XYZ & Associates a leading CS firm in Delhi, specialized in providing professional services, ranging from legal services & management consultancy services. Mr. A, a prominent businessman and lawyer by profession,

CS Professional · Capital Commodity and Money Market · PYQS · December 2020
XYZ & Associates a leading CS firm in Delhi, specialized in providing professional services, ranging from legal services & management consultancy services. Mr. A, a prominent businessman and lawyer by profession, approached XYZ & Associates requesting the incorporation of 4 private limited companies with ₹1,00,000 issued share capital for each company (i.e. total of ₹4,00,000) with the principal activities to invest, on the behalf of prominent investors, in the real estate property of Delhi NCR. XYZ & Associates performed full Know Your Client (KYC) verification of Mr. A, by obtaining all the required identification and economic profile data and also performed a full background check for the said individual as to identify any Politically Exposed Person, sanctions and adverse media positive matches. All the performed procedures did not identify anything suspicious or negative which would prevent the acceptance of Mr. A as client. XYZ & Associates got incorporated all the 4 companies, with Mr. A as the sole Beneficial Shareholder (BO) and immediately funds were deposited in the bank accounts of each of the 4 companies for ₹10,00,00,000 (i.e. total of ₹40,00,00,000). Each of the funds was shown as loans payable, for 1% interest, to a common investor Mr. P from Ghaziabad. The funds were then immediately invested in commercial property in Noida. During a Regulatory monitoring inspection from Directorate of Enforcement, it is identified that Mr. P (the sole investor) is a Politically Exposed Person and has a criminal history and sentences by courts for embezzlement, money laundering, and being involved in a criminal organization. XYZ & Associates is reported in the Disciplinary Committee of ICSI for not performing adequate KYC procedures and also the specific BO (Mr. A) and the sole investor (Mr. P) are reported by ICSI to Directorate of Enforcement. In the light of the above answer the following: What are the functions of Directorate of Enforcement under Prevention of Money Laundering Act, 2002?

Answer & Explanation:

Answer 1(a)(iii) The functions of the Directorate of Enforcement under the Prevention of Money Laundering Act, 2002 (PMLA) are as follows: Investigate contraventions of FEMA: Investigate contraventions of the provisions of the Foreign Exchange Management Act, 1999 (FEMA). Contraventions of FEMA are dealt with by way of adjudication by designated authorities of the Enforcement Directorate (ED) and penalties up to three times the sum involved can be imposed. Investigate money laundering offences: Investigate offences of money laundering under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA) and to take actions of attachment and confiscation of property if the same is determined to be proceeds of crime derived from a Scheduled Offence under PMLA, and to prosecute the persons involved in the offence of money laundering. There are 156 offences under 28 statutes which are Scheduled Offences under PMLA. Adjudicate FERA Show Cause Notices: Adjudicate Show Cause Notices issued under the repealed Foreign Exchange Regulation Act, 1973 (FERA) up to 31.05.2002 for the alleged contraventions of the Act which may result in imposition of penalties. Pursue prosecutions launched under FERA in the concerned courts. Sponsor preventive detention cases: Sponsor cases of preventive detention under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA) in regard to contraventions in FEMA. International cooperation: Render cooperation to foreign countries in matters relating to money laundering and restitution of assets under the provisions of PMLA and to seek cooperation in such matters.

Topics: Prevention of Money Laundering Act, 2002

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