Prevention of Money Laundering Act, 2002
History and Evolution of Anti-Money Laundering Law in India
India's anti-money laundering law did not begin with the PMLA. For decades, the State tried to reach illegally acquired wealth through forfeiture statutes aimed at particular crimes: smuggling, foreign exchange violations, drug trafficking, benami holdings. What was missing was a general offence of laundering and a preventive system built on financial institutions. International pressure, beginning with the Vienna Convention of 1988 and the creation of the FATF, supplied the impetus. This note traces the story from the predecessor laws, through the long legislative journey of the PMLA, to its many amendments.
The evolution of anti-money laundering law in India, from 1974 to 2024
1. The Predecessor Laws
Law | What it did | Its limit |
|---|---|---|
Criminal Law Amendment Ordinance, 1944 | Attachment of property procured by certain scheduled offences, chiefly against public servants | Confined to specified offences; no laundering offence |
COFEPOSA, 1974 | Preventive detention of smugglers and foreign exchange racketeers | Detention, not confiscation or punishment of laundering |
SAFEMA, 1976 | Forfeiture of illegally acquired property of smugglers and foreign exchange manipulators and their relatives | Limited to persons connected with smuggling and foreign exchange offences |
NDPS Act, 1985, Chapter V-A (inserted 1989) | Tracing, freezing and forfeiture of property derived from drug trafficking | Limited to drug offences |
Benami Transactions (Prohibition) Act, 1988 | Prohibited benami transactions | Little enforcement machinery until its 2016 amendment |
FERA, 1973, replaced by FEMA, 1999 | Regulation of foreign exchange | FEMA made most violations civil, leaving a gap for criminal laundering |
§ The gap the old laws left No general offence. None of these laws made the act of laundering itself a crime, whatever the source of the money. Narrow fields. Forfeiture was confined to particular crimes and categories of persons. No preventive system. Banks and financial institutions had no statutory duty to know their customers or report suspicion. No financial intelligence unit, and no general framework for international cooperation in tracing and confiscating proceeds. |
2. The International Impetus
§ From Vienna to the Political Declaration • The Vienna Convention, 1988. The UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances required States to criminalise the laundering of drug proceeds and to provide for their confiscation. India is a party. • The Basel Statement of Principles, 1988. Bank supervisors called on banks to identify customers and refuse to handle criminal funds. • The FATF, 1989. The G-7 summit in Paris set up the Financial Action Task Force, which issued its 40 Recommendations in 1990. • The UN General Assembly, 1990. The Political Declaration and Global Programme of Action called for action against the laundering of drug money. • The UN General Assembly Special Session, June 1998. Its Political Declaration called on member States to adopt national anti-money laundering legislation and programmes. The PMLA's Statement of Objects and Reasons recites these declarations. |
3. The Legislative Journey of the PMLA
Year | Event |
|---|---|
1998 | The Prevention of Money Laundering Bill introduced in the Lok Sabha and referred to the Standing Committee on Finance |
1999 | The Standing Committee reports; the Bill is reintroduced with changes; FEMA replaces FERA |
2002 | The Bill passed by Parliament |
2003 | Assent on 17 January 2003; enacted as Act 15 of 2003 |
2004 | FIU-IND set up in November 2004 |
2005 | The Act brought into force on 1 July 2005, with the Rules |
4. The Amendments
Amendment | Principal changes |
|---|---|
2005 | Early amendments to make the Act workable on commencement |
2009 | Many more offences added to the Schedule; Part C introduced for offences with cross-border implications; new categories brought within reporting duties |
2012 (in force 15 February 2013) | Concept of 'reporting entity'; s. 3 widened to include concealment, possession, acquisition and use; monetary threshold removed for Part A offences; stronger attachment provisions; enhanced penalties for reporting failures |
2015 | Property of equivalent value in India may be attached where proceeds are held abroad; threshold for customs offences in Part B |
2018 | s. 45 twin conditions restored in amended form after the Supreme Court struck down the earlier version in Nikesh Tarachand Shah; corporate fraud under the Companies Act added; the Fugitive Economic Offenders Act, 2018 enacted alongside |
2019 | Explanations added to s. 3 (any one process suffices; a continuing activity) and to s. 2(1)(u) (proceeds include property from criminal activity relatable to the scheduled offence); an Explanation to s. 45 clarifying that the offences are cognisable and non-bailable |
2023 (by notification) | Changes to the Maintenance of Records Rules, including a lower beneficial ownership threshold; virtual digital asset service providers and certain professionals brought within the reporting framework |
📖 Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1 The Supreme Court struck down the twin conditions for bail in Section 45(1), as they then stood, because they applied only where the scheduled offence was in Part A and punishable with more than three years, which the Court found arbitrary and discriminatory under Articles 14 and 21. Parliament amended Section 45 in 2018 to apply the conditions to all offences under the Act, and Vijay Madanlal Choudhary (2022) upheld the amended provision. |
5. The Judicial Evolution
i. Vijay Madanlal Choudhary v. Union of India (2022) upheld the core of the Act and read the predicate link firmly: no scheduled offence, no money laundering.
ii. Later decisions have refined arrest, bail and procedure, including the requirement that grounds of arrest be furnished in writing (Pankaj Bansal, 2023).
iii. India's FATF membership in 2010, and the mutual evaluation adopted in 2024 placing India in regular follow-up, mark the external validation of the regime.
6. Frequently Asked Questions
What laws dealt with illegal wealth before the PMLA?
The Criminal Law Amendment Ordinance, 1944; COFEPOSA, 1974; SAFEMA, 1976; Chapter V-A of the NDPS Act; the Benami Act, 1988; and FERA, later FEMA. None created a general offence of money laundering.
What international developments led to the PMLA?
The Vienna Convention of 1988, the creation of the FATF in 1989, and the UN General Assembly's Political Declarations of 1990 and 1998, which called on States to enact anti-money laundering laws.
When was the PMLA Bill introduced and passed?
Introduced in 1998, examined by the Standing Committee on Finance, passed in 2002, assented to on 17 January 2003, and brought into force on 1 July 2005.
What did the 2019 amendment change?
It added Explanations to Section 3, making any one process sufficient and treating laundering as a continuing activity, and clarified the meaning of proceeds of crime.