Issues related to money laundering in India

Reference

Money laundering undermines financial integrity as well as promotes organized crime and finances terrorism. India is facing increasing challenges of money laundering due to cross-border transactions, misuse of digital payments and fake company networks.

What is money laundering

• Money laundering is the process of disguising illegal income as legitimate money through banking channels or financial networks.
• For this, shell companies, trade-based laundering, hawala, investment in real estate, misuse of cryptocurrency etc. are used.

Legal framework to tackle money laundering in India

• Prevention of Money Laundering Act (PMLA), 2002 is the main law to tackle money laundering in India.
• Objective: Prevent money laundering, confiscate proceeds of crime
• Nodal agency: Enforcement Directorate (ED)

Other relevant laws

• Benami Transactions (Prohibition) Act, 1988
• Black Money (Undisclosed Foreign Income and Assets) Act, 2015
• Fugitive Economic Offenders Act, 2018
• FEMA, 1999: Regulates foreign exchange transactions.

Measures to strengthen prevention of money laundering

Amendments to PMLA 2019

• Definition of proceeds of crime broadened.
• Scope of ‘money laundering’ extended beyond direct gains to indirectly acquired assets
• Enhanced ED search, seizure and attachment powers
• Burden of proof for ED reduced in certain cases
• Integration with global standards, such as alignment with Financial Action Task Force (FATF) norms

Challenges

• Concerns over overreach: Critics allege that PMLA is being used beyond its original purpose to include crimes not directly linked to money laundering.
• Due process issues: Limited transparency in ED’s functioning and shifting burden of proof on the accused under PMLA raise constitutional concerns.
• Cross-border complexity: Involves multiple jurisdictions, privacy laws and tax havens.
• Misuse of technology: Crypto, darknet transactions difficult to trace.

Way Forward

• Institutional reforms: Strengthen inter-agency coordination (ED, Financial Intelligence Unit, CBI, RBI, SEBI)
• Judicial safeguards: Balance between enforcement powers and individual rights
• Global cooperation: Strengthen mutual legal assistance treaties
• Technology integration: Use AI and blockchain analytics to trace transactions
• Public awareness: Educate businesses, professionals and citizens about compliance requirements
• Judicial and procedural reforms: Clear timelines for prosecutions under PMLA to avoid lengthy investigations and safeguards to balance enforcement with civil liberties
• Regulation of digital assets: Mandatory KYC for crypto exchanges and high-value digital transfers
• Capacity building: Special training in forensic accounting and cyber forensics for ED, police and prosecutors

Conclusion

Combating money laundering requires a multi-pronged approach, including strong domestic laws, technology-enabled identification, strong global cooperation and procedural fairness to ensure both economic security and rule of law.