1. Definition of Money Laundering (Section 3) – What Constitutes the Crime?
At the heart of PMLA lies its clear and expansive definition of money laundering under Section 3.
The Act criminalizes the process of attempting, assisting, or being involved in any activity connected with the “proceeds of crime”—including its concealment, possession, acquisition, or use, and most importantly, projecting or claiming it as untainted.
🔍 Why This Matters:
- It doesn’t matter if someone doesn’t directly handle illegal cash. Even using property derived from illegal means (like investing it in shares or real estate) qualifies as laundering.
- The term “projecting as untainted” is crucial—it shows the crime is not just about possession but about giving black money a white identity.
- Even attempts or indirect assistance (like providing fake documents or routing money through shell companies) can lead to charges.
🧠 Key Insight:
Money laundering isn’t only about hiding money—it’s about making dirty money look clean. The moment a criminal does this, he opens himself up to PMLA prosecution.
2. Proceeds of Crime & Scheduled Offence – The Root of All AML Cases
Every money laundering case under PMLA must be based on a “Scheduled Offence”—i.e., an offense listed in the Act’s schedule, and the illegal money arising from that becomes “Proceeds of Crime.”
🔍 Examples of Scheduled Offences:
- Corruption (Prevention of Corruption Act)
- Drug trafficking (NDPS Act)
- Cheating & forgery (Indian Penal Code)
- Human trafficking
- Wildlife crimes
- Fraud under Companies Act
- Customs evasion (if above ₹1 crore)
The list contains over 200 offences, divided into:
- Part A: Major crimes (IPC, NDPS, PCA, etc.)
- Part B: High-value economic crimes (₹1 crore+)
- Part C: Transnational and foreign crimes
💡 Why This Matters:
No money laundering case exists without a predicate offence. If the base crime collapses in court, the laundering charge will also fail.
🧠 Key Insight:
Think of it as a chain reaction—crime happens → illegal money generated → money laundering begins. PMLA kicks in only when the origin of funds is tied to a listed crime.
3. Powers of the Enforcement Directorate (ED) – India’s AML Watchdog
The Enforcement Directorate (ED) is the chief agency responsible for enforcing the PMLA. It has extraordinary powers, including:
- Attaching assets suspected to be proceeds of crime (Section 5)
- Conducting search and seizure of property and documents
- Arresting accused persons
- Filing complaints before Special PMLA Courts
These powers give ED the ability to not just investigate, but proactively freeze or seize assets before a court judgment.
🔍 Recent Cases:
- ED has investigated high-profile individuals like Vijay Mallya, Nirav Modi, and politicians under PMLA.
- In 2022 alone, ED attached assets worth over ₹100,000 crore linked to financial crimes.
⚖️ Legal Check:
The Supreme Court in Pankaj Bansal vs. Union of India (2023) ruled that arrest and seizure powers must be exercised with fairness and due process. The Court emphasized written grounds of arrest and judicial oversight.
🧠 Key Insight:
ED’s authority is both a strength and a controversy. It allows early action, but can be misused without safeguards.
4. Attachment and Confiscation of Property – Following the Money Trail
The Act provides a step-by-step procedure for the attachment, adjudication, and eventual confiscation of assets acquired using the proceeds of crime.
📌 Process Breakdown:
- ED provisionally attaches the property (movable or immovable) for 180 days.
- The case goes to an Adjudicating Authority, which decides if the attachment is valid.
- If confirmed and the person is convicted, the property is permanently confiscated to the government.
- Even if the property has been transferred to relatives or associates, the law allows tracing and recovery.
🔍 Real-World Example:
If a builder uses bribe money to buy luxury flats under a relative’s name, ED can still attach those flats.
🧠 Key Insight:
The law empowers the state to track and reclaim criminal wealth, not just punish the individual.
5. Obligations of Banks and Financial Institutions – The Compliance Pillar
PMLA imposes heavy duties on “reporting entities”, which include:
- Banks
- NBFCs
- Mutual fund companies
- Real estate brokers
- Casinos
- Jewellery businesses
- Virtual Digital Asset (crypto) platforms (added in 2023)
📋 Obligations Include:
- KYC (Know Your Customer) procedures
- Record retention for 10 years
- Filing:
- CTR (Cash Transaction Report) – if cash transaction exceeds ₹10 lakh
- STR (Suspicious Transaction Report) – if transactions look illegal or structured
- NTR (Non-Profit Transaction Reports) for NGO donations
These reports must be sent to the Financial Intelligence Unit – India (FIU-IND).
🧠 Key Insight:
Without data from these institutions, enforcement agencies would be blind. AML starts with strong financial compliance.
6. Special PMLA Courts & Reverse Burden of Proof – Guilty Until Proven Innocent?
Under PMLA, trials are conducted by Special Courts designated under Section 43 of the Act. These courts are empowered to:
- Conduct full criminal trials
- Decide bail matters
- Order confiscation
But the most controversial element is the reverse burden of proof under Section 24:
Once ED proves that an asset is linked to the proceeds of crime, the burden shifts to the accused to prove it is untainted.
This inverts the traditional rule of “innocent until proven guilty.” Critics argue it violates basic constitutional rights.
⚖️ Supreme Court Verdicts:
- In Vijay Madanlal Choudhary vs. Union of India (2022), the Court upheld this provision but urged fair procedural safeguards.
🧠 Key Insight:
PMLA prioritizes asset recovery over conventional criminal procedure. The idea: if you possess money from crime, you must explain it.
7. Global Cooperation and FATF Compliance – India’s AML Commitments
India’s PMLA isn’t just about internal crime control. It also reflects India’s global commitments under:
- FATF (Financial Action Task Force)
- UN Conventions against Drugs, Corruption, and Terrorism
- International Mutual Legal Assistance Treaties (MLATs)
🌍 Why It’s Important:
- India must comply with FATF’s 40 Recommendations to stay in the global financial system.
- Non-compliance can lead to grey-listing or blacklisting, severely impacting trade and investment.
- PMLA allows freezing, seizure, and confiscation of property across borders, including through coordination with INTERPOL or foreign courts.
🧠 Key Insight:
PMLA isn’t just national law—it’s a strategic tool in India’s global fight against terrorism finance, drug cartels, and tax evasion.
✍️ Conclusion: Why These 7 Points Matter
These 7 pillars define the power, scope, and importance of the Prevention of Money Laundering Act:
- They enable authorities to target crime at the financial root.
- They establish institutional checks and reporting frameworks.
- They bring India in line with global AML standards.
However, as power grows, so must transparency and safeguards. Striking the balance between enforcement and civil liberties is the key challenge for the next phase of India’s AML evolution.
