Money laundering in india

Money laundering is basically conversion of illegally earned money into legitimate money. It is a way in which some people convert their black money into legitimate money. So, money laundering is a way for people to hide their money that is earned through illegal ways. The person who manipulates the money is called Launderer. In money laundering the money is invested in such a way that even the agency that is investing the money cannot also find the source of that wealth. So, in this way the black money when invested in capital markets or any other kind of investment comes back to the person as legitimate money.

Money laundering has both financial, economic, and social impact on the society. Money laundering undermines the government laws and manipulate small businesses. Decisions of the top-level people in a business can be manipulated by the people doing money laundering. If the practices of money laundering are not controlled or stopped in a country the illegal activities will increase and have a very bad impact on the society. All the terrorist activities all over the world are funded by this kind of money and the people who are dealing in these kinds of activities are mostly criminals trying to hide their illegal money.

There are basically three steps in the whole process of money laundering, that are:

  • Placement: It is basically investment of that illegal money into the market. The launderer deposits the money into banks through different agents so that the money is brought into the market, this can be done by making a formal or informal agreement. Transactions in this step are all done in cash.
  • Layering: In this second step the launderer hides the real source of that money by making a foul play. This is basically the most complex step as the launderer separates the money from its source by using a series of financial transactions. This step is called layering because the series of financial transactions obscure the money trail, this is done by transferring the money from one foreign bank to other and so on.
  • Integration: This is the final step where the money is re-introduced into the market as real money or legal money. It is returning of money into the financial world as legitimate money or as legal proceeds.

One way of doing money laundering is basically by forming Shell Company. Shell company is a company that acts like a real company, but that company does not really exist in the real world, no production of any kind takes place in the company. It is a company on papers, and it is used to launder money by many people. A lot of transactions are made through these companies and are shown in their balance sheets, and when all the taxes are eventually paid the money that is received or is made in name of profits by these shell companies is legitimate legal money and in this way that black money is converted into legal proceeds. If there is any kind of investigation done, then a lot of fake documents and transactions of sale are shown to them to confuse them. Shell company is the most used way to launder money by criminals all over the world.


This act deals with the rules, regulations and provisions related to anti-money laundering measures in India. This act has been amended three time i.e., in 2005, 2009, and 2012. The last amendment was done in 2012 and it was implemented on February 15, 2013. The Prevention of Money Laundering Act deals with combating and stopping money laundering in India and it has three main objectives that are:

  • Prevention and Control of money laundering
  • To confiscate all the property that are involved in money laundering
  • To deal with all the activities that are related to money laundering

PMLA has put all the activities like concealment of funds, possession of black money, use of money obtained from criminal activities, acquisition of possession etc. into the criminal list.

RBI, SEBI and IRDA has also been put under the purview of PMLA, hence the provision of the act applies to all the financial institution, banks, insurance companies, companies dealing in mutual funds and their intermediaries.

Prevention of Money Laundering Act aims to control money laundering in India and strict provisions are applied to all the institutions that can be used for laundering of money under this act. Government is taking all the measures so that money laundering can be reduced in India as it will eventually result in reduced criminal activities all over the country.

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