Posted on: November 4, 2020 Posted by: admin Comments: 0

Authors : Vinod Choudhary[1], Abhimanyu Arya[2] and Anant Maheshwari[3]


This paper will draw a light on various different points related or being in relation to Money laundering and how it affects the economic, social and financial stability of economy and what laws are made by Government against it. The factors, people involved, instability of the financial cycle and the techniques which are common manually or digitally are some of the points which will be covered in this paper. Even there will a section in this paper which will depict the top-level bureaucrats involved in money laundering along with the current status of those people. The paper will also lay emphasis on the techniques as well as the enforcement involved to prevent the same. To make the illustrative better in terms of understanding the crisis, there are case laws, along with the provisions enacted by the Government for the prohibition of this offence as well as loopholes faced while dealing with it. The Government has also propounded some major acts like the Prevention of Money Laundering Act and other important acts under the Schedule which deal with the same. There is a section in which there is comparative analysis of the money laundering laws in India and the United States of America. The paper will also focus taken by the agencies to curb the same.

Keywords: Money Laundering, Prohibition, Cryptocurrency.


To begin with, here’s a quote from Enrique Peña Nieto who was the President of Mexico, “Money laundering is giving oxygen to organised crime.” Now the question arises that how do we define money laundering? In simple words, it is defined as concealment of money which is deemed to be illegal. The transaction of the same into other black accounts can be a complex process. The purpose is to conceal large amount of black money from the officials of the State. Particularly, top level corrupt bureaucrats, officials, mobsters, smugglers are involved in money laundering.

To jump up on any topic, firstly one has to see the main aim or motive of the act, so here also Money Laundering main aim is to convert black illegal money into white spotless money via illegal means. This act can be done in three stages as follows[4]: –

  1. Placement Stage
  2. Layering Stage
  3. Integration Stage
  • Placement Stage is the first stage of movement of cash from the original position or sources. In simple words, cash flow from different institutions such as casino, shops etc.
  • Layering Stage[5] is the second stage which puts layers on illegal money i.e., divide illegal money from the original source. Perhaps it is the most complicated stage for law department or government to detect the money laundering activity because in this stage the position and release of money is quite complex as it frequently moved, which is quite difficult to trace.
  • Integration Stage which is the third stage, involves in the flow of cash returns back to the person to start the process of converting black to white.
  1. Cash Smuggling – It was the oldest method in which case was deliver via suitcase to other person or countries
  2. Structuring – In this when the person deposits his black illegal money to some or the other banks in form of small amount in order to use that amount to purchase a commodity and again follow up with same process. And this process is also called as smurfing[6].
  3. Casino and Gambling – It is the most common technique, which is practised in many countries all over the world in this the laundered first purchase some chips and then convert it into white case.
  4. Shell Companies – These are companies which are invisible. They exist only on paper after which they just disappear. The law gave this power not to disclose their actual owner while purchasing any assets in the business.
  5. Black Salaries – In this the company is not registered as company under companies act, and have no written contract with any of the employee but it pays them salaries.

An important factor which needs to be understood is that behind money laundering, there is corruption, as it is rightly pointed out that “Corruption is used to hide corruption”. That is because it is the root cause behind money laundering.

There are other techniques which are very common in terms of illegal money transactions which are done digitally. These include: Cyberlaundering which is money laundering which is done digitally. Under this, a large amount of money can be transferred which is e-cash.

The other technique is Cryptocurrency which is a form of digital currency which is hardly impossible to detect or make counterfeit of the same. Bitcoin is one of the currencies which was quite common for such transactions, which was developed by a group of unknown people. People could trade at very low fees.


One of the ways which has been quite common since very long is hawala which means transfer. The term has been derived from an Arabic term. This unethical practice is not just common in India but also in many countries in the Middle East. This system is not completely based on cash or transfer via digital process or any other process but it solely based on the network of the people involved who are known as hawaladars. It exists and solely takes place on the parallel channels of transactions. Hence this process is defined as “money transfer without money movement”.


Over the years, there have been a number of high-profile money laundering cases in the country. Some of them are listed below:

  1. 2G Scam (2008)

In this case, some of the telecom companies were given Unified Access Service (UAS) licenses. Laws were violated and bribe was given for the same. The people involved were Nira Radia, A. Raja, M. K. Kanimozhi. Both have been in Tihar Jail for 15 months and 5 months respectively.

