PROJECT REPORT
P.G.D.F.M.
Name: - Urvish Munshi
Roll No: - 36
INDEX
1
Topic Page No.
Introduction 3
Basics of PMLA 4
Fundamentals 6
FAQ’s on Reliance Mutual Fund 7
Amendments in 2009 9
Facts – India & Abroad 10
Conclusion 12
References 13
INTRODUCTION
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Dictionary meaning of the term Money – Laundering:-
Concealing the source of illegally gotten money
India joined the ranks of nations who are engaged in combating the
menace of Money laundering.
The act was out into effect from 1 – 7 – 2005.
It is still in a nascent stage and shall witness many turbulent times
and scores of changes before it matures fully.
LEGAL PREFACE:-
An act to prevent money – laundering and to provide for
confiscation of property derived from, or involved in, money –
laundering and for matters connected therewith or incidental
thereto
WHEREAS the Political Declaration and Global Programme of
Action, annexed to the resolution s – 17/2 was adopted by the
General Assembly of the United Nations at its seventeenth special
session on the twenty – third day of February, 1990;
AND WHEREAS the Political Declaration adopted by the Special
Session of the United Nations General Assembly held on 8 th to 10th
june,1998 calls upon the Member States to adopt national money –
laundering legislation and programme;
AND WHEREAS it is considered necessary to implement the
aforesaid resolution and declaration
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BASICS ABOUT PREVENTION OF MONEY LAUNDERING
ACT:-
MONEY LAUNDERING:-
Money laundering broadly means the conversion or “Laundering” of
money that is illegally obtained, so as to make it appear to originate
from a legitimate source.
It was originally used in the context of terrorist, criminal, smuggling
and drug – dealing activities. In a wider context, tax – evaded money
is also covered.
Prevention of Money Laundering Act:-
As part of global initiative, a Financial Action Task Force (FATC)
was created to help member countries to draw up Anti Money –
Laundering (AML) legislation which would help implement the
policies, techniques and counter – measures to combat money –
laundering.
In India, The Prevention of Money Laundering Act,2002 was created
under the aegis of FATF. The PMLA forms the core of the legal
framework put in place by India to combat money laundering to be
followed by banking companies, financial institutions and
intermediaries by administering KYC and other reporting
requirements such as suspicious transactions reporting etc.
KYC:-
It is an acronym for Know Your Clients or Know Your Customers, a
term commonly used for Customer Identification Process. Pursuant
to PMLA, SEBI has prescribed certain requirements relating to KYC
norms for Financial Institutions and Financial Intermediaries (such
as Mutual Funds) to KNOW their customers. This could be in the
form of personal meetings or verification of identity and address,
financial status, occupation and such other personal information.
Many Companies, who do not have face to face transacting, employ
the verification route. The underlying principle is to follow the
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principle enshrined in the PMLA as well as SEBI Act,1992 so that
the intermediaries is aware of the clients on whose behalf it is
dealing.
Objectives of PMLA:-
1. To Prevent, Combat and Control money laundering;
2. To Confiscate and seize the property obtained from the
laundered money;
3. To deal with any other issue connected with money laundering
in India.
Administering Agency:-
The Directorate of Enforcement of the Department of Revenue,
Ministry of Finance is responsible for administering the Prevention
of Money Laundering Act.
Apex Body – FIU India:-
The Government of India set up Financial Intelligence Unit - India
(FIU IND) on 18th November 2004 as an independent body to report
to the Economic Intelligence Council (EIC) headed by Finance
Minister. It was set up as an apex body for coordinating India’s AML
efforts.
FIU – IND has been established as the central national agency
responsible for receiving, processing, analyzing and disseminating
information relating to suspect financial transaction, FIU – IND is
also responsible for coordinating and strengthening efforts of
national and international intelligence and enforcement agencies in
pursuing the global efforts against money laundering and related
crimes.
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FUNDAMENTALS OF LAW
There has been an Imitate patterns and behavior of legitimate
transactions which minimizes the risk of being exposed.
