MITIGATING MONEY LAUNDERING IN INDIA: AN EXPLORATION OF

MULTIFACETED CHALLENGES AND STRATEGIC METHODOLOGIES

(Project Submission towards the fulfillment of Mid-Term Examination in the subject of Socio-
Economic Offences)

SUBJECT Socio-Economic Offences

NAME Eva Verma (1881)

Aamani Golay (1843)

SEMESTER VIII

TOPIC Mitigating Money Laundering in India: An exploration

of multifaceted challenges and strategic methodologies

SUBMITTED TO Mr. Siddharth Balani

Assistant Professor, Faculty of Law

NATIONAL LAW UNIVERSITY, JODHPUR

WINTER SESSION

(JANUARY-MAY, 2024)

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 TABLE OF CONTENTS

ABSTRACT..............................................................................................................................3

INTRODUCTION....................................................................................................................4

MONEY LAUNDERING–THE CONCEPT....................................................................................4

MONEY LAUNDERING - AN ORGANIZED CRIME....................................................................5

THE PROCESS OF MONEY LAUNDERING–PLI:...........................................................7

ARGUMENT FOR MONEY LAUNDERING–HOW FAR SUSTAINABLE?.................9

A FEW TECHNIQUES OF MONEY LAUNDERING.......................................................................9

HARMFUL EFFECTS OF MONEY LAUNDERING......................................................................11

REGULATION OF MONEY LAUNDERING IN INDIA.................................................13

SALIENT FEATURES OF PREVENTION OF MONEY LAUNDERING ACT, 2002. 15

CONCLUSION.......................................................................................................................19

SUGGESTIONS.....................................................................................................................20

BIBILOGRAPHY..................................................................................................................21

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 ABSTRACT

Money laundering is a pervasive threat to financial integrity globally, and India is no

exception. This project provides a comprehensive examination of the challenges associated
with controlling money laundering within the Indian financial landscape, while also
presenting strategic perspectives to address these issues. The discussion begins by
acknowledging the dynamic nature of money laundering techniques, which continually adapt
to evade detection and prosecution. This adaptability underscores the need for a robust and
agile regulatory framework that can keep pace with evolving illicit financial activities. One
of the primary problems in combating money laundering in India is the existence of
regulatory gaps and loopholes that can be exploited by criminals. These gaps may arise from
outdated legislation, inadequate resources for enforcement agencies, or complexities in
cross-border cooperation. Moreover, the sheer volume of financial transactions in India,
combined with the diversity of financial institutions and instruments, creates a fertile ground
for money laundering activities. Effective enforcement of anti-money laundering (AML)
measures is another significant challenge. In addressing these challenges, several strategic
perspectives emerge. Strengthening the regulatory framework by closing loopholes, updating
legislation to encompass emerging technologies, and allocating adequate resources to
enforcement agencies are crucial steps. International cooperation and information sharing
among regulatory bodies and law enforcement agencies play a pivotal role, given the global
nature of money laundering networks.

Keywords: Money Laundering, charges, penal action, custody, police.

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 INTRODUCTION

Money is like fire, an element as little troubled by moralizing as earth, air and water. Men
can employ it as a tool or they can dance around it as if it were the incarnation of a god.
Money votes socialist or monarchist, finds a profit in pornography or translations from the
Bible, commissions Rembrandt and underwrites the technology of Auschwitz. It acquires its
meaning from the uses to which it is put.

- Lewis H. Lapham

The primary function of money is to serve as a medium of exchange, and as such it is

accepted without question in final discharge of debts or payment of goods or services. 1 The
term ‘money’ generally includes banknotes as well as coins, although it may be limited to
such of each as are legal tender at the time and place in question.2

The precise meaning of the term depends upon the content in which it is used so that, for
example, it is usually given a wide meaning when used in a will and when that meaning gives
effect to the intention of the testator, an intermediate meaning in connection with claims for
money paid or for money had and received, and a narrow meaning in the criminal law and in
relation to execution.3

Money is the root cause of many evils like corruption, black marketing, smuggling, drug
trafficking, tax evasion, sex tourism and human trafficking. 4 Majority is here to become rich
and money has become the basic goal of education. The more developed the nation, the more
the standard of living of the people. People want more money to cater to their needs and at a
point of time they don’t hesitate to have money from any source. This is the available soft
corner where the concept of money laundering enters and prospers.

