India is urged to implement major court reforms and enhance the Enforcement Directorate’s efficiency to address delays in money laundering trials. Despite a strong 97% conviction rate, a constitutional challenge to the Prevention of Money Laundering Act (PMLA) has slowed prosecutions since 2018.
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NEW DELHI: India is being called upon to address the increasing backlog of pending trials in money laundering cases by implementing major reforms to expand the capacity of its courts and improve the efficiency of the Enforcement Directorate (ED). The Financial Action Task Force (FATF) mutual assessment report highlights the need for significant changes to enhance the prosecution of terror financing (TF) cases and speed up money laundering trials.
While India boasts a strong conviction rate of nearly 97%, several factors have contributed to the low number of prosecutions during the assessment period. One of the primary challenges arose from a constitutional challenge filed through 121 petitions against provisions in the Prevention of Money Laundering Act (PMLA) since 2018, which led to a delay in numerous trials.
“One significant factor is a constitutional challenge involving 121 petitions against provisions of the Prevention of Money Laundering Act (PMLA) since 2018, which delayed several trials. This challenge was resolved by the Supreme Court in July 2022 in the case of Vijay Madanlal Chowdhary vs. Union of India.”
-the FATF report highlighted.
Impact on ED Investigations and Prosecutions
During the evaluation period, the ED initiated 4,163 investigations into money laundering offenses, while 132 cases were dropped. A total of 864 prosecution complaints were filed, resulting in 28 convictions, while only one acquittal was reported. The FATF emphasized that challenges to several powers vested in the ED under the PMLA hindered the agency’s investigations and prosecutions.
“The FATF noted that challenges to several powers of the Enforcement Directorate (ED) under the PMLA could have affected their investigations and prosecutions during that time. Ultimately, these challenges were resolved in favor of the ED, affirming the provisions of the PMLA. While there are still ongoing legal challenges related to the PMLA pending before the Supreme Court, these have not hindered PMLA prosecutions since the 2022 ruling.”
-the report noted.
However, despite the legal resolution, the report acknowledged that numerous money laundering cases could not be prosecuted during the period under review. This significant delay in addressing the backlog has strained the judicial system, and the backlog of cases remains considerable.
Fast-Tracking Trials with Judicial Reforms
To mitigate the delays in the judicial process, the Indian courts have implemented several reforms aimed at expediting trials, particularly since 2022. Measures such as shortening the dates between court sessions, utilizing video conferencing technology for suspects and witnesses, and enabling remote video conferencing from Indian embassies and consulates have been adopted.
“Since 2022, the courts have implemented various initiatives to expedite trials, including scheduling shorter session dates, utilizing video conferencing for suspects and witnesses, and establishing remote points for video conferencing in Indian embassies and consulates worldwide. While the number of money laundering prosecutions and convictions has begun to rise during 2022-23, as indicated by the statistics, a significant backlog still persists.”
-the report stated.
Limited Resources Hindering Prosecutions
Another critical factor contributing to the delays is the limited availability of specialized prosecutors and judges within the ED and the special court system. This shortage has led to what the report describes as a “saturation” of the judicial system, where the number of cases awaiting prosecution exceeds the capacity of the courts and prosecutors.
The report said the limited number of specialized prosecutors in ED and special court judges had also contributed to a saturation of the judicial system i.e., inability to prosecute additional cases due to reaching prosecutors and courts’ full capacity.
To address this issue, Indian authorities have planned to increase the number of ED prosecutors from 173 to 300 over the next few years. Additionally, 171 prosecution complaints are currently stalled due to pending international assistance based on requests made by India.
“The authorities acknowledge the need to tackle the shortage of human resources and plan to increase the number of Enforcement Directorate (ED) prosecutors from 173 to 300 in the coming years. Additionally, 171 prosecution complaints are currently stalled due to pending international assistance requests made by India.”
– the FATF report emphasized.
FATF Recommendations: Strengthening Financial Investigations and Sanctions
Apart from addressing delays in prosecutions, the FATF report provided a series of priority actions for India. These include undertaking more comprehensive financial network analysis, particularly concerning money laundering techniques linked to human trafficking and migrant smuggling. The FATF also recommended enhancing the capacity of State-level agencies for more effective parallel financial investigations.
The report further advised India to improve its framework for implementing Targeted Financial Sanctions to ensure that all reporting entities receive timely updates on relevant transactions.
India should also ensure that its anti-terror financing measures targeted at preventing the abuse of non-profit organizations (NPOs) are implemented based on a risk-based approach.
“India should implement anti-terror financing (TF) measures for the non-profit organization (NPO) sector in accordance with a risk-based approach. Outreach efforts must be more focused, coordinated, and tailored to ensure that NPOs at risk of TF abuse enhance their understanding of the associated risks.”
-the report urged.
Addressing Technical Shortcomings
A key technical shortcoming identified by the FATF in the report is the absence of a definition for Politically Exposed Persons (PEPs) in the PMLA rules. The FATF suggested that India should prioritize addressing this gap while also enhancing the capacity of newly incorporated Designated Non-Financial Businesses and Professions (DNFBP) supervisors.
The FATF called for an increase in suspicious transactions reports, particularly in high-risk sectors, and recommended prioritizing risk-based supervision of the Money or Value Transfer Services (MVTS) sector. Further steps should be taken to prevent criminals or their associates from entering the gems and jewellery business, which has been identified as a vulnerable sector for money laundering.
India has already included these points as part of its National Risk Assessment Exercise for 2025, according to a senior government official.
