to uphold the

'undamental rights o' the rest o' the honest ta*paying individuals.

-1



0n the right to "no< under Article 145-6, the Court recogniHed that the countervailing right

to privacy o' the ban" account holders as a 'undamental right read into Article -1 by the

Supreme Court in case la. !his 'undamental right to privacy guaranteed to persons ensures

ithin its ambit that hu;an >eings <ree o< =u>li? s?rutiny i< they are a?ting in ?on<or;ity

with law. There<ore the right o< =ersons under Arti?le $! to =etition the ?ourt in =u>li?

interest against ;oney laundering ;ust >e >alan?ed >y the right under Arti?le !# o<

a??ount holders in Swiss %an@s. !here'ore the Court held that the State ta authorities

cannot be mandated to disclose account details o' all account holders, even in the absence o'

investigation to reveal that the account holders are suspected o''enders under the #MLA.

overn;ents Res=onse to the Judg;ent

!he establishment o' the SI! ith unprecedented poers to investigate in this case as not

reacted to positively by the Centre, and speci'ically, the inance Ministry.

Attorney @eneral @oolam /ahanvati, presenting the CentreOs case be'ore a bench consisting

o' 9ustices Gabir and &iEEar, re;uested a modi'ication o' the terms o' creation o' this body,

claiming that it ould result in the ultimate destabiliHation o' a large number o' probe

mechanisms set up under di''erent las including the &(#S Act, the I! Act, the 2MA and

others by creating a Nsuper*'orceO, especially one ith a composition as limited as that o' the

SI!,. !his argument stemmed 'rom the 'act that such members as the 8BI (eputy (irector

ere epected to ta"e up duties as heavy as investigating the maEority o' all money

laundering cases in the country, despite clearly having their on 'unctions to discharge. )3

urther, concerns ere related about the 'itness o' certain members, such as the 8A>

(irector, being a nameless, 'aceless entity, to sit at the helm o' a court*appointed body. !he

Centre too" strong obEection to the 'act that an etremely high*level, etremely poer'ul

body, ith multi*Eurisdictional operation ould render redundant several legislatively created

committees and bodies, could be created ithout any parliamentary consideration. !he plea

as obEected to on the grounds that it as a revie in disguise, and the necessity o' the body

as created by the slo movement at the centre.)$

)3 on9t ma&e blac& money SI$ a s!per force: %entre tells S% , available at

http:==articles.timeso'india.indiatimes.com=-11*+*-7=india=-44-)31-1blac"*money*

money*laundering*act*hasan*ali*"han 5last accessed April 4, -176

--







!he response o' the @overnment to this groundbrea"ing Eudgment o' the Supreme Court as

the 'iling o' a recall petition in 2ethmalani v. *OI ; be'ore Altamas Gabir and S. S. &iEEar, 99.

It as argued by the State that the cases cited by the 9udges in the Eudgment o' -am

2ethmalani v. *nion of India , in the matter o' constitution o' the SI! ere incorrect, as these

cases did not actually constitute SI!s ultimately. !he State thus prayed that the Court modi'y

the order to remove that part o' the order that mandates the constitution o' the SI!.

!he Court hoever held that this petition as essentially a revie petition, and there'ore the

Supreme Court as precluded 'rom hearing a petition 'or modi'ication< or <recall<.

)ritiBue and )on?lusion

A very important area o' la here constitutional values 're;uently come in 'riction ith

each other is that o' Ncourt directed investigationsO. !his has pic"ed up pace in the recent

years as evidenced by the CourtOs ordering o' a C.B.I investigation 5&andigram 'iring

incident 'or instance6,appointing an S.I.! 5@uEarat 'a"e encounter case6 as ell as constituting

an SI! in the 9ethmalani #IL. 0rdering an investigation and supervising it are primarily

eecutive 'unctions and not Eudicial 'unctions, as NinvestigationO comes under N#oliceO hich

is a state subEect under Nla and orderO 52ntry -, List II6 o' the Seventh Schedule o' the Indian

Constitution. >here the court decides to direct or supervise an investigation through the

constitution o' an SI!, it ta"es up the mantle o' the eecutive, hich may prima 'acie be a

violation o' the principle o' separation o' poers). Moreover, since la and order is a state

subEect, directing and overseeing investigations comes under the legitimate, constitutional

domain o' the stateOs poers. !hus a court ordered investigation through an SI! is also in

breach o' the principle o' 'ederalism.

?oever, it is submitted that here the issue is a gross violation o' 'undamental rights, the

court must do everything it can to ensure a 'ree and 'air investigation, i' needed supervise it.

