India's Ongoing Battle against Money Laundering and Terrorist Financing

Understanding Money Laundering, Terrorism Financing, and Anti-Money Laundering

• Money Laundering – A criminal process of making illegally-gained proceeds (known as 'Dirty Money') from illicit activities (Drug Trafficking, Corruption, Human Trafficking, Wildlife Trafficking, Tax Evasion, Terrorism Financing, etc.) appear to have come from a legitimate source.
• Terrorist Financing – Channelising funds for terrorist activities, regardless of whether the source is legal or illegal.
• Anti-Money Laundering (AML) – A set of policies and practices to ensure that financial institutions and other regulated entities prevent, identify, and report illicit activities.

Key Legislative Pillars Enhancing India's AML/CFT Framework

The Prevention of Money Laundering Act (PMLA), 2002

The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of India's legal framework to combat money laundering. It mandates banks, financial institutions, intermediaries, and people carrying a designated business or profession to verify client identities, maintain records, and furnish information to the Financial Intelligence Unit of India (FIU-IND). The objective of the Act is to prevent money-laundering, confiscate illicit property, and adhere to regulations. The PMLA has reinforced anti-money laundering efforts to adapt to emerging financial crimes and international standards.

• The Act now includes CAs, CSs, and CMAs carrying out financial transactions on behalf of their clients.
• Cryptocurrency and Other Virtual Digital Assets are under its purview to intensify regulatory oversight over digital finance.
• Beneficial Ownership threshold reduced to 10% from 25%, expanding accountability.
• Redefinition of Politically Exposed Persons (PEPs) to boost the AML/CFT Framework.
• Religious and Charitable entities are brought under the purview of AML/CFT to avoid misuse for terror financing.
• Online Aadhaar authentication is exclusively permitted for Banking and Telecom sectors, with offline verification for Insurers.
• Development of Central KYC to prevent redundant data and streamline the KYC Process.
• Reporting entities to retain records for 5 years.

Unlawful Activities (Prevention) Act (UAPA), 1967

India's Anti-Terror Act for robust prevention of certain unlawful activities by individuals and associations in India, including terrorist activities and related matters. The UAPA Amendment Act, 2019, empowered the Union Government to designate individuals as terrorists without a formal judicial process, and the DG NIA to seize/attach the properties related to proceeds of terrorism in NIA Investigated cases.

The Armed Forces (Jammu and Kashmir) Special Powers Act, 1990

The Act provides Special Powers to the Armed Forces in the JK disturbed areas for Anti-Terrorism Operations.

A high-level meeting chaired by Union Home Minister Amit Shah, attended by Union Home Secretary, Director (Intelligence Bureau), DGs of CRPF, BSF, and other senior officers, was held at New Delhi on 11-02-2025, which focused on monitoring terror-financing, intensifying actions over Narco-terror cases, and 'Zero Terrorism' in JK. A similar high-end meeting was held at Srinagar on 08-04-2025 to serve the aim of AML/CFT.

Key Roles and Contributions of India's Central AML/CFT Authorities

Financial Intelligence Unit-India (FIU-IND)

FIU-IND is the central agency for receiving, processing, analysing, and disseminating information regarding suspect financial transactions. It coordinates and strengthens the efforts of national and international intelligence, investigation, and enforcement agencies in global Anti-Money Laundering and Counter Terrorism Financing. It reports directly to the Economic Intelligence Council, headed by the Finance Minister.

It is a central repository for Critical Financial Intelligence and collating reports on Cash Transactions, Non-Profit Organisation Transactions, Cross Border Wire Transfers, Purchase or Sale of Immovable Property, Suspicious Transactions, and other reports obtained from the Reporting Entities. The intelligence is shared with national intelligence and regulatory authorities and Foreign FIUs to combat money laundering and related crimes. FIU-IND tracks money laundering trends, typologies, and developments for coordinated action.

Enforcement Directorate (ED)

The Nodal agency is crucial in safeguarding the nation's financial system by investigating serious economic offences where the crime proceeds are from predicted offences—corruption, fraud, organized crime, drug trafficking, environmental crime, and terrorism. Employing a risk-based approach, ED prioritises high-impact cases threatening economic stability/national security by tracing illicit funds, identifying shell companies, and dismantling complex laundering networks. ED supports and supplements global efforts in combating financial crime.

Contributions during (2014-2024):

• April 2014-March 2024, ED initiated 5113 PMLA investigations (averaging 511 cases annually), filing 1332 Prosecution Complaints.
• FY2024-25 marked a remarkable achievement with 775 new investigations and 333 PCs filed, approx. INR 30,036 Cr assets provisionally attached (astonishing rise of 141%) and securing 34 individual convictions.
• By March 2025, INR 1,54,594 Cr in assets were under provisional attachment (with INR 15,261 Cr reconstitution across 30 cases during FY24-25). The process is expected to accelerate during FY25-26. Simultaneously, notable 1739 Prosecution Cases are currently at Trial with 47 decided cases. With only 3 acquittals on Merit, striking 93.6% conviction rate is commendable, reflecting the strengthened capabilities in Combating Money Laundering, showcasing its increasing efficacy in securing justice and financial integrity.

