Prevention of Money Laundering Act, 2002 – Economic, Business and Commercial Laws Important Questions

Prevention of Money Laundering Act, 2002 – Economic, Business and Commercial Laws Important Questions

Question 1.
Write a short note on the Process of money laundering [Dec 2010 (5 Marks)]
Answer:
Money laundering is commonly defined as happening in three steps: the first step involves introducing cash into the financial system by some means (placement); The second involves carrying out complex financial transactions to camouflage the illegal source (layering), and the final step entails acquiring wealth generated from the transactions of the illicit funds (integration).

1. Placement Stage: The placement stage represents the initial entry of the “dirty” cash or proceeds of crime into the financial system. Generally, this stage serves two purposes:

  • It relieves the criminal of holding and guarding large amounts of bulky cash; and
  • It places the money into the legitimate financial system.
  • It is during the placement stage that money launderers are the most vulnerable to being caught.

2. Layering Stage: The layering stage is the most complex and often entails the international movement of funds. The primary purpose of this stage is to separate illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.

During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police co-operation.

3. Integration Stage: In the final stage, the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.

There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, artwork, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits.

Question 2.
Write a short note on the Process of money laundering. [Dec. 2013 (5 Marks)]
Answer:
Money laundering is commonly defined as happening in three steps: the first step involves introducing cash into the financial system by some means (placement); The second involves carrying out complex financial transactions to camouflage the illegal source (layering), and the final step entails acquiring wealth generated from the transactions of the illicit funds (integration).

1. Placement Stage: The placement stage represents the initial entry of the “dirty” cash or proceeds of crime into the financial system. Generally, this stage serves two purposes:

  • It relieves the criminal of holding and guarding large amounts of bulky cash; and
  • It places the money into the legitimate financial system.
  • It is during the placement stage that money launderers are the most vulnerable to being caught.

2. Layering Stage: The layering stage is the most complex and often entails the international movement of funds. The primary purpose of this stage is to separate illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.

During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police co-operation.

3. Integration Stage: In the final stage, the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.

There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, artwork, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits.

Question 3.
“Despite the deleterious impact of money laundering on development, it has, of late, assumed alarming proportions and its growth has been 4, cancerous.” Discuss. [June 2011 (5 Marks)]
Answer:
Economies with growing or developing financial centres, but inadequate controls are particularly vulnerable to money laundering, as against ¥ the established financial centre countries, which implement comprehensive anti-money laundering regimes. The gaps in a national anti-money laundering system are exploited by launderers, who tend to move their networks to countries and financial systems with weak or ineffective countermeasures. As with the damaged integrity of an individual financial institution, there is a damping effect on foreign direct investment when a country’s commercial and financial sectors are perceived to be subject to the control and influence of organized crime.

In times of decelerating growth, an infusion of hard currency can bolster a country’s foreign reserves; ease the hardship associated with budget tightening policies and moderate foreign indebtedness. While these are short-term benefits associated with an inflow of criminal monies, the long-term effects are mostly negative. One difference between official borrowing and laundered funds is that the former can be controlled by Government, whereas the funds owned by criminals escape the Government’s ability to control and regulate the economy.

The possible social, economic and political effects of money laundering, if left unchecked or dealt with ineffectively, are serious. Through the process of money laundering, organized crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments. Thus, the economic and political influence of criminal organizations can weaken the social fabric, ethical standards and ultimately the democratic institutions of society.

Question 4.
Discuss in brief the objectives and scope of the Money Laundering Act, 2002. [June 2014 (5 Marks)]
Answer:
The Money Laundering Act, 2002 seeks to combat money laundering in India and following main objectives:

  • To prevent and control money laundering.
  • To confiscate and seize the property derived from, or involved in, money laundering.
  • To provide punishment for the offence of money laundering.
  • To appoint the Adjudicating Authority and Appellate Tribunal to deal with the matter connected with money laundering.
  • To put obligations on banking companies, financial institutions and intermediaries to maintain records.
  • To deal with any other issue connected with money laundering in India.

Scope: The Money Laundering Act, 2002 extends to the whole of India.