MONEY LAUNDERING–THE CONCEPT

Money Laundering refers to the conversion or “Laundering” of money which is illegally
obtained, so as to make it appear to originate from a legitimate source. Money Laundering
is being employed by launderers worldwide to conceal criminal activity associated with
1
‘Money’, BRITANNICA, https://www.britannica.com/money/money (last visited 15 April 2024).
2
What Is Money?, INTERNATIONAL MONETARY FUND,
https://www.imf.org/external/pubs/ft/fandd/2012/09/basics.htm(last visited 15 April 2024).
3
Vijay Kumar Singh, Controlling Money Laundering in India – Problems and Perspectives,
http://www.igidr.ac.in/conf/money/mfc-13/mfc-12/Singh_Vijay.pdf (last visited 15 April 2024).
4
S. Ganesh, Money Laundering, article available at last accessed on 15 April, 2024.

4
it such as drug/arms trafficking, terrorism and extortion. 5 Robinson states that Money
laundering is called what it is because that perfectly describes what takes place – illegal, or
dirty, money is put through a cycle of transactions, or washed, so that it comes out the
other end as legal, or clean money.6

Article 1 of EC Directive defines the term “money laundering” as the conversion of property,
knowing that such property is derived from serious crime, for the purpose of concealing or
disguising the illicit origin of the property or of assisting any person who is involved in the
committing such an offence or offences to evade the legal consequences of his action, and the
concealment or disguise of the true nature, source, location, disposition, movement, rights
with respect to, or ownership of property, knowing that such property is derived from serious
crime.7 Thus, Money Laundering is not an independent crime, it depends upon another crime
(predicate offence), the proceeds of which is the subject matter of the crime in money
laundering.8 Therefore, what exactly amounts to money laundering, which actions and who
can be prosecuted is largely dependent on what constitutes a predicate crime for the purpose
of money laundering.

MONEY LAUNDERING - AN ORGANIZED CRIME

Money Laundering has a close nexus with organized crime. Money Launderers accumulate
enormous profits through drug trafficking, international frauds, arms dealing etc. Cash
transactions are predominantly used for Money Laundering as they facilitate the concealment
of the true ownership and origin of money.9 It is well recognized that through the huge profits
the criminals earn from drug trafficking and other illegal means, by way of money laundering
could contaminate and corrupt the structure of the State at all levels, this definitely leads to
corruption. Further, this adds to constant pursuit of profits and the expansion into new areas
of criminal activity.10

5
Deeptiman Tiwary & Apurva Vishwanath, How anti-money laundering law came to have a vast scope, granting
police powers to ED, THE INDIAN EXPRESS (published on 18 April 2024),
https://indianexpress.com/article/explained/explained-law/anti-money-laundering-law-pmla-evolution-
9257298/.
6
Brigitte Unger, The Scale and Impacts of Money Laundering, UK: Edward Elgar Publishing, 2007, p.16.
7
EC Directive on Prevention of the use of the Financial System for the Purpose of Money Laundering, 1991.
8
Ernesto Savona, Responding to Money Laundering: International perspectives, Harwood Academic Publishers,
1997, p 1.
9
Gururaj, B.N., Commentaries on FEMA, Money Laundering Act and COFEPOSA, Nagpur: Wadhawa, Ed.
2005, p.729.
10
Alagiri, Dhandapani, Ed. Money Laundering: Issues and Perspectives, Hyderabad: ICFAI University Press,
2006, p.iii.

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Through money laundering, organized crime diversifies its sources of income and enlarges its
sphere of action. The social danger of money laundering consists in the consolidation of the
economic power of criminal organizations, enabling them to penetrate the legitimate
economy. In advanced societies, crime is increasingly economic in character. Criminal
associations now tend to be organized like business enterprises and to follow the same
tendencies as legitimate firms; specialization, growth, expansion in international markets and
linkage with other enterprises. The holders of capital of illegal origin are prepared to bear
considerable cost in order to legalize its use.

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 THE PROCESS OF MONEY LAUNDERING–PLI:

Money Laundering is not a single act but is in fact a process that is accomplished in
three basic steps as enumerated below:

1. Placement

“Placement” refers to the physical disposal of bulk cash proceeds derived from illegal
activity. This is the first step of the money-laundering process and the ultimate aim of this
phase is to remove the cash from the location of acquisition so as to avoid detection from the
authorities.11 This is achieved by investing criminal money into the legal financial
system by opening up a bank account in the name of unknown individuals or organizations an
ddepositing the money in that account.

2. Layering

“Layering” refers to the separation of illicit proceeds from their source by creating complex
layers of financial transactions. Layering conceals the audit trail and provides anonymity.
This is achieved by moving money to offshore bank accounts in the name of shell companies,
purchasing high value commodities like diamonds12 and transferring the same to different
jurisdictions. Now, Electronic Funds Transfer (EFT) has become boon for such layering
exercise. Different techniques like correspondent baking, loan at low or no interest rates,
money exchange offices, back-to-back loans, fictitious sales and purchases, trust offices, and
recently the Special Purpose Vehicles (SVPs) are utilized for the purpose of laundering the
money.