National Investigation Agency (NIA)

A Central Counter-Terrorism Law Enforcement Agency was established post 26/11 Mumbai attacks. As a professional investigation bureau, it adheres to international AML/CFT Standards. NIA sets standards of excellence in Counter Terrorism and national security investigations through a highly trained, partnership-oriented workforce. Serving as a vital intelligence hub, NIA deters existing and potential terrorist groups and individuals, thereby preventing potential attacks.

To strengthen the national security, NIA has adopted a Multi-Pronged approach through major structural and collaborative initiatives:

• Establishment of the National Terror Data Fusion & Analysis Centre (NTDFAC) by NIA/Counter Terrorism Research Cell by the Government enhances investigative capabilities using Big Data analytics.
• Creation of Anti-Human Trafficking Division (AHTD), Anti-Cyber Terrorism Division (ACTD), and a Special Cell comprising legal experts to address emerging threats.
• Constitution of Terror Funding and Fake Currency (TFFC) Cell investigating Terror Funding and Fake Indian Currency Notes (FICN) cases.
• Collaborating with 26 nations and hosting the 2022 "No Money for Terror" conference reflects the global engagement.
• Capacity Building Programmes for its officers, police, and forces with foreign agencies and training law enforcement (including Bangladesh and Nepal police) on Fake Indian Currency Notes, fortify India's Counter-Terrorism framework. 40 Capacity Building programmes have trained State Police Forces (the first responders to any terrorist incident) on Counter Terrorism.
• The MoU between NIA and the National Forensic Science University strengthens Forensic Expertise.
• Since its inception, the NIA has registered 640 notable cases (pronounced judgment in 147 cases), achieving a striking conviction rate of 95.23%, thus reflecting the agency's investigation expertise and national security enforcement.

Reserve Bank of India (RBI)

RBI, a supreme regulator for banking and the financial system in India, is responsible for control, issuance, and maintenance of the supply of Indian Currency along with managing the country's main payment system and striving to promote India's Economic Development.

The RBI sharply updates its Master Circulars/Directions to determine extensive KYC/AML/CFT norms and guidelines to be followed by the banks and other financial institutions (including NBFCs) with the aim of preventing them from being a channel for ML/TF.

The guidelines cover the following crucial aspects:

• Develop a clear customer acceptance policy
• Risk Management
• Robust Customer Identification Procedure
• Customer Due Diligence, Beneficial Ownership Identification, On-Going/Enhanced and Simplified Due Diligence Procedures
• Transaction Monitoring
• Record Management
• Reporting requirements to FIU-IND
• Appointment of Principal Officer
• Requirements/obligations under International Agreements – Communications from International Agencies

Reference: Master Direction – Know Your Customer (KYC) Direction, 2016 (Updated as on 14-08-2025)

In October 2024, RBI issued guidelines on internal risk assessment for ML/TF risks for banks, NBFC's, and regulated entities to lay the foundation, methodology, and follow-up actions for internal risk assessments to identify and mitigate money laundering, terrorist financing, and proliferation financing risks across clients, geographies, products, and delivery channels.

In April 2025, RBI signed an MoU with FIU-IND to enhance liaison efforts. The key aspects included designation of nodal officers for coordination, sharing relevant intelligence, establishing reporting procedures for regulated/reporting entities, outreach and training programs for the REs, skill enhancement, assessment of ML/TF risks and vulnerabilities, identifying red flag indicators signalling suspicious transactions, supervising and monitoring compliance with PMLA, its rules and RBI instructions, ensuring adherence to relevant AML/CFT international standards and hold quarterly meetings to discuss and exchange information on mutual interests.

The Central Board of Direct Taxes (CBDT)

The Income Tax Department combats tax evasion and avoidance. The Investigation Wing conducts search/seizures and surveys to locate undisclosed/unexplained incomes and assets. The DTAAs aid in detecting concealed foreign income. Reporting entities are mandated to file SFTs for high-value transactions, thereby providing a Crucial Tool in detecting Black Money. CBDT's financial intelligence supports India's compliance with International AML/CFT Standards, reinforcing transparency and accountability.

The Central Board of Indirect Taxes and Customs (CBIC)

CBIC robustly combats illicit financial activities, intercepting smuggling and controlling Narcotics. CBIC has introduced a Risk Management System for Imports by streamlining trade and interdicting high-risk shipments.

