Money Laundering

A report submitted by the Finance Minister in the Rajya Sabha revealed that since 2015, the Enforcement Directorate (ED) has taken up 5,892 cases under the Prevention of Money Laundering Act (PMLA), 2002, but has secured only 15 convictions.

Meanwhile, the Supreme Court has emphasized that ED must follow the rule of law, urged the establishment of fast-track courts for PMLA cases, and recommended regulation of cryptocurrencies to prevent misuse without banning them outright.

What is Money Laundering?

Money laundering is the process of disguising proceeds of illegal activities (like drug trafficking, smuggling, arms trade, embezzlement) to make them appear legitimate, allowing criminals to enjoy profits without detection.

• Key Stages:

  1. Placement: Introducing illicit funds into the financial system

  2. Layering: Complex transactions to disguise the origin

  3. Integration: Making the funds appear legally obtained

• Common Methods:
  Structuring (smurfing), trade-based laundering, shell companies, real estate investments, cryptocurrencies, hawala networks.

Why Are Money Laundering Cases Rising in India?

• Legal and Enforcement Gaps: Misuse of certain PMLA provisions (like property attachment without a registered offence) and prosecution delays.

• Complex Techniques: Use of digital currencies, fintech, cross-border transfers complicate detection.

• Shadow Economy: Large informal sectors and lax regulation in real estate, jewellery, and luxury goods markets.

• Weak Global Cooperation: Despite 85+ Double Taxation Avoidance Agreements (DTAAs), limited data sharing hampers investigation.

Example: In a Rs 260 crore global cyber fraud case, funds were converted into cryptocurrencies and laundered through hawala networks in the UAE.

Consequences of Money Laundering

• Fuels organized crime, terrorism, drug and human trafficking.

• Erodes public trust and weakens democratic institutions.

• Diverts public welfare funds, increasing socio-economic inequality.

• Distorts economy, causing capital flow volatility, inflated real estate prices, deterring foreign investments, and financial instability.

What is a “Laundromat”?

A complex network of shell companies, banking channels, and offshore accounts used to “clean” illicit funds, originally a term linked to US crime syndicates.

Prevention of Money Laundering Act (PMLA), 2002

• Enacted in 2005 to prevent money laundering and confiscate property derived from crimes.

• Targets crimes like drug trafficking, smuggling, terror financing.

• Empowers authorities to attach, seize, and confiscate property linked to scheduled offences.

• Investigations start based on Enforcement Case Information Reports (ECIRs), not necessarily FIRs.

• Bail under Section 45 requires the accused to prove innocence and assure no reoffending.

• Institutional framework includes Financial Intelligence Unit (FIU-IND) and an Appellate Tribunal.

Recent Amendments

• 2019: Special Courts can notify claimants for confiscated property after charges are framed.

• 2023: Expanded NGO disclosure requirements and redefined Politically Exposed Persons (PEPs) in line with FATF norms.

Global Cooperation

India’s DTAAs with over 85 countries facilitate information exchange and tracking of offshore assets to combat money laundering and tax evasion.

Key Judicial Rulings

• P. Chidambaram vs. ED (2019): Concealing illegal funds threatens national sovereignty.

• Vir Bhadra Singh vs. ED (2017): ECIR sufficient for investigation, FIR not mandatory.

• Vijay Madanlal Chaudhury vs. Union of India (2022): Scheduled offence registration mandatory for prosecution but not for property attachment, a provision sometimes misused politically.

Measures to Combat Money Laundering

• Strict compliance with FATF norms for transparency and accountability.

• Ensure independent, unbiased investigations by enforcement agencies.

• Strengthen evidence collection, inter-agency coordination, and use digital forensics.

• Enhance international cooperation and use of DTAA mechanisms for real-time data sharing.

• Judicial safeguards to prevent misuse and uphold due process during attachment and prosecution.

Conclusion

Money laundering poses a serious threat to India’s financial stability and national security. Although the PMLA provides a robust legal framework, implementation challenges like low conviction rates, procedural delays, and misuse undermine its effectiveness. Addressing this requires legal reforms, stronger institutional accountability, and enhanced global cooperation.