The Prevention Of Money Laundering Act (PMLA) And Its Role In Banking
- IJLLR Journal
- 1 day ago
- 2 min read
Aryan Sisodia, Amity Law School Noida
ABSTRACT
Money laundering poses a significant threat to financial systems globally, allowing illicit funds to enter legitimate economies. India’s Prevention of Money Laundering Act (PMLA), 2002, serves as the cornerstone for combating financial crimes and ensuring regulatory compliance within the banking sector. This paper explores the role of the PMLA in banking, highlighting its objectives, enforcement mechanisms, compliance requirements, legal challenges, and policy recommendations for strengthening anti-money laundering (AML) frameworks. The PMLA plays a crucial role in the banking sector by imposing stringent compliance requirements on financial institutions to detect, report, and prevent suspicious transactions linked to money laundering.
This paper explores the objectives, key provisions, and enforcement mechanisms of the PMLA, focusing on its impact on banking operations. It highlights the obligations of banks under the Act, including Know Your Customer (KYC) norms, Suspicious Transaction Reporting (STR), record- keeping requirements, and cross-border transaction monitoring. Furthermore, the role of regulatory bodies such as the Reserve Bank of India (RBI), the Financial Intelligence Unit – India (FIU-IND), and the Enforcement Directorate (ED) in enforcing anti-money laundering (AML) measures is examined.
Despite its effectiveness in curbing illicit financial activities, the implementation of PMLA in the banking sector presents several challenges, such as regulatory overlaps, compliance burdens, judicial delays, data privacy concerns, and evolving financial crime tactics. The increasing adoption of digital banking, cryptocurrencies, and fintech innovations further complicates AML enforcement, necessitating continuous adaptation of regulatory measures.
This research also includes case studies of major money laundering incidents in Indian banking, such as the Punjab National Bank (PNB) fraud, Yes Bank crisis, and ICICI-Videocon loan scandal, to illustrate gaps in compliance and enforcement. By comparing India’s AML framework with global best practices, particularly from the United States, United Kingdom, and the European Union, the paper proposes policy recommendations for strengthening inter-agency coordination, leveraging technology for AML compliance, expediting legal proceedings, and enhancing international cooperation.
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