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Biggest money laundering cases in India

March 28, 2023

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This article is written by Nishka Kamath, a graduate of Nalanda Law College, University of Mumbai. In this article, the author has discussed the most infamous cases of money laundering, along with the economic, social, and political impact caused by the issue of money laundering. Furthermore, different measures that can be implemented to combat the issue of money laundering, are also discussed in brief at the very end.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

Louisa May Alcott rightly quoted, “Money is the root cause of all evil”, and our country, India, is no stranger to several high-profile cases of money laundering.

In this era, everyone is in the rat race to earn more and more money. While we have some individuals who use ethical and legal means to earn money, there are some who resort to unethical or illegal activities for financial gain. Vijay Mallya, Nirav Modi, Mehul Choksi, and Chandan Kochar- we have often heard about these individuals and their money laundering scams. To give legality to their money obtained illegally, they use different techniques, one of which is money laundering.

In February 2022, India witnessed its biggest-ever banking fraud of around 22,842 crores involving ABG Shipyard Ltd. (discussed in detail below), which is a shipbuilding and repair company. In 2020, after an investigation, Rana Kapoor, the CEO, and founder of Yes Bank, was caught up in a financial fraud case wherein the ED attached properties worth 2,203 crores, including his personal property. This article is an attempt to discuss all such infamous money laundering cases in India. Let’s begin!

Money laundering : an overview

Before we dive deep into the biggest money laundering cases, let us have a look at the nitty-gritty of money laundering.

What is money laundering

Money laundering can be described as an offence wherein an individual or establishment passes illegal funds through complex channels to give it an appearance of legalised basis. The finances are passed on through various phases of conversions and transfers to reach a legally accepted institution. In short, the launderer looks for effective means to get their money ‘cleaned’ through any institution as it is the best option available.

In simple words, money laundering means disguising illegal money as legal money. Such amounts are usually obtained by illegal means like corruption, fraud, cheating, tax evasion, etc. Generally, money laundering cases are influenced by politics, with their roots going all the way down to corruption.

Interesting fact: As per UNODC, around 2-5% of the global GDP is laundered every year. That amounts to approximately $800 billion to $2 trillion laundered annually.

The process of money laundering

Below is a brief discussion of the most common steps followed for such an activity.

Illicit activity

The first and foremost step to money laundering is to have some illicit financial activity.

Initial placement

This is the start of the money laundering process; here, illegal funds are transferred to a legitimate establishment or institution, say a bank. This process is carried out in such a way that there is no way any traces of such fraud occurring can be detected. Even though the number of scams is large, these funds are entered into these institutions in smaller batches to avoid any sort of suspicion.

Layering

Next comes the process of layering. Here, any signs of criminal activity are eliminated via some complicated financial transactions. It may also involve transferring funds to banks or institutions of foreign origin that have confidentiality laws in place. As a result, the source of money is hidden behind the counterfeit transactions. This procedure assists in removing information about how and where these funds came from.

Final integration

Lastly, the illegal amount thus converted is now legally available for use since the conversion is legitimate in the eyes of the law. Here, laundered funds enter the banking system again and are then used freely by fraudsters. Simply put, the laundered money is readded into the economy in a manner that allows it to be used and withdrawn in a manner that appears to be legal.

Pictorial representation of the process of money laundering

Interesting fact: Around 90% of global money laundering cases go undetected each year.

Forms of money laundering

Money laundering can take up several forms, some of them, inter alia, are as follows:

Structuring, also referred to as smurfing,
Cash-intensive businesses,
Bulk cash smuggling,
Trade-based laundering,
Shell companies,
Round tripping,
Gambling,
Black salaries,
Tax amnesties,
Transaction laundering.

Stats on money laundering cases

In the last decade, the Enforcement Directorate (commonly known as the ED) has registered the highest number of money laundering cases, with the number rising as high as 1,180. Further, during the financial years between 2012–13 and 2021–22, the ED received a total of 3,985 complaints under the Prevention of Money Laundering Act (PMLA), 2002, and 24,893 under the civil law of the Foreign Exchange Management Act (FEMA), 1999.

Furthermore, the ED registered the following number of money laundering cases in the respective fiscal years-

221 cases in 2012-13,
209 cases in 2013-14,
178 cases in 2014-15,
111 cases in 2015-16,
200 cases in 2016-17,
148 cases in 2017-18,
195 cases in 2018-19,
562 cases in 2019-20,
981 cases in 2020-21, and
1,180 cases in 2021-22.

Interesting fact: 25 people have been held guilty by courts in India in matters related to money laundering, whereas more than 400 individuals have been arrested since the ED was empowered to investigate serious financial crimes that took place about 17 years ago.

Biggest money laundering cases in India

Now that we know what money laundering is, let us take a look at some legendary scams in India that everyone has heard of!

