[TOPIC CLASSIFICATION]
- Topic type: Legal Framework + Current Affairs
- PYQ frequency: High
- Exam stage: Prelims + Mains
- Primary GS paper: GS3 (Internal Security) + GS2 (Polity/Governance)
[EXAMINER REASONING]
- Trap: Confusing PMLA (money laundering) with FEMA (foreign exchange violations) - PMLA is criminal, FEMA is civil
- Most confused: ED powers under PMLA vs PMLA schedule offences - ED can only investigate scheduled offences
- Key anchor: PMLA 2002, amended 2005, 2009, 2012, 2018, 2019 - each amendment expanded scope
- Current affairs hook: FATF Mutual Evaluation Report 2024 (India placed in "regular follow-up"), virtual asset regulation
- Mains hinge: ED's expanding powers vs federalism concerns - states' consent for CBI vs ED's pan-India jurisdiction
Core Concept
Money laundering, the process of concealing the origins of illegally obtained money, operates through three stages: placement (introducing illicit funds into financial system), layering (complex transactions to obscure trail), and integration (re-entering cleaned money as legitimate assets). Terror financing, while often overlapping, differs in purpose - funds may be legitimate in origin but destined for violent ends. The Prevention of Money Laundering Act (PMLA), 2002, amended substantially in 2005, 2009, 2012, 2018, and 2019, provides India's primary legal framework. The Enforcement Directorate (ED), under the Department of Revenue, Ministry of Finance, serves as the specialised investigation agency.
PMLA's architecture centres on "scheduled offences" (Part A, B, C of Schedule) - predicate crimes whose proceeds trigger money laundering investigation. The 2019 amendment expanded scheduled offences to include tax evasion (Black Money Act), customs duty evasion (>₹50 lakh), and copyright infringement. The "proceeds of crime" definition was broadened to include property "derived or obtained, directly or indirectly" from scheduled offences. ED's powers under Section 17 (search/seizure), Section 18 (arrest), Section 19 (attachment), and Section 50 (summoning/recording statements) are extensive - no prior state consent required unlike CBI. The 2018 amendment made attachment provisional for 180 days (extendable), with confirmation by Adjudicating Authority.
The Financial Action Task Force (FATF), global AML/CFT standard-setter, conducted India's fourth Mutual Evaluation (2023-24). India was placed in "regular follow-up" (best category) in 2024, a significant upgrade from "enhanced follow-up" (2010). Key findings: strong legal framework, effective risk-based supervision, robust international cooperation. Gaps identified: NPO sector risk assessment, virtual asset service provider (VASP) regulation, beneficial ownership transparency, and timely prosecution conclusion. India's 2023 amendment to PMLA brought VASPs under reporting entity obligations, aligning with FATF Recommendation 15.