Money laundering in the banking sector has been a recurring motif in India for over a century. The earliest known forms of bank frauds include, amongst other things, forging of instruments, accounting irregularities and inflation of assets. Over the years, money laundering in the banking system has become more frequent and sophisticated with the advent of internet-based banking leading to increase in the quantum of money involved in such cases. Much recently, in February 2022, India witnessed its biggest ever bank fraud of INR 22,842 crores (approx. USD 3 billion) that involved ABG Shipyard Ltd., a shipbuilding and repair company.

Laws against money laundering in India

The Indian legal framework has several laws aimed at regulating and minimising the menace of money laundering. The most recent addition is under the Finance Act, 2019 (Finance Act), which was passed to implement the financial proposals of the Central Government for the financial year 2019-2020. The Finance Act in its Part XIII introduced provisions to reinforce the Prevention of Money-laundering Act, 2002 (PMLA).

Some significant developments made in the PMLA through the Finance Act include:

  1. The explanation added to Section 3 of the PMLA provides that a person would be guilty of the offence of money laundering if found to have, directly or indirectly, attempted to indulge in concealment, possession, acquisition, or the use of the proceeds of crime. The amendment also clarifies that the process or activity connected with the proceeds of crime continues until a person is directly or indirectly enjoying the proceeds of crime. This development widens a person's involvement with the "proceeds of crime" while performing an act of money laundering and adds to the bite power of the regulatory authorities.
  2. Sub-section (3) under Section 12AA of the PMLA states that where any specified transaction undertaken by a client is deemed suspicious, the reporting entity shall increase the future monitoring of the business relationship with the client, including greater scrutiny of such transactions.
  3. The explanation added to Section 44(1)(d) clarifies that enquiry or trial under the PMLA will not be dependent upon any orders passed in respect of the connected scheduled offence.1 In other words, the trial of both sets of offences by the same court shall not be construed as a joint trial. Previously, there was a legal concern that if the accused were to be acquitted of connected scheduled offence charges, the prosecution under the charges of the PMLA would also fail. However, with this clarification, the scope and powers of special courts while dealing with offences under the PMLA becomes clear.
  4. Additional powers are given to the Enforcement Directorate (ED), the specialised financial investigation agency, for handling economic crimes in India. The amendment, by virtue of the Finance Act, now enables the ED to conduct search and seizure operations independent of a scheduled offence; make enhanced scrutiny and arrests without warrants; and treat money laundering as a cognizable and non-bailable offence.

Recent money laundering cases in the banking sector

Having discussed the recent developments on the legislative front, it would be interesting to go through recent money laundering matters that made it to the headlines.

ABG Shipyard Case

A firm based in Gujarat, ABG Shipyard Ltd. (ABG SL), purportedly defrauded banks of INR 22,842 crore (approx. USD 3 billion). The company allegedly created a web of transactions to cheat a consortium of 28 banks led by State Bank of India (SBI) and the ICICI bank. According to Central Bureau of Investigation (CBI), ABG SL took loans from banks and then diverted them for use in other purposes. ABG SL allegedly made investments in overseas subsidiaries from the loan amounts, bought assets in the names of affiliated companies, and also transferred money to several related parties. A forensic audit with the help of Ernst and Young was conducted by SBI in January 2019, in which it was found that the fraud took place over a period of five years from April 2012 to July 2017. The findings of the audit report further revealed that the fraud was executed through "diversion of funds, misappropriation and criminal breach of trust, with an objective to gain unlawfully at the cost of the bank's funds." While the fraud was identified in June 2019 by a "Fraud Identification Committee" of SBI, the first complaint was made to the CBI, much later, in November 2019.

ICICI Bank – Videocon Case

The matter is centred around Chanda Kochhar, former MD and CEO of the ICICI Bank and her husband, Deepak Kochhar. The ED had filed its charge sheet in early November 2020 in relation to its investigation concerns transactions between Videocon Group and NuPower Renewables Pvt. Ltd., operated by Deepak Kochhar. Reportedly, the scam first came to light in 2016, when Arvind Gupta, an investor in both ICICI Bank and Videocon Group, identified the dealings between the companies and wrote a letter to the Prime Minister, the Governor of the Reserve Bank of India and other authorities, demanding a probe on account of potential conflict of interest. However, it was only after a second whistle-blower that raised similar allegations against Chanda Kochhar, in 2018, that a detailed investigation was initiated and several authorities got involved. Investigating authorities apprehended Kochhar having identified her sanction of certain loans of INR 1875 crores (approx. USD 243 million) from ICICI Bank to Videocon Group, in exchange for kickbacks through her husband's business entities. The ED provisionally attached over INR 78 crores (approx. USD 10.1 million) worth of moveable and immoveable assets of the Kochhars, which was followed by the arrest of Deepak Kochhar and Chanda Kochhar in September 2020 under the PMLA. In February 2021, Chanda Kochhar was granted bail by the special court in Mumbai. This was followed by the Deepak Kochhar being granted bail in March 2021 by the High Court of Bombay.

