Investigation Process in Money Laundering Matters

This article is written by Samridhi Srivastava from Lloyd Law College, Greater Noida. It will give an analysis of money laundering in India. 


Money laundering is a menace to our society where a person is involved in illegal activity and due to such activity, he earns money and tries to spend it in a lawful manner. In India, the Prevention of Money Laundering Act, 2002 provides provisions for the violator who involves themself in illegal activities. The economy of any nation is undermined when there is an increase in money laundering which is a criminal offense, and hence, it is important to stop such activity which causes financial backlash. 

This article will give an insight into the meaning of money laundering, law provisions, famous cases, and also when a person is charged with money laundering, can they get bail? 

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What is Money laundering

A person who is involved in illegal activities, like, child abuse, bribery, corruption, terrorism, etc.and by such activities if he is earning money or asking someone on his behalf to get involved but such earnings are shown as in the accounts as legally earned money, then it is known as money laundering. For Instance, A is involved in a business of selling clothes but the source from where he gathered investments is through an illegitimate source that is from unlawful means and the money which is gathered from such act he invests it in his apparel business through this the illicit money turns into licit money. This whole process from illicit money to licit money is called money laundering.

In money laundering, the main motive of the criminals is to change the source from where the money is obtained. The source from where the facilitation of money laundering is done cannot be traced easily because the money is tried to be transferred in the bank account, however, banks inquire about the source of the money but they may or may not figure it out if the money is laundered or hard-earned. So, even if they have a doubt regarding the large amount of sum which is transferred or withdrawn they have to report such acts under Section 35A of the Banking Regulation Act, 1949 and also under the Prevention of Money Laundering Rules, 2005

The followings are the way under which an illegally earned money turns legal: 

  1. The criminal transfers money into any financial institutions that is in the banks. 
  2. When any amount of money is going to be stored in the bank they ask about the source of the obtained money. So, when money is obtained from an illegal source they hide the illegitimate earning source by showing other legitimate investments for instance, by showing their shares in any company and due to their share they are earning profits, etc. 
  3. When finally the money is accepted by the bank it turns into legal money and they can withdraw their money anytime.      

Responsibilities of a bank 

Banks are financial institutes involved in funding various ventures, startups, etc. and they are the main players for economic growth as they also accept deposits which in turn grows economy. However, if banks involved in accepting deposits from a person who is involved in an illegitimate activity it will ultimately cost them their market value because their reputation will be tarnished and the trust of the customer will be hard to earn. Therefore, they are advised by the Reserve Bank of India to follow certain guidelines when they suspect any person transaction as they play an important role in preventing money laundering. 

However, the Ministry of Finance has set up an independent body in 2004 FIU-IND (Financial Intelligence Unit- India) whose main purpose is to undertake, inspect and promulgate any information that is related to dubious transactions. They are also involved in combating money laundering at a global level. The following are the functions of the FIU-IND:

  1. Recordkeeper: They are being reported regarding various transactions that are made in the purchase or sale of immovable property, NGOs, cross-border, and transactions that are suspicious in nature. 
  2. Inspect: They inspect the suspected transactions. 
  3. Share data: They share data with foreign and national intelligence unit.
  4. A reservoir of data: They act as a reservoir of data that have been received from various reporting agencies. 
  5. Identification: They identify and deliberate over the various mechanisms for preventing money laundering.  

The Reserve Bank of India (RBI) has also issued guidelines in the Prevention of Money-Laundering (Maintenance of Records Rules), 2005 they are as follows: 

  • Transaction records: The following transactions have to be reported: 
  1. Whenever there is a transaction made where the amount exceeds rupees 10 lakhs but the transacted currency is foreign.
  2. There is a series of the transactions within a month and all are related to each other. The transacted amount need not be equivalent to rupees 10 lakhs.
  3. When the transaction is related to any investment in NGO and the amount of the currency is more or equal to foreign currency of rupees 10 lakhs. 
  4. When a counterfeited currency is involved or any forged security documents are used for facilitating transactions. 
  5. When there is any suspicious transaction made even when cash is involved or not. 
  6. When any purchase or sale has happened whose value is more than rupees 50 lakhs  
  • Information records: Here, a proper detail regarding the mode of the transaction, value and the currency involved, date of the transaction, and the parties who are involved while the transaction has to be made by the regulator. 
  • Due diligence: The bank has to perform proper due diligence for his client so that they have all the information regarding their customers who are depositing or taking a loan from them. They have to ask their clients to fill KYC. 

Punishments awarded when proven guilty 

A person or an organization can be held liable as per Section 3 of the PMLA, 2002. This section makes any directly or indirectly involved party guilty. And, those who are proved of being involved in money laundering will be punished as per Section 4 of the PMLA, 2002.  

The punishment for money laundering is that the guilty individual or organization will be awarded a minimum of 3 years of imprisonment which can extend for 7 years along with a fine of rupees 5 lakh. 

Burden of proof

As per Section 24 of the Prevention of Money Laundering (Amendment) Act, 2012 the one who is charged with the offense of money laundering they have to prove their innocence in the court because the court, in this case, presumes that the accused person is related to the crime. 

