Money laundering is a process of making dirty money clean. Money is moved around the financial system again and again in such manner that its origin gets hidden. It involves complex chain of activities whereby huge amount of money generated from illegitimate activities viz. selling of narcotic drugs, extortion, corruption, illicit dealing in weapons, human trafficking, etc. is put through a series of process so that it comes out at the other end as clean and legal money.
Terrorist organizations encourage money laundering to support their illegal acts. It is important to note that due to increased vigilance in the wake of threats emanating from increasing terrorism, any failure on our part to discharge the duties cast on us under the applicable laws or we are becoming an instrumental or a part of the chain, even if unknowingly or ignorantly, may invite the trouble.
In order to fight against the money laundering and terrorist financing the Prevention of Money Laundering Act (PMLA) was brought into force w.e.f. July 1, 2005 in India. Guidelines were also issued in the context of the recommendations made by the Financial Action Task Force on antimony laundering standards. Compliance with these standards has become imperative for international financial relations.
PMLA is applicable to every intermediary registered with Securities & Exchange Board of India (SEBI) including an Investment Advisor.
As per the provisions of PMLA, the intermediaries are required to comply with Know Your Client (KYC) norms, conduct ongoing client due diligence to ensure that the activity being conducted in any account is consistent with the intermediary’s knowledge of the client, its business and risk profile.