Criminal Liability For Organized Money-Laundering Group

01 Nov 2025 --
0 Comments

I. Concept and Legal Framework

1. Meaning of Organized Money-Laundering Groups

An organized money-laundering group refers to a structured network of individuals or entities engaged in concealing the origin of illegally obtained money and integrating it into the legal economy.

Typical characteristics:

Multiple individuals or entities acting in coordination.

Sophisticated methods to convert “black money” into “white”.

Use of shell companies, bank accounts, cryptocurrencies, and trade-based schemes.

2. Relevant Legal Provisions

A. Prevention of Money Laundering Act (PMLA), 2002

The primary legislation in India regulating money laundering. Key provisions:

Section 3 – Offence of Money Laundering

Punishment for knowingly dealing with proceeds of crime.

Imprisonment: 3–7 years, with fines.

Section 4 – Punishment for Money Laundering

Deals with proceeds of crime exceeding ₹1 lakh.

Extends liability to all persons who knowingly assist or are complicit.

Section 5 – Offences by Companies

A company can be vicariously liable for offences committed by its officers or directors.

Section 8 – Attachment of Property

Proceeds of crime can be frozen or seized during investigation.

Section 50 – Cognizance of Offence

Courts can take cognizance only on complaint by Enforcement Directorate (ED).

B. Indian Penal Code (IPC), 1860

Section 120B – Criminal conspiracy

Section 420 – Cheating and dishonestly inducing delivery of property

Section 406/409 – Criminal breach of trust

Sections 415, 418 – Fraud and misrepresentation

Often, money laundering is a continuation of predicate offences, like fraud, corruption, smuggling, or drug trafficking.

C. Other Relevant Acts

Income Tax Act, 1961 – Hiding unaccounted income.

Foreign Exchange Management Act (FEMA), 1999 – Illicit transfer of funds abroad.

Companies Act, 2013 – Misuse of corporate structures to launder money.

II. Criminal Liability of Organized Groups

Primary Offence: Dealing with proceeds of crime (PMLA Section 3 & 4).

Conspiracy Liability:

Members of an organized group are liable under IPC Section 120B.

Corporate Liability:

Companies and officers involved can be prosecuted under PMLA Section 5.

Accessory Liability:

Persons assisting, facilitating, or failing to report suspicious transactions are liable.

Key Principle: Liability is both individual and collective, and the law can pierce corporate structures to reach the actual beneficiaries.

III. Case Laws on Organized Money Laundering

1. Enforcement Directorate v. Vijay Mallya (2017)

Court: Delhi High Court & ED proceedings
Facts:
Vijay Mallya and group companies defaulted on loans, siphoned funds abroad. Alleged laundering through complex corporate networks.

Judgment:

ED attached assets under PMLA Sections 5 & 8.

Mallya accused of money laundering, cheating, and criminal conspiracy.

Court emphasized tracing funds through multiple entities to establish money-laundering liability.

Significance:

Showed that organized groups using shell companies can be prosecuted under PMLA.

Highlighted cross-border enforcement challenges.

2. Ketan Parekh Scam (SEBI vs Ketan Parekh) (2001)

Court: Special Court (Economic Offences)
Facts:
Ketan Parekh manipulated stock prices using a network of companies and individuals; funds were laundered across accounts to conceal origin.

Judgment:

Convicted for fraud, criminal conspiracy (IPC 120B), and dealing with proceeds of crime under PMLA.

Court traced movement of illegal funds through multiple entities.

Significance:

Early example of organized financial fraud + laundering.

Proved that networked offenders can be prosecuted jointly.

3. Rohit Bansal vs State of Maharashtra (2012)

Court: Bombay High Court
Facts:
An organized group was involved in hawala transactions and laundering money for illegal mining operations.

Judgment:

Members prosecuted under PMLA Section 3 & 4 and IPC Sections 120B & 406.

Court held that coordination among multiple participants constitutes criminal conspiracy in money laundering.

Significance:

Demonstrates that organized laundering groups face both PMLA and IPC liability.

4. Nirav Modi / Mehul Choksi Case (PNB Scam, 2018–ongoing)

Court: Special Court under PMLA
Facts:
Fraudulent Letters of Undertaking (LoUs) were used to siphon funds abroad. Multiple associates and shell companies involved.

Judgment:

ED invoked PMLA Sections 3, 4, 5 against all entities and individuals.

Coordinated actions of accomplices considered criminal conspiracy.

Significance:

Real-time example of modern organized financial crime and laundering.

Highlighted proactive attachment and prosecution by ED.

**5. Harshad Mehta Scam (1992–1994)

Court: Mumbai Special Court
Facts:
Stockbroker Harshad Mehta used bank receipts and fictitious companies to launder illegally obtained funds.

Judgment:

Convicted under IPC Sections 420, 120B, and provisions now covered under PMLA.

Money trail through multiple corporate entities established organized laundering.

Significance:

Classic case illustrating organized group manipulation of financial systems.

Foundations for modern PMLA enforcement.

IV. Investigation & Enforcement Mechanism

Enforcement Directorate (ED) – Primary agency under PMLA.

Attachment of Property – Under Section 8 PMLA.

Confiscation / Seizure – Pending trial, property can be frozen.

Prosecution – Under PMLA and IPC in Special Courts.

Key Feature:

Burden of proof often shifts to the accused to explain lawful origin of assets.

Group members and corporate officers can all be prosecuted.

V. Key Principles of Liability

Principle	Explanation
Individual & Collective Liability	All members of a network involved in laundering can be held liable.
Corporate Liability	Companies and directors can be prosecuted under PMLA Section 5.
Conspiracy	Organizing, planning, or aiding laundering is treated as criminal conspiracy.
Proceeds of Crime	Assets obtained illegally are subject to attachment and confiscation.
Accessory Liability	Even facilitators (lawyers, accountants) knowingly assisting are liable.