PREVENTION OF MONEY LAUNDERING AND

ENFORCEMENT DIRECTORATE

A Project Submitted to:

ARMY INSTITUTE OF LAW, MOHALI

By

AYUSHI TYAGI (1820)

Under the guidance of

Dr. Kulpreet Kaur (Assistant Prof. Moot Courts and Seminar)

In partial fulfillment of the requirements for the award of degree of BALLB.

PUNJABI UNIVERSITY PATIALA (PUNJAB)

August 2022 to December 2022

DECLARATION
It is certified that the project work presented in this report entitled “Prevention of money
laundering and Enforcement Directorate” is the result of original research and work
carried out by me. All the ideas and references have been duly acknowledged.
Date: 15th November 2022
Place: Mohali
Name: Ayushi Tyagi
Roll No.: 1820
ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Dr. Kulpreet Kaur as
well as our principal Dr. Tejinder Kaur, who presented me with this opportunity to do the
project on this insightful topic of “Prevention of Money Laundering and Enforcement
Directorate in India”, which also helped me in doing a lot of research and I came to know
about new things and new ways of reasoning.
I am really thankful to them and I would also like to thank my parents and friends who helped
me a lot of things in finishing this project within the stipulated time.
I am making this project not only for marks but to make an appreciation to my knowledge
and to expand my ways of research, writing and thought process.
I express my utmost gratitude from the bottom of my heart to all those who assisted me
through making this project.
Name: Ayushi Tyagi
Roll No.: 1820
INTRODUCTION
Money laundering is one of the recent white-collared and socio-economic offences that
relates to laundering of money. Money laundering comprises of all those processes which
encompasses disguising the proceeds raised out of crime and integrating them into the
legitimate financial system. Recently, in India, there has been a noticeable increase in
litigations related to money laundering and hence Prevention of Money Laundering Act
(referred to as PMLA hereinafter), 2002 was introduced. for the sake of prevention of money
laundering in India and to provide for confiscation of property made out of the money
laundering, raises concern for a sincere approach to differentiate as to which offences
constitute “parent offences” and which are “propagated offences”.

PMLA, 2002 is an Act of the Parliament of India enacted by the Government of. However,
the PMLA, 2002 and the rules notified thereunder came into force with effect from 1 st July
2005. The Act and Rules notified thereunder provide for imposing obligation on entities
including financial institutions, banking companies and intermediaries to examine and verify
identity of clients, maintain necessary records and furnish required information in
predetermined form to Financial Intelligence Unit-India (FIU-IND).

PMLA, 2002 authorizes certain officers of the Directorate of Enforcement to conduct

investigations in cases which involve offence of money laundering and also to attach
whatever property is involved in money laundering. PMLA, 2002 envisages establishment of
an Adjudicating Authority to hold jurisdiction, power and authority conferred by it especially
to confirm attachment or order confiscation of involved properties. It also envisages
establishment of an Appellate Tribunal to listen to the appeals against the decision of the
Adjudicating Authority and the authorities like Director FIU-IND.

The Central Government of India has established various special courts in a number of States
and UTs to carry out the trial of the money laundering offences. The authorities under the Act
such as the director, adjudicating authority and the appellate tribunal have been formed to
conduct the proceedings related to attachment and confiscation of any property derived out of
money laundering.
Firstly I will be dealing with

Stages in Money Laundering

There are mainly three stages of money laundering as under:

 Placement: This stage of money laundering refers to the movement of cash from its
originating source and injecting in circulation;

 Layering: It happens when the contravener tries to cover the tracks making it tough
for the authorities to track the transaction down; and

 Integration: At the last stage, when the laundered money actually comes into
circulation and becomes the part of economy, primarily through the banking system, it
is known as integration.

Some of the prevalent practical methods are:

1. Creditors: Mr. Black Money who have crores of black money and wants to use it in his
business then he uses modus operandi to straightaway buy Raw Material, Capital Goods or
some other service in black money and show them in his books of accounts as a credit
purchase. The catch here is that the actual payment has already been made in the Black
Money. The above process gives rise to the fictitious creditors in the books of accounts.

2. Donations to Political Parties: Black Money corporation decided to donate Rs. 1 crore to
Political party. It saves tax to the extent of 25.17% (including cess) which comes out to be
25.17 lac rupees. When political party receives such donations of Rs. 1 cr, it again does not
have to pay any tax over it. In this way the government loses Rs. 25.17 lacs as taxes. Now the
political party who has black money returns the black money to the Black Money
Corporation after charging their commission. In this way, the company got a deduction of Rs.
25.17 lacs, the political party got white money to spend on their campaign.

