Financial crimes represent one of the most pressing challenges facing the modern Indian economy. According to data from India’s Ministry of Finance, the volume of detected money laundering and fraud cases amounts to trillions of rupees annually. Against the backdrop of the country’s rapid economic growth and the digitalization of the financial sector, the legal system has faced the urgent need for a fundamental overhaul of its tools for combating financial crime.
Indian legislation in the sphere of financial crimes constitutes a complex, multi-tiered system comprising specialized legislative acts, criminal law provisions, and international treaties and obligations under the Financial Action Task Force (FATF). At the same time, the traditional principles of Hindu law regarding liability for violations of dharma — the moral order — fit organically within the modern concept of criminal responsibility for financial misconduct.
Key Legislative Acts: PMLA and FEMA
The cornerstone legislative act in the sphere of anti-money laundering in India is the Prevention of Money Laundering Act of 2002 (PMLA). This law was enacted in fulfillment of India’s international obligations and has been amended on multiple occasions — with the most significant amendments introduced in 2012, 2019, and 2023.
The PMLA establishes three constitutive elements of money laundering: the commission of a predicate (underlying) offense, the acquisition of criminal proceeds, and their legitimization. The Act contains an exhaustive list of predicate offenses — the so-called “Schedule” — comprising more than 150 types of criminally punishable acts.
Operating in parallel is the Foreign Exchange Management Act of 1999 (FEMA), which governs foreign currency transactions and cross-border financial flows. Violations of FEMA constitute civil offenses; however, where an intent to launder funds is present, they may give rise to criminal liability under the PMLA.
The Enforcement Directorate (ED): Powers and Practice
The central authority responsible for investigating financial crimes in India is the Enforcement Directorate (ED). This specialized agency is vested with broad powers to investigate money laundering cases and violations of foreign exchange legislation.
Under the PMLA, the ED is empowered to conduct searches, attach assets suspected of criminal origin, and submit mutual legal assistance requests to foreign states. Particular attention should be drawn to the institution of provisional attachment: the ED may place a conservatory attachment on assets worth up to several billion rupees without prior judicial authorization, subject to subsequent judicial oversight.
In 2022–2024, the ED substantially intensified its activity: the number of money laundering cases increased several times over compared to the preceding decade. Critics, however, have pointed to the risk of the PMLA being used for political purposes, given that the ED’s broad discretionary powers theoretically allow for the selective initiation of cases against political opponents of the incumbent government.
Sanctions and the International Dimension of Financial Crimes
India is not a state that systematically applies unilateral financial sanctions in the manner of the United States or the European Union. Nevertheless, Indian companies and financial institutions are compelled to take into account the sanctions regimes of third states — above all, U.S. secondary sanctions legislation.
In practice, this means that Indian banks conducting settlements in U.S. dollars are obliged to observe the restrictions imposed by the U.S. Office of Foreign Assets Control (OFAC). Violation of these restrictions carries the risk of being cut off from the dollar settlement system — a critically significant sanctions consequence for any major financial institution.
The most acute practical challenge is the situation with Russia following 2022: India has continued to purchase Russian oil at discounted prices, creating exposure to U.S. secondary sanctions. Indian banks have responded with extreme caution in conducting settlements with Russian counterparties — a de facto self-imposed restraint driven by pressure from Western sanctions regimes.
Cryptocurrencies and New Challenges for Indian Financial Law
Digital assets have emerged as one of the foremost challenges for India’s financial crime prevention framework. In 2022, India adopted the Virtual Digital Assets Taxation Act, establishing a 30 percent tax on income from cryptocurrency transactions. However, specific legislation governing the circulation of cryptocurrencies as such has yet to be enacted.
In practice, the ED has actively applied PMLA provisions to cryptocurrency fraud cases. In 2023–2024, a number of high-profile cases arose in which cryptocurrency exchanges were suspected of facilitating money laundering. Nevertheless, the legal uncertainty surrounding the status of crypto assets significantly hampers criminal prosecution.
Engagement with FATF and International Standards
India has been a member of FATF since 2010 and periodically undergoes mutual evaluations within the framework of the organization. According to the results of the 2024 evaluation, India received a generally positive assessment; however, FATF experts identified a number of systemic shortcomings: insufficient supervisory coverage of the real estate sector, lawyers, and accountants, as well as incomplete compliance with standards regarding the transparency of beneficial ownership of companies.
Following the evaluation, India committed to improving the system in several areas, including expanding the list of entities subject to AML/CFT (anti-money laundering and counter-terrorism financing) obligations, and strengthening oversight of the non-profit sector.
Indian financial crime legislation has come a long way from colonial-era norms to a modern system meeting international standards. At the same time, the country’s legal system faces a number of serious challenges: striking the balance between effective law enforcement and the protection of citizens’ rights, adapting to the digital economy, and managing the risks associated with Western sanctions regimes. How these challenges are addressed will largely determine the trajectory of Indian financial law in the decades ahead.