The Department of Revenue has designated 'CBIC' as a PMLA 'Regulator' for the Dealers in Precious Metals and Stones and Real Estate Agents. DG-Audit, CBIC has issued guidelines on AML/CFT and Proliferation Financing for Real Estate Agents and Dealers in Precious Stones and Precious Metals. These mandates include client due diligence, transaction monitoring, record keeping, and suspicious transaction reporting to facilitate investigations. This multidimensional approach enhances transparency and national security.

Securities and Exchange Board of India (SEBI)

SEBI regulates securities and commodities market imposing vigorous AML/CFT compliance on market intermediaries through Master Circulars and guidelines, which include Client/Enhanced Due Diligence, Internal Control and Policies, Monitoring and Reporting of Suspicious/Cash Transactions to FIU-IND, record keeping, mandatory client account opening procedures, implementation of Group-wide AML/CFT Procedures, compliance with WMD Act and its Delivery Systems (Prohibition of Unlawful Activities) Act, 2005. SEBI AML/CFT Certificate Course is launched for Securities Intermediaries, enhancing market resilience, deterring financial malfeasance, and upholding global compliance standards.

Insurance Regulatory and Development Authority of India (IRDAI)

A Statutory Body covering the policyholder's interests and regulating, promoting, and enriching the systematic growth of the insurance sector in India. The provisions of PMLA extend to Life Insurers. The International Regulatory agencies underline the application of Anti-Money Laundering measures as a bedrock in battle against illicit activities.

The IRDAI instructed insurers to upload individual and Legal Entity (LE) KYC records to the Central KYC Registry, maintain confidentiality of unique KYC Identifiers, and to periodically update existing KYC records, in line with PML Rules, with LEs compliance starting from 01-04-2021.

In January 2025, an MoU was signed with FIU-IND to facilitate seamless intelligence sharing. The collaboration mandates procedures for reporting to FIU-IND, enhancing training programs, conducting assessments of AML/CFT risks prevalent in the insurance sector, upgrading skills in entities regulated by IRDAI, and identifying red flag indicators for Suspicious Transaction Reports. This strengthens insurance sector integrity through transparency, vigilance, and regulatory collaboration.

Ministry of Corporate Affairs (MCA)

Strengthens AML/CFT efforts by ensuring corporate governance and transparency, targeting Corporate Financial Frauds. Recent amendments lowered the beneficial ownership disclosure to 10%, aligning with Global AML/CFT practises thereby strengthening the identity of the ultimate owner and preventing hiding illicit funds via Shell Companies. Mandated record keeping (including backups) and regular compliances creates transparent financial trail.

A formal MoU with FIU-IND enables seamless sharing of financial data. Inter-agency partnership enhances enforcement, accountability, and global financial integrity.

National Bank for Agriculture and Rural Development (NABARD)

NABARD and FIU-IND's MoU in September 2024

In September 2024, an MoU was signed with FIU-IND to enhance PMLA Act compliance. The MoU laid down procedures for reporting to FIU-IND under the PML Rules, upgradation of AML/CFT skills, assessment of risks and vulnerabilities, identification of red flag indicators for Suspicious Transaction Reports (STRs), and supervision of compliance with obligations under the PMLA and NABARD Guidelines. The MoU also aimed to ensure compliance with international standards and to assess and upgrade the skills of regulated entities in AML/CFT.

Financial Action Task Force (FATF)

i. The role of the Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is a globally recognised key independent inter-governmental body that develops and promotes policies (known as FATF Recommendations) to guard the global financial system against money laundering, terrorist financing, and the proliferation financing of weapons of mass destruction. Its Recommendations are recognised as the global Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) standard.

ii. India's progress in AML/CFT and areas for strengthening: FATF Mutual Evaluation Report (September 2024)

FATF Mutual Evaluation Report applauded India's efforts in tackling illicit finance, highlighting its strong technical compliance with FATF's Recommendations. A joint FATF-APG-Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) evaluation honoured India's effective AML/CFT framework, emphasising the utilisation of financial intelligence and advancements in financial inclusion. Classified under the 'Regular Follow-up' Category by FATF alongside the UK, France, and Italy within the G20, India was praised for the risk management and preventive measures adopted by commercial banks. India has excelled in international co-operation, asset recovery, and financial sanctions for proliferation financing.