3. Assignment of FD’s: Mr. Blackmoney has Rs. 1 crore of blackmoney which he wants to
convert into white money for use in his business. Mr. Blackmoney approaches Mr. bank
manager who is working at Take and Give Bank. Mr. Bank manager also knows that one of
the customer Mr. Whitemoney has got sufficient money invested in the form of FD in his
bank branch. Mr Bank Manager convinces Mr. Whitemoney to assign his FD of Rs. 1 cr in
the favour of Mr Blackmoney. The FD gets assigned in the name of Mr Blackmoney. Now
Mr. Whitemoney receives Rs. 1 crore in the form of Black money from Mr. Black money.
Once the FD is assigned in favour of Mr. Black Money, Mr. Bank manager gets a loan of
Around 90 lacs sanctioned to him from his Take and Give Bank after marking lien on the
Fixed deposit assigned him. In this was Mr. Blackmoney got low cost borrowing, avoided
processing fee from bank and also, he will get interest as allowable expense for his business.
Mr. Whitemoney also got some more monetary benefits due to this whole process. 4.
Overstating and laundering through fictitious sales Mr. Whitemoney lends Rs. 20 lacs to
ABC Construction company, at an interest Rate of 15% p.a. They do not want to show it as a
loan transaction. This amount of Rs. 20 lacs are shown as sales by XYZ company and an
apartment of Rs. 2 crores are booked in the name of Mr. Whitemoney, showing Rs. 20 Lacs
as booking Amount. Now Mr. Whitemoney is secured against his loan. Due to this whole
transaction, ABC Construction increases sales in its books of accounts without recording the
actual loan. Due to this when ABC Construction company actually go to any bank for a loan,
then they can negotiate better terms as against sales. Mr. Whitemoney is paid interest amount
in black money and subsequently booking gets cancelled. The apartment comes back to ABC
Construction Company and Mr. Whitemoney received back his principal amount. Please note
Government has Brought tough laws to tackle the issue of Black Money and none of the
above method is such which is full proof and department always have ways to crack such
modus operandies.

STATUTORY FRAMEWORK
In order to broaden the ambit of the act and to achieve the predetermined purposes, the act
expressly provides for bilateral agreements between countries to cooperate and to curb the
hazards of money laundering. The purpose of these agreements shall be either enforcement of
the provisions of this act or exchange of information which shall further help in preventing
the commission of an offence under this act or the prevailing laws in that foreign State.

Certainly, in some cases the Central Government of India may seek or provide an assistance
from or to a contracting state for an investigation or advancing evidence collected during the
course of such investigation. The act also expressly provides for reciprocal arrangements for
processes or assistance with respect to the accused persons. 

Objectives
In order to combat money laundering in India, the PMLA, 2002 has following three main
objectives:

 Preventing and controlling money laundering;

  Confiscation and seize of the property obtained from the laundered money; and

 Dealing with any other issue related with money laundering.

 Salient features 

 Provision of Punishment for money-laundering has been provided with rigorous

imprisonment from 3 to 7 years.  The Act expressly states that where a person is
found guilty of money-laundering in India he shall be punished and where the
proceeds of guilt involved relate to any offence mentioned under paragraph 2 of Part
A of the Schedule (Offences under the Narcotic Drugs and Psychotropic Substance
Act, 1985), then the punishment may extend up to 10 years.

 Powers of attachment of tainted property: Appropriate authorities can attach

property believed to be “proceeds of crime” for 180 days subject to their appointment
by the Government of India. Also, such an order needs to be confirmed by an
independent adjudicating authority.

 Adjudicating Authority: The Adjudicating Authority is the authority whose

appointment is made by the central government of India by way of a notification to
exercise jurisdiction, powers and authority stated under the PMLA, 2002. It decides
whether the property related or seized is involved in money laundering. Further, the
adjudicating authority shall not be bound by any of the procedures specified by the
Code of Civil Procedure,1908, but shall be instructed by the principles of natural
justice and subject to the other provisions of the PMLA, 2002.

 Burden of proof: lies on the accused - Such person has to prove that alleged
proceeds of the offence are in fact lawful property where he is found accused of
having committed the offence of money laundering;

 Appellate Tribunal: It is the body appointed by Government of India empowered to

hear appeals against the decisions of the adjudicating authority or any other authority
under the act. It is worth to note that decisions of the tribunal can further be appealed
to High Court (for that jurisdiction) and finally to the Supreme Court.