If the illegal activities are more deeply embedded within the legal
economy and the functional and institutional separation is less
than detection of money laundering is quite difficult.
Lower the ratio of illegal to legal financial flows through any
business, the detection of laundering becomes more difficult.
Higher the ratio of illegal “services” to physical goods production in
the economy, more easily money laundering can be conducted.
Domination of small and independent firms or self employed
individuals in production and distribution of non-financial goods
makes the job of separation between legal and illegal transactions
more difficult.
Greater facility of using non-cash instruments such as cheques or
credit cards for illegal transactions makes detection of money
laundering more difficult.
Higher degree of financial deregulation for legitimate transactions
makes tracing and neutralizing criminal money more difficult.
Lower the ratio of illegal to legal income entering the economy from
outside, the harder is the job of separating the criminal from legal
money.
Greater the progress towards financial services supermarket and
greater the degree to which all manner of financial services can be
met within one integrated multi-divisional system, the more difficult
it is to detect money laundering.
Greater contradiction between global operation and national
regulation of financial markets, the more difficult it is to detect
money laundering.
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FAQ’s for RELIANCE MUTUAL FUND
1. Are Mutual Fund Investors also covered by PMLA?
Yes, the PMLA covers all Financial Intermediaries, and this
includes Mutual Funds. As such, all investors are required to
submit necessary documentation that will help the Mutual
Funds to complete the KYC procedure.
2. What are the KYC requirements for a Mutual Fund Investor?
An individual investor will have to produce his proof – of –
identity and proof – of – address as laid down by SEBI to fulfil
the KYC process.
3. Does the investor have to approach every Mutual Fund
separately to fulfil these requirements?
In order to make it convenient to investors, all Mutual Funds
have come together to provide a single – point of completing
the KYC process. For this, an Investor will have to obtain a
Mutual Fund Identification Number (MIN). He/ she can quote
the MIN in an application to any Mutual Fund and hence not
approach every Mutual Fund separately to complete the KYC
process.
4. Why do I need to obtain a MIN at all? What if I do not obtain a
MIN?
MIN is a facility to allow Mutual Funds to carry out KYC
requirements under the PMLA. It has been designed with a
view to offer the simplest way for complying with the PMLA, by
completing the process in less than 2 hours from the time the
MIN application form is submitted at a POS.
The MIN that you get can be utilized for an investment in any
Participating Mutual Fund. In this manner, a separate KYC
process with each Mutual Fund is avoided.
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If you do not obtain a MIN, you will not be able to invest Rs.
50,000 or more in a mutual fund.
5. I am already having my PAN proof for my investment in
Mutual Fund. Is that not sufficient for PMLA?
The requirement of providing you PAN along with proof is a
requirement under the Income Tax Law and SEBI regulations.
The current requirement for KYC is under different law –
Prevention of Money Laundering Act. The fulfillment of both
laws is required.
The PAN can be submitted as a proof of Identity for an
individual but it is not sufficient to evidence address which is
also a mandatory requirement. To make the process
convenient, the MIN obtained can be used across all
Participating Mutual Fund.
6. Why do I need to give my Income details? How can I be sure
that it will not be misused?
As per PMLA, it is mandatory for Mutual Funds to obtain
financial status details from its investors. It is for this reason
that the Income details are sought. The information given by
you in the MIN application form will be used only by the
Mutual Fund Industry. It may be reported at FIU. If required
by law.
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AMENDMENT IN 2009
Under the amended PMLA Act, the Enforcement Directorate will be
empowered to search the premises immediately after the offence is
committed and the police has filed a report under the Code of
Criminal Procedures.
It will also enable the Central Government to return the confiscated
property to the requesting country in order to implement the
provisions of the United Nation's convention against corruption.
New definitions of authorized persons and payment system
operators are incorporated and the definition of financial institution
is also amended in the new amended PMLA.
