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PMLA 2002 and Money Laundering: Compliance for Banks, NBFCs and Businesses

Guide to Prevention of Money Laundering Act 2002. Covers money laundering offences, attachment of proceeds, PMLA obligations for reporting entities (banks, CAs), and Enforcement Di...

TaxClue Team Tax & Compliance Expert

May 13, 2026 1 min read 0 views Updated May 24, 2026

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The Prevention of Money Laundering Act 2002 (PMLA) criminalises money laundering and requires reporting entities (banks, FIs, intermediaries, professionals) to implement KYC, CDD, and transaction monitoring. The Enforcement Directorate (ED) investigates and attaches proceeds of crime under PMLA.

What is Money Laundering?

Section 3 defines money laundering as concealment, possession, acquisition, use, or disguising as untainted property the proceeds of scheduled offences (offences listed in the Schedule to PMLA, including corruption, tax evasion, drug trafficking, FEMA violations, IPC fraud).

Penalty for Money Laundering

Imprisonment: 3 to 7 years (10 years for NDPS-related laundering)
Fine up to Rs. 5 lakh
Attachment and confiscation of proceeds of crime (properties)

Reporting Entities (Obligated Entities)

The following must comply with PMLA KYC/reporting obligations:

Banks, NBFCs, financial institutions
Intermediaries (stockbrokers, depositories, mutual funds)
Casinos
Real estate agents
Professionals: CAs, CSs, CWAs, lawyers (for certain transactions)

Obligations of Reporting Entities

KYC (Know Your Customer): Verify identity using Aadhaar/PAN/Passport before account opening
CDD (Customer Due Diligence): Enhanced due diligence for PEPs and high-risk customers
Record-keeping: Maintain records for 5 years
STR (Suspicious Transaction Reports): File with Financial Intelligence Unit (FIU-IND) within 7 days
CTR (Cash Transaction Reports): Report cash transactions >Rs. 10 lakh per month

Enforcement Directorate Powers

Attachment of property (even before conviction) if ED has reason to believe it is proceeds of crime
Search and seizure
Arrest without warrant
Summon and examine witnesses
Confiscation after trial

PMLA and Professionals (CAs, CSs, Lawyers)

CAs, CS, and lawyers assisting in transactions involving company formation, real estate, or management of client funds are reporting entities under PMLA. They must conduct CDD, maintain records, and file STRs for suspicious transactions.

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Frequently Asked Questions

What is money laundering under PMLA?

Knowingly assisting in, concealing, or using proceeds from a scheduled offence is money laundering. Punishable with 3-7 years imprisonment plus fine and property confiscation.

What are the PMLA obligations for banks?

KYC verification, enhanced CDD for high-risk customers, STR filing within 7 days for suspicious transactions, CTR for cash transactions above Rs. 10 lakh, and 5-year record maintenance.

What is an STR under PMLA?

Suspicious Transaction Report — filed with FIU-IND within 7 working days of identifying a suspicious transaction regardless of transaction amount.

Can ED attach property before conviction?

Yes. ED can provisionally attach properties believed to be proceeds of crime even before conviction. A PMLA court confirms or revokes the attachment.

Are CAs and lawyers covered under PMLA?

Yes. CAs, CSs, CWAs, and lawyers are reporting entities for transactions involving company formation, real estate, and client fund management under PMLA.

What scheduled offences trigger PMLA?

Offences listed in the PMLA Schedule: corruption, FEMA violations, drug trafficking, human trafficking, IPC fraud, tax evasion, cybercrime, and many others.