 Special Court: Section 43 of the PMLA, 2002 states that the Central Government
shall, for the purpose of trial of offence punishable under Section 4, by notification,
assign one or more Courts of Session as the special court(s) for such area(s) or for
 such case(s) as may be specified in the notification. However, such assignment is
made in prior consultation with the Chief Justice of the appropriate High Court.

 FIU-IND: Financial Intelligence Unit-India (FIU-IND) was established by the

Government of India on 18th November 2004 as the central national agency primarily
responsible for obtaining, processing, analysing and imparting information related to
the suspect financial transactions. It is an independent body which directly reports to
the Economic Intelligence Council (EIC) governed by the finance minister.

What are the Offenses under PLMA?

Offences mentioned under Part A and C of the Schedule of this Act will attract its provisions.
 Part A includes offences under acts namely:
o Indian Penal Code, Prevention of Corruption Act, Narcotics Drugs and
Psychotropic Substances Act, Antiquities and Art Treasures Act, Trademark
Act, Wildlife Protection Act, Copyright Act and Information Technology Act.
 Part B includes offences that are mentioned in Part A, but are of a value of Rs 1 crore
or more.
 Part C includes trans-border crimes.
Penalties under PMLA
Various actions can be initiated against persons found to be guilty of money laundering, such
as:
 Freezing or seizing of property and records, and/or attachment of property obtained
through crime proceeds.
 Money laundering is punishable with:
o Rigorous imprisonment for a minimum of 3 years and a maximum of 7 years.

o Fine.

 If the crime of money laundering is involved with the Narcotic Drugs and
Psychotropic Substances Act, 1985, the punishment can go up to 10 years, along with
fine.

PAST INFAMOUS CASES OF MONEY LAUNDERING IN INDIA

Let’s visit some fabled money laundering scams in India that mostly everyone has heard of.
From commonwealth games to group financial scandals.

Commonwealth Games Scam

This scam happened in 2010.

The amount of money involved in this scam is INR 70,000 crores.

It was being said only half of the amount allocated for commonwealth games is spent on the
event and the sportspersons.

There were delays in the payments to actual workers while suspicious payments were made
to non-existent parties.

And equipment prices and other expenses were overinflated, and there was misappropriate
use of funds.

Sheila Dixit, then chief minister of Delhi, and Suresh Kalmadi were involved in this scam.

Indian Coal Allocation Scam

This scam happened in 2012. It consists of INR 185,591 crores.

It is one of CBI's most longing cases.

The government chose to allot coal blocks to private firms that were not part of Coal India
Ltd's and Singareni Collieries Company Limited production plans (SCCL) in the early 1990s.

But they were just allotted and not auctioned, leading to the loss of INR 185,591 crores as
reported by the Comptroller and Auditor General of India.

The Supreme Court of India has cancelled the allocation of all the 214 coal blocks given
since 1993.

Now, these blocks need to be reallocated.

Group Financial Scandal

This scandal happened in 2013. This occurred when a Ponzi scheme by Saradha Group ( a
consortium of 200 private companies) collapsed.

The money was collected from various small investors.

This scheme became popular due to its promise of higher returns in just a few years. It raised
around INR 2500 crores.

The total number of investors who invested in this scheme is around 1.7 million.

In January, it was found that the company's inflows were lower than its outflows.
The Supreme Court of India transferred all investigations related to this case and other Ponzi
schemes to the Central Bureau of Investigation (CBI).

ANTI MONEY LAUNDERING LAWS WORLDWIDE

 International Monetary Fund/United Nations Model Legislation on Money

Laundering and Financing of terrorism (2005)
 UN ODCCP Model Legislation on Laundering, Confiscation and International
Cooperation with regard to Illicit Traffic in Narcotic Drugs, Psychotropic Substances
and Precursors 2003 (French) (for civil law systems)
 Commonwealth Secretariat, IMF, and UNODC Model Provisions on Money
Laundering, Terrorist Financing, Preventive Measures and Proceeds of Crime, 2009
(for common law legal systems)
 UNDCP Model Foreign Evidence Bill 2000 (for common law systems)
 UNDCP Model Extradition (Amendment) Bill 2000 (for common law systems)
 Commonwealth Model Law for the Prohibition of Money Laundering & Supporting
Documentation, 1996
 OAS – CICAD Model Regulations Concerning Laundering Offenses Connected to
Illicit Drug Trafficking and other Serious Offenses

ENFORCEMENT DIRECTORATE

The Directorate of Enforcement (ED) is a law enforcement agency and economic intelligence
agency responsible for enforcing economic laws and fighting economic crime in India. It is
part of the Department of Revenue, Ministry of Finance, Government of India. It is composed
of officers from the Indian Revenue Service, Indian Police Service and the Indian
Administrative Service as well as promoted officers from its own cadre.

