The recent news highlights a decisive move by the Ministry of Finance – the amendment of the Prevention of Money Laundering (PML) regulations. The primary objective is to reactivate all dormant bank accounts, ensuring that cash transfers under the COVID-19 relief package, formally known as the Pradhan Mantri Garib Kalyan Yojana (PMGKY) scheme, reach their intended recipients.
Key Takeaways from the PMGKY Scheme
As part of the PMGKY scheme, the government has resolved to transfer ₹500 per month for three months to those sections of society who have been hardest hit by the nationwide lockdown. The modifications in PML norms guarantee that recipients can access and withdraw these funds without hurdles or any need for additional documentation.
Accounts Targeted for Activation
The rules have been modified specifically for certain types of accounts. These include those associated with Pradhan Mantri Jan Dhan Yojana, basic savings accounts and small accounts. Any accounts that may have become inactive due to non-completion of Know Your Customer requirements, or lack of operation over the past two years are among those targeted for reactivation.
Ensuring Smooth Cash Withdrawals
In the anticipation of increased customer activity, the Ministry of Finance has sought assistance from the Ministry of Home Affairs to provide adequate security personnel at bank branches and business correspondent locations. This measure is designed to uphold social distancing protocols and maintain law and order, once cash withdrawals increase following the transfers.
Understanding Money Laundering and its Deterrence
Money laundering involves the masking of the origin of illegally gained funds, making them appear as though they have come from legitimate sources. ‘Round-tripping’ is a practice where money exits the country through various channels and returns often disguised as foreign investment. It’s generally linked to black money and is frequently used for stock price manipulation.
The Prevention of Money-Laundering Act (PMLA), established in 2002, aims to prevent, control money laundering, facilitate the confiscation and seizure of property pertaining to laundered money, and handle other related issues. The Enforcement Directorate is responsible for conducting any investigations related to money laundering under the PMLA Act.
Inclusion of Reporting Entity Concept
The PMLA (Amendment) Act, 2012 introduced the concept of the ‘reporting entity’, which covers banking companies, financial institutions, intermediaries etc. It mandates these entities to verify, maintain records of all transactions, and report such transactions in a prescribed form to the Financial Intelligence Unit-India (FIU-IND).
Failure to comply with the Act’s provisions can result in penalties imposed by the FIU-IND Director. While the original PMLA, 2002 laid down fines up to Rs 5 lakh, the amendment act removed this upper limit.
Role of the Financial Intelligence Unit-India
FIU-IND, established in 2004, is a national agency responsible for receiving, analyzing, and disseminating data about suspicious financial transactions to enforcement agencies and foreign FIUs. An independent body, it reports directly to the Economic Intelligence Council (EIC), headed by the Finance Minister.