  1. Commonwealth Games Scam (2010)

It is considered as one of the scams in India. A large amount of Rs 70,000 crores were misused. There were athletes who had to face inconvenience. Funds were misused and most of the athletes were not given proper equipment. The people involved were Suresh Kalmadi and the then Chief Minister Smt Sheela Dikshit.

  1. Coal Allocation Scam (2012)

This case was also known as “Coalgate Scam”. Many coal blocks were allotted to public and private sectors who were using the same as per their choice by the Comptroller and Auditor General of India. This happened between 2004 and 2009.


There are many top-level bureaucrats who have been involved in money laundering. While some of them have been arrested, there are some who have absconded despite having notices issued against them for the summon. Some of them are:

  1. Vijay Mallya

He is an effluent businessman who owned the Royal Challengers Bangalore team, chairman of United Breweries Limited and ex-chairman of United Spirits. Involved in several financial offences since 2012, there were several banks who were trying to collect Rs 90 billion as loans from him. He left India and moved to the United Kingdom in 2016. Since then the Income Tax Department as well as the Central Bureau of Investigation started their investigation of the case. Although he was arrested by the British Police in 2017 on behalf of the Indian authorities, he was later released on bail. He was also involved in Panama Paper, Paradise Paper controversy.

  1. Nirav Deepak Modi

Another Indian businessman involved in this offence. Involved several offences, he is wanted by both the Government of India as well as the Interpol. He has been involved in a fraud of Rs 11,356.84 crores from Punjab National Bank as well as in defrauding Paul Alfonso of US$4.2 million. After the PNB Controversy, he managed to escape from India along with his maternal uncle Mehul Choksi to Hong Kong.  He was arrested in March 2019 and is currently in Wandsworth Prison in London.


      1.Criminal Law Amendment Ordinance (XXXVIII of 1944): mention only corruption, breach of trust and cheating cover under the Indian Penal Code.

  1. The Smugglers and Foreign Exchange Manipulators Act, 1976: all property or foreign exchange in term of cash which smuggles from other country should be penalised under this act.
  2. Narcotic Drugs and Psychotropic Substances Act, 1985: A property which was used in illegal narcotic drugs covered under this act.
  3. Prevention of Money-Laundering Act, 2002 (PMLA) – this act made by Indian parliament to stop money laundering in India, so mainly this act applied on different banks, mutual funds, or all other financial organisation.
  4. Enforcement Directorate (ED): ED is important because it’s main objective to solve cases of money laundering at economic level of India under prevention of money laundering act 2002. It also takes control of property come through money laundering by person.
  • Penalties define under section 4 of prevention of money Laundering Act 2002.
  • In this crime the burden of proof lied on the person who accused for violation
  • Punishment for 3 year or can be extended up to 7 years and maximum punishment can extend to 10 years.

There are other statutes which define the offence along with the penalty for the same.

  • Indian Penal Code, 1860
  • NDPS Act, 1985
  • Unlawful Activities (Prevention) Act, 1967
  • Prevention of Corruption Act, 1988
  • Customs Act, 1962[7]
  • SEBI Act, 1992
  • Copyright Act, 1957
  • Trade Marks Act, 1999
  • Information Technology Act, 2000
  • Explosive Substances Act, 1908
  • Wild Life (Protection) Act, 1972
  • Passport Act, 1967
  • Environment Protection Act, 1986

Money Laundering has always been considered as a big obstacle in the Financial Sector., in terms of eroding and weakening the same. Money Laundering is a type of mechanism through which launderer disguises the criminal as well as illegal source from which the money originated. It is a process which has actually corrupted the financial system and to an extent the society has been facing inconvenience caused by the same. [8]


In India: –

Prevention of Money Laundering Act, 2002

Section 4 of this act state that When any person done any act by illegal means which is against to this particular act must be punished for 3-7 years of rigorous imprisonment with fine and in case of offence covered under Part A, imprisonment would extend up to 10 years.

The United States of America

Money Laundering Control Act, 1986.

The charges of Money Laundering are being levied in the 4th, 3rd, 2nd and 1st degree, with the most serious offences being in the first degree. In the 4th degree person is imprisonment up to 4 years and 1st degree up to 25 years. Therefore,  it can be understood that the provision in the USA is stricter. India will have to upgrade its financial and legal system and one of the solutions lies in making more stringent provisions regarding penalty and punishment.


