The Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) framework in India is designed to protect financial institutions. The main law is the Prevention of Money Laundering Act (PMLA) of 2002 and its primary aim is to provide punishment lists allowing authorities to freeze illegal activities.
What Are the Key Frameworks?
- PMLA Rules of 2005 and later updates explain the law and how it should be practiced by companies and institutions.
- The Financial Action Task Force (FATF) sets globally regulated AML and Countering the Financing of Terrorism (CFT) standards.
Who Regulates AML & CFT Compliance in India?
Several key authorities in India manage the AML system. Each authority is responsible for different sectors, so companies must know which one to follow.
- Financial Intelligence Unit - India (FIU-IND) is responsible for suspicious transaction reports (STRs) and other related financial data.
- Reserve Bank of India (RBI) supervises banks and non-banking financial companies (NBFCs) to check if they are AML and Know Your Customer (KYC) compliant.
- Securities and Exchange Board of India (SEBI) is responsible for regulating companies in the capital markets, portfolio managers, and stock exchanges.
- Insurance Regulatory and Development Authority of India (IRDAI) supervises insurance firms and checks if they are involved in money laundering activities.
- The Ministry of Finance (Enforcement Directorate) investigates serious financial crimes.
What is the Reserve Bank of India (RBI)?
The Reserve Bank of India (RBI) is the central banking institution of India. It was established on 1 April 1935 under the RBI Act and is responsible for:
- Managing monetary policy, currency creation, foreign exchange reserves,
- Controlling inflation,
- Supervising financial institutions such as commercial banks, non-banking financial companies (NBFCs), and payment systems,
- Implementing AML (Anti-Money Laundering) and KYC (Know Your Customer) regulations.
- Providing financial stability.
What Are the Main AML Laws and Rules in India?
India has several regulatory bodies to combat money laundering and businesses must comply with a range of rules. Here’s a breakdown:
Key Components of India’s AML Legal Framework
- Prevention of Money Laundering Act (PMLA) of 2002 is the main law that declares money laundering as a crime in India. According to PMLA, authorities are allowed to confiscate assets if they are obtained through illegal means. It also sets rules for financial investigation and penalties.
- PMLA Rules (2005) and Amendments explains how businesses should follow the law. Some of the rules cover Customer Due Diligence (CDD), Suspicious Transaction Reports (STRs), and Record-Keeping obligations.
- Financial Intelligence Unit - India (FIU-IND) is responsible for collecting and examining Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs). It also shares intelligence with law enforcement to stop financial crimes.
- Sectoral Regulations by RBI, SEBI, IRDAI, and PFRDA
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- Reserve Bank of India (RBI) sets AML rules for banks, non-banking financial companies (NBFCs).
- Securities and Exchange Board of India (SEBI) regulates the market to make sure the participants are not involved in any illegal activities.
- Insurance Regulatory and Development Authority of India (IRDAI) oversees insurance firms.
- Pension Fund Regulatory and Development Authority (PFRDA) supervises pension-related financial services.
5. Alignment with FATF Standards: India is a member of the Financial Action Task Force (FATF) that sets global AML/CFT standards. Therefore, India regularly has mutual evaluations with FATF to strengthen its financial system.
6. The Enforcement Directorate (ED) plays a key role in law enforcement in India’s AML system. Under the Prevention of Money Laundering Act (PMLA), India investigates suspectful money transactions and arrests offenders.
7. Other Complementary Laws are Unlawful Activities Prevention Act (UAPA) targeting terrorist activities, Foreign Exchange Management Act (FEMA) managing foreign currency, and Income Tax Act tracking foreign income and assets.
Which Entities are Subject to AML Obligations in India?
- Scheduled and cooperative banks
- Non-banking financial companies (NBFCs)
- Mutual funds, portfolio managers, and stock brokers
- Payment aggregators, mobile wallets, and other digital financial services providers
- Virtual Digital Asset (VDA) service providers such as cryptocurrency platforms
- Real estate developers, lawyers, and accountant firms
What are AML Compliance Requirements in India?
Customer Due Diligence (CDD) is the mandatory identification of customers using official documents such as PAN, Aadhaar, passport, etc. Customers are categorized as low, medium, or high-risk depending on their profile, location, and transaction behavior. Customers’ transactions are regularly checked to detect any suspicious behavior.
Know Your Customer (KYC) is central to the process of customer verification. All businesses must follow the RBI’s regularly updated KYC Master Direction. The risk levels of the existing customers must be periodically checked.
Suspicious Transaction Reporting (STR) is the process that includes the examination of transactions and the reporting of illegal activities to Financial Intelligence Unit - India (FIU-IND). Whatever the amount may be, the suspicious transaction must be filed in 24 hours.
Cash Transaction Reporting (CTR) is mandatory for cash transactions over ₹10 lakh (~$12,000). CTRs are sent monthly to FIU-IND.
Record Keeping: Customer account information, all STRs and CTRs must be kept for at least 5 years.
Enhanced Due Diligence (EDD) is required for Politically Exposed Persons (PEPs), high-risk customers, and unusual transactions. This process involves gathering additional documents, monitoring closely, and obtaining approval from senior management.
How Is Beneficial Ownership Verified in India?