Question 5.
“The problem of money laundering is no longer restricted to the geopolitical boundaries of any country. It is a menace that cannot be contained by any nation alone.” Discuss this statement in the context of the impact of money laundering on development, various global initiatives on the prevention of money laundering and the enactment of the Prevention of Money Laundering Act, 2002. [June 2015 (8 Marks)]
Answer:
Since money laundering is an international phenomenon, transnational cooperation is of critical importance in the fight against this menace.

A number of initiatives have been taken to deal with the problem at the international level which is given below:

  1. The UN or the Bank for International Settlements took some initiatives in the 1980s to address the problem of money laundering.
  2. With the creation of the Financial Action Task Force (FATF) in 1989, regional groupings, such as the European Union, Council of Europe, and organization of American States also established anti-money laundering standards for their member countries.
  3. The major international agreements addressing money laundering include the UN Convention against Illicit Trafficking in Drugs and Psychotropic Substances (the Vienna Convention) and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime.
  4. The role of financial institutions in preventing and detecting money laundering has also been the subject of pronouncements by the Basel Committee on Banking Regulation Supervisory Practices, the European Union and the International Organization of Securities Commissions.

UN global programme against money laundering: Office of the Drug Control and Crime Prevention implement this programme against Money Laundering with a view to increasing the effectiveness of international action against money laundering through comprehensive technical co-operation services offered to Governments.

The programme encompasses the following three areas of activities, providing various means to states and institutions in their efforts to effectively combat money laundering:

  1. Technical co-operation is the main task of the programme. It encompasses activities of creating awareness, institution building and training.
  2. The research and analysis aimed at offering States Key Information to better understand the phenomenon of money laundering and to enable the international community to devise more efficient and effective countermeasure strategies.
  3. The commitment to support the establishment of financial investigation services for raising the overall effectiveness of law enforcement measures.

The implementation of the global programme against money laundering is carried out in the spirit of cooperation with other international, regional and national organizations and institutions.

Question 6.
Define the term ‘money laundering. How does it impact the development of a growing economy? [Dec 2015 (7 Marks)]
Answer:
Meaning of Money Laundering:
(a) Money and crime are related to each other. Crimes are done because a lot of money involved in it. Money created by crimes when converted into white money is known as money laundering.

(b) In simple words, money laundering allows criminals to transform illegally obtained gain into seemingly legitimate funds.

(c) Section 3 of the Act states that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it is an untainted property shall be guilty of the offence of money laundering.

(d) Criminals want their illegal funds laundered because they can then move their money through society freely, without fear that the funds will be traced to their criminal deeds. In addition, laundering prevents the funds from being confiscated by the police.

The impact of money laundering on development is given below:

  1. Increased Crime & Corruption:
  2. Damaged reputation and international consequences:
  3. Weakened Financial Institutions:
  4. Compromised economy and private sector:
  5. Damaged privatization efforts:
  6. Infiltrate financial institution
  7. Acquire control over large sectors of the economy through investment
  8. Weaken the social fabric, ethic standards and ultimately democratic institution of society.

Question 7.
Write a short note on the Process of money laundering. [Dec 2016 (5 Marks)]
Answer:
Money laundering is commonly defined as happening in three steps: the first step involves introducing cash into the financial system by some means (placement); The second involves carrying out complex financial transactions to camouflage the illegal source (layering), and the final step entails acquiring wealth generated from the transactions of the illicit funds (integration).

1. Placement Stage: The placement stage represents the initial entry of the “dirty” cash or proceeds of crime into the financial system. Generally, this stage serves two purposes:

  • It relieves the criminal of holding and guarding large amounts of bulky cash; and
  • It places the money into the legitimate financial system.
  • It is during the placement stage that money launderers are the most vulnerable to being caught.

2. Layering Stage: The layering stage is the most complex and often entails the international movement of funds. The primary purpose of this stage is to separate illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.

During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police co-operation.

3. Integration Stage: In the final stage, the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.

There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, artwork, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits.

Question 8.
Discuss the objectives and functions of the Financial Action Task v Force (FATF). [Dec 2016 (5 Marks)] f
Answer:
(a) The Financial Action Task Force is an inter-governmental organization founded in 1989 on the initiative of the G7 countries to develop policies to combat money laundering.