)$ <ovt str!""les with its many committees on blac& money, available at http:==.indianepress.com=nes=govt*struggles*ith*its*many*committees*on*b=+14+)=., 5last accessedApril , -176

)7 -11516SCAL273

)) -115)6 SCAL2 )41

) -am 2ethmalani v. *nion of India, -11 5$6 %9 --3 5SC6.

-3

http://www.indianexpress.com/news/govt-struggles-with-its-many-committees-on-b/819876/





!hat is precisely hat happened in State of =est )en"al v. %.P..->, here the court 'irst

held that there had been a complete abrogation o' 'undamental rights and under such

circumstances, the court thought it appropriate to order a C.B.I investigation. Citing

Minnerva Mills?, the court observed:

@$hree Articles of o!r %onstit!tion, and only three, stand between the heaven of

freedom into which $a"ore wanted his co!ntry to awa&e and the abyss of

!nrestrained power. $hey are Articles 5, 5?, 35 and B5 % has removed two sides

of that "olden trian"le which affords to the people of this co!ntry an ass!rance

that the promise held forth by the preamble will be performed by !sherin" an

e"alitarian era thro!"h the discipline of f!ndamental ri"hts, that is, witho!t

emasc!lation of the ri"hts to liberty and eC!ality which alone can help preserve

the di"nity of the individ!al.D

Articles 1$ and 14 do not con'er any 'anci'ul rights. !hey con'er rights hich are elementary

'or the proper and e''ective 'unctioning o' democracy. !hey are universally regarded by the

%niversal (eclaration o' ?uman 8ights. !he court in the past that opined that i' Articles 1$

and 14 are put out o' operation, Article 3- ill be drained o' its li'e blood. 0urs is a

controlled ConstitutionQ in that sense, Articles 1$, 14, -1 represent the 'oundational values

hich 'orm the basis o' the rule o' la, the essence o' hich is a part o' Basic Structure .

!hese are the principles o' constitutionality hich 'orm the basis o' Eudicial revie apart

'rom the rule o' la and separation o' poers1. @oing along these lines, it may be concluded

that here 'undamental rights in their essence are in'ringed to the etent that there is an

absolute abrogation o' their eistence, the court must, i' it considers necessary, order and

direct= supervise an investigation. !he poer o' Eudicial revie being an integral part o' the

basic structure o' the Constitution, no Act o' #arliament can eclude or curtail the poers o'

the Constitutional Courts ith regard to the en'orcement o' 'undamental rights-. !his

there'ore does not amount to in'ringement o' either the doctrine o' separation o' poer or the

'ederal structure.

Moreover, it is submitted that this case displays several conse;uentialist Eusti'ications

despite the above criticisms. ?assan AliOs o''ences have 'inally been investigated. In the

)+ %.P..-, AI8 -1 SC 1$)

)4 Minnerva Mills, 14+ AI8 1+4 5Supreme Court6, at T $.

Coelho, 5-6 - SCC 1.

1 %oelho, -6 - SCC 1.

- Minnerva Mills, 14+ AI8 1+4 5Supreme Court6.

-$



meantime, his bail application as granted by the Bombay ?C but this order as set aside by

Supreme Court in late -11.3

3 %nion o' India v. ?assan Ali Ghan, -11 5116 SCAL2 3-

-7



)*A+T&R ,II: T*& R &S&R,& %AN/ '( INDIA AND ANTI0M'N&- LAUND&RIN

M&ASUR&S

!he 8eserve Ban" o' India$ has introduced guidelines, ta"ing 'rom poers sourced to the

Section 37A o' the Ban"ing 8egulation Act, 14$4 and 8ule o' the #revention o' Money

Laundering 5 5Maintenance o' 8ecords o' the &ature and /alue o' !ransactions, the

#rocedure and Manner o' Maintaining and !ime 'or urnishing In'ormation and /eri'ication

and Maintenance o' 8ecords o' the Identity o' the Clients o' the Ban"ing Companies,

inancial Institutions and Intermediaries6 8ules, -7 to reduce 'inancial 'rauds and identi'ymoney*laundering transactions.7 !hese are applicable to both ban"s and &BCs under

separate noti'ications. !hese guidelines are "non as the Gno our Customer 5GC6

norms=Anti*Money Laundering 5AML6 standards=Combating o' inancing o' !errorism

5C!6 standards, here e can see that the need to Gno our Customer is derived 'rom the

aims o' combating money laundering, and 'inancing to terror organiHations. !hese standards

ere 'irst laid don in a preliminary 'orm in --, but they have been altered 're;uently

since then, and they are compiled in the 'orm o' to master circulars released every year on

9uly 1, -11, ith a sunset clause o' one year. !he most recent guidelines NGno our

CustomerO guidelines have been revisited in the contet o' the recommendations made by the

inancial Action !as" orce 5A!6 on Anti Money Laundering 5AML6 standards and on

Combating inancing o' !errorism 5C!6, as ell as the paper issued on Customer (ue

(iligence 5C((6 'or ban"s by the Basel Committee on Ban"ing Supervision.) %nder these

guidelines, a 'oreigner in India may remit %S( -7 'or his=her individual purposes.