Infamous money laundering cases in India

Commonwealth Games (CWG) scam

Year of scam- 2010

Amount of money involved- 70,000 crore

Delhi, in 2010, saw one of the most notorious scams addressed as the Commonwealth Games (CWG) scam. Here, it was discovered that only half the amount received was used for Indian sportspersons, whereas, the other half was deposited in the accounts of individuals who had the power to do so. With this scandal, the Government of India is said to have incurred a loss of 70,000 crores. Under the CWG scam, the authorities hired companies that had overquoted the estimated budgets as opposed to those that had great offerings at great prices in addition to better services and equipment. Moreover, after the discovery of the scam, it was discovered that several suspicious transactions were carried on with non-existing partners, while the actual workers did not receive any timely payment, thus causing the misappropriation of funds.

This scam can be said to be a planned act of corruption. Moreover, not only Mr. Suresh Kalmadia and two of his close associates, Mr. Lalit Bhanot and V.K. Verma, but also Sheila Dixit, were part of this scandal.

The trial of all those accused in the Commonwealth Games (CWG) scam

Suresh Kalamdi was detained by the CBI and served around 10 months of imprisonment. He, along with his associates, was held guilty under several sections of the IPC and the Corruption Act. The most important sections of the IPC they were charged with are as follows:

Section 120 (b) (criminal conspiracy),
Section 420 (cheating),
Section 468 (forgery), and
Section 471 (Using as genuine a forged document or electronic record).

Saradha Group financial scandal

Year of scandal – 2013

Amount of money involved- 2500 crores

The Saradha scam, commonly known as the Saradha Group financial scandal, was a major financial scandal that took place in 2013. This scam occurred in 2013 when a Ponzi scheme by the name of Saradha Group, which was an umbrella company with a cluster of 200 private companies, broke down. In this case, a scheme was launched in the early 2000s by Sudipto Sen, promising high returns, and the amount was collected from several small investors. Agents who helped the company were paid a commission of over 25–40%, apart from other lucrative gifts. This scheme became popular because it promised high returns in a short period of time. It raised capital of around 2500 crores within a span of a few years, and the total number of investors rose as high as 1.7 million. The company, in order to gain fame and build up its brand value, used several marketing techniques, like celebrity endorsements. Further, in order to attract more investors, the company used to sponsor cultural events such as Durga Puja and invest in popular football clubs. The scheme, in no span of time, expanded to Odisha, Assam, Jharkhand, Chhattisgarh, and Tripura, and with this expansion, the number of investors increased noticeably.

The investors in Saradha were rarely enlightened about the true nature of the investments. This scam worked in the form of a Ponzi scheme where one investor’s principal and interest were paid to another investor as interest.

However, it was later discovered that the company’s inflow was lower than its outflow, after which the Supreme Court of India transferred all investigations related to the case and other Ponzi schemes to the Central Bureau of Investigation (CBI) in 2014. The investigation into this multi-crore Ponzi scheme has been ongoing since it came to light in 2013.

Trial of the accused in the Saradha scam

Several West Bengal residents, including Kunal Ghosh, Sudipto Sen, and Madan Mitra, are accused of participating in this Ponzi scheme. In 2013, in an 18-page confession, the founder and CEO of this scheme, Sudipto Sen, mentioned the involvement of TMC politicians in this scheme, including Mamata Banerjee. The police authorities filed several FIRs against the Saradha group, and several properties were confiscated and seized. A special SIT (Special Investigation Team) was set up by the West Bengal government for speedy investigation. Later, this case was moved to the CBI as ordered by the Hon’ble Supreme Court.

Sudipto Sen has around 98 cases pending against him and has served more than 8 years in jail. Currently, Sudipto Sen and his close associate, Debjani Mukherjee, are in the custody of the CBI.

Indian coal allocation scam or the Coalgate scam

Year of scandal – 2012-13

Amount of money involved- 185,591 crores

The coal allocation scam, commonly known as the “Coalgate scam,” was a political scam that included the illegitimate allocation of the nation’s coal to public sector entities (PSEs) and private sector companies that were not a part of Coal India Ltd. and Singareni Collieries Company Limited’s (SCCL) production plans by the then Prime Minister Manmohan Singh.

This scam is one of the long-standing cases taken up by the CBI. It was a political scandal that engulfed the UPA (United Progressive Alliance) Government in 2012. Around 14 cases were lodged against individuals and companies, including Naveen Jindal and his company JSPL, Kumaramangalam Birla, Congress MP Vijay Darda and his brother Rajendra Darda, JLD Yavatmal Energy Limited, AMR Iron & Steel Private Limited, and Vini Iron & Steel Udyog, inter alia.

This scam became apparent when the Comptroller and Auditor General of India (CAG) made a statement that the Government of India allocated 194 coal blocks to public and private enterprises in an illegitimate manner between 2004 and 2009. However, these blocks were just allocated and not auctioned, causing a loss of 185,591 crores. The Supreme Court of India annulled the allocation of all 214 coal blocks given since 1993, and these blocks are to be reallocated now.

Trial of the accused in the Indian coal allocation scam

The special CBI judge took cognizance of the offence under the following sections:

IPC-

Sections 120-B (criminal conspiracy), and
Section 409 (Criminal breach of trust by a public servant, or by banker, merchant or agent).
Prevention of Corruption Act, 1988-

Sections 13(1)(c) and
Section 13(1)(d)(iii).

The Court then issued summons to all the accused in this case, out of whom the two accused approached the Supreme Court, which granted interim bail against further proceedings.

