Money Laundering and Organised Crime — Practice Questions
UPSC-pattern practice questions on money laundering and organised crime with explanations — PMLA provisions, hawala, allied laws and the Palermo Convention.
Questions
These are original UPSC-pattern practice questions. Attempt each one before revealing the answer.
With reference to the Prevention of Money Laundering Act, 2002, consider the following statements:
- Property involved in money laundering can be provisionally attached for a period of up to 180 days.
- In proceedings relating to proceeds of crime, the burden of proving that the property is not involved in money laundering lies on the person accused.
- The punishment can extend to ten years where the predicate offence falls under the Narcotic Drugs and Psychotropic Substances Act, 1985.
Which of the statements given above is/are correct?
Solution
All three are correct — Section 5 (attachment up to 180 days, confirmed by the Adjudicating Authority), Section 24 (reverse burden of proof) and Section 4 (3–7 years, up to 10 years for NDPS-linked offences).
Answer: D
The term “hawala”, often seen in the context of terror financing, refers to:
Solution
Hawala is an informal value-transfer system: a broker receives money in one place and a partner broker pays an equivalent amount elsewhere, settling accounts later — leaving little paper trail. Option C describes structuring (“smurfing”), option D a shell-company structure; both are laundering methods but not hawala. By definition hawala lies outside the formal banking channel, ruling out A.
Answer: B
Consider the following pairs:
| Law | Year / feature |
|---|---|
| 1. Foreign Exchange Management Act | Civil law that replaced FERA |
| 2. Benami Transactions (Prohibition) Amendment Act | 2016 |
| 3. Fugitive Economic Offenders Act | 2015 |
| 4. Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act | 2015 |
How many of the pairs given above are correctly matched?
Solution
Pairs 1, 2 and 4 are correct. Pair 3 is wrong — the Fugitive Economic Offenders Act is of 2018 (applies to scheduled offences of ₹100 crore or more). It is easily confused with the Black Money Act of 2015.
Answer: C
With reference to the United Nations Convention against Transnational Organized Crime, consider the following statements:
- It is supplemented by a protocol on trafficking in persons.
- India has not ratified it.
Which of the statements given above is/are correct?
Solution
Statement 1 is correct — the Palermo Convention (2000) has three protocols: trafficking in persons, smuggling of migrants, and firearms. Statement 2 is wrong — India ratified UNTOC in 2011.
Answer: A
Mains
Explain how organised crime and informal value-transfer systems such as hawala sustain terrorism. What measures can choke these channels?
Solution
Introduction: Terror groups need steady funds and logistics. Organised crime supplies both, and hawala moves the money with little trace.
Body:
- Sources: narcotics (Golden Crescent and Golden Triangle routes), counterfeit currency, extortion, kidnapping, smuggling of arms and goods.
- Channels: hawala networks across borders; cash couriers; misuse of charities; crypto-assets.
- Measures: PMLA and UAPA terror-funding provisions; FIU-IND analytics on suspicious transactions; VDA providers as reporting entities (2023); NIA’s mandate over counterfeit currency (2019); FCRA scrutiny of foreign contributions; organised crime defined in BNS Section 111; international cooperation through FATF and UNTOC.
Conclusion: Following the money is as important as tracking the gunmen; financial intelligence is a front-line counter-terror tool.
The stringent provisions of the Prevention of Money Laundering Act, 2002 are defended as necessary to fight complex economic crime but criticised for diluting due process. Critically examine in the light of recent judicial pronouncements.
Solution
Introduction: PMLA (in force 2005) gives the Enforcement Directorate powers of attachment, search, arrest and recording statements, with a reverse burden of proof and twin bail conditions.
Body:
- Case for stringency: laundering is layered across jurisdictions and entities; evidence is documentary and digital; assets vanish quickly without attachment; FATF standards require effective confiscation regimes.
- Due-process concerns: reverse burden (Section 24); twin bail conditions (Section 45) making bail difficult; statements to ED admissible (Section 50) while those to police are not; the ECIR not being shared; long pre-trial custody; critics’ concerns about the low conviction rate relative to cases registered.
- Judicial view: Nikesh Tarachand Shah (2017) struck down the earlier twin conditions; Vijay Madanlal Choudhary (2022) upheld the Act’s key provisions and held ED officers are not police; Pankaj Bansal (2023) required written grounds of arrest — a due-process safeguard within the framework.
- Way forward: time-bound trials in Special Courts; transparency on case outcomes; clear standards for arrest; independent oversight; better inter-agency coordination.
Conclusion: A strong AML law is necessary, but its legitimacy rests on fair procedure and speedy, evidence-based convictions — which in turn strengthen deterrence.