(b) Objective: The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system

(c) Headquarters: The FATF Secretariat is housed at the headquarters of the OECD in Paris.

(d) Functions: The main tasks of the FATF are:

  • Monitoring members progress in applying measures to counter money laundering.
  • Reviewing money laundering techniques and countermeasures.
  • Promoting the adoption and implementation of appropriate measures by non-member countries.

(e) Recommendations: The FATF’s primary policies issued are the 40 recommendations on money laundering from 1990 and the 9 Special Recommendations on Terrorism Financing. Both sets of FATF Recommendations are intended to be implemented at the national level through legislation and other legally binding measures

(f) International Standard: It also set the international standard for anti-money laundering measures and combating the financing of terrorism and terrorist acts.

(g) They set out the principles for action and allow countries a measure of flexibility in implementing these principles according to their particular circumstances and constitutional frameworks.

Question 9.
What do you understand by the term “Money laundering” under the Prevention of Money Laundering Act, 2002? [Dec. 2018 (3 Marks)]
Answer:
Money laundering is commonly defined as happening in three steps: the first step involves introducing cash into the financial system by some means (placement); The second involves carrying out complex financial transactions to camouflage the illegal source (layering), and the final step entails acquiring wealth generated from the transactions of the illicit funds (integration).

1. Placement Stage: The placement stage represents the initial entry of the “dirty” cash or proceeds of crime into the financial system. Generally, this stage serves two purposes:

  • It relieves the criminal of holding and guarding large amounts of bulky cash; and
  • It places the money into the legitimate financial system.
  • It is during the placement stage that money launderers are the most vulnerable to being caught.

2. Layering Stage: The layering stage is the most complex and often entails the international movement of funds. The primary purpose of this stage is to separate illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.

During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police co-operation.

3. Integration Stage: In the final stage, the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.

There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, artwork, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits.

Question 10.
What are the effects of Money laundering on the economic development of a country? [June 2019 (3 Marks)]
Answer:
Meaning of Money Laundering:
(a) Money and crime are related to each other. Crimes are done because a lot of money involved in it. Money created by crimes when converted into white money is known as money laundering.

(b) In simple words, money laundering allows criminals to transform illegally obtained gain into seemingly legitimate funds.

(c) Section 3 of the Act states that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it is an untainted property shall be guilty of the offence of money laundering.

(d) Criminals want their illegal funds laundered because they can then move their money through society freely, without fear that the funds will be traced to their criminal deeds. In addition, laundering prevents the funds from being confiscated by the police.

The impact of money laundering on development is given below:

  1. Increased Crime & Corruption:
  2. Damaged reputation and international consequences:
  3. Weakened Financial Institutions:
  4. Compromised economy and private sector:
  5. Damaged privatization efforts:
  6. Infiltrate financial institution
  7. Acquire control over large sectors of the economy through investment
  8. Weaken the social fabric, ethic standards and ultimately democratic institution of society.

Question 11.
What do you understand by ‘offence of money laundering under the Prevention of Money Laundering Act, 2002? Also, state the punishment for the money-laundering offence.
Answer:
The offence of money laundering [Section 3]: Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of the offence of money-laundering.

Punishment for money laundering [Section 4]: Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for 3 years which may extend to 7 years and shall also be liable to fine.

Where the proceeds of crime involved in money laundering related to the offence specified under Paragraph 2 of Part A of the Schedule, imprisonment may extend to 10 years instead of 7 years.

Question 12.
How the property involved in money laundering is dealt with under the Prevention of Money Laundering Act, 2002? [Dec. 2010 (5 Marks)]
Answer:
(a) Attachment of property involved in money-laundering [Section 5]: Director, Joint Director or Deputy Director can provisionally attach property up to 180 days, if he has reasons to believe that such person is in possession of proceeds of crime, he is charged with that crime and proceeds of money are likely to be concealed or transferred.

(b) Execution of attached Such attachment is executed in the manner provided in the Second Schedule of the Income-tax Act, 1961.

(c) Reason in writing: The reasons to believe should be recorded in writing.

(d) Sealed Cover: The reason should be sent in a sealed cover to adjudicating authority along with a copy of the attachment order.