The 2G scam

Year of scandal – 2008

Amount of money involved- 176,000 crores

One of the greatest scams in the history of independent India is the 2G scam. It has also been affirmed by the Times Magazine to be the second biggest example of the abuse of executive power- just a notch below Richard Nixon’s Watergate scandal.

The 2G scam was discovered when the Comptroller and Auditor General (CAG) of India, in one of its reports, estimated a loss of 176,000 crores in issuing licences and allocating 2G spectrum by the Department of Telecom.

CAG claimed that the government lost 176,000 crores because telecom operators were granted 2G licences at extremely low prices instead of conducting free and fair auctions. Further, the licences were granted to ineligible applicants who had repressed facts, divulged incomplete information, submitted forged documents, and used deceitful means to obtain licences and thereby gain access to the spectrum.

In this scam, A Raja, along with 14 other individuals and three companies, namely, Swan Telecom, Reliance Telecommunications, and Uninor, were the prime accused. The primary accused, A. Raja, was said to have allocated airwaves and licences for mobile phone networks in exchange for bribes. In 2012, the Supreme Court annulled all 122 licences that were awarded in 2008, asserting that such licences must be allocated via auctions and fair bidding processes alone. The Court said this process of allotment was “unconstitutional and arbitrary.”

Trial of the accused in the 2G scam

In 2012, the Supreme Court, in this case, levied a fine of 5 crores on each of the three companies—Unitech Wireless, Swan Telecom, and Tata Teleservices. However, in 2017, all the accused in this scam were declared not guilty, including the lead accused, A. Raja, by a special CBI Court. Moreover, a point must be taken into consideration that the appeal by the CBI against this judgment is pending in the Delhi High Court.

The Kingfisher Airlines case

Year of scandal – 2007-2017

Amount of money involved- 9,900 crores

This scam started in 2007 when Vijal Mallya’s company, titled Kingfisher’s Airlines, purchased a low-cost carrier, Air Deccan, that had been in the state of destitute for a long time. Unfortunately, Air Deccan faced major financial losses because of the ever-increasing oil prices. So, to keep his business in the market, Vijay Mallya borrowed huge amounts of money from multiple banks; sadly, in two years, the company was in debt for around 50% of its net worth. Kingfisher Airlines faced several losses, and Mallya defaulted on loans worth 9000 crores from several banks around 2013. Further, the Serious Fraud Investigation Office (SFIO) found out that Kingfisher Airlines violated serious corporate ethics during its merger with Air Deccan.

Moreover, it was found that the loans taken by Vijay Mallya were laundered overseas to various “tax havens.” He would transfer the amount of the loan received to inactive companies and would appoint dummy directors to serve this purpose. These companies were in seven countries, namely:

United Kingdom,
USA,
Ireland,
France, inter alia.

Furthermore, it was alleged that Vijay Mallya diverted some loan money to fund his IPL cricket team- The Royal Challengers Bangalore (RCB), and his F1 racing team- Force India. All this occurred when the employees at Kingfisher were not paid their remuneration for a whopping period of over 15 months. In March 2016, Mallya escaped to the UK from India. In February 2017, an extradition request was sent to India.

Trial of the accused in the Kingfisher Airlines case

In 2022, a four-month prison sentence was awarded to Vijay Mallya by the Supreme Court of India for his bank loan default case. The bench, headed by Justice U. U. Lalit, also imposed a fine of ₹2000. Now, Mallya is living in the United Kingdom and is on a bail extradition warrant, which is executed by Scotland Yard.

India’s biggest corporate scam

Satyam scan (Satyam computers scam)

Year of scandal – 2009

Amount of money involved- 7,000 crores

Satyam scam, commonly addressed as India’s largest corporate scam or “India’s Enron Scandal,” revolves around B. Ramalinga Raju and his company titled “Satyam Computer Ltd.”, which was the fourth largest IT software exporter in the industry after companies like TCS, Wipro, and Infosys. Satyam Computers Ltd. was founded in 1987 by two brothers- Rama Raju and Ramalinga Raju. The company started with 20 employees and later hired around 50,000 and operated in more than 60 countries. The net worth of this company was as high as one billion dollars in 2003 and went on to cross two billion dollars in 2008. The promoters of the company, in order to attract more investors, manipulated several figures relating to revenues, operating profits, interest liabilities, and cash balances. Mr. Raju, the founder, would also create a number of bank statements to exaggerate the balance sheet with cash that had no existence whatsoever.

This case or scam was exposed as early as 2009, when India was already in the middle of a recession. The company and its founder confessed to misrepresenting and manipulating accounts worth 7,000 crores in front of its board, stock exchanges, investors, and other stakeholders.

Trial of the accused in the Satyam scam

After Raju confessed to this scam, he was imprisoned and was further charged with the following offences:

Criminal conspiracy,
Breach of trust, and
Forgery.

Moreover, the auditor of the company- PwC, was held guilty of such a conspiracy, and his licence was cancelled for 2 years.

