Money laundering poses a serious threat to India’s internal security and financial integrity. Critically examine the effectiveness of the existing legal and institutional mechanisms to combat money laundering in India and suggest measures.

Money laundering refers to the process of converting “dirty” or illegally acquired money into “clean” money by concealing its illegal origins. It is often linked with organised crime, corruption, tax evasion, and terrorism financing. In India, the Prevention of Money Laundering Act (PMLA), 2002 is the principal legislation to address this issue.

Extent and Impact of the Problem:

• According to a report tabled in Rajya Sabha (2023), the Enforcement Directorate (ED) has taken up 5,892 cases under PMLA since 2015.
• However, only 15 convictions have been secured, reflecting a conviction rate of 0.25%, raising concerns about the effectiveness of enforcement.
• Money laundering has been linked to terror financing (e.g., 26/11 Mumbai attacks), drug trafficking, human trafficking, and illegal arms trade.
• It destabilizes financial markets, reduces investor confidence, erodes public trust in governance, and leads to economic distortion and loss to public exchequer.

Legal and Institutional Framework in India:

1. Prevention of Money Laundering Act (PMLA), 2002: It empowers ED to attach and confiscate properties and covers a broad range of scheduled offences.
2. Enforcement Directorate (ED): Investigates and prosecutes offences under PMLA.
3. Financial Intelligence Unit – India (FIU-IND): Collects and analyses financial transactions and reports suspicious activity to law enforcement agencies.
4. Other laws and measures:
   1. Foreign Exchange Management Act (FEMA).
   1. Benami Transactions (Prohibition) Amendment Act, 2016.
   1. UAPA, NDPS Act, and Income Tax Act for related offences.
   1. RBI’s AML Guidelines, KYC norms, and Customer Due Diligence (CDD).
5. International Cooperation:
   1. India is a member of FATF, Asia Pacific Group, and Eurasian Group on Money Laundering.
   1. Double Taxation Avoidance Agreements (DTAAs) and Mutual Legal Assistance Treaties (MLATs) for cross-border investigation.

Challenges in the Current Legal and Institutional Framework:

Low Conviction Rate under PMLA:

• Despite over 5,800 cases registered by ED under PMLA since 2015, only 15 convictions have been secured as of 2023.
• It points to procedural delays, weak prosecutorial capacity, over-reliance on attachment of property and prolonged investigation, rather than time-bound trials.
• Judicial overburdening and limited number of special PMLA courts exacerbate delays.

Vague definitions in PMLA:

• The definition of “proceeds of crime” and “money laundering” under Section 3 is broad and open-ended, potentially allowing for subjective interpretation.
• The SC in Vijay Madanlal Choudhary v. Union of India, also raised concerns over arrest without stringent safeguards and presumption of guilt over innocence.

Lack of Procedural Safeguards:

• No mandatory requirement to file an FIR before initiating proceedings.
• Statements made to ED officers are admissible in court, unlike police statements under CrPC which raises natural justice concerns.
• The ED operates without adequate judicial or parliamentary oversight, giving rise to fears of political misuse or selective targeting.

Overlapping Jurisdictions:

• Multiple agencies (ED, FIU-IND, CBI, DRI, state police) are involved in anti-money laundering efforts.
• It leads to duplication of investigations, lack of data sharing and conflicts in jurisdiction.

Cross-border nature of the crimes:

• Money laundering is transnational, but India faces hurdles like slow processing of Mutual Legal Assistance Treaty (MLAT) requests.
• Offshore shell companies, tax havens, and virtual assets like cryptocurrencies are hard to trace without global cooperation.

Way Forward:

Reform PMLA framework:

• Clearly define offences and standardise procedures to avoid arbitrary actions.
  • Ensure proportionality and fairness in bail and arrest provisions (as flagged in Vijay Madanlal Choudhary v. Union of India, 2022).

Strengthen Institutional Capacities:

• Train ED and FIU officials in cyber and forensic accounting.
  • Invest in AI and blockchain for real-time detection.

Ensure Accountability:

• Regular parliamentary oversight on the functioning of ED and FIU.
  • Independent review mechanism to prevent selective targeting.

Improve International Cooperation:

• Proactively use FATF and UN mechanisms.
  • Expedite information exchange and extradition under MLATs.

Financial Sector Reforms:

• Tighten KYC and AML compliance in high-risk sectors like gambling, real estate, shell companies, and cryptocurrency.

Conclusion:

Money laundering undermines India’s economic security, fuels criminal enterprises, and poses a serious threat to national integrity. A balanced, transparent, and technology-driven approach is crucial to make India’s anti-money laundering regime truly effective and aligned with global standards.

‘+1’ Value addition:

• As per the United Nations Office on Drugs and Crime, the amount of money laundered globally in one year is 2–5%of global GDP.
• Since 2020-21, the ED has registered 3,110 cases under the anti-money laundering law, and over 12,000 complaints to investigate alleged foreign exchange violations.
• Benami Properties Transactions (Prohibition) Amendment Bill, 2015: The bill allows for the confiscation of Benami properties.
• India is a signatory to the Vienna Convention to combat Money Laundering and other relevant conventions of the UN.

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