In 2002, India enacted the Prevention of Money Laundering Act (Hereinafter referred to as PMLA)...
The Prevention of Money Laundering Act, 2002 was enacted to curb money laundering and terror financing activities. All financial institutions, including banking companies, non-banking financial companies and intermediaries, should verify the details of the clients and maintain records. This maintained data on the clients shall be furnished to the Finance Intelligent Unit-IND and other enforcement agencies.
Section 12 of the PMLA, 2002 falls under chapter IV, which obligates Banking Companies, Financial Institutions and Intermediaries to report and maintain records. Section 12 empowers the regulator to prepare and publish rules and guidelines for maintaining records of the transactions and clients. Making it mandatory for every reporting entity to maintain a record and report all transactions to the Director of FIU-IND; and submit such reports at intervals as prescribed by Rules 3, 4, 5, 7 and 8 of the Prevention of Money Laundering (Maintenance of Records) Rules 2005.
According to Section 12 under PMLA, a reporting entity is a banking company, financial institute intermediary, and an individual carrying out designated business activities.The Real estate agents/ brokers are considered reporting entities for the purpose of PMLA Rules, 2005.All reporting entities must furnish the following reports to the Financial Intelligence Unit of India (FIU-IND): Counterfeit Currency Reports, Cash Transactions Reports, Suspicious Transaction Reports, and Non-Profit Organisation reports.
The provisions of the PMLAct, 2002 and Prevention of Money Laundering (Maintenance of Records) Rules, 2005, provide for the maintenance and reporting of records. Section 12(1)(a) of the PMLA, 2002makes it mandatory for reporting entity to maintain the details of all transactions, whether attempted or executed. The information related to the amount of transaction, currency denomination, date, and parties to the transaction shall be furnished to the Director of Finance Intelligent Unit- IND.
The obligation of Banking, Financial Institute, and Intermediary to maintain the records of transactions is defined in Section 12 under PMLA. Such transactions are:
A reporting entity should follow the procedure and manner specified by the regulator for maintaining the information of its client’s transactions. Reporting entities shall regularly adopt and update the internal mechanism to maintain such information.
Section 12(1)(b) of the Prevention of Money Laundering Act, 2002 mandates reporting entity to furnishinformation to the director within the specified time. The following procedure and manner for furnishing information are:
Specific implications are imposed when a reporting entity fails to comply with the obligations under section 12 of PMLA, 2002. After the Finance Intelligence Unit of India (FIU-IND) makes an inquiry and finds that the designated director, board of the company, and employees have failed to comply with the obligations prescribed, specific actions may be taken:
Through the provision of PMLA, 2002 and Prevention of Money-laundering (Maintenance of Records) Rules 2005, the government of India has ensured to keep track of all kinds of financial transactions achieved in the banking ecosystem. This check-in place plays a significant role in unearthing financial frauds and scams at the nascent stages.
Read our Article: Underlining the Scope of Investigation under PMLA