However, the report spotted the areas requiring intensified efforts. The report urged strong prosecutions and sanctions for terrorist financiers, imposition of cash restrictions on precious metals and stones dealers (being a sensitive sector), strengthening risk-based measures to prevent NPO misuse for terror financing, and full compliance with Politically Exposed Persons (PEP) regulation to bolster financial security and mitigate risks involved.

iii. India's Recent Collaborative/Capacity Building Initiatives

1. Private Sector Collaborative Forum

The 2025 FAFT Private Sector Collaborative Forum (PSCF), hosted by RBI and MCA in Mumbai (25th-27th March 2025) stressed on Public-Private Partnerships to combat Financial Crime. Over 200 participants, including representatives from international banks, Fintechs, gatekeepers, and civil society, discussed money laundering, terror/proliferation financing, payment transparency, data protection, risk-based approaches, and beneficial ownership. FATF President, Elisa de Anda Madrazo, emphasised collaboration between the public and private sectors. RBI Governor, Shri Sanjay Malhotra, underscored collaboration and innovation for a safer, secure, fast, convenient, accessible, and affordable financial ecosystem. Highlights included—proposed FAFT Standard 'Travel Rule' revision, tripartite dialogue on NPO financial access, and WMD financing through global cooperation.

2. Capacity Building Programme for Central Asian Republics on CFT

The Department of Revenue, in collaboration with the Ministry of External Affairs and National Security Council Secretariat, hosted the inaugural Capacity Building Programme for Central Asian Republics (CARs) (21-22 April 2025) on 'Countering the Financing of Terrorism (CFT) through Cryptocurrencies, Crowdfunding and Non-Profit Organisation'. Experts from Uzbekistan, Turkmenistan, Kazakhstan, Tajikistan, and Kyrgyzstan exchanged knowledge and advanced regional cooperation in countering terrorism financing led by experts from the FATF Cell of the Department of Revenue, Ministry of Home Affairs, NIA, and FIU-IND. Experts from the Eurasian Group (EAG) and the FATF-style Regional Body (FSRB) provided valuable AML/CFT insights regarding NPO/Virtual Assets.

Tailoring to Central Asian needs, discussions covered Financial Intelligence in terrorism investigations, risks from misuse of Virtual Asset Service Providers (VASPs), radicalization financing, Crowdfunding and NPOs misuse for terrorist activities. The initiative strengthens Counter-Finance and Global dedication.

Technical Advancements and Measures to Strengthen India's AML/CFT Framework

1. Digital KYC for REs

Digital KYC involves capturing the live photo (along with the Latitude and Longitude of the location) of the customer by the authorised officer of the Reporting Entity in compliance with the provisions, alongside officially valid document/the proof of Aadhaar possession in situations where offline verification is not viable. RBI has directed RE to develop a secure and authenticated application specifically for the digital KYC process, accessible across all customer touch points, ensuring that the KYC process is exclusively conducted through this approved platform.

2. FINnet 2.0

FIU-IND developed Financial Intelligence Network 2.0 (FINnet 2.0), an advanced AI-Machine Learning integrated IT system escalating AML/CFT efforts by flagging high-risk cases for immediate actions through risk scores generated for individuals, businesses, reports, networks, and cases. It enhances Financial Analysis by applying a Natural Language Processing system. The Sub-systems are:

• FINGate – Collects data from REs,
• FINCore – Uses AI and Machine Learning for summary generation and risk analysis,
• FINex – Disseminates Financial Intelligence to investigate and intelligence organisations for timely action.

Existing entities on FINnet 1.0 must re-register on FINnet 2.0, while new entities require immediate registration. Non-Compliance prompts a violation of the act and regulations.

3. Central KYC Records Registry (CKYCR)

A Centralised repository for KYC records, which streamlines the KYC Process and reduces duplication. The 2015 amendment to PML (Maintenance of Records) Rules, 2005 requires every reporting entity to electronically file the client's KYC records with the CKYCR within 10 days of the establishment of a client-based relationship.

India strengthens its financial integrity with digital innovation, streamlined regulations, inter-agency collaboration, and inclusive compliance enforcement.

Challenges due to Judicial Backlogs

The May 2025 annual report of the ED highlighted that despite 100 special PMLA courts across the country, Money Laundering trials face several "systematic" and "procedural" hurdles. The primary challenge is the intrinsic linkage between the prosecutions of ML cases and the progress of the investigation/trial of the corresponding predicate offense. Delays in these primary proceedings invariably impact the PMLA trial.

PMLA investigations involve complex financial structures, large volumes of financial data, and cross-border transactions necessitating intensive forensic analysis and extensive documentation, prolonging scrutiny.

Conclusion

India is progressing positively to combat illicit finance with its AML/CFT infrastructure undergoing a significant transformation, and by enhancing its domestic and international alliances. Yet continuous enhancement persists. Laws require continuous updating to combat emerging methods of Money Laundering and Terrorist Financing, especially those involving Fintech platforms and Virtual Assets.

Securing the financial system and national security effectively requires providing ongoing training to enforcement and regulatory agencies and technological modernisation. Improved collaboration between FIU-IND, ED, NIA, SEBI, and RBI is also crucial. To boot, Financial Institutions require clear guidance and shared intelligence to actively participate in India's AML/CFT efforts.