$ ?ereina'ter, the 8BI<.

7 or a detailed guide on the GC procedures, re'er to

http:==rbidocs.rbi.org.in=rdocs=noti'ication=#(s=-C3)11.pd' .

) Ibid.

AEay Sha, Eval!atin" India6s Money a!nderin" e"islations, available at http:==.anti*moneylaundering.org=asiapaci'ic=India.asp 5last accessed April +, -176

-)

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/72CY300611F.pdf

http://www.anti-moneylaundering.org/asiapacific/India.aspx








!hese guidelines essentially re;uire ban"s to lay don their on speci'ic sets o' policies and

standards in compliance ith a 'airly comprehensive list o' incorporations to be made. !hey

prescribe also circumstances hich ould lead to the general levels o' diligence re;uired

being enhanced or reduced, based on circumstances present.

Ban"s are re;uired to 'ollo GC policies incorporating 'our maEor elements+:4

5a6 Customer Acceptance #olicyQ

%nder this head, it is re;uired that no account be opened anonymous or in a 'ictitious name,

parameters o' ris" perception be ell*de'ined, circumstances o' agency be clear and ris"

pro'ile creation be done amongst other re;uirements.

5b6 Customer Identi'ication #roceduresQ

!he policy approved by the Board o' the ban" must be such that it should clearly spell out the

Customer Identi'ication #rocedure to be carried out at di''erent stages, and here there is

suspicion o' money laundering or terrorist 'inancing, a 'ull*scale due diligence must be

carried out. urther, periodic updation o' databases must be done.

5c6 Monitoring o' !ransactionsQ

Ban"s are re;uired to consistently revie the transactions being underta"en in order to

establish reasonable patterns, and hence to be able to notice aberrant interactions. urther,

updating o' ris" categoriHation must be done in time periods not eceeding ) months.

5d6 8is" Management

%nder this, ban"s must create ade;uate internal supervisory and auditing processes to deal

ith the need to cover proper management oversight, systems and controls, segregation o'

+ Master %irc!lar Fnow 1o!r %!stomer F1%/ norms G Anti#Money a!nderin" AM/

standardsG%ombatin" of (inancin" of $errorism %($/GObli"ation of ban&s !nder PMA,

3443, available at http:==rbidocs.rbi.org.in=rdocs=noti'ication=#(s=-C3)11.pd' 5last

accessed April ), -176

4 Supra &. -.

-





duties, training and other related matters by eplicitly allocating responsibility ithin the

ban" 'or ensuring that the ban"Os policies and procedures are implemented e''ectively.

!he 8BI has been stringently en'orcing both the GC guidelines and the AML guidelines,

and 'ined several co*operative ban"s 'or violating these guidelines.+

In addition to this, they have also come up ith a circular under the #MLA to regulate the

activities o' &BCs, Miscellaneous &on*Ban"ing Companies 5M&BCs6 and 8esiduary &on*

Ban"ing Companies 58&BCs6 in connection ith money laundering.+1 !hese mandate

"eeping records transactions eceeding a certain value, as ell as reporting all suspicious

transactions to the inancial Intelligence %nit in India. Suspicious activities include inter alia

transactions that do not ma"e economic sense, activities not consistent ith the customerOs business and provisions o' insu''icient or irregular in'ormation. ?oever, these have been

criticiHed in many instances as not being su''iciently 'riendly to those ho live in the

unorganiHed sectorQ to combat this, in March this year, the 8BI released a noti'ication

relaing their norms ith respect to veri'ication processes 'or lo*income persons. &o, in

case a person ho intends to "eep not more than 8s. 7, in his account, and not more than

8s. 1 la"h in all accounts combined, ishes to open an account, he may be veri'ied by the

process o' being introduced by some other person ho has been 'ully veri'ied through GC

procedures.+-

!he principles 'olloed by the 8BI also include the re;uirement to Gno our

2mployee<.+3 or instance, an employee ho leads a lavish li'estyle that cannot be supported

by his payscale may re;uire etra vigilance 'rom the employer.

+ -)I penalises M+S) for violatin" anti#money la!nderin" r!les, 22 &2>S, available at

http:==Heenes.india.com=business='inance=rbi*penalises*mnsbl*'or*violating*anti*money*

laundering*rules3137+.html 5last accessed April , -176

+1 Master %irc!lar, F1% <!idelines, Anti Money a!nderin" Standards, PMA, 3443 # Obli"ations of +)(%s

available at http:==.rbi.org.in=scripts=BS/ieMasCirculardetails.aspid)77 5last accessed April 7,-176

+- F1% norms to "et friendlier for +)(%s, I&A&CIAL 2R#82SS, available athttp:==.'inancialepress.com=nes="yc*norms*to*get*'riendlier*'or*nb'cs=1$7)43= 5last accessed April +,-176

+3 Ibid.

