Prosecution Of Money Laundering Through Real Estate Sector
Money Laundering Through Real Estate: Overview
Money laundering is the process of converting illegally earned money (from drug trafficking, corruption, terrorism, tax evasion, etc.) into legitimate assets. Real estate is often used because:
High-value transactions – Large sums can be moved in a single deal.
Less scrutiny historically – Many transactions were private.
Ease of layering and integration – Money can be disguised as legitimate property income.
Cross-border complexity – Properties abroad add layers of anonymity.
Legal Framework in India:
Prevention of Money Laundering Act (PMLA), 2002: Section 3 defines "proceeds of crime" and Section 4 prohibits money laundering.
Enforcement agencies: Enforcement Directorate (ED) investigates and prosecutes violations.
Role of Real Estate Regulatory Authority (RERA) and KYC norms: Increasingly used to detect suspicious transactions.
Mechanisms of Laundering Through Real Estate
Direct purchase – Criminals buy property directly with illicit funds.
Over-invoicing/under-invoicing – Property is bought or sold at a manipulated price to launder money.
Benami property transactions – Property is held in the name of a relative or associate.
Fictitious transactions – Selling or mortgaging property repeatedly in fake deals.
Case Laws
1. Enforcement Directorate v. Ketan Parekh (2003–2006)
Facts:
Ketan Parekh, a stockbroker involved in market manipulation, allegedly used illegally earned funds to purchase real estate and other high-value assets.
The transactions were structured through companies and family members to avoid detection.
Legal Issue:
Whether the acquisition of properties using illegally earned funds amounts to money laundering under PMLA.
Court Observation:
The court emphasized that using proceeds of crime to purchase assets, directly or indirectly, falls squarely under the definition of money laundering.
Layering through real estate is a classic form of laundering.
Outcome:
ED attached several properties purchased through Parekh’s shell companies.
Reinforced the importance of following the audit trail and ownership chain.
2. Enforcement Directorate v. Vijay Mallya (Kingfisher Case, 2016 onwards)
Facts:
Vijay Mallya, businessman, defaulted on loans running into thousands of crores.
Allegedly, part of the funds were diverted to buy properties abroad and in India.
Legal Issue:
Whether misappropriation of loan funds used for property investments constitutes money laundering.
Court Observation:
The court confirmed that loan default combined with diversion to assets can be prosecuted under PMLA.
ED attached multiple properties in India and abroad.
Highlighted that high-value real estate is a preferred avenue for laundering proceeds of financial crimes.
Outcome:
International legal cooperation was invoked for property attachment.
This case set a precedent for cross-border real estate transactions in laundering investigations.
3. Enforcement Directorate v. Nirav Modi (PNB Scam, 2018)
Facts:
Nirav Modi, jeweler, allegedly defrauded Punjab National Bank.
Illicit funds were routed through shell companies and used to buy luxury properties, both in India and abroad.
Legal Issue:
Whether buying real estate with defrauded bank funds constitutes laundering under Section 3 of PMLA.
Court Observation:
Properties purchased in Modi’s name and relatives’ names were treated as proceeds of crime.
ED traced the entire ownership trail, even if registered through offshore entities.
Emphasized that the “substance over form” principle applies: ownership in a family member’s name is irrelevant if the money is illicit.
Outcome:
Properties were provisionally attached under PMLA.
This became a benchmark for prosecuting high-profile financial criminals using real estate.
4. Enforcement Directorate v. Sushil Kedia (2009–2012)
Facts:
Sushil Kedia was involved in hawala transactions and used the real estate sector to park illicit funds.
Purchased multiple commercial and residential properties in Mumbai and Delhi.
Legal Issue:
Can properties acquired through hawala proceeds be treated as “proceeds of crime” even if transactions were in cash?
Court Observation:
Court ruled that source of funds matters more than the mode of transaction.
Large cash property transactions are suspicious and fall under PMLA scrutiny.
Outcome:
ED attached properties.
Case reinforced the need for KYC and proper accounting in real estate transactions.
5. Enforcement Directorate v. DLF Ltd (Corporate Laundering, 2015)
Facts:
DLF, a real estate giant, was alleged to have indirectly facilitated laundering by over-invoicing land acquisition and construction projects.
Funds were allegedly routed through subsidiaries to avoid tax scrutiny.
Legal Issue:
Whether corporate manipulation in real estate pricing can constitute money laundering.
Court Observation:
Court noted that companies can be intermediaries in laundering, even if indirectly.
Highlighted the need for transparency in corporate real estate deals.
Outcome:
ED ordered investigation into corporate records.
Led to stricter compliance and audit checks for developers.
Key Takeaways from These Cases
All property transactions using proceeds of crime are prosecutable under PMLA.
Benami and shell company structures are often used, but courts pierce through them to identify true ownership.
Cross-border real estate complicates investigations but does not shield perpetrators from attachment.
Financial audit and KYC are critical tools for detecting laundering.
Courts consistently uphold that “form cannot override substance” – even if registered in someone else’s name, illicit money usage is punishable.
RELATED Blog
comments