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UPSC Relevance

This topic is important for GS Paper II (Governance and Polity) and GS Paper III (Internal Security and Economy), covering financial crime, anti-money laundering laws, institutional accountability and international financial standards.

Article

Prevention of Money Laundering Act is in the news after the Government informed Parliament that Enforcement Directorate (ED) cases registered under the law reached a four-year high during FY 2025-26. The uploaded newspaper highlights the increase in investigations, prosecutions and convictions under the anti-money laundering framework.

Why in News

According to the uploaded newspaper, the Government informed Parliament that 1,080 PMLA cases were registered during FY 2025-26, the highest level in the last four years. In the last five years, the ED recorded 4,622 PMLA cases, filed 2,444 prosecution complaints, made 1,243 arrests and secured 43 convictions. The report also notes that although convictions remain relatively low, many investigations and trials are still pending.

Quick Facts

Law	Prevention of Money Laundering Act (PMLA), 2002
Implemented	1 July 2005
Enforcement Agency	Enforcement Directorate (ED)
UPSC Themes	Internal security, financial regulation, economic offences and governance

What is Money Laundering?

The uploaded newspaper defines money laundering as the process of converting illegally earned (‘dirty’) money into apparently legitimate (‘clean’) money, thereby concealing its criminal origin. The principal objective is to hide the source of illicit wealth and integrate it into the formal economy.

Three Stages of Money Laundering

• Placement: Illegal cash enters the financial system.
• Layering: Multiple transactions conceal the origin of funds.
• Integration: Laundered money re-enters the economy as apparently legitimate wealth.

Example of Money Laundering

1. Illegal income is generated.
2. Money is routed through shell entities and multiple bank transfers.
3. Funds are invested in businesses or property.
4. The proceeds appear as legitimate income.

What is the Prevention of Money Laundering Act?

According to the uploaded newspaper, the Prevention of Money Laundering Act (PMLA), 2002 was enacted in 2002 and came into force in 2005. The Act aims to prevent money laundering, confiscate the proceeds of crime, combat terror financing and fulfil India’s international commitments, including recommendations of the Financial Action Task Force (FATF).

What are ‘Proceeds of Crime’?

The uploaded newspaper explains that proceeds of crime are property obtained directly or indirectly through criminal activity connected with a scheduled offence. The infographic includes examples such as cash, gold, buildings, bank balances, land and crypto assets.

What are Scheduled (Predicate) Offences?

• Drug trafficking.
• Corruption.
• Terror funding.
• Human trafficking.
• Specified tax fraud.
• Wildlife trafficking.
• Organised crime.

Enforcement Directorate (ED)

The infographic states that the Enforcement Directorate (ED) was established in 1956 (initially as the Enforcement Unit). It functions under the administrative control of the Department of Revenue, Ministry of Finance, with headquarters in New Delhi.

Functions of the Enforcement Directorate

• Under PMLA: Investigates money laundering, attaches proceeds of crime, arrests accused persons (subject to legal safeguards) and files prosecution complaints before Special Courts.
• Under FEMA: Investigates violations relating to foreign exchange laws.

Powers of ED under PMLA

• Conduct searches.
• Carry out investigations.
• Summon individuals.
• Attach property.
• Arrest accused persons.
• File prosecution complaints.

Why Have ED Cases Increased?

• Greater focus on financial crimes.
• Improved financial intelligence.
• Digital transaction tracking.
• Higher reporting of suspicious transactions.
• Increase in investigations of predicate offences.

Why are Convictions Comparatively Low?

• Long and complex investigations.
• Lengthy financial crime trials.
• Extended judicial processes.
• Need for detailed forensic accounting and financial evidence.
• A large number of cases still pending before courts.

Prelims Practice Questions

Q1. The Prevention of Money Laundering Act was enacted in: (a) 1999 (b) 2002 (c) 2005 (d) 2013.
Answer: (b).

Q2. According to the uploaded newspaper, PMLA came into force in: (a) 2002 (b) 2003 (c) 2005 (d) 2010.
Answer: (c).

Q3. Which organisation primarily enforces the PMLA? (a) CBI (b) Enforcement Directorate (c) NIA (d) SEBI.
Answer: (b).

Q4. Money laundering generally involves which sequence? (a) Placement–Layering–Integration (b) Integration–Placement–Layering (c) Layering–Integration–Placement (d) Placement–Integration–Layering.
Answer: (a).

Q5. According to the uploaded newspaper, money laundering requires: (a) A scheduled (predicate) offence (b) Only tax evasion (c) Only foreign exchange violations (d) Only banking fraud.
Answer: (a).

Mains Practice Questions

Q1 (10 Marks): Discuss the objectives and key features of the Prevention of Money Laundering Act in combating financial crimes.

Q2 (15 Marks): Examine the role of the Enforcement Directorate in investigating money laundering while ensuring due process and judicial accountability.

FAQs

What is money laundering? According to the uploaded newspaper, it is the process of converting illegally obtained money into apparently legitimate assets by concealing its criminal origin.

What is the purpose of the PMLA? It aims to prevent money laundering, confiscate proceeds of crime and fulfil India’s international commitments against financial crime.

Why are ED cases increasing? The uploaded newspaper attributes the rise to greater focus on financial crimes, stronger financial intelligence, digital transaction monitoring and increased investigation of predicate offences.