3. Integration

“Integration” refers to the reinjection of the laundered proceeds back into the economy in
such a way that they re-enter the financial system as normal business funds. The launderers
normally accomplish this by setting up unknown institutions in nations where secrecy is
guaranteed. New forms of business give a platform for integration exercise. Now

11
Bharat Vasani & Varun Kannan, The PMLA – is the net cast too wide, CAM,
https://corporate.cyrilamarchandblogs.com/2021/02/the-pmla-is-the-net-cast-too-wide/ (last visited 14 April
2024).
12
For example a money launderer may buy an antique worth several dollars which would appear to be few
rupees for a few and the same can be transferred as gift item, etc. and sold in the international market. This
would involve money-laundering exercise to further another illicit trade in antiques.

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a person can start a business with just a webpage and convert his illegal money to legal bysho
wing profits from the webpage. There are other ways like capital market investments, real
estate acquisition, the catering industry, the gold market, and the diamond market. Money
laundering, at its simplest, is the act of making money that comes from Source A look like it
comes from Source B.13

13
Siddharth R Gupta, Resolving the Riddle: Retrospectivity Of PMLA, BAR AND BENCH,
https://www.barandbench.com/columns/resolving-the-riddle-retrospectivity-of-pmla (last visited 16 April 2024).

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 ARGUMENT FOR MONEY LAUNDERING–HOW FAR SUSTAINABLE?

In contrast to the position with insider dealing, a few serious academic arguments have been
advanced that money laundering is beneficial or even that it should be permitted. 14 There
exist theories of legitimization, suggesting that money laundering enables criminals to come
in from the shadows and take their place in the legitimate economy.

An example of this was the Seychelles’ proposed Economic Development Assistance Act,
1995, which would have provided that, where a person invested at least US$10 million in the
country, they would be immune from criminal prosecution by any party, the only
exception being the Seychelles authorities and then only in the context of the drug trafficking
investigation. Further, the funds themselves would be de jure ‘clean’ and not liable to
confiscation. Professor Barry Rider and others have also pointed out that it may often
be beneficial to the state (for e.g. in the funding of intelligence operation) as well as to
individuals, not only to keep the origin of certain funds secret but actually to disguise
their provenance.15

However, this argument is not sustainable because money laundering is essentially concerned
with the enabling of criminals and, on occasion, their associates to retain or recover the
proceeds of their offences. Moreover, the financial confidentiality and money laundering are
two distinct things.16

A FEW TECHNIQUES OF MONEY LAUNDERING

At each of the three stages of money laundering various techniques can be utilized. It is not
feasible to enlist all the techniques of Money Laundering exercise; however, some techniques
are illustrated for the sake of understanding:

1. Hawala

Hawala is an alternative or parallel remittance system. It exists and operates outside of, or
parallel to ‘traditional’ banking or financial channels. It was developed in India, before the
introduction of western banking practices, and is currently a major emittance system used
14
Alexander, RCH, Insider Dealing and Money Laundering in the EU: Law and Regulation, Ashgate, 2007,
p.21.
15
R. Sai Spandana, PMLA provisions need to be reconsidered by a larger bench, argue petitioners, SUPREME
COURT OBSERVER (published on 22 November 2023), https://www.scobserver.in/journal/pmla-provisions-need-
to-be-reconsidered-by-a-larger-bench-argue-petitioners/.
16
U Jawaharlal and KBS Kumar, Insurance Chronicle, December, 2004.

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around the world. In hawala networks the money is not moved physically. A typical hawala
transaction would be like a resident in USA of Indian origin doing some business wants to
send some money to his relatives in India. 17 The person has option either to send the money
through formal channel of banking system or through the hawala system. The commission in
hawala is less than the bank charges and is without any complications for opening account or
visit the bank, etc. The money reaches in to the doorstep of the person’s relative and the
process is speedier and cheaper.

2. Structuring Deposits

Also known Smurfing, this method entails breaking up large amounts of money into smaller,
less-suspicious amounts. In the United States, this smaller amount has to be below $10,000 --
the dollar amount at which U.S. banks have to report the transaction to the government. The
money is then deposited into one or more bank accounts either by multiple people (smurfs) or
by a single person over an extended period of time.18

3. Third-Party Cheques

Utilizing counter cheques or banker’s drafts drawn on different institutions and clearing them
via various third-party accounts. Third party cheques and traveller’s cheques are often
purchased using proceeds of crime. Since these are negotiable in many countries, the nexus
with the source money is difficult to establish.19