Yes Bank – DHFL Case

The case revolved around Rana Kapoor, the founder and former CEO of Yes Bank, and the credit facilities provided to Dewan Housing Finance Limited (DHFL) during his tenure at Yes Bank. It was alleged Rana Kapoor secured substantial personal monetary benefits against the credit facilities provided to DHFL. The benefits included among others things - (i) kickbacks worth over INR 900 crores (approx. USD 116 million) from the promoter of DHFL in the form of loans to a company wholly owned by Rana Kapoor's daughters; and (ii) a purchase of a bungalow in Delhi from the promoter of Avantha Group at a grossly undervalued price. Extensive investigation in the matter revealed certain irregularities in the loans which Kapoor approved to DHFL. As a result, in July 2020, the ED attached properties worth approximately INR 2203 crores (approx. USD 286 million), including the personal property of the Kapoor family. Rana Kapoor and members of his family have been placed under arrest by the ED on different occasions during the investigation. On February 2022, a special court in Mumbai under the PMLA granted bail to Rana Kapoor, his wife Bindu and Avantha Group promoter Gautam Thapar in the case pertaining to the property sale in Delhi. However, Kapoor and Thapar won't walk out of the prison yet, as they are in custody in another case.

Punjab National Bank Case

The money laundering case that shook the nation was that of the Punjab National Bank. The scam alleged to have orchestrated by diamantaires Nirav Modi and Mehul Choksi, involved fraud of over USD 2 billion. Unlike the other cases discussed above, this crime is reported to have been conducted with the help of about 50 employees of the Punjab National Bank in one particular branch (in Fort, Mumbai) while keeping the higher-up management entirely in the dark. The employees of the Brady House branch of Punjab National Bank in Fort, Mumbai issued fake bank guarantees to enable the diamantaires secure billions of dollars in foreign credit. Nirav Modi and Mehul Choksi secured over 1,200 such fake guarantees without raising any suspicion. The Indian authorities have been relentless in their attempts to extradite the two businessmen, both of whom are declared fugitives as of date. After over a year of search, in March 2019, Nirav Modi was reportedly spotted in London, and Choksi is supposedly in Cuba to avoid being extradited to India, as Cuba has no extradition agreement with India. In June 2020, the ED brought back INR 1135 crores (approx. USD 147 million) worth of diamonds, pearls and other jewellery belonging to overseas entities owned by Nirav Modi and Mehul Choksi. The ED intended for this jewellery to be formally seized under the PMLA. Currently, Modi is in Wandsworth Prison in south-west London awaiting his extradition trial.

How far have we come?

Despite the seemingly proactive approach of the ED in money laundering matters, it has been a mammoth task to establish the money trail in these cases. As of date, 4,700 cases are being investigated by the ED. The number of cases taken up for investigation each year in the last five years vary from 111 cases in 2015-16 to 981 in 2020-21. These numbers become a point of concern as only 313 arrests have been made till date since 2002, the year in which the PMLA Act was enacted. Over the last 20 years more than 200 pleas are pending under PMLA. The statistics become more alarming when we compare it to other jurisdictions where the annual registration of cases under their money laundering legislation is much higher; particularly in UK (7,900), the U.S. (1,532), China (4,691), Austria (1,036), Hong Kong (1,823), Belgium (1,862) and Russia (2,764).

The difficulty in convicting offenders in money laundering cases is primarily due to the remoteness of the perpetrator(s) to the criminal activity and proceeds of crime. Offenders often spin a complex web of connections and transactions to pull off a financial crime like these featured so that the act can go unnoticed in the ordinary course of affairs. Even after the suspicious activity is detected, the sheer complexity of the criminal activity makes it terribly difficult, if not altogether impossible, to trace the crime back to its masterminds. The average time lag between the date of occurrence of frauds and the date of detection was 23 months for the frauds reported in 2020-21. In respect of large frauds of 100 crore and above, the average lag was of 57 months for 2020-2021. Even the Hon'ble Supreme Court has stressed on the need for a fast investigation as "cash travels faster than light". The plight gets aggravated as even the Indian judicial system is plagued with a notoriously slow pace of resolution of cases, and there is an endless backlog that stands in the way of time-efficient adjudication of matters.