Functions of Enforcement Directorate:

1. To collect, develop and disseminate intelligence relating to violations of FEMA,

1999, the intelligence inputs are received from various sources such as Central and
State Intelligence agencies, complaints etc.
2. To investigate suspected violations of the provisions of the FEMA, 1999 relating to
activities such as “hawala” foreign exchange racketeering, non-realization of export
proceeds, non-repatriation of foreign exchange and other forms of violations under
FEMA.
 3. To adjudicate cases of violations of the erstwhile FERA (Foreign Exchange
Regulation Act), 1973 and FEMA, 1999.
4. To handle adjudication, appeals and prosecution cases under the erstwhile FERA,
1973
5. To process and recommend cases for preventive detention under the Conservation of
Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA)
6. To undertake survey, search, seizure, arrest, prosecution action etc. against offender
of PMLA offence.
7. To provide and seek mutual legal assistance to/from contracting states in respect of
attachment/confiscation of proceeds of crime as well as in respect of transfer of
accused persons under PMLA.

Powers:

The Directorate enforces two laws;

1. FEMA, a Civil Law having quasi-judicial powers, for investigating suspected

contraventions of the Exchange Control Laws and Regulations with the powers
to impose penalties on those adjudged guilty.
2. PMLA, a Criminal Law, whereby the Officers are empowered to conduct
enquiries to locate, provisionally attach/confiscate assets derived from acts of
Schedules Offences besides arresting and prosecuting the Money Launderers .

Composition:

Besides directly recruiting personnel, the Directorate also draws officers from different
Investigating Agencies, viz., Customs & Central Excise, Income Tax, Police, etc. on
deputation.

Other functions:

 Processing cases of fugitive/s from India under Fugitive Economic Offenders

Act, 2018.
 Sponsor cases of preventive detention under Conservation of Foreign
Exchange and Prevention of Smuggling Activities Act,
1974(COFEPOSA) in regard to contraventions of FEMA.
Special courts:

For the trial of an offence punishable under section 4 of PMLA, the Central Government

(in consultation with the Chief Justice of the High Court), designates one or
more Sessions Court as Special Court(s). The court is also called “PMLA Court”.

Any appeal against any order passed by PMLA court can directly be filed in the High
Court for that jurisdiction.

ANTI MONEY LAUNDERING: GLOBAL INITIATIVES

FINANCIAL ACTION TASK FORCE

The Financial Action Task Force is a global intergovernmental organization that frames and
implements policies, protocols and standards to effectively combat money laundering and
other financial crimes.

Out of necessity, the FATF later expanded its scope to other big crimes such as terrorist
financing, organized crime, drug trafficking and major threats to global financial system.

FATF was established at the G7 Summit held at Paris in 1989.

There is total 39 full time members nations including 2 regional organizations. Every member
nation has to comply with following regulations –

 Implement Know Your Customer (KYC) ID verification measures.

 Perform FATF recommended due diligence measures.
 Maintain suitable records of high-risk clients.
 Regularly monitor accounts for suspicious financial activity and report that activity to
the appropriate national authority.
 Enforce effective sanctions against legal persons and obliged entities that fail to
comply with FATF regulations.

ASIA/PACIFIC GROUP ON MONEY LAUNDERING

Also known as “FATF – Asia secretariat”, the Asia/Pacific Group on Money Laundering is
FATF-styled inter-governmental organisation with the aim of implementing strict anti-money
laundering laws and curbing financial and terrorism related crimes in the Asian region.
Originally founded in 1997 with 13 only founding members. As of 2020, the total member
count is 41 including the 8 observer states. It is basically funded by Australia and is
headquartered in Sydney, Australia. The Asian/Pacific group is in charge of assisting on
money laundering matters, setting up of financial bureau and vigilantly enforces the
applicable laws and statutes. APG acts as an Asian agent of the Financial Action Task Force.

EGMONT GROUP OF FINANCIAL INTELLIGENCE UNIT

Egmont Group is an international body which comprises of 165 Financial Intelligence Units
all working together and coordinating in analysing, interpreting and systematically passing
the information received. It is not a proper law enforcement authority but an informer who
passes suspicious account activities, related transaction reports, and other relevant details. It
is a gateway to pass and channelize the important info to concerned authorities. This group is
headquartered in Toronto, Canada. The group was formed in 1995 unofficially (not in official
capacity) and in the year 2008 Toronto was held as its official headquarter. The main motto
behind formation of this group was to establish a strong network which can handle and pass
further the information related to terrorist financing and money laundering. Behind each
international anti-money laundering operation or information, this Egmont group is involved
either directly or indirectly.

