Legislative Framework for AML/CFT in India
We have covered background of the AML/CFT developments in an earlier post. The following Laws and agencies outline and enforce India’s Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) legislation:
1.
The Narcotic Drugs and Psychotropic Substances Act 1985 (NDPS Act)
2.
The
1967 Unlawful Activities (Prevention) Act (UAPA)
and its amendments,
3.
The Foreign Exchange Management Act, 1999(FEMA)
4.
The
2002 Prevention of Money Laundering Act (PMLA)
and its amendments, and
5.
The
Weapons of Mass Destruction and Their Delivery Systems (Prohibition of Unlawful
Activities) Act, 2005 (WMD Act).
6.
The
2006 Foreign Contribution (Regulation) Act (FCRA) and its amendments,
7. The Fugitive Economic Offenders Act, 2018 (FEO Act)
The National Investigation Agency (NIA) and Enforcement Directorate (ED) are two important functionaries established for administration. An overview of these regulations are captured below:
1. The Narcotic Drugs and Psychotropic Substances (NDPS) Act 1985
India is a signatory to the single Convention on Narcotic Drugs 1961, as amended by the 1972 Protocol,the Conventions on Psychotropic Substances, 1971 and the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988.
The broad legislative policy is contained in the three Central Acts, viz. Drugs and Cosmetics Act, 1940, The Narcotic Drugs and Psychotropic Substances Act, 1985, and The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988. The responsibility of drug abuse control, which is a central function, is carried out through a number of Ministries, Departments and Organisations. These include the Ministry of Finance, Department of Revenue which has the nodal co-ordination role as administrator of the Narcotic Drugs and Psychotropic Substances Act, 1985 and the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988.
The Narcotic Drugs and Psychotropic Substances Act, 1985 which came into effect from the 14th November, 1985 made an express provision for constituting a Central Authority for the purpose of exercising the powers and functions of the Central Government under the Act.
In presence of this provision, the Government of India constituted the NARCOTICS CONTROL BUREAU on the 17th of March, 1986.
2. UNLAWFUL ACTIVITIES (PREVENTION) ACT, 1967The UAPA, which was initially passed in 1967, underwent amendments in 2004 and in 2008 to become a model anti-terror statute. The Unlawful Activities (Prevention) Amendment Bill, 20195 was approved by Parliament in August 2019 and allows for the designation of people as terrorists on specific criteria specified in the Act. It departs from the standard legal procedure and establishes an extraordinary regime where the accused's constitutional protections are limited to address acts related to terrorism. Key elements of UAPA: The Act, among other things, specifies unique procedures for dealing with terrorist acts. It tries to effectively deter organizations engaged in illegal operations in India. Any action conducted by a person or group with the intent to undermine India's territorial sovereignty and integrity is referred to as unlawful activity. National Investigation Agency (NIA) approval for property seizure: By the Act, any investigating officer must get the Director-General of Police's prior approval before seizing properties that may be related to terrorism. The Bill further states that the Director General of said National Investigation Agency (NIA) must approve the seizure of such property if the investigation is being carried out by an officer of the NIA. The National Investigation Agency's (NIA) investigation: By the Act's provisions, officials with the level of Deputy Superintendent or Assistant Commissioner of Police or higher may investigate cases. The Bill also gives NIA officials with the rank of Inspectors or higher the authority to conduct investigations.
POTENTIAL TERRORISTS UNDER UAPA:
The Act states that the union government might declare or designate a group as a terrorist organization if it
(i) Engages in or supports terrorism;
(ii) Plans or encourages terrorism; or
(iii) Engages in any other aspect of terrorism.
The Bill also gives the government the authority to label anyone as a terrorist for the same reasons.
Punishment under UAPA:
The
death sentence and life imprisonment are the two highest penalties under UAPA.
