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

PMLA 2002 and Money explained: this guide covers what PMLA 2002 and Money means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

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.