4. Peso Broker

A drug trafficker turns over dirty U.S. dollars to a peso broker in Colombia. The peso broker
then uses those drug dollars to purchase goods in the United States for Colombian importers.
When the importers receive those goods (below government radar) and sell them for pesos in
Colombia, they pay back the peso broker from the proceeds. The peso broker then gives the
drug trafficker the equivalent in pesos (minus a commission) of the original, dirty U.S.
dollars that began the process. The list is endless and quite a lot of techniques are not easily
attributed to one laundering phase alone. With each reporting of crime, the modus operandi
17
Mohammed El-Qorchi, Hawala: How does this informal funds transfer system work, and should it be
regulated?, IMF (published on 8 January 2023),
https://www.elibrary.imf.org/view/journals/022/0039/004/article-A011-en.xml.
18
Rory Traynor, What Is the Difference Between Smurfing And Structuring, RED FLAG ALERT (published on 17
October 2023), https://www.redflagalert.com/articles/aml-compliance/what-is-the-difference-between-smurfing-
and-structuring.
19
Aneesh Shahade, Conceptual Development of Money Laundering, INDIA FORENSIC,
https://indiaforensic.com/certifications/conceptual-development-of-money-laundering/ (last visited 16 April
2024).

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changes keeping in view the earlier detection. The money-launderers appear to be serious
researchers and the officials appear to be mere readers of research reports.

HARMFUL EFFECTS OF MONEY LAUNDERING

In a detailed study by Unger et al. about money laundering literature they were able to
identify 25 different effects of money laundering. Unger classifies the effects of money
laundering on the basis of its gestation period within which it surfaces, under two broadheads,
i.e. short-term effects of money laundering and long-term effects of money laundering.
Money Laundering threatens national governments and international relations between them
through corruption of officials and legal systems.20 It undermines free enterprise and threatens
financial stability by crowding out the private sector, because legitimate businesses cannot
compete with the lower prices for goods and services that businesses using laundered funds
can offer. There are few specific challenges which is posed by Money-laundering activities
throughout the world.

 Terrorism

Terrorism is an evil which affects each and everybody. Now and then we can find terrorist
attacks being made by terrorists. These attacks definitely cannot be done without the help of
money.21 Money Laundering serves as an important mode of terrorism financing. Terrorists
have shown adaptability and opportunism in meeting their funding requirements. Terrorist
organizations raise funding from legitimate sources, including the abuse of charitable entities
or legitimate businesses or self-financing by the terrorists themselves. Terrorists also derive
funding from a variety of criminal activities ranging in scale and sophistication from low-
level crime to organised fraud or narcotics smuggling, or from state sponsors and activities in
failed states and other safe havens.22 Terrorists use a wide variety of methods to move money
within and between organisations, including the financial sector, the physical movement of
cash by couriers, and the movement of goods through the trade system. Charities and
alternative remittance systems have also been used to disguise terrorist movement of funds.

20
Carolina Claver, Chady El Khoury, Rhoda Weeks-Brown, Financial Crimes Hurt Economies and Must be
Better Understood and Curbed, IMF (published on 7 December 2023),
https://www.imf.org/en/Blogs/Articles/2023/12/07/financial-crimes-hurt-economies-and-must-be-better-
understood-and-curbed.
21
Estimated direct attack cost in Bali Bombings is estimated at USD 50,000. source – Financial Action Task
Force Report on Terrorist Financing, 29th February 2008, available at
<http://www.fatfgafi.org/dataoecd/28/31/40196357.pdf> last accessed on 16 April 2024.
22
Pierre Bardin, Antoine Bouveret, Grace Jackson, Maksym Markevych, Money Laundering Poses a Risk to
Financial Sector Stability, IMF (published on 4 September 2023),
https://www.imf.org/en/Blogs/Articles/2023/09/04/money-laundering-poses-a-risk-to-financial-sector-stability.

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  Threat to Banking System

Across the world, banks have become a major target of Money Laundering operations and
financial crime because they provide a variety of services and instruments that can be used to
conceal the source of money. With their polished, articulate and disarming behaviour, Money
Launderers attempt to make bankers lower their guard so as to achieve their objective.
Though norms for record keeping, reporting, account opening and transaction monitoring are
being introduced by central banks across the globe for checking the incidence of Money
Laundering and the employees of banks are also being trained to recognise suspicious
transactions, the dilemma of the banker in the context of Money Laundering is to sift the
transactions representing legitimate business and banking activity from the irregular /
suspicious transactions.23 Launderers generally use this channel in two stages to disguise the
origin of the funds first, when they place their ill-gotten money into financial system to
legitimize the funds and introduce these funds in the financial system and second, once these
funds have entered the banking system, through a series of transactions, they distance the
funds from illegal source. The banks and financial institutions through whom the ‘dirt
money’ is laundered become unwitting victims of this crime.24

23
Anti-Money Laundering: Efforts in the Securities Industry, United States General Accounting Office, Report
to the Chairman, Permanent Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate,
available at http://www.gao.gov/new.items/d02111.pdf last accessed on 16 April 2024.
24
Esha Rathi, Grounds of Arrest: Navigating Section 19 of the PMLA, INDIA COPRLAW (published on 3
February 2024), https://indiacorplaw.in/2024/02/grounds-of-arrest-navigating-section-19-of-the-pmla.html.