(e) Complaint with adjudicating authority: After attachment, a complaint will be filed with adjudicating authority within 30 days.

Question 13.
How the attachment of property is executed under the Prevention of Money Laundering Act, 2002? [June 2017 (5 Marks)]
Answer:
Money laundering is commonly defined as happening in three steps: the first step involves introducing cash into the financial system by some means (placement); The second involves carrying out complex financial transactions to camouflage the illegal source (layering), and the final step entails acquiring wealth generated from the transactions of the illicit funds (integration).

1. Placement Stage: The placement stage represents the initial entry of the “dirty” cash or proceeds of crime into the financial system. Generally, this stage serves two purposes:

  • It relieves the criminal of holding and guarding large amounts of bulky cash; and
  • It places the money into the legitimate financial system.
  • It is during the placement stage that money launderers are the most vulnerable to being caught.

2. Layering Stage: The layering stage is the most complex and often entails the international movement of funds. The primary purpose of this stage is to separate illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.

During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police co-operation.

3. Integration Stage: In the final stage, the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.

There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, artwork, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits.

Question 14.
Mention the obligation of banking companies, financial institutions and intermediaries under the Prevention of Money Laundering Act, i 2002? [Dec 2011 (5 Marks)]
Answer:
The following are the obligation under the Prevention of Money-laundering Act, 2002:
(a) Reporting entity to maintain records [Section 12]: The bank, financial institutions and intermediary has obligations

  • To maintain records of all transactions and value as prescribed, whether such transactions comprise of a single transaction or a series of transactions internally connected to each other when such series take place within a month.
  • To inform the director within the prescribed time.
  • To verify the identity of its clients in the prescribed manner.
  • To maintain a record of documents evidencing the identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.

(b) Confidentiality: All information maintained, furnished or verified as above shall be kept confidential.
(c) Preserve Record: The records mentioned above shall be maintained for 5 years from the date of transaction.
The Central Government has the power to exempt any reporting entity from the provisions of this section.

(d) To furnish information whenever called upon by Director to [Section 13]: Director can call the records from the bank, financial institutions and intermediary. If the Director finds that the bank, financial institutions and intermediary have not complied with the provisions of Section 12, he can impose a fine of ₹ 10,000 to ₹ 1,00,000.

If the bank, financial institutions and intermediary supplies the information, no civil proceedings can be taken against them for furnishing information to Authority. [Section 14]

Procedure and manner of furnishing information by reporting entities [Section 15]: The Central Government in consultation with the RBI may prescribe the procedure and the manner of maintaining and furnishing information by a reporting entity for the purpose of implementing the provisions of the Act.

Question 15.
What is meant by ‘money laundering’? Mention the provisions of the Prevention of Money Laundering Act, 2002 regarding the obligations of banking companies, financial institutions and intermediaries. [June 2016 (5 Marks)]
Answer:
Money laundering is commonly defined as happening in three steps: the first step involves introducing cash into the financial system by some means (placement); The second involves carrying out complex financial transactions to camouflage the illegal source (layering), and the final step entails acquiring wealth generated from the transactions of the illicit funds (integration).

1. Placement Stage: The placement stage represents the initial entry of the “dirty” cash or proceeds of crime into the financial system. Generally, this stage serves two purposes:

  • It relieves the criminal of holding and guarding large amounts of bulky cash; and
  • It places the money into the legitimate financial system.
  • It is during the placement stage that money launderers are the most vulnerable to being caught.

2. Layering Stage: The layering stage is the most complex and often entails the international movement of the funds. The primary purpose of this stage is to separate illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.

During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police co-operation.

3. Integration Stage: In the final stage, the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.

There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, artwork, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits.

The following are the obligation under the Prevention of Money-laundering Act, 2002:
(a) Reporting entity to maintain records [Section 12]: The bank, financial institutions and intermediary has obligations

  • To maintain records of all transactions and value as prescribed, whether such transactions comprise of a single transaction or a series of transactions internally connected to each other when such series take place within a month.
  • To inform the director within the prescribed time.
  • To verify the identity of its clients in the prescribed manner.
  • To maintain a record of documents evidencing the identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.