Biggest money laundering cases in the banking sector in India

Punjab National Bank Fraud case

Year of scandal – 2007-2017

Amount of money involved- around 11,400-13,500 crores

This is one of the most publicised and controversial money laundering cases in the history of India which shook the entire nation. It is by far the biggest fraud ever detected by an Indian bank. This scam was orchestrated by diamantaires Mehul Choksi and his nephew Nirav Modi, who conducted such a huge scam with the assistance of over 50 employees from the Punjab National Bank of the Brady House branch in Fort, Mumbai.

Here, bankers used fake Letters of Undertaking (LoUs) worth more than 10,000 crores, which were opened in branches of Indian banks for the purpose of importing pearls for a span of one year. The employees issued fake bank guarantees to help them secure billions in foreign credit. Nirav Modi and Mehul Choksi managed to get their first fraudulent guarantee in 2011, and from there, they got around 1200 more such fake guarantees in the next 74 months without anyone suspecting any fraudulent activity. As per these LoUs, banks were to be held liable in matters of default. In 2018, PNB filed a suit with the CBI on the charges that Nirav Modi obtained these LoUs from PNB without paying up the margin amount against the loans. Simply put, in case any of the companies failed to pay the debt, PNB would be liable to compensate for the same.

Trial of the accused in the Punjab National Bank Fraud case

The Indian authorities are trying incessantly to extradite Nirav Modi and Mehul Choksi in the money laundering case, to bring back to India these businessmen who were declared fugitive economic offenders. In March 2019, Nirav Modi was spotted in London, and Choksi was seen in Cuba. Nirav Modi is said to be in south-west London awaiting his extradition trial. Currently, in December 2022, Nirav Modi is said to have lost his appeal against extradition to India. He may also return to India to face a trial for the charges of fraud and money laundering. However, he can now appeal to the Supreme Court against the High Court’s decision in London.

ABG Shipyard case

Year of scandal – 2012-2017

Amount of money involved- 22,842 crores

In this case, a Gujarat-based firm, titled ABG Shipyard Ltd. (ABG SL.), was alleged to have defrauded a bank of 22,842 crores, which roughly comes to $3 billion. Around 28 banks were defrauded by this company, including the State Bank of India (SBI) and ICICI Bank.

According to the CBI, ABG SL borrowed money from banks and used it for other purposes, such as investing in overseas subsidiaries and bringing assets into the name of affiliated companies. They also transferred money to numerous parties related to them or the company. However, with a forensic audit held by SBI with the assistance of Ernst and Young, it was discovered that there was a huge issue of money being laundered. They also found that such a scam took place over a period of five years, i.e., from 2012 to 2017.

As per the investigation conducted by the CBI, ABG Shipyards primarily took loans from several banks and managed to divert funds that were used for other purposes, as mentioned above. Moreover, as per the audit report by the SBI, it was uncovered that the fraud took place through “diversion of funds, misappropriation, and criminal breach of trust, with an objective to gain unlawfully at the cost of the bank’s funds.”

In the FIR filed by the CBI in 2022, ABG Shipyard and ABG International Private Ltd. were charged with owning the following amounts of money:

ICICI Bank – 7,089 crores,

SBI – 2,925 crores,

IDBI Bank – 3,639 crores,

Bank of Baroda – 1,614 crores,

Punjab National Bank 1,244 crores,

Exim Bank 1,327 crores,

Indian Overseas Bank 1,244 crores, and

Bank of India 719 crores, inter alia.

Trial of the accused in the ABG Shipyard case

While the fraud came to light in June 2019 after an investigation conducted by the Fraud Identification Committee of the SBI, it was not until November 2019 that the first complaint was made to the CBI. Later, in 2022, a charge sheet was filed against Rishi Agarwal and five other accused, along with 19 companies, including three based in Singapore. Rishi Agarwal, the former promoter of ABG Shipyard Ltd., was arrested by the CBI. But he was soon granted bail, considering the charge sheet was incomplete.

ICICI Bank- Videocon case

Year of scandal – 2016-2022

Amount of money involved- 1,875 crores

This case revolves around Chanda Kochhar, the former MD and CEO of the ICICI Bank and her husband Deepak Kochhar. A charge sheet was filed in November 2020 by the ED for transactions between Videocon Group and NuPower Renewables Pvt. Ltd., both of which were operated by Deepak Kochhar.

This fraudulent activity was discovered in 2016 when an investor named Arvind Gupta, who had invested funds in both ICICI Bank and Videocon Group, pointed out some suspicious activity between the two companies. He wrote letters to various authorities, including the Prime Minister and the Governor of the Reserve Bank of India, requesting an investigation into the conflict of interest; however, the case was not pursued until 2018, when another whistleblower raised similar allegations against Chanda Kochhar. A detailed investigation started then, and several authorities were involved in investigating the matter further.

After a thorough investigation, the investigating authorities found out Chanda Kochhar had sanctioned loans worth 1,875 crores (which comes to an estimated $243 million) from ICICI Bank to Videocon Group. This was done to receive some sort of bribe from her husband’s business organisations.

In September 2020, Chanda Kochhar and her husband, Deepak Kochhar, were arrested under the PMLA Act. Furthermore, the ED had attached movable and immovable assets worth Rs 78 crore as part of the recovery process.

