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PMLA COMPLIANCE

FREEZING UNDERPMLA

Advocate Iranpreet Singh
February 24, 2025
18 min read

Account freezing under the Prevention of Money Laundering Act (PMLA) is a critical tool for combating financial crimes. Understanding how banks identify, freeze, and manage suspicious accounts is essential for both financial institutions and account holders.

TABLE OF CONTENTS

PMLA OVERVIEW

UNDERSTANDING PMLA FRAMEWORK

The Prevention of Money Laundering Act, 2002 (PMLA) provides a comprehensive framework for preventing money laundering and terrorist financing. Account freezing is one of the key enforcement mechanisms under this legislation.

Key PMLA Provisions

Section 17: Power to freeze, seize or attach properties
Section 12: Reporting obligations for financial institutions
Section 8: Authorities under the Act (ED, FIU-IND)
Rule 3: Suspicious Transaction Reporting requirements

Enforcement Agencies

Enforcement Directorate (ED)

Primary investigation and enforcement

Regulatory Body

Financial Intelligence Unit (FIU-IND)

Central agency for STR analysis

FREEZING FRAMEWORK

LEGAL FRAMEWORK FOR ACCOUNT FREEZING

Legal Authority for Freezing

Statutory Powers

  • • Section 17 of PMLA - Power to freeze, seize or attach
  • • Section 17A - Provisional attachment of property
  • • Section 8(3) - Powers of authorized officers
  • • Rule 3 - Suspicious transaction reporting obligations

Triggering Conditions

  • • Suspicious transaction patterns identified
  • • Money laundering investigation initiated
  • • Predicate offense connection established
  • • Proceeds of crime suspected

Types of Freezing

  • • Immediate freezing by banks (suspicious activity)
  • • Regulatory freezing by FIU-IND
  • • Judicial freezing by ED/Courts
  • • International cooperation freezing

Account Freezing Process

1
Suspicious Activity Detection

Bank's monitoring systems identify unusual patterns

2
Internal Review & Analysis

Compliance team conducts detailed investigation

3
STR Filing

Suspicious Transaction Report filed with FIU-IND

4
Account Freezing

Immediate freezing of account operations

5
Customer Notification

Account holder informed as per regulatory requirements

6
Investigation & Resolution

Authorities investigate and determine next steps

Duration and Scope of Freezing

Freezing Duration

  • • Initial freezing: Up to 7 days
  • • Extended freezing: Up to 180 days
  • • Court-ordered: As per judicial directions
  • • Investigation period: Case-specific

Review Mechanisms

  • • Periodic review by authorities
  • • Customer representation rights
  • • Judicial review availability
  • • Appeal procedures

Scope of Restrictions

  • • Complete transaction freeze
  • • Partial operational restrictions
  • • Specific transaction blocking
  • • Related account monitoring

Permitted Operations

  • • Essential living expenses
  • • Court-approved transactions
  • • Statutory obligations
  • • Emergency medical expenses
SUSPICIOUS INDICATORS

IDENTIFYING SUSPICIOUS ACTIVITIES

Common Red Flags and Indicators

Transaction Patterns

  • • Large cash deposits inconsistent with known income
  • • Frequent transactions just below reporting thresholds
  • • Rapid movement of funds between accounts
  • • Unusual international wire transfers
  • • Complex layering of transactions

Account Behavior

  • • Sudden increase in account activity
  • • Dormant accounts becoming active
  • • Multiple accounts with similar patterns
  • • Accounts used as pass-through vehicles
  • • Inconsistent business activity

Customer Behavior

  • • Reluctance to provide information
  • • Inconsistent or false documentation
  • • Unusual nervousness or evasiveness
  • • Requests for secrecy or anonymity
  • • Involvement of third parties

Risk Assessment Framework

High-Risk Categories

  • • Politically Exposed Persons (PEPs)
  • • High-risk jurisdictions
  • • Cash-intensive businesses
  • • Non-resident accounts
  • • Shell companies

Monitoring Systems

  • • Automated transaction monitoring
  • • AI-based pattern recognition
  • • Real-time alert systems
  • • Cross-border transaction tracking

Investigation Triggers

  • • Threshold-based alerts
  • • Pattern-based detection
  • • External intelligence inputs
  • • Customer due diligence findings

Documentation Requirements

  • • Detailed transaction records
  • • Customer interaction logs
  • • Risk assessment reports
  • • Investigation findings
BANK PROCEDURES

BANK PROCEDURES FOR SUSPICIOUS ACCOUNTS

Internal Bank Procedures

Detection and Monitoring

  • • Continuous transaction monitoring systems
  • • Daily exception reports generation
  • • Customer risk profiling updates
  • • Cross-referencing with watch lists
  • • Behavioral pattern analysis

Investigation Process

  • • Compliance team review
  • • Enhanced due diligence
  • • Source of funds verification
  • • Business relationship assessment
  • • Documentation collection

Decision Making

  • • Risk committee evaluation
  • • Senior management approval
  • • Legal team consultation
  • • Regulatory reporting decision
  • • Account action determination

Reporting and Communication

STR Filing Requirements

  • • Within 7 days of detection
  • • Detailed transaction information
  • • Customer identification details
  • • Suspicious activity description
  • • Supporting documentation

Internal Reporting

  • • Compliance officer notification
  • • Senior management briefing
  • • Board committee reporting
  • • Audit trail maintenance

Customer Communication

  • • Account freezing notification
  • • Reason disclosure (limited)
  • • Process explanation
  • • Contact information provision

Regulatory Coordination

  • • FIU-IND coordination
  • • ED cooperation
  • • Information sharing
  • • Follow-up reporting

