Money Laundering And Financial Crime
1. Money Laundering
Definition:
Money laundering is the process of converting illegally earned money into legitimate assets or funds. In India, it is governed primarily by the Prevention of Money Laundering Act (PMLA), 2002.
Key Sections:
Section 3: Offense of money laundering.
Section 4: Punishment for money laundering.
Section 5: Confiscation of property.
Case 1: Enforcement Directorate v. Vijay Mallya (2017)
Facts: Vijay Mallya, former Kingfisher Airlines owner, allegedly defaulted on loans worth ₹9,000 crore and transferred funds abroad through shell companies.
Legal Issue: Whether diversion of bank loans and foreign transfer amounts to money laundering under PMLA.
Judgment: ED filed a charge sheet under PMLA, and the court held that diverting borrowed funds for personal benefit constitutes money laundering. Extradition proceedings are ongoing.
Case 2: State Bank of India v. Sahara India (2012-2014)
Facts: Sahara collected billions via optionally fully convertible debentures (OFCDs) without SEBI approval. Funds were diverted and invested.
Legal Issue: Whether the unauthorized collection and diversion of funds is money laundering.
Judgment: Supreme Court ordered Sahara to refund ₹24,000 crore to investors. ED filed PMLA cases against the group for diversion of illegally collected funds.
Case 3: Punjab National Bank Fraud – Nirav Modi & Mehul Choksi (2018)
Facts: Nirav Modi and Mehul Choksi used fraudulent Letters of Undertaking to obtain loans from PNB worth over ₹14,000 crore and moved money abroad.
Legal Issue: Fraudulent loans and foreign remittance as money laundering under PMLA.
Judgment: ED attached assets, registered cases under PMLA, and courts held them liable for laundering illegally obtained funds. Extradition proceedings are ongoing.
2. Financial Crimes Beyond Money Laundering
Definition:
Financial crimes include fraud, embezzlement, tax evasion, and securities violations, often overlapping with money laundering.
Case 4: Sahara India Real Estate Corporation Ltd. v. SEBI (2012)
Facts: Sahara’s OFCD scheme violated SEBI regulations; investors’ funds were misused.
Legal Issue: Whether raising money illegally constitutes financial fraud.
Judgment: Supreme Court ruled in favor of SEBI, ordering Sahara to refund investors. ED initiated PMLA proceedings for laundering of these funds.
Case 5: Harshad Mehta Securities Scam (1992)
Facts: Stockbroker Harshad Mehta manipulated the stock market using fake bank receipts, defrauding banks of ₹4,000 crore.
Legal Issue: Financial fraud, bank fraud, and money laundering.
Judgment: Mehta and accomplices were convicted under various provisions of IPC, PMLA, and SEBI regulations. Highlighted weaknesses in banking and regulatory oversight.
Case 6: Nirav Modi – Punjab National Bank Fraud (Supplementary)
Facts: In addition to PMLA, Nirav Modi was also charged under FEMA and IPC Sections 420, 406, 120B for criminal conspiracy and cheating.
Judgment: Reinforced that laundering money often involves a nexus of multiple financial crimes and requires coordination between ED, CBI, and RBI.
Case 7: Vijay Mallya – Kingfisher Airlines (Financial Irregularities)
Facts: Apart from money laundering, Mallya diverted public loans for personal benefit.
Legal Issue: Loan default, fraud, and laundering money abroad.
Judgment: Reinforced that financial crime investigation under PMLA often overlaps with civil recovery proceedings and extradition laws.
Key Observations from Case Law
Money laundering is closely linked to fraud, tax evasion, and corporate misconduct.
ED is the primary investigating authority in India under PMLA, with powers to attach properties and freeze accounts.
Cross-border investigation is crucial, as perpetrators often move funds internationally.
Courts recognize that even diversion of legally obtained loans for illegal purposes amounts to laundering.
Corporate and individual accountability is emphasized; directors and promoters can be prosecuted.
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