Prevention of Money Laundering Act (PMLA), 2002 -

Relevance for UPSC CSE:

Relevance for Prelims: Topics related to money laundering, the Prevention of Money Laundering Act (PMLA), its amendments, the role of the Enforcement Directorate (ED), the conflict between the ED and states , and the authority of the ED in implementing PMLA.
Relevance for Mains: Issues related to the PMLA legislation, money laundering, and its impact.

Why in News?

As per a written reply in Rajya Sabha (August 2025), the Enforcement Directorate (ED) has taken up 5,892 cases under the Prevention of Money Laundering Act (PMLA) since 2015, resulting in only 15 convictions so far.
The low conviction rate raises concerns about the effectiveness of the PMLA and the actions taken by the Enforcement Directorate.

Introduction to PMLA:

The Prevention of Money Laundering Act (PMLA), 2002, is India’s primary law designed to prevent and control money laundering.
Initially enacted to combat illicit activities like drug trafficking, terrorism financing, and organized crime, PMLA has evolved to address broader financial crimes.
The Enforcement Directorate (ED), under the Ministry of Finance, plays a pivotal role in investigating money laundering offences, attaching illicit property, and prosecuting offenders.

Key Objective of PMLA

Prevention: To curtail money laundering by ensuring strict compliance in financial transactions.
Detection and Prosecution: To investigate and prosecute those involved in the laundering of criminal proceeds.
Confiscation of Assets: To seize assets that are proceeds of crime, thereby disrupting illegal economic activities.

Key Features of PMLA:

Section 3 – Definition of Money Laundering:
1. Section 3 of the PMLA defines money laundering as any act or process aimed at making proceeds of crime appear legitimate. This includes attempts or assistance in the laundering process to project these funds as untainted assets.
Offences under PMLA:
1. PMLA covers a broad range of offences, including those under the Indian Penal Code, Prevention of Corruption Act, and the Narcotic Drugs and Psychotropic Substances Act. However, the scope has expanded over time, with minor offences like copyright and trademark infringements now included. This broadening of the law has been criticized for deviating from its original intent of tackling serious crimes such as drug trafficking and terrorism financing.
Punishment for Money Laundering (Section 4):
1. The offence of money laundering is punishable by 3 to 7 years of rigorous imprisonment, along with possible fines.
Role of Enforcement Directorate (ED):
1. The ED investigates money laundering offences, attaches proceeds of crime, and files prosecution complaints (PCs). It also ensures compliance by requiring financial institutions to report suspicious transactions and verify client identities.
International Cooperation:
1. The Act allows global collaboration through treaties and Memoranda of Understanding (MoUs) with foreign governments for joint investigations, enhancing the ability to trace and seize international assets.

Growth and Challenges in PMLA Enforcement

Since the ED significantly intensified its actions in 2014, there has been a marked increase in investigations under PMLA, with 775 new cases initiated in FY 2024-25 alone. Despite this, the conviction rate remains low. The ED’s focus has extended beyond drug-related crimes to include financial crimes, corruption, and terror funding.

ED’s Increased Action

From 2015 to 2025, the ED handled 5,892 cases, but only 15 convictions have been secured so far, highlighting the difficulty in securing convictions and the lengthy judicial processes.

Concerns and Issues with PMLA (Incorporating Insights from the Provided Articles)

Misuse and Overreach: The Enforcement Directorate (ED) has been accused of misusing the provisions of PMLA, particularly in politically sensitive cases. Critics argue that the wide discretionary powers of the ED allow selective and arbitrary invocation of the law, affecting political opponents, which undermines public trust in the institution.
Inclusion of Minor Offences: As discussed earlier, the inclusion of minor offences like copyright infringement in the PMLA schedule has raised concerns. These are non-serious crimes that deviate from the original intent of tackling drug money laundering.
Lack of Transparency and Burden of Proof: One of the most contentious aspects is that the accused under PMLA is required to prove innocence, contrary to the presumption of innocence under the Anglo-Saxon legal tradition. This reversal of the burden of proof has been flagged by legal experts as a violation of basic human rights.
Excessive Powers of ED: PMLA grants extensive powers to the ED, including the ability to arrest, summon witnesses, and search properties. Critics argue that these powers can lead to abuses, particularly when exercised without proper safeguards.
Violation of Fundamental Rights: The law also impinges on fundamental rights, such as the right to a fair trial and right against self-incrimination. The failure to disclose ECIR (Enforcement Case Information Report) to the accused further raises constitutional concerns about the right to be informed of charges.

Judicial Oversight and Supreme Court Observations

The Supreme Court of India has repeatedly ruled on the constitutionality of PMLA. In 2018, the Nikesh Tarachand Shah v. Union of India case, the Supreme Court held that Section 45 of PMLA, which denies bail unless the accused can prove innocence, was unconstitutional. However, in 2022, the Supreme Court upheld PMLA’s provisions, emphasizing India’s commitment to international conventions on combating money laundering, despite concerns over procedural fairness.

Global Context and International Cooperation

India’s commitment to international anti-money laundering efforts is reflected in its alignment with global frameworks like the Financial Action Task Force (FATF), which sets the global standards for combating money laundering. The Vienna Convention (1988) and Palermo Convention (2000) laid the groundwork for cooperative global measures, urging countries to adopt stringent domestic laws to curb cross-border illicit financial flows.

PMLA’s application extends beyond Indian borders, ensuring cooperation with foreign agencies and facilitating the confiscation of assets located in other jurisdictions. This international synergy has become increasingly important in an era of globalized financial crimes.

Conclusion and Way Forward

The Prevention of Money Laundering Act (PMLA) is a critical tool in India’s fight against economic offences, particularly money laundering. However, its broad scope, stringent bail provisions, and lack of transparency have raised concerns among critics, particularly regarding its impact on fundamental rights.

For the law to remain effective and constitutional:

A clearer definition of “proceeds of crime” should be introduced to curb misuse.
The burden of proof should be reconsidered to ensure fairness.
Transparency in the ED’s actions must be enhanced, with an independent oversight mechanism to prevent misuse of power.

As India continues to uphold its international obligations, the PMLA must evolve to balance effective enforcement with the protection of rights.

Previous Year Questions (PYQs):

Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?( 2021)

(a) Diversion of resources to the purchase of real estate and investment in luxury housing

(b) Investment in unproductive activities and purchase of previous stones, jewellery, gold, etc.

(d) Loss of revenue to the State Exchequer due to tax evasion

Ans: (d)

UPSC Practice Questions:

Prelims:

Ques-1: Which of the following are the main objectives of the Prevention of Money Laundering Act (PMLA), 2002?

To prevent money laundering and control financial crimes
To establish a fair and transparent banking system
To attach and confiscate properties derived from criminal activities
To regulate foreign investments and remittances

Choose the correct answer from the options given below:

(a) Only 1 and 3
(b) 1, 2, and 3
(c) 1 and 3 only
(d) All of the above

Answer: (c) 1 and 3 only

Ques: 2 – Which of the following institutions plays a crucial role in implementing the provisions of the Prevention of Money Laundering Act (PMLA), 2002?

Enforcement Directorate (ED)
Central Bureau of Investigation (CBI)
Financial Intelligence Unit-India (FIU-IND)
Ministry of Home Affairs