Operational Impact Management

Account Operations

  • • Immediate transaction blocking
  • • Standing instruction suspension
  • • Card and online banking restrictions
  • • Cheque clearing holds
  • • Related account monitoring

Customer Service

  • • Dedicated support channels
  • • Trained staff handling
  • • Escalation procedures
  • • Documentation requirements
  • • Status update mechanisms

Risk Management

  • • Reputational risk assessment
  • • Legal risk evaluation
  • • Operational risk monitoring
  • • Compliance risk management
  • • Business continuity planning
CUSTOMER RIGHTS

CUSTOMER RIGHTS & PROTECTIONS

Fundamental Customer Rights

Information Rights

  • • Right to be informed about account freezing
  • • Right to understand the process
  • • Right to know applicable timelines
  • • Right to receive written communication
  • • Right to contact information for queries

Procedural Rights

  • • Right to fair and reasonable treatment
  • • Right to due process
  • • Right to provide explanations
  • • Right to submit additional documentation
  • • Right to legal representation

Essential Services

  • • Right to access for essential expenses
  • • Right to medical emergency funds
  • • Right to statutory payment obligations
  • • Right to court-approved transactions
  • • Right to basic living expenses

Legal Protections Available

Constitutional Rights

  • • Right to livelihood protection
  • • Right against arbitrary action
  • • Right to legal remedy
  • • Right to fair hearing

Statutory Protections

  • • PMLA procedural safeguards
  • • Banking regulation protections
  • • Consumer protection rights
  • • Privacy and confidentiality

Remedial Rights

  • • Right to appeal decisions
  • • Right to judicial review
  • • Right to compensation
  • • Right to restoration

Support Mechanisms

  • • Banking Ombudsman assistance
  • • Legal aid availability
  • • Consumer forum access
  • • Professional legal help
UNFREEZING PROCESS

ACCOUNT UNFREEZING PROCEDURES

Criteria for Account Unfreezing

Investigation Completion

  • • Satisfactory explanation of transactions
  • • Source of funds verification
  • • No evidence of money laundering
  • • Compliance with regulatory requirements
  • • Clearance from investigating authorities

Documentation Requirements

  • • Complete KYC documentation
  • • Income and business proof
  • • Transaction justification documents
  • • Legal clearance certificates
  • • Undertaking for future compliance

Regulatory Approval

  • • FIU-IND clearance
  • • ED no-objection certificate
  • • Court orders (if applicable)
  • • Bank internal approval
  • • Compliance committee clearance

Step-by-Step Unfreezing Process

1
Customer Application

Submit formal application with supporting documents

2
Bank Review

Internal compliance and legal team evaluation

3
Regulatory Consultation

Coordination with FIU-IND and other authorities

4
Decision Making

Final decision by authorized committee

5
Account Restoration

Gradual or complete account operation restoration

6
Ongoing Monitoring

Enhanced monitoring for specified period

Timeline and Conditions

Processing Timeline

  • • Application review: 15-30 days
  • • Regulatory consultation: 30-60 days
  • • Decision communication: 7-15 days
  • • Account restoration: 1-3 days

Conditional Unfreezing

  • • Partial operation restoration
  • • Transaction limit restrictions
  • • Enhanced monitoring requirements
  • • Periodic review conditions

Post-Unfreezing Obligations

  • • Compliance with enhanced KYC
  • • Regular transaction reporting
  • • Source verification for large amounts
  • • Cooperation with future inquiries

Rejection Scenarios

  • • Insufficient documentation
  • • Ongoing investigation
  • • Regulatory objections
  • • Court restraint orders
COMPLIANCE REQUIREMENTS

COMPLIANCE FRAMEWORK & OBLIGATIONS

Bank Compliance Obligations

AML/CFT Program

  • • Comprehensive AML policy framework
  • • Customer Due Diligence procedures
  • • Transaction monitoring systems
  • • Staff training and awareness programs
  • • Regular policy updates and reviews

Reporting Obligations

  • • Suspicious Transaction Reports (STR)
  • • Cash Transaction Reports (CTR)
  • • Cross-border Wire Transfer Reports
  • • Counterfeit Currency Reports
  • • Non-Profit Organization Transaction Reports

Record Keeping

  • • Customer identification records
  • • Transaction records maintenance
  • • Investigation documentation
  • • Training records
  • • Audit trail preservation

Customer Compliance Requirements

KYC Compliance

  • • Complete identity verification
  • • Address proof submission
  • • Income and business documentation
  • • Beneficial ownership disclosure
  • • Regular KYC updates

Transaction Compliance

  • • Source of funds declaration
  • • Purpose of transaction disclosure
  • • Supporting documentation
  • • Threshold compliance

Cooperation Obligations

  • • Information provision to banks
  • • Cooperation with investigations
  • • Timely response to queries
  • • Document submission

Ongoing Obligations

  • • Profile update notifications
  • • Business change intimation
  • • Compliance with restrictions
  • • Regular monitoring cooperation
EXPERT GUIDANCE

EXPERT LEGAL GUIDANCE & SUPPORT

GET PROFESSIONAL ASSISTANCE

PMLA Compliance Advisory
Expert guidance on PMLA compliance and account freezing matters
Account Unfreezing Assistance
Legal representation for account unfreezing procedures
Dispute Resolution Support
Legal remedies and compensation claims for wrongful freezing
Banking Law Consultation
Comprehensive banking law advice and regulatory compliance
Contact Advocate Iranpreet Singh
Expert PMLA & Banking Law Services
📞+91-XXXXX-XXXXX
📧contact@iranpreetsingh.com
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