Source: The post Money laundering cases are rising but convictions remain low has been created, based on the article “How should money laundering be tackled?” published in “The Hindu” on 6th August 2025. Money laundering cases are rising but convictions remain low.
UPSC Syllabus Topic: GS Paper 3- money-laundering and its prevention.
Context:: A recent Rajya Sabha report reveals that only 15 convictions have resulted from 5,892 cases investigated by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA) since 2015. This low conviction rate, coupled with a rising number of cases, raises concerns about the law’s implementation and growing financial crimes.
For detailed information on Prevention of Money Laundering Act (PMLA)– read this article here
Understanding the Concept and Process of Money Laundering
- Definition and Meaning: Money laundering, under Section 3 of the PMLA, involves concealing or disguising the origin of money derived from criminal activity, and projecting it as clean or legitimate. It affects financial integrity and national sovereignty.
- Three Stages of Laundering: The process begins with placement, where illicit funds enter the financial system, often broken into smaller amounts (smurfing). In the layering stage, money is moved through complex transactions. Finally, in integration, it reenters the economy via real estate or businesses.
- Origins of the Term Laundromat: The term stems from U.S. crime syndicates using laundromats to disguise illegal earnings. In modern terms, a laundromat can be a bank or financial service company used to hide ownership, embezzle funds, or move illicit money offshore.
Legal Framework Governing Money Laundering in India
- Genesis and International Context: PMLA was enacted following the 1990 UN Political Declaration. Its aim is to curb money laundering and confiscate associated assets. The law places the burden of proof on the accused, marking a tough legal stance.
- Initiation of Proceedings and ECIR: As clarified in Vir Bhadra Singh vs ED (2017), no FIR is needed to start proceedings under the Act. An Enforcement Case Information Report (ECIR) suffices, provided there’s a scheduled offence involved.
- Supreme Court’s Interpretation: In P. Chidambaram vs ED (2019), the Court warned that money laundering weakens the financial system and fuels inflation. The Vijay Madanlal Chaudhury vs Union of India (2022) case clarified that property attachment under Section 5 can occur without a pre-registered case, which has opened doors for potential misuse.
Key Concerns in Implementation and Misuse
- Low Conviction Rate and Rising Cases: Despite nearly 6,000 cases investigated since 2015, only 15 convictions have occurred. This reflects poorly on enforcement and legal follow-through.
- Scope for Misuse and Political Targeting: Instances of politically motivated misuse have emerged. The Supreme Court has flagged such issues, noting how property attachments are often made without foundational criminal charges.
- Need for Better Safeguards: FATF guidelines stress caution in investigations to prevent harassment and ensure only genuine cases are prosecuted. Misuse of law erodes its credibility and effectiveness.
Strengthening the Legal and International Response
- Role of DTAA and Global Cooperation: India’s Double Taxation Avoidance Agreements (DTAA) with around 85 countries enable exchange of financial data and aid in checking tax evasion and laundering.
- Tackling Terror Financing and Systemic Risks: Money laundering often funds terror. Effective enforcement is not just a legal necessity but a national security imperative. Political neutrality in application is essential for law’s credibility.
- Urgent Need for Reforms: Despite legal provisions and global cooperation, much remains to be done. The government must enhance conviction rates, prevent misuse, and ensure the law’s application is transparent and just.
Question for practice:
Discuss the challenges in implementing the Prevention of Money Laundering Act effectively in India.