Trial of the accused in the Videocon case

In February 2021, bail was granted to Chanda Kochhar by a special court in Mumbai; after this incident, Deepak Kochhar, too, was granted bail in March 2021 by the Bombay High Court. The CBI then arrested Videocon Group chairman Venugopal Dhoot for allegedly bribing Chanda Kochhar and her husband, Deepak Kochhar, in this scam. In addition, the Kochhars were arrested and questioned in connection with this fraud. In addition, the Kochhars were arrested and questioned in connection with this fraud. They are currently in the custody of the CBI.

Yes Bank- DHFL case

Year of scandal – 2007-2017

Amount of money involved- 5,050 crore

This case is centred around Rana Kapoor, the founder and former CEO of Yes Bank, and the credit facilities provided to Dewan Housing Finance Limited (DHFL) during his tenure at Yes Bank. Moreover, DHFL promoters- Kapil Wadhawan and Dheeraj Wadhawan, amongst others, were also involved in this criminal conspiracy. While working at the bank, Rana Kapoor allegedly provided multiple credit facilities to DHFL Bank for his own economic gain. The benefits he would receive in return for this favour, inter alia, included:

Receiving bribes worth 900 crores (approximately USD 116 million) from the promoter of DHFL in the form of loans to a company wholly owned by Rana Kapoor’s daughters.
A purchase of a bungalow in Delhi from the promoter of Avantha Group at a grossly undervalued price.

After this scam came to light, an extensive investigation was carried out, during which several abnormalities were noticed in the loans sanctioned by Kapoor for DHFL Bank. The ED affirmed that Yes Bank had bought debentures worth 3,700 crores between April 2018 and June 2018 from DHFL Bank, and the amount was transferred to DHFL. Further, DHFL sanctioned a loan of 600 crores to DOIT Urban Ventures Pvt. Ltd. (DUVPL), which was owned by Rana Kapoor and his family. This was done without adequate collateral. It was also discovered that just before sanctioning this loan, Yes Bank made investments in DHFL Bank. This clearly indicated there was a criminal conspiracy between Rana Kapoor, Kapil Wadhawan, and Dheeraj Wadhawan for receiving credit by pledging highly overvalued assets, as per the chargesheet. It was further revealed that there was no ongoing business in the DUVPL while the loan was proposed. On further investigation, it was disclosed that the entire amount was syphoned off by the Wadhawans without spending a single penny on the actual reason the loan was taken. Also, it was revealed that a major amount of money was syphoned by Rana Kapoor, who used this money to invest overseas.

Consequently, in 2020, the ED attached Kapoor’s properties, which were worth 2203 crores, which comes to approximately $286 million. These properties also included the personal property of the Kapoor family. Rana Kapoor and his family have been arrested several times for further investigation into this case.

Trial of the accused in the DHFL case

All the accused in this scam were charged under various sections of the PMLA Act. In 2022, Rana Kapoor and his wife were granted bail, along with Gautam Thappar, the promoter of Avantha Group. Furthermore, two builders, Avinash Bhosale and Sanjay Chhabria, who had links with this case, were taken into police custody, and their assets, worth 415 crores, were attached in this bank-loan fraud case. Presently, they are in judicial custody.

Biggest money laundering cases in India that made headlines in 2022

The National Herald case

In the National Herald case, the interim president of Congress, Sonia Gandhi, and party leader, Rahul Gandhi, among others, were accused of some economic irregularities. The ED carried out raids in 12 places in the national capital and other places in matters relating to this case.

In 2012, a complaint was filed before the trial court by a leader of the Bharatiya Janata Party (BJP) and advocate, Subramanian Swamy, on the pretext that some of the leaders of the Congress party were involved in some fraud and breach of trust in the acquisition of Association Journals Ltd. by Young Indian Ltd. (YIL) and that YIL took over the assets of the National Herald in a “malicious way”. Rahul Gandhi and Sonia Gandhi were summoned by the ED in a probe in relation to this case. The ED is carrying out an investigation into this case. Furthermore, in 2015 in relation to Swamy’s case, the Patiala House Court gave a prima facie finding on their guilt and they even had to sign a bail bond along with Motilal Vohra and Oscar Fernandes.

Sand mining case

In this infamous sand mining case, the ED conducted a raid on the property owned by Bhupinder Singh, alias Honey, the nephew of the former CM of Punjab, Charanjit Singh Channi. Honey was arrested under several sections, including Sections 3 (Offence of money laundering) and 4 (Punishment for money laundering) of the PMLA. They were brought into 14-day judicial custody in February 2022 from Jalandhar, Punjab. The ED confiscated more than 10 crores, gold worth more than 21 lakhs, and a Rolex watch worth 12 lakhs from his residence. This was one of the biggest raids in 2022. His uncle, Charanjit Channi, was also questioned by the ED in relation to the illegal sand mining case. Moreover, Bhupinder Singh, aka Honey, had already confessed that the money seized by the ED belonged to him and that he used to accept bribes from officials in exchange for choosing their place of transfer and postings.