Up till 2019, at least 38 economic offenders like Nirav Modi and Mehul Choksi are known to have fled the country to avoid prosecution. Besides the actions taken by law enforcement agencies, it can be futile and publicly ill-received to pursue prosecution with government resource expense if punishment is practically impossible. India, in the recent past, has adopted measures to prevent business people from fraudulently obtaining loans and fleeing the country to avoid prosecution, including the implementation of the Fugitive Economic Offenders Act, 2018. This legislation authorises the government to attach all the assets (including the assets acquired from the proceeds of crime) of an individual against whom an arrest warrant has been issued for committing a scheduled offence where the value exceeds INR 100 crores (approx. USD 13 million). In furtherance to this, the 2018 amendment to the Prevention of Corruption Act, 1988 (PCA), has criminalised the act of "giving bribes" in addition to the act of "taking bribes". This amendment has also made provisions regarding attachment and administration of property procured through an offence under the PCA, which was previously absent in this statute. Another example would be the inclusion of corporate fraud (as understood under the Companies Act 2013), as a scheduled offence under the PMLA that tightens the leash over companies and their officers.

The way forward

The investigation, prosecution, as well as successful conviction under the PMLA requires a multi-pronged approach. Effective coordination and collaboration between various enforcement agencies such as the CBI, Narcotics Control Bureau, the Serious Fraud Investigation Office, and the ED can prove crucial for proper investigation. Further, in cases of cross-border money laundering, mutual legal assistance treaties with other states and the proper implementation of these treaties are the key to capturing economic offenders. India has entered into mutual legal assistance treaties for asset recovery with many jurisdictions, including the United States of America, the United Kingdom and the United Arab Emirates, to work towards international cooperation in handling criminal matters. Modi's arrest and trials in the UK are a visible marker to criminals and for criminal justice.

There are several factors that may aid in mitigating fraud risks, including but not limiting to, a combination of an effective fraud risk governance, strong fraud prevention and detection strategies (including specific anti-fraud control processes), as well as coordinated and timely investigations and corrective actions. The important element to remember is that with evolving fraud threats, banking institutions' defensive strategies also need to necessarily keep up. Firms that are able to institutionalize compliance in an effective and efficient manner could create competitive advantages, allowing them to best pursue their growth agenda. The recent legislative developments have been a welcome move, coupled with proactive efforts of domestic (and global) investigative authorities and judiciary, may have given just the right kind of boost that is needed in the anti-money laundering regime of India. However, there is a long way to go in bolstering the Indian anti-money laundering regime more specifically in vulnerable domains like the banking sector. A stricter treatment being meted out to economic offenders may act as a deterrent and avoid more scams of likes of the ABG Shipyard, ICICI Bank, Yes Bank or the Punjab National Bank scam.


Money-laundering frauds in the banking sector is a largely inevitable and recurring phenomenon. The complete elimination of all types of bank fraud risks is uneconomical and perhaps, unachievable. During the first half of 2021-22, the total reported number of cases of frauds amounted to 4,071 which is 14% higher than the number of cases (3,499) reported in the first half of 2020-2021.The statistics of the number of frauds and the sums involved, when seen in isolation, may seem large. However, it is important to present the said numbers in view of the unprecedented increase in the banking activity in India within a short span of time. This includes the number of deposit and credit accounts in banks and the huge volumes of transactions (in numbers as well as value) that are processed by the banks every day. The key takeaway from the above-mentioned figures is that in view of the mammoth growth of the banking activities, the number of frauds occurring are very low and may not seem concern worthy. However, this observation is correct only when the frauds are limited to small sums. Clearly, a handful of fraudulent transactions involving huge sums of money can take a toll on the health of the economy as witnessed in the recent years. To put it simply, the idea of fraud is comparable to that of a disease in an organism – constant supervision and preventive measures will ensure effective treatment. Staying immune is the key. However, overzealous pathology will only kill the organism.

The authors would like to acknowledge the research and assistance rendered by Ms. Diya Dutta, a student of MNLU, Mumbai.


1. Judicial opinion even prior to the amendment of Section 44 of the PMLA held that the outcome of the investigation/prosecution in respect of the scheduled offence would not affect the outcome of the investigation/prosecution under the PMLA. See, Binod Kumar v. State of Jharkhand and Ors., (2011)11 SCC 463; and Radha Mohan Lakhotia v. The Deputy Director, PMLA, Department of Revenue (2010 (5) BomCR 625.

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