-+

http://zeenews.india.com/business/finance/rbi-penalises-mnsbl-for-violating-anti-money-laundering-rules_31358.html


http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=6575

http://www.financialexpress.com/news/kyc-norms-to-get-friendlier-for-nbfcs/145693/0




http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=6575




-4



)*A+T&R ,III: )'N)LUSI'N

>hile it is clear that money laundering has been a maEor issue both nationally and

internationally, the success o' money laundering measures globally seems to have been rather

high P perhaps indicative o' the priority hich this proEect has been given. !he national

scenario ?oever, larger ;uestions have been as"ed recently P that o' hether 'ocusing on

money laundering as an end in itsel' is su''icient, and hether it is per'orming its tas" o'

coming close to ending terrorist 'unding or any other aims it is suspected to be channelled

into.+$ !he problem is eacerbated by the di''iculty o' ade;uately assessing the incidence o'

money laundering P by its nature, since it eists outside the boundaries o' the la, any

assessment is necessarily vague. &eer modalities o' laundering money are being uncovered

every day, and the innovativeness o' the schemes only is enhanced.

It is suggested that the maEor problem in catching money laundering today is a 'ailure o'

intelligence and coordination P un'ortunately, these are also to o' the most comple areas

'or improvement to be made, overlapping as they do ith civil liberties. In this, a balance

needs to be struc" P alays "eeping in mind the end purpose, and the 'reedoms guaranteed in

our constitutional scheme.

+$ 2ric @ouvin, )rin"in" o!t the )i" <!ns: $he *SA Patriot Act, Money a!nderin", and

the =ar on $errorism, available at papers.ssrn.com=sol3=papers.c'mabstractid1)+)+-,

5last accessed Apr. +, -176.

3



%I%LI'RA+*-

Boo"s re'erred

(0%@ ?0#!0&, M0&2 LA%&(28I&@: A C0&CIS2 @%I(2 08 ALL B%SI&2SS2S.

@L0BAL I&A&CIAL C8IM2: !28808ISM , M0&2 LA%&(28I&@ A&( 0S?082

C2&!82S, 5(onato Masciandaro ed. -$6.

#eter 8euter and 2din M. !ruman, C?ASI&@ (I8! M0&2: !?2 I@?! A@AI&S!

M0&2 LA%&(28I&@, 3 5Institute o' Macro*2conomics6.

Articles re'erred

(eboshree BannerEee, Prevention of Money a!nderin" Act: %ritical Analysis.

2ric @ouvin, )rin"in" o!t the )i" <!ns: $he *SA Patriot Act, Money a!nderin",

and the =ar on $errorism.

Indira Carr and Miriam @oldby, $he *+ Anti#%orr!ption %onvention and Money

a!nderin".

9ohn . >ilson, Hawala and Other Informal Payments Sytems: An Economic

Perspective.

G.#. Grishnan, e"al -e"ime for AM Anti Money a!nderin"/ in India.

G.#.Grishnan, India on the (A$( hi"h table.

Gishori 9 %deshi, Implementation of )asel II# an Indian Perspective.

Mar" #ieth, $he Prevention of Money a!nderin": A %omparative Analysis, ) 2ur. 9.

Crime Crim. L. D Crim. 9ust. 174 5144+6.

#eter 9. Juir", Money a!nderin": M!ddyin" the Macro#economy

/iEay Gumar Singh, %ontrollin" Money a!nderin" in India#Problems and

Perspectives

atish adav, Madh! Foda and associates la!ndered sta""erin" -s B;B crore.

AEay Sha, Eval!atin" India6s Money a!nderin" e"islations

Meghna Bhas"ar, )enami $ransactions Prohibition / )ill, 3455

/. Gumarasamy, )!t $hat6s +ot Mine7

SanEeev Sirohi, )enami $ransactions Prohibition )ill 3455 A %ritical Analysis

/i"ash adav, PMA 3443: -e#en"ineered

-



/ishas Gumar, S%, %)I co!rt reserve P% fate for (eb order

Miscellaneous Sources

%ore Principles of Effective )an&in" S!pervision, 0ctober 1444, 8eserve Ban" o'India.

*+O% on money#la!nderin" and co!nterin" the financin" of terrorism.

http://www.dailypioneer.com/pioneer-news/todays-newspaper/37032-sc-cbi-court-reserve-pc-fate-for-feb-order.html



89012509 money laundering final (1)

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