Jharkhand mining case

In the infamous Jharkhand mining case, IAS officer Pooja Singhal, the secretary of the Department of Mines and Geology and the Managing Director of Jharkhand State Mineral Development Corporation Limited (JSMDC), who is also an aide to the CM of Jharkhand, Hemant Soren, had her property raided in a money laundering case linked to the alleged embezzlement of MGNREGA funds in the state’s Khunti and Chatra districts. An amount of nearly 20 crores was recovered from the officer and her Chartered Accountant, and an arrest was made against her in May 2022. Further, the ED also carried out a raid on Ranchi’s Pulse Hospital, owned by her husband, Abhishek Jha.

School Service Commission (SSC) Recruitment scam

While carrying out an investigation, the ED recovered around 50 crores in cash, along with some jewellery, from the residence of Arpita Mukherjee, the associate of former Bengal Minister Partha Chatterjee. Following Partha Chatterjee’s arrest, 21 crores in cash and jewellery were recovered from Arpita Mukherjee’s home. The investigation is still being carried on in this matter, and the ED is still looking out for properties related to both the accused. Upon further investigation, Chatterjee denied his involvement in the SSC scam and affirmed that the “money does not belong to him“.

Chinese Visa case

In the Chinese Visa case, Congress MP, Karti Chidambaram, was booked by the ED for several charges relating to money laundering. This case came to light after a nationwide search was conducted by the CBI at several premises linked to P. Chidambaram and his son Karti.

An FIR was lodged against them and is based on the charges that Karti accepted a bribe if 50 lakhs were accepted from Vedanta Group to facilitate visas for 300 nationals of Chinese origin for a company working together with the Vedanta subsidiary on a power project in Punjab.

Patra Chawl scam

In the infamous Patra Chawl scam, Shiv Sena’s MP Sanjay Raut was alleged to be guilty of economic irregularities. He has been in the custody of the ED in this money laundering case. The ED raided Raut’s bungalow in Bhandup and seized approximately 11.5 lakhs from there. Further, a discovery of multiple documents and records that proved Raut paid 3 crores in cash to the seller for 10 plots of land in Alibaug was also made. The ED also alleged that Raut had tried to tamper with the evidence and influence the key witnesses in this case.

Nawab Malik and Dawood Ibrahim’s scam

Nawab Malik, Maharashtra’s Minister and Nationalist Congress Party (NCP) leader, was the primary suspect in this infamous money laundering case. He was alleged to have links with fugitive gangster Dawood Ibrahim’s D Company. The investigation was carried on by the ED, and a chargesheet was filed before the Special PMLA Court in Mumbai. In the complaint, the ED made mention of Malik’s involvement with the D Company and affirmed he wanted to “usurp” the Goawala building compound in Kurla West in 1996. Malik is currently in the custody of the ED.

Jammu & Kashmir Cricket Association Fund scam

In this scam, a supplementary chargesheet was filed by the ED against the former Chief Minister of Jammu and Kashmir, Farooq Abdullah. Here, there was some sort of syphoning-off of funds from the J & K Cricket Association (JKCA). This scam was carried out through multiple transactions to unidentified parties, including JKCA office bearers. These amounts were withdrawn without any reasonable justification. The ED launched an investigation based on a chargesheet filed against JKCA office bearers in 2018. After further investigations. The scam is said to be worth around 51.90 crores; however, the ED has already attached assets worth 21.55 crores.

Top money laundering case laws

Chidambaram v. Directorate of Enforcement (2019)

Background of the case

This case, commonly referred to as the INX Media case, refers to one of the most notorious high-profile money laundering cases. The case revolves around the economic irregularities in the foreign exchange clearance granted to INX Media Group for receiving overseas investment in 2007.

Facts of the case

In March 2007, INX Media, founded by Indrani Mukherjee and Peter Mukherjee, tried to approach the Chairman of the Foreign Investment Promotion Board (FIPB) for permission for foreign direct investment (FDI) from three non-resident investors located in Mauritius. Two proposals were made, namely:

To issue by way of preferential interest, non-cumulative, equitable and convertible for engaging in business for operating, creating some television channels.
Moreover, the Company also required permission to make a downstream investment to the limit of 26% as well as the outstanding equity capital of M/s. INX News Private Limited.

Out of these proposals, one was approved by the FIPB, and the other was denied; however, the company fraudulently carried out the other transaction, as well. This issue came to light when the income tax department asked for justification in 2008 from INX Media, after which they approached Karti Chidambaram to leverage his family name to avoid any penalty, thus entering into a criminal conspiracy. Karti Chidambaram was said to have an economic interest worth around Rs 3.5 crore. A case known as the ECIR case, under Section 3 of the PMLA, which is punishable under Section 4 of the PMLA, was lodged by the ED. P. Chidambaram was arrested, and a bail application for the case was filed.

Issue

Whether bail should be granted to the appelant or not?
Whether the Court, having found the merits of the case, consider the application filed for granting bail or not?

Judgment

After overturning the Delhi High Court’s order, the Supreme Court granted Chidambaram bail and ordered him to pay a surety bond of Rs 2 lakh along with two other securities.

