Powers of Director to Impose Fine under PMLA

Shubhangi Jain

07 Apr, 2023

Chapter IV of The Prevention of Money Laundering Act 2002^[1] deals with the obligations of the reporting entities wherein they are obligated to maintain the records of all the financial transactions concerning the prescribed nature and value of such transactions along with the documents which provide evidence of its client’s identity and beneficial owners along with the account files and business correspondence relating to its clients,  and report the same in prescribed timeline and manner together with keeping such information confidential.
The failure of the reporting entities to comply with the same results in exercising the Powers of Director to Impose Fine under PMLA as enumerated in section 13 of the said Act, which shall be discussed in the present article.

What are the Powers of Director to Impose Fine under PMLA?

Section 13 of the PMLA deals with the Powers of Director to Impose Fine under PMLA wherein –

An inquiry regarding the obligations of the Reporting Entity (RE) can be carried out either by the Director’s own motion or through the receipt of an application from any person, officer or authority requesting to conduct the same as deemed fit by the Director.

The Director, at any stage of the inquiry or any other proceedings before him, can direct the reporting entity to produce the specified records, the audit of which must be done by an accountant from a panel of accountants maintained by the Central Govt if he opines that the production of such a record is necessary after taking into consideration the nature and complexity of the case. 

If the Director,  during any inquiry, discovers the failure of the RE  or its designated director on the Board or any of its employees with regard to compliance with the obligations,  he can take the following actions without prejudice to any other action that might be taken under any other provisions of this Act.

• Issuance of a warning in writing; or
• Direction of compliance with specific instructions to such RE, its designated director on the Board or any of the  employees,
• Direction for sending reports in the prescribed intervals  on the measures taken to such RE, designated director on the Board or any of  the employees
• Imposition of a monetary penalty which shall not be less than  10,000 but may extend to Rs 1,00,000 for each failure  by an order on such RE,  designated director on the Board or any of its employees.

A copy of the order shall be forwarded by the Director to every banking company, financial institution or intermediary or person being a party to the proceedings under that sub-section.

Conclusion

The Powers of Director to Impose Fine under PMLA helps to ensure compliance with the obligations of the reporting entities and act as a deterrent measure in avoiding non-compliance with the prescribed norms. 

Also Read:
Tools for Investigation for ED under PMLA
Allegations of misuse of PMLA examined by the SC