Trends and Prevention of Money Laundering in India

Present Trend 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 criminal to launder money. 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 laws and reporting norms have contributed to a great extent to control money laundering on international forum. However, there has been a threat from informal transactions like ‘Hawala’.

According to Indian observers, funds transferred through the hawala market are equal to between 30 to 40 percent of the formal market. India has considerably stepped up its investigations into money laundering and terror funding with the number of cases under probe rising, even though a low conviction level remains a “serious effectiveness issue”.

The current status of money laundering in India can also be evaluated by looking at the Basel index prepared by the Basel Institute on governance, Switzerland. The Basel AML index scores countries on the basis of AML laws, financial regulations, political disclosure, etc. in that country. The overall score, ranges from 0 (low risk) to 10 (high risk). Out of 140 countries, India has been ranked 93 (6.05).

Prevention of Money Laundering in India:

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.

In India, before the enactment of the Prevention of Money Laundering Act 2002 (PMLA), the following statutes addressed scantily the issue:

  • 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.
  • 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. Money laundering was an effective way to launder the black money so as to make it white. In view of the 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, India took the following steps:

  • The financial intelligence unit – India (FIU-India) which is the nodal agency in India for managing the anti-money laundering ecosystem. It helps in coordinating and strengthening efforts to reduce money laundering and related crimes in India.
  • Prevention of Money Laundering Act, 2002 has been the core framework for combating it.
  • In 2010, India admitted as the 34th country member of Financial Action Task Force (FATF). This membership helped Indian enforcement agencies to exchange information and financial institutions to gain much better access to markets of other member countries.
  • Prevention of money laundering (Amendment) Bill, 2012.
  • The Enforcement Directorate carries out investigations and it is also empowered to attach property entities involved in money laundering.