(b) Confidentiality: All information maintained, furnished or verified as above shall be kept confidential.

(c) Preserve Record: The records mentioned above shall be maintained for 5 years from the date of transaction.
The Central Government has the power to exempt any reporting entity from the provisions of this section.

(d) To furnish information whenever called upon by Director to [Section 13]: Director can call the records from the bank, financial institutions and intermediary. If the Director finds that the bank, financial institutions and intermediary have not complied with the provisions of Section 12, he can impose a fine of ₹ 10,000 to ₹ 1,00,000.

If the bank, financial institutions and intermediary supplies the information, no civil proceedings can be taken against them for furnishing information to Authority. [Section 14]

Procedure and manner of furnishing information by reporting entities [Section 15]: The Central Government in consultation with the RBI may prescribe the procedure and the manner of maintaining and furnishing information by a reporting entity for the purpose of implementing the provisions of the Act.

Question 16.
What information is required to be preserved by Banks under the Prevention of Money Laundering Act, 2002? Discuss also the process of maintenance and preservation of records by Banks. [Dec 2017 (5 Marks)]
Answer:
The following are the obligation under the Prevention of Money-laundering Act, 2002:
(a) Reporting entity to maintain records [Section 12]: The bank, financial institutions and intermediary has obligations

  • To maintain records of all transactions and value as prescribed, whether such transactions comprise of a single transaction or a series of transactions internally connected to each other when such series take place within a month.
  • To inform the director within the prescribed time.
  • To verify the identity of its clients in a prescribed manner.
  • To maintain a record of documents evidencing the identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.

(b) Confidentiality: All information maintained, furnished or verified as above shall be kept confidential.

(c) Preserve Record: The records mentioned above shall be maintained for 5 years from the date of transaction.
The Central Government has the power to exempt any reporting entity from the provisions of this section.

(d) To furnish information whenever called upon by Director to [Section 13]: Director can call the records from the bank, financial institutions and intermediary. If the Director finds that the bank, financial institutions and intermediary have not complied with the provisions of Section 12, he can impose a fine of ₹ 10,000 to ₹ 1,00,000.

If the bank, financial institutions and intermediary supplies the information, no civil proceedings can be taken against them for furnishing information to Authority. [Section 14]

Procedure and manner of furnishing information by reporting entities [Section 15]: The Central Government in consultation with the RBI may prescribe the procedure and the manner of maintaining and furnishing information by a reporting entity for the purpose of implementing the provisions of the Act.

Question 17.
Is the offence committed under the Prevention of Money Laundering Act, 2002 is cognizable and bailable? State the law and procedure relating to it. [Dec 2017 (5 Marks)]
Answer:
Offences to be cognizable and non-bailable [Section 45]:
(a) Cognizable: Every offence punishable under the Act to be cognizable.

(b) No Bail: A person accused of an offence shall not be released on bail or on bond

(c) Public Prosecutor: The Public Prosecutor has been given an opportunity to oppose the application for such release.
If the Public Prosecutor opposes the application then bail can be granted only when Court is satisfied that there are reasonable grounds for believing that he is not guilty of an offence and that he is not likely to commit any offence while on bail.

(d) Exception: A person, who, is under the age of 16 years, or is a woman or is sick or infirm, or is accused either on his own or along with other co-accused of money-laundering a sum of less than ₹ 1 Crore may be released on bail if the Special Court so directs.

(e) Compliant is made in writing: The Special Court shall not take cognizance of any offence punishable u/s 4, except upon a complaint in I writing made by the Director or any officer of the Central or State | Government authorized by a general or special order.

(f) No authority to police officer: No police officer shall investigate an offence under the Act, unless specifically authorized, by the Central Government by a general or special order.

Question 18.
What is the objective of ‘know your customer (KYC) guidelines? When do the KYC guidelines apply? [Dec 2009 (5 Marks)]
Answer:
(a) The objective of KYC guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently.

(b) Every bank whether a co-operative, private or nationalized bank, NBFC’s, housing financial institution, chit fund company etc need to comply with KYC. Intermediaries also need to maintain KYC like stockbrokers, sub-broker, share transfer agent, banker to an issue, trustee to trust deed, merchant banker, underwriter, portfolio manager, investment advisor etc.