12
 REGULATION OF MONEY LAUNDERING IN INDIA

With its growing financial strength, India is vulnerable to money laundering activities seven
though the country’s strict foreign exchange laws make it difficult for criminals to launder
money.25 Money-laundering in India has to be seen from two different perspectives, i.e.,
Money laundering on international forum and Money-laundering within the country. As far
as the cross-border money-laundering is concerned India’s historically strict foreign exchange
laws26 and reporting norms have contributed to a great extent to control money laundering on
international forum.27

According to Indian observers, funds transferred through the hawala market are equal to
between 30 to 40 percent of the formal market. The Reserve Bank of India (RBI), India’s
central bank, estimates that remittances to India sent through legal, formal channels in 2006-
2007 amounted to U.S. $28.2 billion. Due to the large number of expatriate Indians in North
America and the Middle East, India continues to retain its position as the leading recipient of
remittances in the world, followed by China and Mexico.28

In India, before the enactment of the Prevention of Money Laundering Act 2002, the
following statutes addressed scantily the issue in question:

• The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974

• The Income Tax Act, 1961

• The Benami Transactions (Prohibition) Act, 1988

• The Indian Penal Code and Code of Criminal Procedure, 1973

25
India vulnerable to money-laundering, T V Parasuram in Washington, March 02, 2004 12:30 IST, available at
t http://imdownloads.rediff.com/money/index.html.
26
Foreign Exchange Regulation Act, 1973. The law was very stringent. This was relaxed by FEMA 1999 with
the coming of liberalization. FERA though criticized by many for its strictness was successful in controlling
cross-border money-laundering in the nascent stage of Indian Economy.
27
India’s strict foreign-exchange laws and transaction reporting requirements, combined with the banking
industry’s due diligence policy, make it increasingly difficult for criminals to use formal channels like banks and
money transfer companies to launder money. However, large portions of illegal proceeds are often laundered
through “hawala” or “hundi” networks or other informal money transfer systems. Hawala is an alternative
remittance system that is popular among not only immigrant workers, but all strata of Indian society. Hawala
transaction costs are less than the formal sector; hawala is perceived to be efficient and reliable; the system is
based on trust and it is part of the Indian culture. - International Narcotics Control Strategy Report dated
February 29, 2008, available at <http://www.state.gov/documents/organization/102588.pdf> accessed on 16
April 2024.
28
International Narcotics Control Strategy Report dated February 29, 2008, available at
<http://www.state.gov/documents/organization/102588.pdf> accessed on 17 April 2024.

13
• The Narcotic Drugs and Psychotropic Substances Act, 1985

• The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act,

1988

However, this was not sufficient with the growth of varied areas of generating illegal
money by selling antiques, rare animal flesh and skin, human organ, and many such varied
new areas of generating money which was illegal. Money-laundering was an effective way to
launder the black money (wash it to make it clean) so as to make it white. The international
initiatives as discussed above to obviate the threat not only to financial systems but also to the
integrity and sovereignty of the nations and the recent Hawala episode in India triggered the
need for an anti-money-laundering law. In view of the urgent need for the enactment of a
comprehensive legislation inter alia for preventing money laundering and connected
activities, confiscation of proceeds of crime, setting up of agencies and mechanisms for
coordinating measures for combating money-laundering etc., the PML Bill was introduced in
the Lok Sabha on 4th August 1998, which ultimately was passed on 17 January 2003.
However, the implementation of the same did not see the light of the day until 2005 when it
was enforced. The time when the Act of 2002 came to be enforced it as too old to cater the
needs of Anti– Money Laundering Law.

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 SALIENT FEATURES OF PREVENTION OF MONEY LAUNDERING ACT, 2002

The aforesaid Act was enacted to prevent money-laundering and to provide for confiscation
of property derived from, or involved in, money-laundering. The Act extends to the whole of
India including J&K.29 The Act comprises of X chapters, 75 Sections, and a Schedule.

1. Offence of Money Laundering and Punishment

Offence of money-laundering means the projection of tainted money (proceeds of the crime)
as untainted either directly or indirectly or assisting in such act knowingly or knowingly is
a party or is actually involved in such process or activity.30 The proceeds of the crime referred
above include the normal crimes and the scheduled crimes. The Punishment prescribed for
the offence of money laundering in cases of money obtained from normal crime is rigorous
imprisonment for a term which shall not be less than 3 years but which may extend to 7 years
and shall also be liable to fine which may extend to five lakh rupees. However, for
the proceeds of crime which is involved in money laundering relates to any offence specified
under Paragraph 2 of Part A of the Schedule the punishment of rigorous imprisonment of 7
years has to be read as 10 years.

