FINANCIAL INTELLIGENCE UNIT OF INDIA: PROCEDURE OF CRACKDOWN ON MONEYLAUNDERING

Established in the year 2004, on November 18, the Financial Intelligence Unit (FIU-IND) is a subsidiary of the India’s Ministry of Finance. The FIU-IND is tasked with the responsibility of gathering information and facts about the offenses which fall under the category of money laundering as per the Indian laws. It communicates all its findings and reports it to the Economic Intelligence Council (EIC) which is headed and chaired by the Finance Minister of India. The organizational strength of the FIU-IND is 75 government personnel and it is headed by a Director, whose rank is equivalent to that of a Joint Secretary to the Government of India.

The FIU-IND is responsible for invigorating, bolstering and coordinating the combined efforts of the national as well as international intelligence, the investigation agencies and the institutions related to enforcement in bringing a full stop to the offenses of money laundering and all the other crimes related to it. The Financial Intelligence Unit began its operations as an independent central agency as per Section 12 of the Prevention of Money Laundering Act, 2002 which forms the base of the legal framework to fight against money laundering.

Coming to the offense of money laundering, as per Section 3 of the Prevention of Money Laundering Act, 2002, an individual is said to be guilty of this offense when they are found to have either directly or indirectly engaged in an activity or any procedure or process which is related to the proceeds of a crime including its concealment, possession, acquisition or use. Further, the sections also lists the claiming of proceeds of crime as untainted property as a part of the offense of money laundering.

PLMA has provided a definition of the term reporting entities under Section 2(wa). It states that a reporting entity means a banking company, financial institution, intermediary or a person carrying on a designated business or profession. A banking company as per the act refers to either a banking company or a co-operative bank which is subject to the Banking Regulation Act of 1949 and it includes banks which fall under any of these categories: nationalized, private Indian and private foreign, co-operative banks, State Bank of India and its associates and subsidiaries.

Financial Institution as per the Reserve Bank of India Act includes a chit fund company, a co-operative bank, a housing finance institution, insurance companies and Non-Banking Financial Companies. As for intermediaries, Section 12 of the SEBI contains a list of individuals which are registered under it.

This list includes: brokers, sub-brokers, share transfer agents, bankers to an issue, trustees to trust deed, registrars to issue, merchant bankers, underwriters, portfolio managers, investment advisers, depositories and depository participants, custodian of securities, foreign institutional investors, credit rating agencies, venture capital funds, collective investment schemes including mutual funds, etc. Finally, as per Section 2(1)(sa), person carrying on a designated business or profession either means a person carrying on activities for playing games of chance for cash or kind, and includes activities like casino, a Registrar or Sub-Registrar appointed under section 6 of the Registration Act, as may be notified by the Central Government; real estate agent, as may be notified by the Central Government, dealer in precious metals, precious stones and other high value goods, person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, or a person carrying on such other activities as the Central Government may, by notification, so designate, from time to time.

The Financial Intelligence Unit of India receives different reports from the various reporting entities as have been mentioned above. These reports include Cross Border Wire Transfer Reports (CBWTR’S), Non-Profit Organisation Transaction Reports (NTRs), Suspicious Transaction Reports (STRs), Cash Transaction reports (CTRs) and Reports on Purchase or Sale of Immovable Property (IPRs).

Section 12 of the PMLA necessitates the reporting entities to sustain and keep records of all the transactions, to provide information related to these prescribed transactions to the director within the prescribed time periods, to keep well-maintained records which might act as an evidentiary source for the identity of the clients and beneficial owners of the reporting entities. The reporting entities are also instructed to keep records of account files and business correspondence which are related to its clients. These records are kept confidential and are supposed to be stored for a period of five years from the date of transaction between the reporting entity and its client.

According to Section 13 of PMLA, if the Director is under any sort of suspicion about any possible action of money laundering on the part of any reporting entity, or on the basis of information provided by any application provided by any authority, individual or officer, then the Director may make an inquiry. If the Director feels the necessity, then he may instruct the reporting entity to hand over its records which would then be audited by an accountant from a panel of accountants maintained by the Government of India.

If the reporting identity or its Director fail to comply with the directions of the Director of FIU-IND, then the following actions might be taken:

  1. A warning may be issued in writing
  2. The reporting entity or its Director may be asked to comply with the instructions provided by them
  3. The reporting entity or its Director may be asked to send reports at those intervals which may be prescribed on the measures it is taking
  4. A penalty in terms of monetary value may be imposed on the reporting entity or its Director or any of the employees of the defaulter entity which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure.

The procedure for the presentation of the required information by the reporting entities may be agreed upon by the Central Government with the help of Reserve Bank of India. In accordance with the provisions of Section 50 of PMLA, the Director shall have the powers of a Civil Court to perform the following actions:

  1. Enforcing the production of the maintained records by the reporting entities
  2. The receival of evidence related to the inquiry on affidavit
  3. The issuing of commissions for examining both the documents and the witnesses presented
  4. Discovery and inspection during inquiry
  5. Compelling the attendance of any individual of the reporting entity and examining him on oath.

Section 66 states that the Financial Intelligence Unit may, if it seems fit, on the basis of the information gathered, may propagate the information to an officer or any authority performing any functions under any law which relates to the imposition of any tax or duty or to dealings in foreign exchange, or prevention of illicit traffic in the narcotic drugs and psychotropic substances under the Narcotic Drugs and Psychotropic Substances Act, 1985. Based on the same information or material being possessed by the FIU-IND, it may disseminate the information to the concerned governmental agency. If the fines imposed by the FIU under either Section 13 or 63 are not paid by the reporting entity within six months from its date of imposition, then either the Director or any other officer authorized by him are enabled to recover the specified amount.

Sources:

  1. https://fiuindia.gov.in/

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