Prevention of Money Laundering (PMLA, 2002)
Making crime money look clean is an offence. Here's the law, and what banks and agents must do.
Money laundering means making money earned from crime look clean. A person with cash from fraud, drugs or bribes pushes it through bank accounts, property or businesses until it looks like honest income. India's main law against it is the Prevention of Money-laundering Act, 2002 (PMLA).
Banks are the first line of defence, which is why KYC and money-laundering rules are in the DRA syllabus. A recovery agent who handles cash on the bank's behalf is part of that defence too.
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The Three Stages of Money Laundering
The standard way trainers and examiners describe how dirty money is cleaned.
- 1
Placement
Putting crime money into the financial system, for example depositing cash in small amounts across many accounts.
- 2
Layering
Moving it through many transactions so its source is hard to trace: transfers between accounts, buying and selling assets.
- 3
Integration
Bringing it back as apparently legal money, such as a property purchase or a fake business profit.
What the PMLA Says
- Offence of money laundering (section 3)
- Being directly or indirectly involved, or knowingly helping, in any process connected with the proceeds of crime: hiding, possessing, acquiring or using it, or projecting or claiming it as clean property.
- Punishment (section 4)
- Rigorous imprisonment of at least 3 years and up to 7 years, plus a fine. Where the money comes from certain drug offences, the maximum rises to 10 years.
- Reporting entity
- An organisation the Act puts under record-keeping and reporting duties. Banks and financial institutions are reporting entities.
- FIU-IND
- The Financial Intelligence Unit, India. Banks send their money-laundering reports to its Director.
What Banks Must Report
Under the PML (Maintenance of Records) Rules, 2005. The bank's Principal Officer files these.
Cash Transaction Report (CTR)
What triggers it
Cash transactions above ₹10 lakh, or a series of connected cash transactions in a month adding up to more than ₹10 lakh
Deadline
By the 15th of the next month
Counterfeit currency report
What triggers it
Cash transactions where forged or fake notes were used as genuine
Deadline
By the 15th of the next month
Suspicious Transaction Report (STR)
What triggers it
Any transaction, cash or not, that looks suspicious
Deadline
Within 7 working days of being satisfied it is suspicious
| Report | What triggers it | Deadline |
|---|---|---|
| Cash Transaction Report (CTR) | Cash transactions above ₹10 lakh, or a series of connected cash transactions in a month adding up to more than ₹10 lakh | By the 15th of the next month |
| Counterfeit currency report | Cash transactions where forged or fake notes were used as genuine | By the 15th of the next month |
| Suspicious Transaction Report (STR) | Any transaction, cash or not, that looks suspicious | Within 7 working days of being satisfied it is suspicious |
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Records and Secrecy
- check_circleSection 12 of the PMLA makes banks keep transaction records for 5 years from the date of the transaction, and identity records for 5 years after the account closes.
- check_circleNo tipping off: the fact that a report was made to FIU-IND must stay confidential. Telling a customer "your account has been reported" is not allowed.
- check_circleRBI's KYC rules say a bank should not restrict an account merely because it filed an STR.
- check_circleIf a bank or its staff fail these duties, the Director of FIU-IND can impose a penalty of ₹10,000 to ₹1 lakh for each failure.
For Recovery Agents: Cash Needs Care
If a borrower offers to clear an overdue loan with a large bundle of cash from a third person, or wants to split one payment into many small ones, report it to your bank contact. Always issue the bank's official receipt for every rupee you collect, and deposit it as the bank instructs. Do not judge or confront the borrower yourself.
How the DRA Exam Tests This
Common questions: "The cash transaction reporting threshold is..." (above ₹10 lakh), "An STR must be filed within..." (7 working days of the bank being satisfied it is suspicious), "Punishment under PMLA is..." (3 to 7 years), and putting the three stages in order.
The trap is the wording. The CTR threshold is "more than" ₹10 lakh, not "₹10 lakh and above". And the STR clock starts when the bank concludes the transaction is suspicious, not on the transaction date.
FAQs
What is the punishment for money laundering in India?expand_more
Rigorous imprisonment of 3 to 7 years and a fine under section 4 of the PMLA. If the money comes from certain drug offences, the maximum is 10 years.
Do banks report cash deposits above ₹10 lakh?expand_more
Yes. Banks report cash transactions above ₹10 lakh, and connected cash transactions that add up to more than ₹10 lakh in a month, to FIU-IND by the 15th of the next month.
How long do banks keep records under PMLA?expand_more
Transaction records for 5 years from the transaction date, and identity records for 5 years after the business relationship ends.
What are the three stages of money laundering?expand_more
Placement, layering and integration: putting dirty money into the system, moving it around to hide its source, and bringing it back as apparently clean money.
Next steps
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