Anti-money laundering (AML) refers to the legal and regulatory framework designed to prevent the generation, movement, and concealment of proceeds derived from criminal activity. Under Indian law, the principal anti-money laundering statute is the Prevention of Money Laundering Act, 2002 (PMLA), which defines the offence of money laundering under Section 3, establishes the Enforcement Directorate (ED) as the investigating agency, and prescribes punishment of rigorous imprisonment from 3 to 7 years (and up to 10 years for offences involving narcotics).
Legal definition
The PMLA, 2002 defines the offence and the regulatory framework:
Section 3: "Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money laundering."
Section 2(1)(u): "'Proceeds of crime' means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad."
Section 4: "Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine."
The PMLA creates a dual enforcement mechanism: (1) criminal prosecution for the offence of money laundering, and (2) provisional attachment and confiscation of property involved in money laundering under Sections 5 and 8.
How courts have interpreted this term
Vijay Madanlal Choudhary v. Union of India [(2022) 10 SCC 1]
A three-judge bench of the Supreme Court (Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar) upheld the constitutional validity of the PMLA's key provisions, including the wide investigative powers of the Enforcement Directorate, the restrictive bail conditions under Section 45, and the ED's power to arrest without a warrant. The Court held that ED inquiries are distinct from criminal investigations by police and are not bound by all procedural safeguards under the CrPC. Significantly, the Court upheld the "twin conditions" for bail under Section 45 — requiring the court to be satisfied that there are reasonable grounds to believe the accused is not guilty and is unlikely to commit an offence while on bail.
Rohit Tandon v. Directorate of Enforcement [(2018) 11 SCC 46]
The Supreme Court held that the offence of money laundering under Section 3 of the PMLA is an independent offence from the scheduled (predicate) offence. The Court clarified that even if the accused is acquitted of the scheduled offence, the money laundering prosecution can continue if there is independent evidence of the laundering activity.
Why this matters
The PMLA has become one of India's most potent enforcement tools, with the Enforcement Directorate emerging as a major investigating agency alongside the CBI. Money laundering charges can be attached to a wide range of predicate offences listed in the PMLA's Schedule — including corruption, fraud, cheating, tax evasion, drug trafficking, terrorism financing, and offences under the Companies Act. The Schedule has been progressively expanded through amendments to cover over 150 predicate offences.
For individuals and businesses, the PMLA's provisional attachment power (Section 5) is particularly consequential. The ED can provisionally attach any property believed to be "proceeds of crime" for 180 days without prior judicial approval, after which the attachment must be confirmed by the Adjudicating Authority. This power has been used extensively in cases involving real estate, bank accounts, shares, and other assets.
For financial institutions, the PMLA imposes mandatory obligations under Chapter IV: maintaining records of transactions above prescribed thresholds, verifying the identity of clients (KYC), reporting suspicious transactions to the Financial Intelligence Unit (FIU-IND), and appointing a Principal Officer responsible for AML compliance. Non-compliance can attract monetary penalties under Section 13 and prosecution of officers.
For practitioners, the most critical aspect of PMLA defence is the bail standard under Section 45. The twin conditions — requiring the court to be satisfied at the bail stage that there are reasonable grounds to believe the accused is not guilty — effectively reverse the presumption of innocence for the purpose of bail, making bail under PMLA significantly more difficult to obtain than under the general criminal law.
Related terms
Compliance mechanisms:
Related concepts:
Frequently asked questions
What is a "scheduled offence" under the PMLA?
A scheduled offence is a predicate crime whose proceeds can give rise to a money laundering charge. The PMLA's Schedule lists over 150 offences across multiple statutes, including the Indian Penal Code (fraud, cheating, criminal breach of trust), Prevention of Corruption Act, NDPS Act, SEBI Act, Companies Act, and customs and excise laws. If proceeds of any scheduled offence are laundered, the PMLA applies.
Can the Enforcement Directorate arrest without a warrant?
Yes. Under Section 19 of the PMLA, a Director, Deputy Director, or Assistant Director of the ED can arrest a person without warrant if they have "reason to believe" based on material in their possession that the person has been guilty of money laundering. The arrested person must be produced before a magistrate within 24 hours. The Supreme Court in Vijay Madanlal Choudhary upheld this power.
Is bail difficult to obtain under the PMLA?
Yes. Section 45 imposes twin conditions for bail: the court must be satisfied that (1) there are reasonable grounds for believing that the accused is not guilty of the offence, and (2) the accused is not likely to commit any offence while on bail. These conditions effectively reverse the burden at the bail stage, making PMLA bail significantly harder to obtain than bail under the CrPC/BNSS.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.