Union of India v. Hassan Ali Khan & Ors. (2011)

In this case, Hassan Ali Khan, a Pune-based businessman, was held guilty of charges of money laundering and depositing huge amounts of black money in banks of foreign origin. He was accused and arrested for having deposited around $8 billion in the Union Bank of Switzerland, amongst other Swiss banks. He was also facing allegations of owning five passports under distinct names each. He was also under the radar for any alleged terror links, as it is suspected that he had laundered money from an international arms trader Adnan Khashoggi. He filed several bail applications in several courts, including the Bombay High Court, the Hon’ble Supreme Court and the Special Court under the PMLA, but all of them were rejected. He has rejected all the allegations imposed upon him, further affirming he has no Swiss bank accounts and that some of his rivals could be behind the charges. However, he is currently in jail, considering the rejected bail applications.

Laws that govern money laundering cases in India

In order to safeguard the integrity of the market and prevent such cases of money laundering, the Indian authorities have enacted multiple laws and regulations. Some of the acts are as follows:

Prevention of Money Laundering Act (PMLA)

Prevention of Money Laundering Act (PMLA), 2002

The PMLA Act, 2002, was enacted to discourage money laundering and provide for the confiscation of property in such cases. An individual found guilty under this Act shall have to face a prison sentence; further, his/her property can also be confiscated and seized in such matters.

The three main purposes of this act are as follows:

Prevent and control the issue of money laundering.
Confiscate and seize away the property of individuals involved in money laundering.
Combat other issues related to money laundering in India.

Furthermore, the Act has provisions for punishment that can be rigorous in nature and can range from three to seven years behind bars.

Prevention of Money Laundering (Amendment) Act, 2012

With this Amendment, the concept of “reporting entity,” which would incorporate a banking company, financial institution, intermediary, etc., has been added. Furthermore, the 2002 Act set a maximum fine of 5 lakhs for economic fraud, but the amendment removes that limit. Moreover, it contains a provision for the provisional attachment and confiscation of any individual involved in such illegal activities.

FEMA and FERA

The Foreign Exchange Management Act, 1999, and Foreign Exchange Regulation Act, 1973, have been enacted with the motive of laying down some elaborative restrictions on the hawala market to preclude its usage as a means for money laundering activities and terrorism financing. The main motive for enacting these acts was to improvise on surveillance and preemptive measures instead of relying solely on rules and regulations for preventing money laundering.

Indian Customs Act, 1962

The Indian Customs Act, 1962, too, plays a crucial role in preventing money laundering by inflicting stringent punishments, including imprisonment, for offences under this Act, such as smuggling, inappropriate imports or exports, and wrong declaration of exports.

The Income Tax (IT) Act, 1961

The Income Tax Act, 1961, establishes a framework for combating money laundering by penalising tax evasion.

Criminal Law Amendment Ordinance, 1944

The Criminal Law Amendment Ordinance, 1944, has provisions related to certain crimes like that of corruption, breach of trust, and cheating; however, not all the crimes, like those in the Indian Penal Code, 1860, are covered in this Ordinance.

Narcotics Drugs and Psychotropic Substance (NDPS) Act, 1985

The Narcotics Drugs and Psychotropic Substance (NDPS) Act, 1985, has provisions for the punishment of property or funds obtained from or utilised in the illegitimate trafficking of narcotic drugs.

The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976

Under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, there is a penalty for smugglers and foreign exchange manipulators for property obtained illegitimately and for similar matters.

Other anti-money laundering policies

Since banking channels seriously suspect money laundering activities, the Indian Banking Association (IBI) has taken the initiative to play the lead role in developing a code that is self-regulated. This code is enacted with the objective of preventing money laundering activities, especially in the banking sector. Most of these organisations have anti-money laundering (AML) policies to determine and prevent any activity involving money laundering.

Authorities responsible for investigating money laundering cases

Authorities responsible for investigating money laundering cases in India

There are several authorities responsible for carrying out investigations on matters relating to money laundering, namely:

Financial Action Task Force (FATF)

The issue of money laundering is not confined to one nation, thus, it is a global issue. The G-7 formed the Financial Action Task Force (FATF) on money laundering to produce effective financial regulations and anti-laundering laws. It was established by the governments of the G-7 countries at their 1989 Economic Summit to monitor the progress of its members in implementing steps towards fighting money laundering. India is also a full-fledged member of the FATF and follows guidelines laid down by force.

Interesting fact: The famous Forty Recommendations are given by the FATF.

Enforcement Directorate (ED)

The Directorate of Enforcement in the Department of Revenue, Ministry of Finance, is in charge of investigating offences involving money laundering. It is responsible for implementing laws related to finance and combating financial crimes in India. One of its main features include investigating offences of money laundering under the provisions laid down in the PMLA Act.

Authorities responsible for investigating money laundering cases : a global perspective

The Vienna Convention

Under the Vienna Convention, an object of creating an obligation for signatory states to prosecute money laundering from drug trafficking.

The 1990 Council of Europe Convention

The 1990 Council of Europe Convention lays down a common criminal policy on money laundering.

G-10’s Basel Committee statement of principles

The G-10’s Basel Committee statement of principles issued a document called “statement of principles” with which all the international banks of member states are obliged to comply.

The International Organization of Securities Commissions (IOSCO)

The International Organization of Securities Commissions (IOSCO) motivates its members to take the requisite measures to fight the issue of money laundering in the securities and fund markets.