CARIBBEAN ACTION TASK FORCE

The Caribbean Action Task Force is a FATF-styled intergovernmental organization

consisting of 25 members in the Caribbean Basin. It can be called as an associate member of
Financial Action Task Force. The group was initially commenced after a series of meetings
which took place in Jamaica in the year 1992. Their main objective is the implementation of
guidelines and procedures issued by its parent organisation FATF (Financial Action Task
Force). This group is important because of the place it’s been dealing with. One of the biggest
leading illegal industries i.e., drug trafficking is present in Latin or Central America and these
criminal enterprises often launder their illegal cash proceeds through Caribbean due to earlier
liberal money laws. That’s why law enforcement authorities made a separate financial task
force to eliminate and curb the illicit money of drug traffickers.

AUSTRALIAN TRANSACTION REPORT AND ANALYSIS CENTRE

The Australian Transaction Report and Analysis Centre is a governmental agency in
Australia to analyze and monitor financial intelligence to track down money laundering,
organized crime groups, tax evasion and other sort of financial crimes. It is the Australian
branch of Financial Action Task Force implementing the guidelines issued by the latter in
Australia. It is also one of the 165 members of Egmont Group of Financial Intelligence Unit.
It was formed in 1989 and is currently headquartered in Barton, Australia.

FINANCIAL CRIMES ENFORCEMENT NETWORK

The Financial Crimes Enforcement Network (also referred to as FinCEN is the federal
agency under the Department of Treasury, United States which is responsible for curbing all
the international and domestic money laundering, illicit cash flows and terrorist financing. It
mainly consists of 3 main agencies – law-enforcement agencies, the regulatory community,
and the financial-services community. It was established on April 1990 with a view to take
control of widespread laundering by cartels and crime rings. It consists of some 200-300
members as of now.

CONCLUSION

Greed can be a strong driving force of destruction, with money laundering hurting economies
by creating lopsided demand for money as well as the destruction of private sectors by
cutthroat competition or sterilization of thriving companies to act as fronts for laundering.

On a micro-scale, the general public suffers too, as damage to the economy on the larger
scale also hurts its residents, the stagnation of money in fewer hands causing greater income
disparities between the rich and poor.

A stronger legal system with proper consequences to those who choose this crime along with
a system that recognizes the efforts of those who do contribute might be necessary, as
realistically speaking, greed (the real problem here) might be a bit too deeply seated into the
human mind to so easily remove.
BIBLIOGRAPHY

 THE PREVENTION OF MONEY-LAUNDERING ACT, 2002 (ACT NO. 15 OF

2003)
 https://dor.gov.in/preventionofmoneylaundering/ed-enforcement-directorate
 https://insider.finology.in/economy/money-laundering-scams-india
 https://blog.ipleaders.in/money-laundering-brief-synopsis/
#Anti_money_laundering_laws_worldwide
 https://testbook.com/ias-preparation/enforcement-directorate-ed/
 http://www.antimoneylaunderinglaw.com/
 The Anti-Money Laundering & Counter Terrorism Financing Act 2006 (Australia),
the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (New
Zealand), and the Anti-Money Laundering and Counter-Terrorist Financing (Financial
Institutions) Ordinance (Cap 615) available at
https://www.comlaw.gov.au/Details/C2006A00169/
 An intergovernmental body set up in 1989 to tackle money laundering across the
globe.
 About the FATF, Money Laundering FAQ, available at
http://www.fatf-gafi.org/pages/faq/moneylaundering/
 About Business Crime Solutions Inc., Money laundering: A Three Stage Process
available at https://www.moneylaundering.ca/public/law/3_stages_ML.php/
 http://people.exeter.ac.uk/watupman/undergrad/ron/methods%20and%20stages.htm/
 What is Money Laundering, International Compliance Association available
athttp://www.int-comp.org/what-is-money-laundering/
 http://www.lawctopus.com/academike/money-laundering/#_edn1
 Tax amnesties turn HMRC into ‘biggest money-laundering operation in history, Ian
Cowie available at http://blogs.telegraph.co.uk/finance/
 Overview (Prevention of Money Laundering), Department of Revenue, Ministry Of
Finance available at http://dor.gov.in/overview_pml/
 Prevention of Money-Laundering Act, 2002, Press Information Bureau, Govt. of India
available at http://pib.nic.in/newsite/erelease.aspx?relid=9941/