2. Attachment of Property Involved in Money-laundering

If the Director has reason to believe that a person is in possession of property involved in
money-laundering or he is dealing in such property, the Director is empowered to attach the
property. As far as offences under the NDPS Act is concerned the Director is empowered to
attach the laundered property in drug related cases soon after the case regarding offence is
sent by the police officer or a complaint is filed before the court for taking cognizance of the
offence. However, in other cases some safeguard is provided as to attachment can only be
made only when the investigation is complete and a report is forwarded under Section 173 31
of Criminal Procedure Code. Under the proposed Bill this distinction has been removed and
the safeguard is now available to all scheduled offences.32 Further the attachment by the
Director is provisional in nature for a period of 90 days and needs to be confirmed by the
Adjudicating Authority under Section 8 of PMLA 02.
29
The PML Bill -08 does not amend this portion of the Act to give this an extraterritorial application though the
concept of ‘Offence of Cross-border Implications’ have been inserted.
30
The Prevention of Money Laundering Act, 2002, § 4.
31
The Code of Criminal Procedure 1973, § 173.
32
The Prevention of Money Laundering Bill, 2008, § 5.

15
3. Enforcement Paraphernalia

Adjudicating Authority

The Act prescribes for formation of a three-member Adjudicating Authority 33 for dealing
with matters relating to attachment and confiscation of property under the Act. The
Adjudicating authority upon receipt of complaint or information of an offence under the Act 34
issues a show cause notice under the Act as to why the said property not be declared to be
property involved in money-laundering.

Administrator35

An officer not below the rank of a joint secretary to the Govt. of India is
to perform the functions of Administrator for management of properties confiscated under the
chapter of attachment and confiscation.

Appellate Tribunal36

This is to hear appeals against the orders of the Adjudicating Authority and the authorities
under the Act. The Tribunal consists of a chairperson (a person who is or has been a judge of
the Supreme Court or a High Court) and two other members. According to the proposed bill
the Chairman of the Tribunal can be removed from his office only after consultation with
Chief Justice of India.

Special Courts37

The Central Govt. in consultation with the Chief Justice of the High Court for trial of offence
of money-laundering may by notification designate one or more courts or session as Special
Court for such area as may be specified.

Authorities under the Act38

The following classes of authorities are prescribed under the Act.

1. Director or Additional Director or Joint Director.

33
Section 6 provides for composition and powers of such authority. A recent amendment vide the PML Bill 08
the “one or more Adjudicating Authority” has been replaced with “an adjudicating authority”. See also
Prevention of Money Laundering (Appointment and Conditions of Service of Chairperson and Members of
Adjudicating Authorities) Rules, 2007.
34
Through Director under Section 5(5); 17(4); 18(10) – when the director attaches the property.
35
The Prevention of Money Laundering Act, 2002, § 10.
36
The Prevention of Money Laundering Act, 2002, § 25.
37
The Prevention of Money Laundering Act, 2002, § 43.
38
The Prevention of Money Laundering Act, 2002, § 48.

16
 2. Deputy Director.

3. Assistant Director.

4. Any other class of officer as may be appointed.

Further the Act prescribes a list of officers such as officers of customs, police officers,
officers of Reserve Bank, etc., who are required expressly to assist the authorities in
enforcement of this Act. The enforcement paraphernalia is given extensive power to
discharge the duties under the Act. The Adjudicating authority for the purposes of the Act is
vested with powers of Civil Court39 under the Code of Civil Procedure, 1908. Further, powers
are provided to the enforcement directorate to search a person, arrest a person, retention of
property and has the powers of Civil Court while exercising power under Section 13 to
impose fine on entities for their failure to make statutory disclosures. Though, such wide
powers are given to the authorities under the Act at the same time a stopper is put in the form
of punishment for vexatious search. Vexatious search by any authority or officer exercising
powers under the Act is punishable with imprisonment up to two years or fine up to fifty
thousand rupees.40

