What is Financial Intelligence Unit – India?

By Paromita Maitra

Published On: February 27, 2022 at 12:00 IST

Introduction

The Financial Intelligence Unit – India (FIU-IND) is a unit of the Indian Government’s Department of Revenue that gathers financial intelligence on money laundering Offences under the Prevention of Money Laundering Act, 2002.

It was established on November 18, 2004 and directly reporting to the Finance Minister’s Economic Intelligence Council (EIC).

As the Central National Organisation in charge of receiving, processing, evaluating, and disseminating information about allegedly fraudulent financial transactions, Financial Intelligence Unit – India is also in charge of coordinating and boosting the work of national and international intelligence, investigation, and enforcement agencies in combating money laundering and related crimes on a worldwide scale.

In November 2004, the Government of India established the Financial Intelligence Unit, India, which is led by a Director with the rank of Joint Secretary to the Government of India.

In accordance with Section 12 of the Prevention of Money Launderinh Act, the organisation has become operational and has begun receiving Cash Transaction Reports and Suspicious Transaction Reports from banks and other financial institutions.

The organisation is also applying for participation in the Egmont Group of Financial Intelligence Units, which is an umbrella organization of Financial Intelligence Units from around the world.

Functions

Financial Intelligence Unit – India primary responsibility is to receive cash/suspicious transaction reports, analyse them, and, when needed, distribute vital financial information to intelligence/enforcement agencies and regulatory authorities.

The following are the Functions of Financial Intelligence Unit – India:

• Gathering of Reports:

Act as a central receiving point for Cash Transaction Reports (CTRs), Non-Profit Organization Transaction Reports (NTRs), Cross Border Wire Transfer Reports (CBWTRs), Reports on Purchase or Sale of Immovable Property (IPRs), and Suspicious Transaction Reports (STRs) received from various reporting entities.

• Study the information:
  

Study the information if there are any patterns of transactions that could indicate money laundering or other crimes.

• Information Sharing:

Share data with national intelligence/law enforcement agencies, national regulatory agencies, and foreign Financial Intelligence Units.

• Play the role of Central Repository:

Create and manage a national data based on reports from reporting entities.

• Coordination:

To combat money laundering and related crimes, coordinate and strengthen the collection and exchange of financial intelligence through an effective national, regional, and global network.

• Monitor and Discover:

Critical important areas on money laundering trends, typologies, and advancements through research and analysis.

Organization Strength of Financial Intelligence Unit – India

The agency is staffed by deputies from the Central Board of Direct Taxes (CBDT), the Central Board of Indirect Taxes and Customs (CBIC), the Central Bank (RBI), the Securities and Exchange Board of India (SEBI), the Ministry of Legal Affairs, and intelligence agencies.

It is managed by a Joint Secretary, who is a Director. Pankaj Kumar Mishra, IRS-IT (1989), is the current Head, who was appointed to a five-year term in May 2016.

As a private measure, he was promoted to Additional Secretary in May 2020, with a temporary upgradation of the job.

Legislation

• Prevention of Money Laundering Act

The Prevention of Money Laundering Act of 2002 (PMLA) is the cornerstone of India’s legal framework for combating money laundering. The PMLA and the Rules promulgated under it went into effect on July 1, 2005.

Under pertinent Sections of the Act, the Director, Financial Intelligence Unit – India, and Director (Enforcement) have been given exclusive and concurrent authority to carry out the Act’s provisions.

Banking businesses, financial institutions, intermediaries, and anyone carrying on a specified business or activity are required by the PMLA and its laws to verify the identification of clients, keep records, and provide information to the Financial Intelligence Unit – India.

The purpose of the PMLA is to combat financial fraud and can provide for the confiscation obtained from, or implicated in, money laundering, as well as for matters related to financial fraud.

Provisions of PMLA

An Adjudicating Authority has been established under the Preventions of Money Laundering Act, 2002 (PMLA) to exercise the jurisdiction, powers, and authority provided by or under the said Act.

Structure

• Authority is made up of three members, one from each of the professions of “Law,” “Administration,” and “Finance or Accounting.”
• In addition, one of the members will serve as the Chairperson of the Adjudicating Authority.
• It is part of the Central Government’s Department of Revenue; M/o Finance, with headquarters in New Delhi.

Components

• The Adjudicating Authority is in charge of enforcing the PMLA’s jurisdiction, powers, and authority.
• If the Adjudicating Authority determines that any property is implicated in money laundering, the Adjudicating Authority shall confirm the attachment of the property or the detention of the property or record seized by a written order (as under Section 5 of PMLA).

PMLA and Financial Intelligence Unit

Sections 12 of PMLA requires every reporting entity (banking companies, financial institutions, intermediaries and designated non-financial businesses and professions) to maintain records of all transactions, furnish information of prescribed transactions to Director, Financial Intelligence Unit – India and to verify the identity of their clients and their beneficial owners in the manner prescribed.

The reporting entities are also required to preserve records of transactions and records of identity of clients for five years.

The PMLA (Maintenance of Records) Rules prescribe the requirements for maintenance of records and reports to be furnished to Financial Intelligence Unit – India.

Section 12A empowers the Director to call for additional information from reporting entity, which is obligated to maintain the confidentiality.

Section 13 of PMLA empowers Director, Financial Intelligence Unit – India to enquire into cases with regard to the obligations of the reporting entities and issue warnings, direct compliance and impose sanctions including monetary penalty on the reporting entity or its designated director or any of its employees.

