Money laundering is one of the biggest concerns in the global financial sector. Thus, banks, NBFCs, FinTech companies, and anyone involved in finance, spend vast amounts of their resources to detect and prevent money laundering and save themselves from money laundering penalties.

There are numerous compliance and regulatory bodies, and stringent regulations with heavy penalties for money laundering in place. Yet, reports indicate that up to INR 15,55,000 crores is laundered in India, every year. So, let’s find out what the money laundering penalties are.

What is money laundering?

Money laundering in the Prevention of Money Laundering Act (PMLA) is defined as an attempt, direct or indirect, with or without knowledge, to become part of or have involvement in the activity connected with the proceeds of crime and projecting such assets or property as untainted property. This extends to concealment, possession, acquisition, or use of money through such means.

Here are some examples cited under section 3 of the PMLA that could attract money laundering penalties:

· Indulging in the process or activity that is connected with the proceeds of crime with the intention of claiming that those proceeds are untainted.

· Knowingly assisting in the process or activity connected with the proceeds of crime with the intention of claiming that those proceeds are untainted.

· Being a knowing party, directly or indirectly involved in any process or activity connected with the proceeds of crime and claiming those proceeds as untainted.

Tips to prevent money laundering

With so many instances of money laundering going undetected, it is vital that organizations take preventive actions to curb it. Here are a few ways that companies can avoid paying money laundering penalties:

Become AML Compliant

Every country has an AML system that regulates AML compliance. Companies need to know what these requirements are, adhere to them, and follow AML practices to detect and curb suspicious activities.

Implement AML Policies

Every staff member who is involved in financial transactions must be instructed in AML tactics. Three areas need the most focus identity checks, due diligence, and AML transaction monitoring.

Read more: What are AML Policies?

Optimize Your KYC

KYC or Know Your Customer is the first step to curb money laundering. Companies need to validate the identities of individuals requesting their services. Having a good KYC process makes it easy to verify customer data and find any fraudulent claims. There are various means and tools for KYC such as:

· Identity Verification

· Video KYC

· Facial Recognition

· Fingerprint Scans

· Financial Statements

Due Diligence

Due diligence or customer due diligence (CDD) is a banking control that rates clients based on the risk that they would be involved in money laundering. The goal here is to broadly understand what activities the client is involved in and if those activities are a commonly used means for money laundering. An example would be a client involved in the sale of used cars or scrap metal. They will also be scanned for in terrorist databases, government records, sanctions screening, and watchlists. The same principle can be applied to businesses.

Suspicious Activity Monitoring

Companies must maintain unalterable audit trails that allow regulators to review and trace transactions. Frontline staff must monitor daily transactions and integrate the data from several sources to flag a suspicious or high-risk movement.

Get in touch with HyperVerge to ensure your company is AML compliant and has all the latest tools to detect and prevent money laundering.

Famous examples of money laundering

While financial institutions should focus on preventing money laundering, there are instances when they get involved in nefarious activities.

· The Wachovia Bank, established in 1879 and acquired by Wells Fargo in 2008 was involved in the largest money laundering event in 2010. They allegedly allowed drug cartels from Mexico to launder over US $ 390 billion through their various branches.

· Another famous example is Standard Chartered Bank, established in 1969, it broke sanctions against Iran and was hit with penalties of US $670 million. The bank has been accused of violating US sanctions against Burma, Libya, and Sudan.

Penalties for money laundering

Now that we know this much, what are the penalties for money laundering in India?

According to the laws of India, an offense of money laundering is punishable by imprisonment for a term between 3 and 7 years and an additional fine. The maximum sentence could be as long as ten years if the crime comes under the NDPS Act (Narcotic Drugs and Psychotropic Substances Act, 1985).

· Criminals may put in a plea bargain under the Code of Criminal Procedure 1973 (CrPC), limited to:

· offenses that affect the socio-economic condition of the nation as notified by the government

· offenses where the punishment prescribed by law is death, life imprisonment, or imprisonment for more than seven years.


Is money laundering a bailable offense in India?

No, money laundering is a non-bailable offense in India according to section 45 of the PMLA unless the Public Prosecutor is allowed to oppose the application for such release.

Do local police investigate money laundering?

The local police are barred from investigating money laundering and it is the responsibility of the Enforcement Directorate and the Financial Intelligence Unit.