INTRODUCTION
India’s legal and enforcement landscape for money laundering is anchored by the Enforcement Directorate (ED), a specialized agency responsible for detecting, investigating, and prosecuting cases under the Prevention of Money The Prevention of Money Laundering Act (PMLA), 2002, along with the Foreign Exchange Management Act (FEMA), 1999. This blog explores how enforcement actually works on the ground, the legal processes involved, and recent trends shaping the fight against financial crime in India.
The Enforcement Directorate and Its Mandate:
The ED operates as an economic intelligence and law enforcement agency, with the primary goal of combatting economic offenses, especially money laundering and foreign exchange violations. Headquartered in New Delhi, the ED maintains several regional and zonal offices nationwide, allowing for a robust operational reach. Its powers derive chiefly from PMLA, 2002, which enables the ED to investigate, attach, seize, and confiscate proceeds of crime if they are suspected to be the result of money laundering activities.
What is Money Laundering?
Money laundering is the process of concealing the origin of illegally obtained money to make it appear legitimate. Typically, it involves three stages:
- Placement: Introducing illicit funds into the financial system.
- Layering: Concealing the source through complex financial transactions.
- Integration: Channelling illicit funds back into the economy in a way that makes them appear legitimate.
In India, common methods involve trade-based laundering, use of shell companies, structuring transactions (smurfing), real estate investment, and increasingly, cryptocurrencies.
Statutory Basis: Prevention of Money Laundering Act (PMLA), 2002:
The backbone of anti-money laundering enforcement, PMLA criminalizes the act of money laundering and empowers authorities to take stringent actions. Key features include:
- Section 3: Defines the offense, i.e., directly or indirectly attempting or assisting in any activity connected with the proceeds of crime.
- Section 5: Allows for provisional attachment of properties involved in money laundering.
- Sections 16-17: Empower the ED to conduct surveys, searches, and seizures without prior notice or summons.
- Section 19: Grants the power of arrest if sufficient evidence against an accused emerges.
- Section 50: Empowers the Enforcement Directorate to issue summons, ensure the presence of individuals, and record their statements, with powers comparable to those of a civil court.
The law also stipulates strict bail conditions under Section 45, compelling the accused to prove innocence prima facie and assure the court of non-re-offense.
The Investigation Process:
ED cannot act on its own but requires a predicate or scheduled offense (usually reported via a police complaint or FIR by another agency like the CBI). Once the Enforcement Directorate (ED) receives relevant information, it prepares an Enforcement Case Information Report (ECIR). This report is treated as an internal record and, therefore, is not disclosed to the accused.
Following this, investigations may involve:
- Surveillance and intelligence gathering
- Search and seizure of documents, electronic evidence, and properties
- Attachment of assets believed to be proceeds of crime
- Summoning and recording statements of suspects and witnesses
Successful investigation can culminate in a prosecution complaint (similar to a chargesheet) to the special PMLA court. If an arrest is made, the ED must file its complaint within 60 days.
Prosecution, Adjudication, and Appeals:
Cases are tried in designated PMLA special courts, and not regular criminal courts. If properties are attached, they are held in abeyance until the adjudicating authority rules on their fate. Conviction rates, however, remain relatively low; recent data reports ED initiated over 5,800 cases under PMLA since 2015, with only a handful of convictions.
The process offers multiple levels of appeal, starting with the adjudicating authority, followed by the Appellate Tribunal, and subsequently, higher courts up to the Supreme Court of India.
Recent Trends and Challenges-
- Use of Crypto Assets: ED investigations increasingly focus on the use of cryptocurrencies for laundering, with significant raids uncovering hundreds of crores laundered via digital wallets and routed through foreign intermediaries.
- Trade-Based Laundering: Complex international trade transactions—often involving shell companies and under-invoicing—remain a significant challenge. In 2025, the ED secured an INTERPOL notice exposing such schemes.
- Judicial Oversight and Criticism: There is growing scrutiny from the Supreme Court, which emphasizes the need for due process, protection of individual rights, and checks against potential misuse of PMLA provisions.
Institutional Collaboration and Global Cooperation:
Effective anti-money laundering enforcement in India relies not just on the ED, but also on collaboration with agencies like the Financial Intelligence Unit (FIU-IND), banks (for suspicious transaction reporting), and international partners through treaties and information-sharing agreements. Recent amendments have broadened disclosure obligations and aligned Indian standards with global best practices.
Conclusion
India’s fight against money laundering is robust, evolving, and technologically adaptive, thanks to the Enforcement Directorate’s mandate under comprehensive laws like PMLA. Despite operational challenges and the need for greater transparency, the framework ensures that illicit gains can be investigated, attached, and confiscated, thereby preserving the integrity of the nation’s financial system. Continued vigilance, judicial balance, and global cooperation are essential for effective enforcement in an increasingly complex financial world.