The Act grants the central government limitless authority; as a result, if it
determines certain conduct to be illegal, it may declare it to be so in an
official gazette. Under UAPA, charges may be brought against both foreigners
and Indians. Whether the conduct was committed in a foreign country or anywhere
outside of India, the offenders will face the same charges. In an open letter,
the Constitutional Conduct Group (CCG) has received support from over 100
former civil servants who demand that such stringent Unlawful Activities
(Prevention) Act (UAPA) be amended because of its numerous shortcomings and
vulnerabilities, which allow for widespread abuse and misuse by some
politicians and aggressive police officers.
The salient features of the UAPA pertaining to terror financing are listed below:
i. Five years is the period of declaration of an association as unlawful;
ii. 'Terrorist Act' includes production or smuggling or circulation of high-quality counterfeit Indian paper currency, coin or of any other material;
iii. Raising or collecting or providing funds, whether from legitimate or illegitimate sources, by a terrorist organization or by terrorist gang or by an individual terrorist, is criminalized;
iv. Raising or collecting or providing funds in any manner for the benefit of or, to an individual terrorist, terrorist gang or terrorist organization for the purpose not constituting to be a Terrorist Act is criminalized;
v. Offences by companies, societies or trusts come under the ambit of the Act;
vi. The scope of proceeds of terrorism includes any property intended to be used for terrorism; and
vii. Courts are empowered for:
i. Attachment or forfeiture of property equivalent to the counterfeit Indian currency involved in the offence;
ii. Attachment or forfeiture of property equivalent to or the value of the proceeds of terrorism involved in the offence; and
iii. Confiscation of movable or immovable property on the basis of the material evidence where the trial cannot be concluded.
[Sourec: Annual Report of FIU-Ind 2021-22]
3.
Foreign Exchange Management Act, 1999
The Foreign Exchange Management Act 1999 (FEMA)
regulate the foreign exchange market & transactions in India. The earlier
law viz the FERA has been replaced by FEMA so as to enable a new foreign
exchange management regime consistent with the emerging framework of the world
trade organization. It has also paved the way for introduction of Prevention of
Money Laundering Act 2002. (PMLA). Non observance and violations of these
provisions attract fine, penalty and prosecution etc.
§ The legal
framework for the administration of foreign exchange transactions in
India is provided by the Foreign Exchange Management Act, 1999.
§ Under the FEMA,
which came into force with effect from 1st June 2000, all transactions involving
foreign exchange have been classified either as Capital or Current account
transactions.
o
Current Account Transactions:
·
All
transactions undertaken by a resident that do not alter his
/ her assets or liabilities, including contingent liabilities, outside India
are current account transactions.
·
Example:
payment in connection with foreign trade, expenses in connection
with foreign travel, education etc.
o
Capital Account Transactions:
·
It
includes those transactions which are undertaken by a resident of
India such that his/her assets or liabilities outside India are altered (either
increased or decreased).
·
Example: investment in
foreign securities, acquisition of
immovable property outside India etc.
§ Resident
Indians:
o
A 'person resident in
India' is defined in Section 2(v) of FEMA, 1999 as:
·
Barring
few exceptions, a person residing in India for more than 182 days during
the course of the preceding financial year.
·
Any
person or body corporate registered or incorporated in India.
·
An
office, branch or agency in India owned or controlled by a person resident outside
India.
·
An
office, branch or agency outside India owned or controlled by a person resident in
India.
The purpose of PMLA is to
prevent the mafia from investing their wealth into the economy and acquiring
control over the economy. Converting their dirty wealth into official wealth is
called “Money Laundering”.
The dirty money is called
“Proceeds of Crime” (POC).
Anything becomes Proceeds
of Crime if the crime alleged is a crime specified in the schedule to the PMLA.
If an offence is a crime under a particular law which is not listed in the
schedule; then the gains of that offence are not POC. They are not dirty money
as far as PMLA is concerned.
For example, Mr. A does not
pay income-tax on his income of say Rs. 1,00,000. The entire amount is black
money. He has gained Rs. 33,333 in income-tax. However, an offence under
Income-tax is not covered in the PMLA schedule. Hence neither Rs. 33,333 nor
Rs. 1,00,000 is covered by PMLA. Any attempt in converting the black money into
white is NOT money laundering.