Financial intermediaries like full-fledged money changer, money
transfer service providers such as Western Union and International
Payment gateways, including VISA and MasterCard have also been
brought under the ambit of amended PMLA.
The passage of the Prevention of Money Laundering (Amendment)
Bill, 2009 will enable India’s entry into Financial Action Task Force
(FATF), an inter-governmental body that has the mandate to combat
money laundering and terrorist financing.
The amended PMLA will address India’s international obligation.
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FACTS – INDIA & ABROAD:-
INDIA:-
India's lone banking regulator, Reserve Bank of India, recently
blocked the application of Swiss bank UBS for a banking license in
India on the ground that it was involved in $8 billion money-
laundering racket.
The Enforcement Directorate has registered a case against Satyam
Computer and its tainted founder chairman B Ramalinga Raju for
alleged money laundering.
Nationwide search conducted in 37 premises spread over the four
states of Bihar, Jharkhand, West Bengal and Maharashtra in
connection with the money laundering scam in which former
Jharkhand chief minister Madhu Koda and his close aides, Binod
Kumar Sinha and Sanjay Choudhary, are the prime accused.
ABROAD:-
Data of 24,000 HSBC Swiss account holders stolen, potentially
exposing large number of international clients to protection by tax
authorities in their home countries.
The Serious and Organised Crime Agency (Soca) believes that
Naresh Kumar Jain is responsible for laundering millions of pounds
of profits from organised crime gangs in the UK over several years.
Jain is suspected of laundering money for Albanian and Italian
heroin dealers, and narcotics cartels in America, the United Arab
Emirates, Pakistan and Britain, according to inquiries in Italy and
the US. German and US police say Jain's operation has tentacles in
all of the major drug and terrorism hotspots across the globe. He
was also wanted by police in Spain and the Netherlands.
Jain was bailed in Dubai – where he faces trial for breaking foreign
exchange laws – and fled his business headquarters.
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He resurfaced in his native India, where authorities raided several
properties owned by him and issued an all ports alert.
The family of NRI businessman Raj Bhojwani, facing trial in tax
haven island of Jersey on the charges of money laundering in a
truck sale deal to Nigeria, has alleged "racial discrimination" and is
all set to move the UN Human Rights Commission and British
Institute of Human Rights.
Bhojwani's counsel Hitesh Jain, in a letter to prime minister
Manmohan Singh, a copy of which is with PTI, has alleged
International News that Jersey is interested in making a case
against the businessman, confiscate his assets and share them
with Nigeria.
Bhojwani’s family and lawyers say his human rights have been
violated and they are requesting Government of India and External
Affairs Ministry that a committee be appointed to inquire into the
facts of the case and also watch the current proceedings in Jersey
to ensure that an Indian citizen’s rights are protected and he gets a
fair trial.
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CONCLUSION
The worldwide initiative of making each and every monetary
transaction a transparent one is a major task lead by different
countries by following their own set of laws.
In India also by way of this act, the illegal transaction of money and
other monetary fraud has been traced by the regulatory agency. The
main objective for the enactment of this law is to track the record of
all possible black money which has been used in illegal activities by
one or the other way.
After the major scam of ketan parekh & Harshad Mehta in stock
market as well as the Satyam fiasco, it is very much essential for
the government to take some strict action so that we can get the
faith back for our monetary system.
All this measures will help in the long term growth of our monetary
system.
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REFERENCES
1. finmin.nic.in/law/moneylaunderingact.pdf
2. http://www.prsindia.org/uploads/media/vikas_doc/docs/125
3169904~~The%20Prevention%20of%20Money%20Laundering
%20Act,%202009.pdf
3. http://www.reliancemutual.com/CMT/Upload/ArticleAttachm
ents/MIN%20FAQs.pdf
4. http://fiuindia.gov.in/downloads/PMLA_2002.pdf
5. http://wirc-icai.org/material/Introduction%20to
%20Prevention%20of%20Money%20Laundering%20Act.pdf
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