Prevention of Money Laundering Act, 2002
Terror Financing and New Laundering Typologies
Money laundering and terror financing travel through the same pipes, but in opposite directions. Laundering cleans the proceeds of past crime; terror financing moves money, often clean money, towards future violence. India's anti-money laundering framework addresses both, through the PMLA, the UAPA, the WMD Act, and controls on non-profit organisations. At the same time, launderers keep finding new channels: trade, hawala, crypto, cyber-fraud mule networks, and illegal betting apps, now met by the Promotion and Regulation of Online Gaming Act, 2025. This note covers both.
Terror financing and laundering through the same pipes, the counter-terror-financing framework, and the main typologies
1. Terror Financing and the PMLA
Instrument | Role |
|---|---|
UAPA offences | Raising funds for terrorist acts and for terrorist organisations; these offences are scheduled under the PMLA, so their proceeds can be attached and laundered funds prosecuted |
UAPA s. 51A | Freezing, seizure and attachment of funds of persons and entities listed under UN Security Council sanctions, and prohibiting making funds available to them, under an implementing order |
WMD Act, 2005, s. 12A | Inserted in 2022, prohibiting the financing of prohibited activities relating to weapons of mass destruction, implementing FATF Recommendation 7 |
Non-profit organisations | The FCRA controls foreign contributions; reporting entities register NPO clients on the DARPAN portal and report NPO receipts above ten lakh rupees (FATF Recommendation 8) |
FATF | Recommendations 5 to 8 address terrorist and proliferation financing and NPOs |
2. Trade-Based Money Laundering
§ Moving value through goods • Over-invoicing imports sends more money abroad than the goods are worth. • Under-invoicing exports leaves part of the sale price abroad. • Phantom shipments and multiple invoicing move money with no real goods, or several payments for one shipment. • The legal response. Customs offences (s. 135 in Part A; s. 132 false declaration in Part B above one crore rupees); FEMA; and enhanced due diligence under s. 12AA for high-value imports and remittances. |
3. Hawala
§ Value without movement of money How it works. A hawala operator receives money in one place and a counterpart pays out elsewhere; the operators later settle between themselves, often through trade or cash couriers, on trust and private ledgers. Legal position. It is unauthorised dealing in foreign exchange under FEMA; it becomes a PMLA matter where the money is proceeds of a scheduled offence; and it engages the UAPA where it funds terrorism. Investigation. Ledgers, chat records, couriers and settlement patterns are pieced together to reconstruct the flows. |
4. Illegal Betting and Gaming Apps
§ A fast-growing channel • The pattern. Illegal betting apps collect stakes through networks of mule accounts and payment intermediaries, and route the money to offshore operators, often through crypto assets. • Enforcement. The ED has pursued several large betting-app networks under the PMLA, attaching assets and summoning promoters and endorsers. • The Promotion and Regulation of Online Gaming Act, 2025. Assented to on 22 August 2025, it prohibits the offering, operation, facilitation and advertisement of online money games, and bars banks and financial institutions from facilitating payments for them, while promoting e-sports and social games. • Why it matters for AML. Parliament's concerns included money laundering and terror financing through gaming platforms; the ban closes a legal channel that offshore operators and launderers exploited. |
5. Other Typologies
Typology | Pattern |
|---|---|
Cyber fraud and mule networks | Investment scams, 'digital arrest' scams, and loan apps collect money into rented or hijacked accounts, then layer it rapidly |
Real estate | Cash components, undervaluation and benami holding |
Shell companies and round-tripping | Bogus share premium and foreign investment that is really Indian money returning |
Crypto assets | Peer-to-peer trades, mixers and unregistered offshore exchanges, now addressed by FIU-IND's 2026 guidelines |
Professional enablers | Accountants and company formation agents, several now reporting entities after the 2023 notifications |
6. Frequently Asked Questions
How does terror financing differ from money laundering?
Laundering cleans the proceeds of past crime; terror financing moves money, which may be clean, towards terrorism. They use the same channels, and UAPA funding offences are scheduled under the PMLA.
What is trade-based money laundering?
Moving value across borders by misrepresenting the price, quantity or existence of traded goods, through over- and under-invoicing and phantom shipments.
What does the Online Gaming Act, 2025 do?
It prohibits online money games, their advertisement and the facilitation of payments for them, partly to close a channel used for money laundering.