Prevention of Money Laundering Act, 2002
The FATF Recommendations and Indian Money Laundering Law
The 40 Recommendations are grouped into seven clusters, from policy and coordination to international cooperation. Each has a counterpart somewhere in Indian law: in the PMLA and its Rules, in the UAPA, in the Companies Act, in the directions of the RBI and SEBI, or in the Extradition Act. Reading the two together explains why the PMLA looks the way it does, and why it keeps changing. This note maps the Recommendations group by group to their Indian implementation.
The 40 Recommendations in their seven groups, and the Indian law that meets each
1. The Seven Groups
Group | Recommendations | Subject |
|---|---|---|
A | 1 and 2 | AML/CFT policies and coordination: the risk-based approach and national coordination |
B | 3 and 4 | Money laundering and confiscation |
C | 5 to 8 | Terrorist financing and financing of proliferation; non-profit organisations |
D | 9 to 23 | Preventive measures: customer due diligence, records, PEPs, new technologies, wire transfers, reporting, DNFBPs |
E | 24 and 25 | Transparency and beneficial ownership of legal persons and arrangements |
F | 26 to 35 | Powers and responsibilities of competent authorities: supervision, FIUs, law enforcement, cash couriers, statistics, sanctions |
G | 36 to 40 | International cooperation: instruments, mutual legal assistance, confiscation, extradition, other cooperation |
2. Group by Group in Indian Law
Recommendation | Indian implementation |
|---|---|
R.1 Risk-based approach | National risk assessment; risk-based KYC under RBI directions; enhanced due diligence under s. 12AA |
R.2 Coordination | Inter-ministerial Coordination Committee, s. 72A (2019) |
R.3 Laundering offence | s. 3, with the 2019 Explanations; punishment under s. 4 |
R.4 Confiscation | Chapter III: provisional attachment (s. 5), confirmation (s. 8), confiscation; equivalent-value attachment |
R.5 to R.7 Terrorist and proliferation financing; targeted sanctions | UAPA offences of raising funds for terrorism, and freezing orders under s. 51A; the WMD Act, 2005, including the 2022 prohibition on financing |
R.8 Non-profit organisations | FCRA regulation; NGO registration and reporting under the PMLA Rules |
R.10 and R.11 Customer due diligence and records | ss. 11A and 12; Maintenance of Records Rules, 2005; records kept for five years |
R.12 Politically exposed persons | Defined and subjected to enhanced diligence under the Rules |
R.15 New technologies | Virtual digital asset service providers notified as reporting entities, March 2023 |
R.20 Suspicious transaction reporting | s. 12 reports to FIU-IND, including STRs and cash transaction reports |
R.22 and R.23 DNFBPs | Persons carrying on designated business or profession, s. 2(1)(sa): casinos, real estate agents, dealers in precious metals and stones, certain professionals |
R.24 and R.25 Beneficial ownership | s. 2(1)(fa); the Rules; significant beneficial owner register under s. 90 of the Companies Act, 2013 |
R.26 to R.28 Supervision | RBI, SEBI, IRDAI and other regulators; the Director, FIU-IND, with powers under s. 13 |
R.29 Financial intelligence unit | FIU-IND, set up in 2004 |
R.30 and R.31 Law enforcement powers | The ED: survey, search, arrest and statements under ss. 16 to 19 and 50 |
R.35 Sanctions | Penalties on reporting entities under s. 13; offences by companies under s. 70 |
R.36 International instruments | Vienna Convention; Palermo Convention and UNCAC, ratified in 2011 |
R.37 and R.38 Mutual legal assistance; freezing and confiscation | PMLA Chapter IX; MLATs; letters of request under the criminal procedure code |
R.39 Extradition | The Extradition Act, 1962; money laundering an extraditable offence |
R.40 Other cooperation | FIU-IND in the Egmont Group; regulator-to-regulator cooperation |
3. How the Recommendations Changed the PMLA
§ Traceable influence • The 2009 and 2012 amendments brought in cross-border offences, reporting entities, designated businesses and professions, and wider attachment, after India's first evaluation. • The 2019 amendments clarified that any one process of laundering suffices and that laundering is a continuing activity, consistent with R.3 and the Vienna and Palermo definitions, and added enhanced due diligence and an inter-ministerial committee. • The 2023 notifications on PEPs, beneficial ownership thresholds, virtual digital assets and professionals were made in preparation for the 2023 to 2024 evaluation. |
4. Frequently Asked Questions
How are the FATF Recommendations organised?
In seven groups: policies and coordination; money laundering and confiscation; terrorist and proliferation financing; preventive measures; beneficial ownership; powers of authorities; and international cooperation.
Which PMLA provisions implement Recommendation 3?
Section 3, defining money laundering, as clarified by the 2019 Explanations, and Section 4, prescribing the punishment.
How does India implement the preventive measures?
Through Chapter IV of the PMLA and the Maintenance of Records Rules, 2005: customer due diligence, record-keeping, reporting to FIU-IND, and enhanced due diligence, supported by the directions of sectoral regulators.
Why were virtual digital asset service providers brought under the PMLA?
To implement Recommendation 15 on new technologies, which requires countries to regulate and supervise virtual asset service providers for anti-money laundering purposes.