Provisions of bail under the Prevention of Money Laundering Act 

The purpose of bail in our judiciary system is to confirm that the accused person will be present in the court whenever he is called for appearing for the hearing and anyone who is charged with a criminal offense can get bail by paying a specific amount. But the court before granting bail looks into various grounds and it may or may not be granted depending upon the severity of the crime.

In the case of those who are charged with the offense of money laundering, Section 45 of the Prevention of Money Laundering Act, 2002 deals with the provision of bail. And, the offense of money laundering is treated as a cognizable and non-bailable offense, so bail in this situation can only be granted if anyone is charged with imprisonment of fewer than 3 years. Otherwise, those who are charged with punishment of more than 3 years, have to file for a bail bond, and then court grants bail to them after having security from them in monetary terms that they will appear in the further court trials.

However, the bail can only be granted if they are not opposed by respective personnel. The following are the conditions under which granted is granted by the special court: 

  1. When an accused person files for bail, the public prosecutor is given an opportunity to provide arguments against the grant of the bail by the court. 
  2. On the discretion of the special court juveniles who are underage as per law, woman and a person whose health condition is not good, can get bail. And also those who do not fall under these criteria for bail can also get bail if the court believes that the convicted person is innocent and will do any such action in the future.

    The money laundering offense will not be treated as a cognizable offense until there is a written complaint received from the director or from the central or state government. Also, there will be no investigation taking place on the part of the police until the government gives them special order to do so. 

  3. The time period of granting bail in case of money laundering is according to the CrPC, 1973.

However, for granting bail to the accused who is involved in money laundering case, is found to be in violative nature because those who are charged with this offense, they are yet to be declared guilty and before being proved guilty they are being treated as criminal and because of which their fundamental right to be treated equally and right to life is infringed under Article 14 and Article 21 of the Constitution of India, as the court followed twin test. 

In Nikesh Talwar Shah vs. Union of India the question of granting bail to those who were denied to get bail from the court as per Section 45 of the PMLA, 2002 was answered. In this case, the petitioner filed a writ petition because there was a violation of his fundamental right. As those who have applied for bail even before a trial has taken place that is anticipatory bail, the court grants them bail but when a person was arrested and after that, they apply for bail, then the court follows twin-condition for granting bail which is in itself discriminatory in nature. So, with this case, the Supreme Court removed this discrimination and asked for reapplying for bail in the court from where their bail application was rejected.


Famous cases of money laundering in India

  1. P. Chidambaram vs Directorate Of Enforcement: In this case, former Finance Minister of India P. Chidambaram was booked under Section 3 of the PMLA, 2002 for being a facilitator to INX Media foreign fund. However, he applied for anticipatory bail which was rejected on the grounds of tampering with the evidence of the case against him because of which he landed behind the bars. But later on, the High Court granted bail to him on following grounds: 
    1. He was asked to pay bail bond for rupees 2 lakhs along with two sureties. 
    2. The Court held his passport and was asked to not leave the country without their permission. 
    3. He should be always available for interrogation. 
    4. He cannot in any circumstances was asked to stay away from witnesses and he should also not try to tamper with evidence.
    5. He cannot even give public appearances and hold any press conferences or make any comment regarding the case. 
  2. D.K. Shivakumar vs Directorate Of Enforcement: In this case, the person was accused for holding money in cash in his premise by Income tax officers and because of this he was held in custody for interrogation in Tihar Jail. However, the court granted him bail on the following grounds: 
    1. He was asked to pay rupees 25 lacs as bail bond along with two sureties. 
    2. He has to take the court’s prior permission before flying to other countries.
    3. He has to be always present for the investigation purpose. 
    4. Also, he was asked to not temper any evidence related to the case.  
  3. ED v. A. Raja: This case is famously known as the 2G scam case. In 1991, with the introduction of liberation in the investment market, various private sectors came forward for investing in the market and for facilitating their investment, and to ensure proper regulation various acts and guidelines were issued by the government. But there were some personnel who were accused by the CBI for taking a shortcut for registering their companies which were related to telecommunication. 

The then Minister for Communications, Electronics & Information Technology, A. Raja was also accused and booked under the Prevention of Money Laundering Act, 2002 for providing a Letter of Intent to some private companies for providing these companies with Unified Access Services Licence without following proper guidelines and accepting bribery. But the court did not find them guilty and the court demanded all the accused persons to pay rupees 5 lacs per person along with one surety.   


The menace of money laundering is still faced in India and in order to control and prevent its practicing government has introduced various stringent laws and punishments. But even if a person is charged with section 3 of the PMLA, 2002 they are given equal rights for applying for bail by paying bail bond money and providing sureties to the respective court. Although there were irregularities in section 45 of the PMLA, 2002 as the application of the bail were rejected depending upon their imprisonment that is if the accused person has applied for the bail even before being arrested they could be granted bail by the special courts, however, those who failed to apply for bail before being arrested the court followed twin-condition for availing them bail which was in itself violating the rights of the accused that is right to equality and right to life.

However, the court in one of its landmark judgments in Nikesh Talwar Shah v. Union of India case removed this parameter of bail application and those who were denied bail they were asked to reapply in the court for bail. 




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