Abstract
This article examines India’s anti-money laundering (AML) regime with a particular focus on the Prevention of Money Laundering Act, 2002 (PMLA). While the statute aligns with international standards under the Financial Action Task Force (FATF), its enforcement has been controversial. This paper argues that the AML framework in India suffers from three interrelated weaknesses: extremely low conviction rates, disproportionate enforcement powers exercised by the Enforcement Directorate (ED), and inadequate compliance mechanisms within financial institutions. By drawing upon statutory provisions, judicial pronouncements, enforcement data, and comparative perspectives, the article seeks to evaluate whether India’s AML laws effectively deter money laundering or merely expand state power without corresponding outcomes.
I. Introduction
Socio-economic offences, a term first popularized by the Law Commission of India in its 47th Report (1972), encompass crimes that erode the financial and social fabric of society. Among these, money laundering is uniquely pernicious, as it legitimizes the proceeds of corruption, narcotics trafficking, financial fraud, and terrorism. The Indian economy has witnessed a series of high-profile scandals — from the *Vijay Mallya loan defaults* to the *Punjab National Bank fraud* involving Nirav Modi — each revealing the inadequacy of preventive mechanisms.
This paper proceeds on the assumption that AML laws must serve a dual function: protecting the financial system while upholding constitutional liberties. The methodology adopted is doctrinal (analysis of statutory provisions, case law, and secondary literature) supplemented by empirical insights from enforcement statistics.
II. International and Domestic Framework
A. Global Standards
The FATF’s Forty Recommendations form the international baseline for AML laws. India, a member since 2010, is periodically assessed through mutual evaluations. The 2023 evaluation noted that India had strong legislative measures but lagged in “effectiveness outcomes.”$^1$
B. Domestic Legal Framework
1. The PMLA, 2002 — Section 3 criminalizes money laundering, prescribing rigorous imprisonment. Sections 5, 17, and 18 empower the ED to attach property, conduct search, and seize records. Section 45 introduces stringent bail conditions (“twin conditions”), a point of recurring constitutional debate.
2. Regulatory Bodies— The Financial Intelligence Unit–India (FIU-IND) (2004) analyzes suspicious transaction reports. The RBI mandates KYC/AML compliance; the SEBI regulates market intermediaries.
3. Complementary Statutes— The Black Money Act, 2015, Benami Transactions (Prohibition) Act, and disclosure provisions under the Companies Act, 2013 strengthen the AML ecosystem.
III. Socio-Economic Impact
Money laundering corrodes governance and sustains parallel economies. It facilitates tax evasion, erodes revenue, and undermines the legitimacy of institutions. In India, illicit financial flows are estimated at USD 83 billion annually.$^2$
Case studies illustrate the pattern:
1.Vijay Mallya siphoned bank loans through shall companies abroad.
2.Nirav Modi laundered funds through overseas diamond firms.
3.The AgustaWestland deal involved alleged kickbacks routed via intermediaries.
These episodes underscore that laundering is not merely a financial offence but a systemic threat to rule of law.
IV. Enforcement: Data and Trends
Between 2014 and 2022, the ED registered over 5,400 PMLA cases and conducted 1,100+ searches.$^3$ Yet, as of 2023, convictions stood at merely 23, yielding a conviction rate of less than 0.5 percent.$^4$
Although assets worth over ₹1 trillion were provisionally attached, actual recoveries post-adjudication were far lower. This discrepancy suggests that attachment is easier than securing convictions, raising concerns of due process.
V. Judicial Response
The judiciary has oscillated between upholding ED’s powers and protecting fundamental rights.
1. Nikesh Tarachand Shah v. Union of India $^5$ — Struck down Section 45’s twin bail conditions as unconstitutional.
2. Vijay Madanlal Choudhary v. Union of India$^6$ — Upheld the constitutionality of the PMLA and ED’s powers, marking a pro-enforcement stance.
3. P. Chidambaram v. Directorate of Enforcement$^7$ — Economic offences treated as “grave crimes” requiring stricter standards.
These cases reflect a judiciary inclined to prioritize economic security, sometimes at the expense of personal liberty.
VI. Challenges in Enforcement
1. Low Convictions— The gap between cases initiated and convictions secured undermines deterrence.
2. Overlapping Jurisdictions— Multiple regulators (RBI, SEBI, ED, FIU) lead to duplication and inefficiency.
3. Alleged Political Misuse — Selective targeting of political opponents erodes credibility of enforcement.
4. Compliance Burden— Smaller banks and NBFCs struggle with the cost of AML obligations.
5. International Cooperation— Weak mechanisms for asset repatriation impede recovery.
VII. Comparative Lessons
1. United Kingdom — Proceeds of Crime Act, 2002 enables civil recovery of assets without requiring criminal conviction.
2. United States — Patriot Act, 2001 emphasizes counter-terrorism financing with stringent reporting duties.
3.Singapore— Efficient confiscation laws and strict compliance regimes have earned global recognition.
India can adapt these models, particularly civil forfeiture and beneficial ownership transparency.
VIII. Policy Recommendations
This paper argues for a recalibration of India’s AML framework through:
1. Strengthening FIU-IND with data analytics.
2. Specialized PMLA Courts for expeditious trials.
3. Judicial Oversight on ED’s attachment and arrest powers.
4. Corporate Culture of compliance and whistleblower protections.
5. Enhanced International Coordination via stronger MLATs.
IX. Conclusion
India’s AML laws project an image of strength but deliver weak outcomes. The law has been amended repeatedly, yet enforcement remains inconsistent. The judiciary, while supportive of state interests, has occasionally raised constitutional concerns.
The central argument of this article is that India’s AML regime requires not merely stronger statutes but “fairer, more accountable enforcement”. Without addressing conviction rates and due process, the AML framework risks becoming an instrument of control rather than a shield against socio-economic crime.
References
1. FATF, Mutual Evaluation Report: India (2023).
2. Global Financial Integrity, “Illicit Financial Flows to and from Developing Countries”(2022).
3. Ministry of Finance, “Annual Report of the Enforcement Directorate” (2022).
4. Enforcement Directorate Statistics, Lok Sabha Replies (2023).
5. “Nikesh Tarachand Shah v. Union of India”, (2017) 11 SCC 1.
6. “Vijay Madanlal Choudhary v. Union of India”, (2022) 10 SCC 448.
7. “P. Chidambaram v. Directorate of Enforcement”, (2019) 9 SCC 24.
8. Reserve Bank of India, “Report on Trend and Progress of Banking in India” (2021).
9. B. Raman, Terrorism and Money Laundering in South Asia, 8 S. ASIA J. SEC. STUD. 55 (2014).
10. E.H. Sutherland, “White Collar Crime” (1949).
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