In a recent case Pareena Swarup Versus Union of India 41, the Hon’ble Supreme Court has
dealt with the issue of constitutionality of the Adjudicating Authorities and Appellate
Tribunal under PMLA 02. This writ petition under Article 32 of the Constitution of India by
way of Public Interest Litigation sought to declare various sections of the Prevention of
Money Laundering Act, 2002 such as Section 6 which deals with adjudicating authorities,
composition, powers etc., Section 25 which deals with the establishment of Appellate
Tribunal, Section 27 which deals with composition etc. of the Appellate Tribunal, Section 28
which deals with qualifications for appointment of Chairperson and Members of the
Appellate Tribunal, Section 32 which deals with resignation and removal, Section 40 which
deals with members etc. as ultra vires of Articles 14, 19(1)(g), 21, 50, 323B of the
Constitution of India. It was also pleaded that these provisions are in breach of scheme of the
Constitutional provisions and power of judiciary. Court found merit in the arguments of the
petitioner and held that “It is necessary that the Court may draw a line which the executive
may not cross in their misguided desire to take over bit by bit and judicial functions and
powers of the State exercised by the duly constituted Courts. While creating new avenue of
39
The Prevention of Money Laundering Act, 2002, § 11.
40
The Prevention of Money Laundering Act, 2002, § 62.
41
Pareena Swarup Versus Union of India (2008) 14 SCC 107.

17
judicial forums, it is the duty of the Government to see that they are not in breach of basic
constitutional scheme of separation of powers and independence of the judicial function”. An
order to implement the amended rules was given. One can find some of these amendments in
the proposed PML Bill 08 also.

 Summons, Searches and Seizures etc.

Chapter V of the PMLA provides for a comprehensive mechanism for survey, search and
seizure. The authorities under the Act have power to enter any place for survey when the said
authority has a reason to believe on the basis of material in his possession that any offence of
money-laundering has been committed and the person in-charge of such place have to
facilitate in the survey of such authority.42 If any Director is having some material to make
him believe that an offence under the Act has been committed is empowered to authorize any
officer subordinate to him to enter and search any building, place, vessel, vehicle, etc; break
open any lock or door, box, locker etc; seize any record; place marks of identification; and
examine on oath any person. However, such search and seizure have to be done only after a
report has been forwarded to a Magistrate under Section 173 43 of the Code of Criminal
Procedure relating to such offence.

42
P.D.T. Achary, The PMLA — a law that has lost its way, THE HINDU (published on 2 April 2024),
https://www.thehindu.com/opinion/lead/the-pmla-a-law-that-has-lost-its-way/article68017135.
43
The Code of Criminal Procedure 1973, § 173.

18
 CONCLUSION

Combating money laundering is a dynamic process because the criminals who launder money
are continuously seeking new ways to achieve their illegal ends. Moreover, it has become
evident to the FATF through its regular typologies exercises that as its members have
strengthened their systems to combat money laundering the criminals have sought to exploit
weaknesses in other jurisdictions to continue their laundering activities. Many important
financial centres have now adopted legislation to curb drug-related money laundering.
However, too many priorities financial centres have still not adopted needed legislation or
ratified the convention. There is also a substantial question of whether the drug trafficking-
oriented money laundering laws that many governments adopted in the earlier part of this
decade are adequate, given recent development in money-laundering practices and new
technologies used in baking. Organized crime groups are increasingly a factor in major
money-laundering schemes–and the multiple sources of their proceeds compounds the
difficulty of linking the monetary transaction to a unique predicate offence like drug
trafficking. Moreover, criminal organizations have distinct patterns of operations.

19
 SUGGESTIONS

Money-laundering involves international activity at a greater level. As it is open to the states

to decide exactly which crimes would qualify as predicate offences to money laundering, this
has resulted into serious inroad into the international harmonizing efforts of anti-money
laundering law. Most countries have listed serious offences as predicate crimes but have
nevertheless, adopted different approaches to what exactly constitutes a serious crime for the
purpose. Thus, there is a need to have a common list of predicate offences to solve the
problem of crossroads, specifically keeping into mind the trans-national character of the
money laundering crime and the need for a unitary and coherent approach at international
level.

Money-laundering seems to be a victimless crime to most of the persons, however, in view of

the harmful effects of the crime discussed in the earlier part of the discussion it is need of the
day to educate people about such crimes and inculcate a sense of vigilance towards the
instances of money laundering.

There is a need to sensitize the Private Sector about their role in anti-money laundering
activities. An example would be the Wolfberg principles. Anti-money laundering should
not be only the responsibility of the Government, but also the private players.

There is a need of reviewing the AML strategies periodically. The enforcement agencies now
have to step in the shoes of money-launderers to find out their techniques of money
laundering. In the past 20 years, law enforcement authorities and FIUs in various countries
have made major progresses in identifying the ways money laundering works. However,
much emphasis continues to be placed on relatively small money laundering operations that
tend to highlight the predicate crime. There are various official reports on this aspect, but the
most public attention by far is directed to the most sensational cases. There is a requirement
to have a convergence of different enforcement agencies, sharing of information is necessary.

