Ahlawat & Associates

Prevention of Money Laundering

Prevention of Money Laundering Act

Definition and Overview of Money Laundering

Money laundering refers to hiding or altering the source and origin of unlawfully acquired funds to make them appear to have been obtained from lawful sources. Money laundering is when a person or a business turns unlawful funds into legal funds through complex routes. The money goes through many stages, including conversion and transfers to a legally recognised institution. Money laundering is the concealment of an illicit source of money, usually done in three steps – placement, layering, and integration.


Some common methods of money laundering are as follows-


Smurfing – It is the practice of dividing large amounts of money into smaller, less suspicious sums. Multiple persons deposit the money into one or more bank accounts over time.


Offshore Accounts – Money launderers commonly move the amount via multiple “offshore accounts” in nations where bank secrecy regulations exist. A complicated plan may entail hundreds of bank transactions to and from offshore institutions. The Bahamas, Bahrain, Cayman Islands, Hong Kong, Panama, and Singapore are among the “major offshore centres,” according to the International Monetary Fund.


Shell firms – These firms are fictitious businesses that operate exclusively to launder money. They receive filthy money as “payment” for apparent products or services but offer none; instead, they create the impression of genuine transactions by forging invoices and balance sheets.

Importance of Preventing Money Laundering

Money laundering has become a global problem. The amount of money laundered globally in one year is 2% to 5% of global GDP, or US$800 billion to US$2 trillion. Money laundering involves smuggling, illicit weapon sales, theft of funds, insider trading, corruption, and digital fraud. Illegal organisations use banks, shell companies, intermediaries, and money transmitters to transfer money obtained unlawfully worldwide to incorporate it into legitimate businesses and economies.


Money laundering diverts resources away from more productive sections of the economy, slowing economic growth. Furthermore, failing to prevent or address money laundering effectively can have significant social and political ramifications. It also engenders unforeseeable alterations in the demand for money, and also gives rise to substantial fluctuations in international capital flows and currency exchange rates.


To curb these activities and convict the person involved in such a task, India has various anti-money laundering laws to prevent any illegal transactions and financial crimes.

Purpose of Money Laundering Prevention Laws

India’s Anti Money-Laundering Laws tackle the major threat of illegal financial transactions. These laws attempt to deter and identify money laundering. India has enacted strict Anti-Money-Laundering Laws safeguarding its financial system, economy, and law.


Prevention of Money Laundering Act 2002

This law aims to prevent money laundering and property seizures. All white-collar crimes, corporate and financial frauds, drug trafficking or smuggling, and even cross-border crimes (if related to India) fall under the PMLA Act 2002.


The Central Government and Reserve Bank of India issued the Prevention of Money-Laundering (Maintenance of Records) Rules 2005. It mandates banks and financial institutions to keep records of transaction information maintenance and delivery and customer verification.


Black Money (Undisclosed Foreign Income and Assets) and Tax Act, 2015 – This act was implemented to stop Indian citizens from sheltering black money and overseas assets for tax evasion or other unlawful financial gains. This act makes one responsible for hiding foreign gains. The undisclosed property incurs a three-fold tax penalty plus basic taxes under this act.


Benami Transactions (Prohibition) Act 1988

This legislation was intended to criminalise transactions that concealed the identity of the ultimate beneficiary by buying and selling assets under fictitious identities. Benami Transactions occur when one person pays for something yet transfers or holds the property within its occupancy.


To summarise, the primary objective of the anti-money laundering regulations in India is to preserve the soundness of the financial framework, counter unlawful practices, and establish accountability in monetary dealings. The laws aim to safeguard the economy and establish an equitable and responsible financial atmosphere for all parties involved by implementing rigorous regulations and sanctions.

Our Approach on Prevention of Money Laundering

Ahlawat & Associates firm is one of the few Law firms that provide services in Anti Money-Laundering Laws in India. With extensive work experience in representing clients in various courts over Prevention of Money Laundering Act Case Law.

We manage to provide advice on all queries related to the Prevention of Money Laundering Act, anti-corruption issues and many more. Our lawyers represent clients before the Prevention of Money Laundering Act’s Adjudicating Authority, Appellate Tribunals, and High Courts, including the special courts. In addition, our team manages money laundering trials under the Anti Money-Laundering Laws in India. And also provide expert opinions on concerns related to the Prevention of Anti Money Laundering Act and Prevention of Money Laundering Rules.

1. What constitutes a money laundering offence?

An individual may be convicted of money laundering if they directly or indirectly attempt, knowingly assists, or is a party to, or are involved in one or more of the following processes or activities: concealment, possession, acquisition, or projecting of untainted property.

2. What is a suspicious transaction under the Prevention of Money Laundering Act of 2002?

A suspicious transaction is any transaction that, to a person acting in good faith, gives rise to a reasonable suspicion that it may involve criminal proceedings, appears to have been created in exceptional or unjustifiable complication, or appears to have no economic justification or genuine aim.

3. What are the Penalties for Money Laundering?

Persons convicted of money laundering may receive a prison sentence of up to three years, with the possibility of an extension to seven years and monetary penalties.
How can we assist you?

Related Articles

Ahlawat & Associates
Need Help? Chat with us
Please accept our privacy policy first to start a conversation.
Scroll to Top