(c) Banks should frame their KYC policies incorporating the following four key elements:

  • Customer Acceptance Policy
  • Customer Identification Procedures
  • Monitoring of Transactions and
  • Risk management.

Question 19.
What are the essential elements of KYC guidelines? [Dec 2014 (3 Marks)]
Answer:
(a) The objective of KYC guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently.

(b) Every bank whether a co-operative, private or nationalized bank, NBFC’s, housing financial institution, chit fund company etc need to comply with KYC. Intermediaries also need to maintain KYC like stockbrokers, sub-broker, share transfer agent, banker to an issue, trustee to trust deed, merchant banker, underwriter, portfolio manager, investment advisor etc.

(c) Banks should frame their KYC policies incorporating the following four key elements:

  • Customer Acceptance Policy
  • Customer Identification Procedures
  • Monitoring of Transactions and
  • Risk management.

Question 20.
State the obligation of banks on KYG policy as per guidelines issued by the Reserve Bank of India. [June 2017 (5 Marks)]
Answer:
The objective of Know Your Customer (KYC) Norms /Anti-Money Laundering (AML) Measures/Combating of Financing of Terrorism (CFT) guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently.

The obligation of Banks:
Banks should keep in mind that the information collected from the customer for the purpose of opening of account is to be treated as confidential and details thereof are not to be divulged for cross-selling or any other purposes. Banks should, therefore, ensure that information sought from the customer is relevant to the perceived risk, is not intrusive, and is in conformity with the guidelines issued in this regard. Any other information from the customer should be sought separately with his/her consent and after opening the account.

Banks should ensure that any remittance of funds by way of demand draft, mail/telegraphic transfer or any other mode and issue of traveller’s cheques for the value of ₹ 50,000 and above is effected by debit to the customer’s account or against cheques and not against cash payment. Banks should ensure that the provisions of the Foreign Contribution (Regulation) Act, 1976 as amended from time to time, wherever applicable are strictly adhered to

The bank should maintain and preserve records and information
(a) Records relating to the identification of customer and address
(b) Nature of Transaction
(c) Amount of transaction
(d) Date of Transaction
(e) Parties to a transaction

Question 21.
What do you mean by the KYC guidelines as given under the Prevention of Money-laundering Act, 2002? [Dec. 2019 (3 Marks each)]
Answer:
(a) The objective of KYC guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently.

(b) Every bank whether a co-operative, private or nationalized bank, NBFC’s, housing financial institution, chit fund company etc need to comply with KYC. Intermediaries also need to maintain KYC like stockbrokers, sub-broker, share transfer agent, banker to an issue, trustee to trust deed, merchant banker, underwriter, portfolio manager, investment advisor etc.

(c) Banks should frame their KYC policies incorporating the following four key elements:

  • Customer Acceptance Policy
  • Customer Identification Procedures
  • Monitoring of Transactions and
  • Risk management.

Question 22.
What are the provisions (or freezing of assets under Section 51A of the Unlawful Activities (Prevention) Act, 1967? Briefly discuss. [June 2018 (5 Marks)]
Answer:
Central Government has issued an Order detailing the procedure for implementation of Section 51A of the Unlawful Activities (Prevention) Act, 1967 relating to the purposes of prevention of, and for coping with terrorist activities.

Certain powers of the Central Government [Section 51A of the Unlawful Activities (Prevention) Act, 1967]: For the prevention of, and for coping with terrorist activities, the Central Government shall have power to:

  1. Freeze, seize or attach funds and other financial assets or economic resources held by, on behalf of or at the direction of the individuals or entities listed in the Schedule to the Order, or any other person engaged in or suspected to be engaged in terrorism.
  2. Prohibit any individual or entity from making any funds, financial assets or economic resources or related services available for the benefit of the individuals or entities listed in the Schedule to the Order or any other person engaged in or suspected to be engaged in terrorism.
  3. Prevent the entry into or the transit through India of individuals listed in the Schedule to the Order or any other person engaged in or suspected to be engaged in terrorism.

Economic, Business and Commercial Laws Questions and Answers

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