Controlling Money Laundering in India

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The Sahara Group’s case calls for a thorough probe to reveal all its money laundering dimensions.


  • It has been about five years since the Supreme Court ordered the Sahara Group, led by Subrata Roy, to refund money that it borrowed investors without sufficient regulatory clearance.
  • The Securities and Exchange Board of India, was tasked by the apex court to oversee the actual transfer of money from the Sahara Group to investors.
  • The total amount, including interest on the initial principal, that need to be refunded to investor has bulged to about Rs 40,000 crore.
  • Of this, SEBI has received an aggregate amount, including interest earned on deposits, of about Rs 14,487 crore from the Sahara Group.
  • As per the SEBI’s latest annual report, on March 31, 2017 only about Rs 85.02 crore, including interest of about Rs 38.05 crore, of this amount has actually been returned to investors.
  • The Group failed to satisfy the apex court’s request to provide evidence of the source of funds used to make the claimed return payments.
  • The Enforcement Director began proceeding in 2014 against the Sahara Group under the prevention of money laundering act.

What is money laundering?

  • Money launderingis the process of transforming the profits of crime and corruption into ostensibly “legitimate” assets
  • Money launderingis the process by which large amounts of illegally received money is given the appearance of having originated from a legitimate source.
  • money launderinghas criminal dimensions related to black
  • It is the way to convert the black money into white money.
  • Money laundering must involve a predicate crime such as the violation of Indian Penal Code, IPC, Narcotics, Prevention of Corruption Act and Human Trafficking.
  • In India, stashing Black money a civil crime, while money laundering has criminal dimensions related to black money.

Some techniques of money laundering:

  • Hawala: Hawala is an alternative or parallel remittance system. It exists and operates outside of, or parallel to ‘traditional’ banking or financial channels.
  • Structuring deposits: Also known as smurfing, this method entails breaking up large amounts of money into smaller, less-suspicious amounts.
  • 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 traveler’s cheques are often purchased using proceeds of crime.
  • Credit Cards – Clearing credit and charge card balances at the counters of different banks. Such cards have a number of uses and can be used across international borders.

Causes of money laundering:

  • No deals for sharing tax information with other countries
  • Availability of instant corporations
  • Corporate Secrecy Laws – as the corporate law of certain countries enables launderers to hide behind shell companies.
  • Excellent Electronic Communication
  • Tight Bank Secrecy Laws
  • A Government that is Relatively Invulnerable to Outside Pressures
  • A high degree of Economic Dependence on the Financial Services Sector
  • A Geographical Location that Facilitates Business Travel to and from rich neighbors.

Harmful effects of money laundering:

  • Terrorism: Money Laundering serves as an important mode of terrorism financing. Terrorists have shown adaptability and opportunism in meeting their funding requirements.
  • Threat to banking system: Across the globe, 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.
  • Threat to economic and political stability: The infiltration and sometimes saturation of dirty money into legitimate financial sectors and national accounts can threaten economic and political stability
  • Thus money laundering is an activity which is capable of corrupting a chain of financial institution
  • money laundering is an activity which is capable of corrupting a chain of financial institution

Regulation of money laundering in India:

  • With its growing financial strength, India is vulnerable to money laundering activities even though the country’s strict foreign exchange laws make it difficult for criminals to launder money.
  • International Narcotics Control Strategy Report by Bureau for International Narcotics and Law Enforcement Affair emphasizes India’s Vulnerability to money-laundering activities.
  • The report highlighted India’s emerging status as a regional financial center, its large system of informal cross-border money flows, and its widely perceived tax avoidance problems all contribute to the country’s vulnerability to money laundering activities.
  • Some common sources of illegal proceeds in India are narcotics trafficking, illegal trade in endangered wildlife, trade in illegal gems (particularly diamonds), smuggling, trafficking in persons, corruption, and income tax evasion.
  • Because of India’s geographical location between the heroin-producing countries of the Golden Triangle and Golden Crescent, India continues to be a drug-transit country.


  • More strict laws related Anti-money laundering is necessary because money laundering tends to corrupt even the most professional players in the market.
  • There is a need to sensitize the Private Sector about their role in anti-money laundering activities
  • Continuous up-gradation and dissemination of information is necessary
  • There is a need to build a balance between financial confidentiality and this confidentiality turning to a money-laundering haven.

Global steps to counter money laundering problem:

  • International efforts to combat money laundering: International regimes attempt to monitor or regulate international relations and activities.  By establishing norms, rules, and procedures agreed to in order to regulate money laundering, international regime reduce the disparities between divergent legal systems.
  • United Nations Convention against illicit traffic in Narcotic Drugs and psychotropic substances: India’s urgent need to control drug trafficking reflects growing awareness within the international community that drug trafficking and money laundering must be suppressed. The United has played an integral role in the global community’s fight against illicit drug trafficking and money laundering.
  • Financial Action Task force on money laundering: Intergovernmental groups have also taken action against the rising levels of global money laundering. The task force was created by G-7 countries to curb the occurrence of money laundering.
  • Basle Committee Minimum standards: The Basle committee on Banking regulations and supervisory practices consists of officials from the central banks and supervisory authorities of eleven major industrialized nations and Luxembourg. In 1998, the committee adopted a statement of principles that targeted money laundering.

Laws related to money laundering:

  1. The Prevention of money Laundering Act 2002(PMLA):
  • It comes into force in 2005.
  • It defines money laundering offence and provides for the freezing, seizures and confiscation of the proceeds of crime.
  • The provisions of this act are applicable to all financial institutions like banks, mutual funds, insurance companies, and their financial intermediaries.
  • The agency monitoring the anti-Money laundering activities in India is the Financial Intelligence Unit (FIU-IND). The agency is responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes.
  • According to the act, there can be punishment of imprisonment upto 3-7 years with fine upto 5 lakh rupees. But in case of offences done under Narcotic Drugs and Psychotropic Substance Act 1985, maximum punishment is extent to 10 years rather than 7 years.
  1. The Prevention of Money Laundering (Amendment)Act 2012:
  • The act was enacted in 2002, but was amended thrice, first in 2005, then in 2009 and then 2012.
  • PMLA (Amendment) Act, 2012 has enlarged the definition of money laundering by including activities such as concealment, acquisition, possession and use of proceedsof crime as criminal activities.
  • The amendment has introduced the concept of Corresponding law to link the provisions of Indian law with the laws of foreign countries and to provide for transfer of the proceeds of foreign predicate offence committed in any manner in India.
  • It also introduced the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary or a person carrying on a designated business or profession.
  • The amendment act has removed this upper limit of fine which was levied by 2002 act
  • The act has provided for provisional attachment and confiscation of property of any person (for a period not exceeding 180 days).
  • The act has delegated the powers upon the Director to call for records of transactions or any additional information that may be required for the purposes of investigation.


The government needs to step in to expedite a probe into what could be a massive money laundering exercise. This will help in better results than waiting for millions of missing investors to turn up.

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