The United Nations Office on Drugs and Crime

The United Nations Office on Drugs and Crime (UNODC) proactively tries to detect and end money laundering.

The impact of money laundering : an economic, social and political scenario

Economic impacts

Money laundering can have a dire effect on the economy of a country; some of the impacts, inter alia, are as follows:

It compromises with the legality of the private sector.
It compromises the integrity of financial markets.
There is economic distortion and unsteadiness.
There is a loss of control of economic policy.
There is also a loss of revenue.
There is inconsistency in the exchange and interest rates due to out-of-the-blue transfers of funds.
A detrimental effect is caused on the trade and international capital flows.

Social impact

The social impacts of money laundering, inter alia, are as follows:

There is an upsurge in crime rates.
It causes a decline in the process of human development.
The resources get misallocated.
Money laundering affects the trust of the general public in their domestic financial institution.
Money laundering also weakens the moral and social position of society by exposing it to illicit activities like drug trafficking, smuggling, and corruption, amongst other criminal activities.

Political impact

It initiates political distrust and volatility.
There is criminalisation of politics.

The way forward

There are several provisions laid down by the government for ceasing the illegal activity of money laundering. Individuals, organisations, and businesses involved in money laundering rely heavily on fraudulent exports to carry out such fictitious economic transactions. Such frauds are always carried on by spending on expensive art and paintings, stock markets, etc. Below are some of the major steps that can be followed to efficiently combat the issue of money laundering:

Collaboration

With the advancement of technology in matters related to money laundering, there is a dire need to address this issue with equally advanced anti-money laundering mechanisms like big data and artificial intelligence. Furthermore, both international and domestic stakeholders must work together to effectively strengthen data-sharing mechanisms in order to combat the issue of money laundering.

Coordination

Moreover, the investigation, prosecution, and conviction under the PMLA need several distinct elements to be successful. Also, for an accurate investigation, coordination and collaboration between the CBI, the Narcotics Control Bureau, the serious fraud investigation officer, and the ED are of utmost importance.

Mutual legal aid treaties

Furthermore, in cases of matters relating to cross-border money laundering, one of the most important ways to detect such fraud is via the provision of mutual legal assistance treaties with other states and the proper implementation of such treaties. It is noteworthy that India has such mutual legal treaties, especially for the purpose of asset recovery, with the United States of America, the United Kingdom, and the United Arab Emirates.

Some other steps to combat the issue of money laundering

The issue of money laundering may especially be seen in markets that are not well-organised or developed. Hence, such economic markets need to have robust controls and checks.
The government of a country must develop and enforce policies that demotivate tax evasion by companies.
The department of finance responsible for preventing such frauds (ED in India) must track and monitor all the money transactions or any activity they think is illegitimate, irrespective of whether it is related to production or consumption, to prevent any kind of illegal activity.
Improved due diligence by banks is yet another method to detect money laundering cases.

Conclusion

The two root causes of the aforementioned economic scams and money laundering cases are corruption and greed. Greed can be a powerful tool for disrupting economies in matters related to money laundering. It not only harms economies by causing a lopsided demand for money, but it also destroys the private sector by encouraging cutthroat competition or the stagnation of thriving businesses that serve as fronts for money laundering.

Even though our country has specific laws to address this issue, the aforementioned cases involved millions of dollars, indicating that our laws must be more stringent. Moreover, due to the complex technological improvements in the banking sector, there are even more complex methods adopted by fraudsters to indulge in fraudulent activities like that of money laundering.

In this article, we looked at some of the biggest money laundering scams that shook the markets. As an investor, it is always advisable to stay vigilant of any such activities happening around you! Happy reading!

Frequently Asked Questions (FAQs)

What is PMLA?

The Prevention of Money Laundering Act, 2002, commonly known as PMLA, is said to be a law helping combat the issue of money laundering in India. Moreover, there are multiple specialised government agencies, inter alia, that deal with the issue of money laundering like-

The Reserve Bank of India (RBI),
The Securities and Exchange Board (SEBI),
The Development Authority of India.

What role does the SEBI play in preventing cases of money laundering?

SEBI plays a major role in combating the issue of money laundering in India. SEBI introduced “Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries.” These guidelines are in accordance with the principles laid down under the PMLA.

What sort of activities are considered as an offence of money laundering under the PMLA?

Under the PMLA, any person who makes an attempt to engage in any activity that is related to the proceeds of a crime will be deemed guilty of committing a money laundering offence.

Is there any penalty for any activity involving money laundering under the PMLA? If yes, what and how much?

The punishment for money laundering ranges from three to seven years of rigorous imprisonment along with a fine. Furthermore, if an organisation or a corporation is found guilty of committing such an activity, every person in charge of the business will be held accountable for the activity and will be penalised by the Enforcement Directorate (ED) by way of legal proceedings.

What role does the Enforcement Directorate play in the cases of money laundering?

The Enforcement Directorate, commonly known as the ED, is an organisation of the Government of India that was created for enforcing economic laws and handling the issue of economic offences or monetary frauds. ED uses economic intelligence to enforce significant laws that are known to govern the fiscal development of India.

References

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