Section 14 of the PMLA provides that the reporting entity, its Directors and employees shall not be liable to any civil or criminal proceedings against them for furnishing information to FIU-IND.

Section 50 gives Director, Financial Intelligence Unit – India powers of a civil Court under the Code of Civil Procedure, to enforce attendance of any person, compel production of records, and receive evidence on affidavits and issuing commission for examination of witnesses.

Section 54 empowers and requires various officers and other functionaries to provide necessary assistance to Director, Financial Intelligence Unit – India in the enforcement of his statutory functions under the PMLA.

Section 66 provides for the dissemination of information by Financial Intelligence Unit – India to any officer, authority or body performing any function under any law relating to imposition of any tax, duty or cess or to dealing in foreign exchange or to prevention of illegal trafficking in drugs or to any officer, authority or body notified by the Central Government.

Additionally, if provisions of any other law for the time being in force are contravened, Financial Intelligence Unit – India may also share information with the concerned agency.

Section 69 enables the recovery of fines imposed by the Director, if not paid within six months from the date of imposition of fine or penalty; and the powers of a Tax Recovery Officer under the Income-tax Act, 1961 can be exercised for this purpose.

The fines so imposed are recovered in the same manner as prescribed in Schedule II of the Income tax Act, 1961 for the recovery of arrears.

Further Details on Procedure for Search under PMLA

Egmont Group

The Egmont Group was founded in 1995 as a unified organisation to facilitate secure cash transmission across Financial Intelligence Units.

It is made up of 159 financial intelligence units that contribute to the development of anti-money laundering systems.

As a result, the primary mission of the Egmont Group’s financial intelligence teams is to gather, evaluate, and send financial information on money laundering and terrorism financing to the appropriate departments.

Some Financial Intelligence Units, on the other hand, have the authority to investigate and prosecute money laundering cases.

Case Laws related to Financial Intelligence Unit India

Financial Intelligence Unit-Ind vs Corporation Bank, 2019^[1]

• The controversy in this case arises from a sting operation carried out by reporters for the online media portal “Cobrapost.com.”
• The sting operation in question took place in the year 2012-2013.
• The sting operation involved undercover reporters visiting workers of multiple banks posing as customers who needed to open accounts to deposit and launder black money belonging to Minister and it was primarily intended to highlight banks’ complicity in money laundering.
• Several conversations in the above words were recorded and reported on Cobra post, a media outlet.
• According to the chats, bank employees suggested willingness to consider deposits of illegal money in accounts to be opened by reporters posing as prospective customers.
• Respondent-banks claimed that the discussions that were made public were fragmentary, manipulated, and extracted in such a way that it fed the notion that the respondent banks were involved in money laundering.
• Financial Intelligence Unit sent letters to the Respondent-Banks once the discussions became public, and the process concluded in orders imposing monetary fines under Section 13 of the Act.
• Furthermore, the sting operation was carried out by Cobra post reporters at 13 Axis Bank Limited locations, according to the article.
• KPMG Private Limited has been hired by Axis Bank to investigate claims made on the Cobra post website. Following that, the Financial Intelligence Unit sent Axis Bank a letter requesting particular notifications under Section 12(a) of the Act.
• It claimed that the talks recorded in the sting operation constituted “suspicious transactions” within the meaning of Rule 2(g) of the Rules, and that Axis Bank had breached Section 12 of the Act by failing to file any Suspicious Transaction Reports (STRs).
• The Financial Intelligence Unit also issued an order finding Axis Bank guilty of violating Section 12 of the Act, as well as Rules 2,3,5, and 7, and imposing a fine of Rs 13 lakhs for 13 instances of failure. Axis Bank, enraged by the aforementioned, filed an appeal with the Appellate Tribunal.
• The challenged judgement dismissed the aforementioned appeal, holding that non-compliances did not justify the application of the maximum penalty and that this was a case where a penalty of warning, as allowed under Section 13(2)(a) of the Act, should have been given.

Pay pal Payments Private Limited Vs Financial Intelligence Unit India (Delhi High Court), 2021^[2]

• On January 12, 2021, the High Court of Delhi delivered a preliminary ruling in regard to a fine levied by the Financial Intelligence Unit of India (‘FIU’) on PayPal Payments Private Limited in December 2020.
• The Court specifically mentioned that the Financial Intelligence Unit fined PayPal INR 9.3 million (about €108,600) for breaching the Prevention of Money Laundering Act, 2002.
• The Court stated that the Financial Intelligence Unit’s punishment was imposed in response to Section 12 of the Act, which mandates that PayPal, as a reporting entity and a payment system operator, keep an electronic record of all transactions so that it may be viewed by the proper authorities.

Conclusion

Financial Intelligence Units are an important part of the international fight against fraud, terrorism financing, and other forms of organised crime.

In the fight against money laundering and terrorism financing, their capacity to translate data into financial intelligence is critical.

Financial Intelligence Units have a well-established place in the arsenal of tools used to address these major crimes.

Edited by: Tanvi Mahajan, Publisher, Law Insider

References

• fiuindia.gov.in
• Financial Intelligence
• Financial Intelligence Unit
• 2019SCCDEL9950 ↑
• W.P.(C) 138/2021 & CM APPL. 421/2021 ↑