Countering Money Laundering: Laws, Techniques and Global Response

To stop money laundering, you must know its real techniques, not just the idea. This article covers the common methods, India’s legal response, and why global cooperation is essential. Dirty money moves across borders.

1Chapter 1: Techniques and India’s Law

Must Know

Hawala

• Hawala is an informal value-transfer system, known in India as hundi.
• It moves money without any bank touching it.
• It dates back many centuries in South Asia, where merchants used it to protect wealth on long, dangerous trade routes.
• It runs on trust between intermediaries called hawaladars.
• There are no written contracts and no paper trail at all.

Structuring and other routes

• Structuring breaks a large deposit into many smaller ones.
• Each is kept just under the amount that triggers a bank’s mandatory reporting.
• Launderers also use third-party cheques and broker networks.
• These add extra steps between the crime and the cleaned-up cash.
• Each technique works by dodging one specific check: a bank’s oversight, a reporting limit, or scrutiny of who really owns the money.

India’s legal response

• The Prevention of Money Laundering Act, 2002 (PMLA) is India’s primary law against laundering.
• It gives the Enforcement Directorate the power to investigate, attach and confiscate the proceeds of crime. See The Enforcement Directorate.

Banks as the front line

• Banks, insurers and securities firms must report suspicious transactions.
• Their internal compliance checks are a critical first filter.
• These are exactly the channels a launderer needs to move money into the formal system.
• Stopping the flow there is far more effective than chasing cash after it changes hands many times.
• The law supplies the powers. The institutions supply the eyes on the ground.

2Chapter 2: Why Hawala Is Hard to Catch

Good to Know

No paper trail

• Hawala runs on trust and verbal agreement between hawaladars.
• It has worked this way for over a thousand years, since it began as a way to protect merchant wealth.
• No bank record exists to trace, because none was ever created.
• So investigators cannot follow the money the way they would through a bank’s transaction history.
• The feature that made hawala useful to medieval traders makes it hard to catch today.

The safe-haven problem

• If one country’s anti-laundering law is weak, money moves there to escape scrutiny elsewhere.
• A tough national law is only as strong as the weakest jurisdiction the money can flee to.
• Swiss banks were historically the world’s most cited safe haven.
• Strict banking-secrecy laws kept account holders anonymous for decades, even from foreign tax authorities.
• That began to change in 2018, when Switzerland started automatically exchanging account information with partner countries under a new global reporting standard.
• It took heavy political pressure to close even one major safe haven.
• So the answer has to be cross-border by design.

3Chapter 3: Global Cooperation

Great to Know

The FATF

• The Financial Action Task Force was created by the G7 in 1989.
• Its first aim was to stem the money flows funding drug trafficking.
• In 2001 its mandate expanded to cover terrorist financing.
• The same laundering routes served both.

Conventions and shared rules

• UN conventions and the Basel Committee’s principles support cross-border work.
• So does the UN’s Global Programme against Money Laundering.
• They give countries a shared legal basis to cooperate.

Why global

• Money crosses borders in seconds.
• No single country, however strict, can fight laundering by itself.
• India is a FATF member.
• Its anti-laundering regime is assessed directly against global standards, not just domestic benchmarks.

Related reading

• Money Laundering: Concepts and the Black Economy
• Benami Transactions and Asset Declaration
• Internal Security Threats

4Chapter 4: Exam Angle

Exam Point of View

The Enforcement Directorate

• CDS and other competitive exams ask about the Enforcement Directorate.
• It enforces the PMLA and foreign-exchange laws.
• The ED is the investigating arm of India’s anti-laundering framework.

Techniques and response

• Exams ask which technique launderers use and which body responds.
• Hawala and structuring are methods.
• PMLA and the ED are the response.
• The pairing of technique with counter-measure is the tested pattern.
• Try the hawala 5-question chain.
• Pair this with the Money Laundering concept article (0011) for the full picture.

5Chapter 5: Current Affairs

Current Affairs

India’s first FATF Vice-President, June 2026

• At the FATF Plenary in Paris on 17-19 June 2026, Vivek Aggarwal was elected FATF Vice-President for the 2026-27 term.
• He is an IAS officer and former head of India’s Financial Intelligence Unit.
• He took office on 1 July 2026 as the first Indian ever to hold the post. (Source: Akashvani News.)
• India already sits in FATF’s top “regular follow-up” tier, one of only five G20 countries to do so.
• That means its regime meets FATF’s own high-compliance bar.
• The Vice-President’s chair gives India a direct hand in setting the global rules, not just following them.

Quick Q&A

• PMLA year? 2002.
• FATF created? 1989, by the G7.
• Terror financing added? 2001.
• Hawala in India? Hundi.
• Enforcement agency? Enforcement Directorate.