It is suggested that a special cell dealing with money laundering activities should be created
on the lines of Economic Intelligence Council (EIC) exclusively dealing with research and
development of AML. This Special Cell should have link with INTERPOL and other
international organizations dealing with AML. All key stakeholders, like, RBI, SEBI etc.
should be a part of this.

20
 BIBILOGRAPHY

Cases

Pareena Swarup Versus Union of India (2008) 14 SCC 107..................................................18

Statutes

The Code of Criminal Procedure 1973, § 173.........................................................................16

The Prevention of Money Laundering Act, 2002, § 10...........................................................17
The Prevention of Money Laundering Act, 2002, § 11...........................................................18
The Prevention of Money Laundering Act, 2002, § 25...........................................................17
The Prevention of Money Laundering Act, 2002, § 4.............................................................16
The Prevention of Money Laundering Act, 2002, § 43...........................................................17
The Prevention of Money Laundering Act, 2002, § 48...........................................................18
The Prevention of Money Laundering Act, 2002, § 62...........................................................18

Regulations

EC Directive on Prevention of the use of the Financial System for the Purpose of Money
Laundering, 1991...................................................................................................................5

Books

Brigitte Unger, The Scale and Impacts of Money Laundering, UK: Edward Elgar Publishing,
2007, p.16...............................................................................................................................5
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‘Money’, BRITANNICA, https://www.britannica.com/money/money (last visited 15 April

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University Press, 2006, p.iii...................................................................................................6
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Ashgate, 2007, p.21..............................................................................................................10

21
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last accessed on 16 April 2024.............................................................................................13
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must-be-better-understood-and-curbed................................................................................12
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Wadhawa, Ed. 2005, p.729....................................................................................................6
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https://www.imf.org/en/Blogs/Articles/2023/09/04/money-laundering-poses-a-risk-to-
financial-sector-stability.......................................................................................................13
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bench-argue-petitioners/.......................................................................................................10
Rory Traynor, What Is the Difference Between Smurfing And Structuring, RED FLAG ALERT
(published on 17 October 2023),

22
 https://www.redflagalert.com/articles/aml-compliance/what-is-the-difference-between-
smurfing-and-structuring......................................................................................................11
S. Ganesh, Money Laundering, article available at last accessed on 15 April, 2024................4
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Available at: http://www.worldbank.org/html/fpd/notes/48/48scott.pdf...............................7
U Jawaharlal and KBS Kumar, Insurance Chronicle, December, 2004..................................10
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http://www.igidr.ac.in/conf/money/mfc-13/mfc-12/Singh_Vijay.pdf (last visited 15 April
2024)......................................................................................................................................4
What Is Money?, INTERNATIONAL MONETARY FUND,
https://www.imf.org/external/pubs/ft/fandd/2012/09/basics.htm(last visited 15 April 2024)
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Journals

Quirk, Peter J. 1997 “Money Laundering: Muddying the Macroeconomy.” Finance and
Development. International Monetary Fund. March. Vol. 34, No. 1, p. 8. Available at:
http://www.imf.org/external/pubs/ft/fandd/1997/03/pdf/quirk.pdf........................................7

Articles

Bharat Vasani & Varun Kannan, The PMLA – is the net cast too wide, CAM,
https://corporate.cyrilamarchandblogs.com/2021/02/the-pmla-is-the-net-cast-too-wide/
(last visited 14 April 2024)....................................................................................................8
Deeptiman Tiwary & Apurva Vishwanath, How anti-money laundering law came to have a
vast scope, granting police powers to ED, THE INDIAN EXPRESS (published on 18 April
2024), https://indianexpress.com/article/explained/explained-law/anti-money-laundering-
law-pmla-evolution-9257298/................................................................................................5
Esha Rathi, Grounds of Arrest: Navigating Section 19 of the PMLA, INDIA COPRLAW
(published on 3 February 2024), https://indiacorplaw.in/2024/02/grounds-of-arrest-
navigating-section-19-of-the-pmla.html..............................................................................13
Manuraj Shunmugasundaram, The authority of ED and usage of PMLA, THE HINDU
(published on 19 July 2023), https://www.thehindu.com/opinion/op-ed/the-authority-of-ed-
and-usage-of-pmla/article67094613.ece................................................................................6

23
P.D.T. Achary, The PMLA — a law that has lost its way, THE HINDU (published on 2 April
2024), https://www.thehindu.com/opinion/lead/the-pmla-a-law-that-has-lost-its-way/
article68017135....................................................................................................................19
Siddharth R Gupta, Resolving the Riddle: Retrospectivity Of PMLA, BAR AND BENCH,
https://www.barandbench.com/columns/resolving-the-riddle-retrospectivity-of-pmla (last
visited 16 April 2024)............................................................................................................9

24