The Prevention of Money Laundering Act, 2002 (PMLA) establishes a comprehensive framework to combat money laundering in India by imposing obligations on banks, financial institutions, intermediaries, and designated non-financial businesses. It mandates customer due diligence, record maintenance for ten years, reporting of suspicious transactions to FIU-IND, and establishes the Enforcement Directorate (ED) as the principal investigative agency. The Act empowers authorities to attach, seize, and confiscate property derived from scheduled offences, with PMLA (Maintenance of Records) Rules 2005 prescribing detailed KYC and transaction monitoring obligations. Recent 2023 amendments brought virtual digital assets, online gaming intermediaries, and over 1,000 entities under its ambit, expanding regulatory reach significantly.

• Provides legal framework for provisional attachment and confiscation of proceeds of crime, enabling recovery of assets worth thousands of crores from offenders like Vijay Mallya, Nirav Modi, and Mehul Choksi cases
• Centralized reporting through FIU-IND with over 50 lakh Suspicious Transaction Reports (STRs) and 40 crore Cash Transaction Reports (CTRs) filed annually aids intelligence sharing across enforcement agencies
• Enhanced due diligence requirements reduce banking system vulnerability to illicit fund flows and improve India's FATF compliance rating, removed from increased monitoring list in 2024
• Unified regulatory approach across banking, securities, insurance, and non-banking sectors creates level playing field with consistent KYC and transaction monitoring standards
• Empowers ED to investigate complex financial crimes with special powers including summons, searches, and seizures backed by burden of proof on accused to explain legitimate source of funds

• Delayed prosecution with average trial duration exceeding 5-7 years and conviction rate below 1% due to complex evidentiary requirements and judicial backlog in Special Courts
• High false positive rates in STR generation create compliance burden - over 95% of STRs do not result in prosecution, causing alert fatigue among reporting entities like ICICI Bank filing 2 lakh+ annual STRs
• Inadequate risk-based approach implementation with many regulated entities applying uniform enhanced due diligence rather than calibrated risk assessment, leading to financial exclusion of high-risk legitimate customers
• Limited coordination between ED, CBI, Income Tax Department, and state police results in parallel investigations and inconsistent enforcement - seen in cases like INX Media and Aircel-Maxis
• FIU-IND penalties of ₹14.37 crore imposed on Paytm Payments Bank and ₹3-5 crore each on HDFC Bank, Axis Bank branches highlight persistent non-compliance with basic KYC norms despite two decades of regulation

• Paytm Payments Bank case (2024): RBI imposed business restrictions after FIU-IND uncovered massive KYC violations including 3.27 lakh customers onboarded without proper verification and failure to report suspicious patterns in prepaid instruments, leading to ₹5.49 crore penalty and operational shutdown orders.
• Punjab National Bank-Nirav Modi scam (2018): ED attached assets worth ₹5,280 crore under PMLA after fraudulent Letters of Undertaking worth $2 billion were issued without proper KYC, STR filing, or transaction monitoring over seven years, exposing systemic PMLA compliance failures in public sector banks.
• HDFC Bank and Axis Bank branches (2023): FIU-IND levied penalties totaling over ₹10 crore on multiple branches for non-reporting of cash transactions above ₹10 lakh, failure to conduct enhanced due diligence on high-value accounts, and delays in filing CTRs and STRs exceeding prescribed timelines.

• Implement AI/ML-based transaction monitoring systems to reduce false positives by 60-70% and improve detection accuracy - adopt behavioral analytics like those being piloted by SBI and Kotak Mahindra Bank for real-time risk scoring
• Establish dedicated PMLA compliance units with certified specialists trained in red flag identification, especially for emerging risks in cryptocurrency exchanges, online gaming platforms, and cross-border remittances post-2023 amendments
• Strengthen internal audit frameworks with quarterly independent reviews of KYC quality, PEP screening effectiveness, beneficial ownership verification, and STR decisioning to proactively identify gaps before regulatory inspections
• Enhance information sharing through secure digital platforms between compliance teams and law enforcement - participate actively in FIU-IND's Finnet portal and industry working groups to understand evolving typologies in trade-based money laundering and hawala networks