All those who have opened their account in various banks, their details are not meant to be shared with anyone. These details are confidential. Therefore, the banks should ensure that information sought from the customer is relevant to the perceived risk, is not intrusive, and is in conformity with the guidelines issued in this regard. Any other information from the customer should be sought separately with his/her consent and after opening the account. One more thing that the banks have to ensure is that the transactions through demand draft, mail/ telegraphic transfer or any other mode are to be done through secure channels following the protocol laid by the Cyber Cell if it is done online. The provisions of Foreign Contribution (Regulation) Act, 1976 have to be amended from time to time, wherever applicable are strictly adhered to. The steps taken to ensure that the money is safe are defined as follows:

Know Your Customer (KYC)

For every transaction platform like PayTM, PhonePay etc, KYC (Know Your Customer) has been made compulsory. It is a protocol which is exclusively meant for knowing the exact details of every customer. It was introduced by Reserve Bank of India (RBI) to prevent the misuse of the money. Every bank has this feature on the basis of four elements[9]:

  1. Customer Acceptance Policy
  2. Customer Identification Procedure
  3. Risk Management
  4. Monitoring Transactions

This is done so that the transactions are occurred in a systematic manner. Under this policy, a ‘customer’ is defined as:

  1. A person or entity that maintains an account and/or has a business relationship with the bank
  2. One on whose behalf the account is maintained
  3. Beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law
  4. Any person or entity connected with a financial transaction which can pose significant reputational or other risk to the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.

The Financial Intelligence Unit

This unit was set up on 18th November 2004. The purpose was to receive, process, eanalyse and disseminate information relating to suspect financial transactions. Furthermore, it was also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and financing of terrorism.[10]


The issue of money laundering cannot be taken lightly. It is indeed a serious matter. Although the research was supposed to be limited for money laundering in Indian perspective but the matter of cryptocurrency also came up as it is a new method for transactions and probably one of the ways to evade tax. This has now become a nemesis in terms of economic development.

The Government has to ensure that there are strict rules in order to ensure that the financial cycle is stable and that the same is not disturbed through these unethical practices. People like Anna Hazare, Arvind Kejriwal who were in favour of Lokpal Bill as it was a step to prevent money laundering as well as corruption. Their voices were heard by everyone. Even our Hon’ble Prime Minister, Shri Narendra Modi has ensured that financial cycle does not get corrupted due to these practices. Hence, he has taken every possible step to prevent this to a large level. Most importantly, people need proper education in order to understand the society and how their contribution can make it even better. Public awareness is equally as important as education, so that everyone can do their bit to prevent such practices because Jay Shetty has said, “Knowledge is power, and it can help you overcome any fear of the unexpected. When you learn, you gain more awareness through the process, and you know what pitfalls to look for as you get ready to transition to the next level.”


[1] Vinod Choudhary, Student, 5th Year, BA LLB (H), School of Law, Manipal University, Jaipur

[2] Abhimanyu Arya, Student, 4th Year, BA LLB (H), School of Law, Manipal University, Jaipur

[3] Anant Maheshwari, Student, 4th Year, BA LLB (H), School of Law, Manipal University Jaipur

[4] 7 Syed Azhar Hussain Shah, Syed Akhter Hussain Shah and Sajawal Khan “Governance of Money Laundering: An Application of the Principal-agent Model” The Pakistan Development Review, Vol. 45, No. 4, Papers and Proceedings PARTS I and II Twenty-second Annual General Meeting and Conference of the Pakistan Society of Development Economists Lahore, December 19-22, 2006 (Winter 2006), pp. 1117-1133,


[6] National Drug Threat Assessment, 40 (2011)

[7] Customs Act 1962, Section 119 – 122.

[8] Surendran Sundarakani & M. Ramasamy, Consequences of Money Laundering in Banking Sector, Jurnal Teknologi (Research Gate) (September 2013),,the%20risk%20of%20macroeconomic%20instability.

[9] Penalty on co-operative bank: Here’s all you need to know about RBI’s KYC norms, THE FINANCIAL EXPRESS (February 29, 2017, 5:17 PM),

[10] Financial Intelligence Unit,

Leave a Comment