Money Laundering and its Prevention — Revision Notes

Prelims Revision Notes

1
FIU-IND: Established 2004, headquartered New Delhi, receives STRs and CTRs, part of Egmont Group (164 FIUs). 2. PMLA 2002: Punishment 3-10 years (enhanced 2019), covers proceeds of crime, reverse burden of proof, Special Courts jurisdiction. 3. Enforcement Directorate: Established 1956, Finance Ministry, exclusive PMLA investigation powers, provisional attachment 180 days. 4. Three stages: Placement (introducing dirty money), Layering (complex transactions), Integration (legitimate appearance). 5. FATF: Established 1989, 40 recommendations, India member 2010, mutual evaluation 2021. 6. STR filing: 7 days timeline, suspicious transaction reports, FINnet portal submission. 7. CTR threshold: Rs 10 lakh single day, cash transaction reports mandatory. 8. Scheduled offences: 30+ categories including corruption, drug trafficking, terrorism, economic offences. 9. Constitutional basis: Article 246 Entry 23 (currency, foreign exchange), Union List subject. 10. International cooperation: MLATs with 42 countries, asset recovery mechanisms, extradition treaties. 11. 2022 amendments: Cryptocurrency exchanges as reporting entities, expanded PMLA scope. 12. Beneficial ownership: Ultimate ownership disclosure, shell company prevention measure. 13. Hawala: Informal money transfer, no physical movement, estimated $50-60 billion annually. 14. Vijay Madanlal (2022): Supreme Court upheld PMLA validity, emphasized procedural safeguards. 15. Asset attachment: Rs 1.2 lakh crore since 2014, provisional attachment during investigation. 16. Conviction rate: 23% in 2023, improved from 5% in 2015. 17. DNFBP: Designated Non-Financial Businesses, real estate, precious metals, legal services. 18. Cryptocurrency regulations: 2023 amendments, KYC/AML requirements, STR reporting. 19. Cross-border cooperation: Information sharing, joint investigations, asset recovery. 20. Technology challenges: Digital payments, blockchain analytics, AI monitoring systems.

Mains Revision Notes

Constitutional Framework: PMLA derives authority from Article 246 Entry 23, creating federal jurisdiction over money laundering while predicate offences remain with states. Vijay Madanlal Choudhary (2022) upheld constitutional validity while emphasizing Article 21 safeguards and procedural due process.

Reverse burden of proof justified by economic crime nature and evidence accessibility. Institutional Architecture: FIU-IND serves as central intelligence hub processing financial intelligence from 40,000+ reporting entities.

ED's exclusive investigation powers include search, seizure, asset attachment, and prosecution complaint filing. Multi-agency coordination involves NIA (terrorism financing), CBI (corruption), and state police (predicate offences).

International Cooperation: FATF membership provides global standard alignment but 2021 evaluation identified beneficial ownership and DNFBP supervision gaps. Egmont Group facilitates real-time intelligence sharing through 58 MOUs.

MLATs enable formal cooperation but face delays due to legal system differences. Technology Challenges: Cryptocurrency anonymity features and DeFi protocols create new laundering avenues. Hawala digitization maintains informal structure while exploiting digital platforms.

Detection technologies include AI-powered monitoring, blockchain analytics, and pattern recognition systems. Policy Challenges: Shell company opacity despite regulatory measures, informal channel persistence, banking sector corruption, and resource constraints limiting investigation capacity.

Low conviction rate reflects complex legal procedures and high burden of proof requirements. Recent Developments: 2022 amendments expanded reporting entity definition, 2023 cryptocurrency regulations enhanced AML framework, and increased ED enforcement demonstrates government commitment.

FATF compliance improvements needed in beneficial ownership transparency and DNFBP supervision. Reform Recommendations: Strengthen beneficial ownership disclosure, enhance inter-agency coordination, increase investigation resources, improve conviction rates through procedural reforms, and balance individual rights with security requirements.

Vyyuha Quick Recall

Vyyuha Quick Recall - PLACE-LAYER-INTEGRATE Mnemonic: 'Placing Laundered Assets Creates Legal And Yearly Earnings, Requiring Integration Never To Expose Guilt, Requiring Authorities To Examine' - P(lacement): dirty money enters system, L(ayering): complex transactions obscure trails, A(yer): multiple transaction layers, C(ash): often involves cash businesses, E(xchange): currency conversions common, L(aundering): systematic cleaning process, A(ssets): property and investments, Y(earning): appears as legitimate income, E(vidence): audit trail destruction, R(eporting): STR/CTR requirements, I(nvestigation): ED powers, N(etwork): complex entity structures, T(ransfer): cross-border movements, E(nforcement): legal consequences, G(lobal): international cooperation, R(ecovery): asset attachment, A(ccounting): financial record analysis, T(echnology): digital detection tools, E(valuation): ongoing assessment.

FED-FATF Enforcement Mnemonic: 'Financial Enforcement Directorate - Financial Action Task Force' - F(IU-IND): intelligence unit, E(D): enforcement directorate, D(etection): suspicious activity identification, F(ATF): international standards, A(ttachment): asset seizure, T(ribunal): special courts, F(ramework): legal structure.