Similarly, sales tax,
excise or octroi evasion is not covered under PMLA.
Similarly, offences under
FEMA are not listed in the PMLA schedule. This means that an offence under FEMA
is not covered by the PMLA.
This was the position right
from the stage of introduction of PMLA bill, 1998.
In other words from
inception, the two laws are independent.
There is a specific reason
for selecting only the most violent / important crimes under PMLA. The mafia
dealing in murder, extortion, terrorism and prostitution have immense liquid
wealth. With this power of wealth, they get best of the professional and
physical (arms and goondas) support. This help can prevent action being taken
against the mafia. Hence PMLA gives massive powers of arrest and deeming
provisions to the statutory authority under PMLA.
Under normal circumstances,
such massive powers have to be restricted, to be used only against the most
dangerous criminals. The powers are draconian. If they are used against
ordinary criminals, they loose their significance and sharpness. Corrupt
statutory officers can be more dangerous than criminals - as far as the common
man is concerned.
To prevent such a crisis,
the list under PMLA schedule has to be kept a careful, short list and grounds
of arrest/punishment has to be detailed and communicated by the authorities to
the accused, providing sufficient time for reply with the right to be heard.
4. The Weapons of Mass
Destruction and Their Delivery Systems (Prohibition of Unlawful Activities)
Act, 2005 (WMD Act).
In addition to the PMLA and UAPA, the WMD Act serves to proscribe various activities relating to weapons of mass destruction which includes nuclear, chemical, and biological weapons. Prohibitions extend to acts such as the manufacture, acquisition, possession, development, or transportation of such weapons. Amendments to the WMD Act were passed in 2022 to strengthen India’s counter proliferation legal framework by introducing additional prohibitions relating to the financing of such activities.
5. Fugitive Economic Offenders Act 2018 (FEO Act)
Significantly, the FEO Act has some crucial overlap with the PMLA. The designated authorities and Special Court under the FEO Act are those that are designated under the PMLA. Similarly, the attachment and confiscation proceedings for recovery of property are adopted from the procedures laid down under the PMLA.
The FEO Act defines a fugitive as any individual against whom a warrant for arrest in relation to a scheduled offence has been issued by any court in India, any individual who has left India so as to avoid criminal prosecution, or, if abroad, any individual who refuses to return to India to face criminal prosecution. A scheduled offence is defined as any offence provided in the Schedule appended to the FEO Act where, as stated above, the total value is over INR 100 crores. Succinctly put, the procedure prescribed under the Act to declare a person as a fugitive is to file an application before a Special Court containing details of the properties to be confiscated and available information about the person’s whereabouts. The Special Court is empowered to seek that such a person appears before it, by issuing a notice for this purpose, within six weeks of such notice being issued. If the notice is complied with, the proceedings will be terminated. On the other hand, upon failure to comply with such notice, the FEO Act allows certain designated authorities (these are authorities notified under the PMLA) to provisionally attach properties of an accused while the application is being heard by the Special Court. Once the person is declared as a fugitive, the properties of the individual may be confiscated and will then be in the possession of the Indian Government, free of any claims or rights against the properties.
6. Foreign Contribution Regulation Act (FCRA) 2010
The FCRA provides a compliance/governance framework governing foreign contributions/donations received in India, including, inter alia, norms on registration and prior permission requirements for receiving foreign contribution, filing of financials/undertakings, utilisation of funds and prohibitions applicable on receipt of foreign contribution.
The FCRA Amendment Act brings in a slew of amendments to the FCRA in relation to restrictions on the type of entities receiving foreign contribution, restrictions on transfer and utilisation of funds, additional conditions for obtaining registration/permissions and provisions on renewal/suspension/surrender of certificate of registration under FCRA. A summary of key amendments brought in by the FCRA Amendment Act is provided below.
