The Prevention of Money Laundering Act, 2002 (PMLA) forms the cornerstone of India’s legal framework to prevent money laundering and related offenses. The Act, along with the rules notified thereunder, came into effect on 1st July, 2005. Under the provisions of PMLA, all entities registered with SEBI are required to report details of all suspicious transactions—whether conducted in cash or otherwise—to the Financial Intelligence Unit–India (FIU-IND). As per Section 3 of PMLA, projecting the proceeds of crime as untainted property constitutes the offense of money laundering and is punishable under Section 4 of the Act.

Money laundering refers to the process of concealing or disguising the origin of illegally obtained funds so that they appear to have a legitimate source. Through this process, proceeds derived from criminal activities are transformed into seemingly lawful assets, thereby enabling their use without attracting detection.

The Financial Intelligence Unit–India (FIU-IND) is the central national agency responsible for receiving, processing, analyzing, and disseminating information related to suspicious financial transactions. FIU-IND also plays a key role in coordinating and strengthening the efforts of national and international intelligence, investigation, and enforcement agencies in combating money laundering and related crimes.

Under Section 2(1)(g) of the PMLA Rules, a “suspicious transaction,” whether or not conducted in cash, is defined as a transaction that, to a person acting in good faith:

• Gives rise to reasonable grounds of suspicion that it may involve proceeds of crime; or

• Appears to be carried out in circumstances of unusual or unjustified complexity; or

• Appears to have no clear economic rationale or bona fide purpose; or

• Gives rise to reasonable grounds of suspicion that it may involve financing of activities related to terrorism.

Some examples of suspicious transactions reported to FIU-IND include, but are not limited to, such instances.