- Prohibition on receiving Foreign Contribution: Section 3(1) of the FCRA sets out a list of persons who are prohibited from receiving any kind of foreign contribution, including inter alia, election candidates, correspondent, columnist, cartoonist, editor, owner, or publisher of a registered newspaper, judges, government servants, employees of governmental corporation, members of any legislature and political parties, entities engaged in the production or broadcast of news or current affairs. The FCRA Amendment Act has amended this section and added "public servants" (as defined under Indian Penal Code 1860) in this list.
Further, the FCRA Amendment Act has amended explanations to existing Section 3(1) and clarified that employees of government companies (as defined under the Companies Act 2013) are also prohibited from receiving any kind of foreign contribution.
- Transfer of foreign contributions: Previously under Section 7 of the FCRA, foreign contribution could be transferred only to those persons who were registered or had obtained a prior permission under the FCRA to obtain foreign contribution. The FCRA Amendment Act has amended this section and stipulated a complete prohibition on transfer of foreign contribution received by a person to any other person.
- Requirement of Aadhaar: As Per Section 12 of the FCRA, a person is permitted to accept foreign contribution if they possess registration, or have obtained prior permission under the FCRA, to accept foreign contribution. The FCRA prescribes the format and manner of application required to be made for registration/prior permission. The FCRA Amendment Act has added a new provision (Section 12A) which provides that the Central Government may require persons seeking registration/prior permission/renewal to also provide Aadhaar number of all office bearers, directors, key functionaries, or provide copies of passport or the Overseas Citizen of India card, for foreigners.
- FCRA Account: Section 17 of the FCRA previously provided that foreign contribution may be received in a single branch of any scheduled bank and more accounts may be opened in other banks for utilisation of the contribution. The FCRA Amendment Act has amended Section 17 and provided that foreign contribution can only be received in an account designated as "FCRA account", opened with the prescribed branch of the State Bank of India New Delhi. Further, no funds other than foreign contribution can be received or deposited in the FCRA account. Further, other FCRA accounts (in addition to the FCRA account in the State Bank of India's prescribed branch) may be opened in any scheduled bank for keeping or utilising the received foreign contribution.
- Restriction on utilisation of funds: Previously, Section 8 of the FCRA stipulated a maximum cap of 50% on the percentage of foreign contribution that may be utilised towards administrative expenses. It is relevant to note that 'administrative expenses' are defined to include salaries, wages, travel expenses, expenses incurred towards hiring of personnel, consumables like water/electricity, telephone charges, postal charges, charges towards rent and repair of premises, costs associated with running of office and vehicles, costs incurred towards legal and professional fees etc. The FCRA Amendment Act has reduced this limit by amending Section 8 of the FCRA. The provision now states that spends of foreign contribution towards administrative expenses shall be restricted to an upper limit of 20%.
Further, previously, vide Section 11 of the FCRA, if a person accepting foreign contribution was found guilty of violating the provisions of the FCRA, the unutilised or unreceived foreign contribution could be utilised or received, only after obtaining the prior approval of the Central Government. The FCRA Amendment Act has amended section 11 of the FCRA and further empowered the Central Government to restrict usage of unutilised foreign contribution in such cases, if such person has contravened provisions of the FCRA.
- Renewal/Suspension of registration: Earlier, the Central Government had the power under section 13 of the FCRA to suspend the registration of any person for a period of 180 days. Pursuant to the FCRA Amendment Act, section 13 has been amended and the Central Government has been provided with powers to suspend the registration of a person for another period of 180 days, in addition to the existing 180 days.
The FCRA Amendment Act has also introduced certain new powers for the Central Government, ie, to:
a) conduct an enquiry before renewal of registration; andb) permit a person to surrender their registration, on being satisfied that such person has not contravened FCRA and has vested the management of foreign contribution and related assets in the prescribed manner.
Happy reading
Those who read this, also read:
1. Preventive Legislations ML/FT: Major Countries/Region-India
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