According to Ultimate Beneficial Owners (UBOs) under the Companies Act and related PMLA rules, companies are required to disclose who owns and controls the business. With this rule, companies cannot hide behind false names. Also, financial institutions must check this ownership through the MCA21 system and Central KYC Registry (CKYCR).
What Are the AML Obligations for UPI and Payment Aggregators?
All payment applications, UPI services, and aggregators must follow RBI’s Master Directions on KYC and PMLA provisions. The requirements are as follows:
- Full KYC with Aadhaar/PAN
- Real-time fraud detection
- Monitoring speed, transaction limits, and location anomalies
What Are the Recent AML Updates in India (2024–2025)?
- Crypto under PMLA since March 2024
- Video KYC for digital integration
- PMLA Amendment includes offshore trust managers and CA firms
- SEBI tightens AML oversight on mutual funds and PMS
Is India on Any FATF or International AML Watchlists?
No, India is not on the FATF greylist or blacklist. Since 2010, India has been a full member of FATF and its compliance has been regularly reviewed. The next mutual evaluation is set for 2024-2025 and will focus on how India manages crypto-related services (VASPs).
How Is Customer Risk Assessment Handled in India?
In India, financial institutions handle customer risks by analyzing the customers’ location, profile, the frequency and the amount of their transactions. Based on this information, customers are grouped into low, medium, and high-risk categories.
How Are Suspicious Transactions Reported in India?
Process and Requirements: Businesses are responsible for filing Suspicious Transaction Reports (STRs) and sending them to Financial Intelligence Unit-India (FIU-IND).
Thresholds: Businesses must follow a specific amount of transactions and certain limits.
Timeline: It is a must to report any suspicious activity to FIU-IND in 7 days. Reporting timely is crucial to maintaining the integrity of financial systems.
3 High-Profile Money Laundering Cases from India
Under the Prevention of Money Laundering Act (PMLA), India has dealt with several high-profile money laundering activities. Three of the most notorious examples as follows:
1. Nirav Modi and Punjab National Bank Scam is one of the biggest financial crimes in India that was uncovered in 2018. Nirav Modi was involved in ₹13,000 crore (approximately $2.1 billion) fraudulent transactions, cheating Punjab National Bank. Nirav Modi and his associates. They used unauthorized Letters of Undertaking (LoUs) to get loans from foreign banks. To hide the money, they created more than 100 shell companies in Hong Kong and the UAE and made fake trade transactions to move the money around.
The investigation led by the Enforcement Directorate (ED) and Central Bureau of Investigation (CBI) revealed more than ₹1,389 crore worth of illegal assets. Interpol issued a Red Corner Notice against Modi who remains in legal custody in the UK. As a result of this case, the Reserve Bank of India (RBI) implemented stricter rules for SWIFT transactions and trade finance.
2. Rana Kapoor and Yes Bank Case is another serious crime which caused serious financial problems in how Yes Bank was managed. In 2020, CEO Rana Kapoor was arrested as he laundered more than ₹4,300 crore (about $520 million). He was accused of taking bribes and approving risky loans to financially struggling companies such as DHFL and IL&FS.
The illegal money was spent on businesses owned by Rana Kapoor’s family and was used to buy luxury properties and artwork. As he had various companies conducting complex money transactions, he was able to hide the source of the money. During this investigation, the Enforcement Directorate (ED) confiscated assets that valued more than ₹2,000 crore.
To protect Yes Bank, the Indian government led a plan by investing ₹7,250 crore. As a result of this case, stricter rules are applied on money transactions.
3. Karti Chidambaram and INX Media Case involved ₹305 crore (roughly $37 million) laundering in 2017. Karti Chidambaram, the son of former Finance Minister P. Chidambaram, is accused of helping INX Media obtain illegal Foreign Investment Promotion Board (FIPB) approvals in return for kickbacks..
Investigators believe that the funds were moved through Mauritius and Singapore by using shell companies. The Enforcement Directorate (ED) and the Income Tax Department led a joint investigation under the Prevention of Money Laundering Act (PMLA) and Foreign Exchange Management Act (FEMA).
Even though the arrests were made, the case is still ongoing as a significant example of political corruption in India.
Other Money Laundering Cases in India
| Case | Amount | Year | Agencies Involved | Key Issues |
| Vijay Mallya / Kingfisher Airlines | $1.3 billion (₹9,000 Cr) | 2016–ongoing | ED, CBI, UK Courts | Willful default, fund diversion via offshore entities |
| Satyam Scam | $1.1 billion (₹7,000 Cr) | 2009 | SEBI, SFIO, ED | Corporate fraud, fake invoices, round-tripping |
| IL&FS Financial Services | $13 billion+ (₹94,000 Cr) | 2018 | SFIO, RBI, ED | Loan evergreening, accounting manipulation |
| Delhi Liquor Scam (Arvind Kejriwal Aide) | $120 million+ (₹900 Cr) | 2023–ongoing | ED | Policy manipulation, cash-for-contracts |
| Chinese Controlled Betting Apps Ring | $125 million+ (₹1,000 Cr) | 2020 | ED | Crypto laundering, digital wallets, cross-border mule accounts |
What Are the AML Regulations for Banks, Crypto, Payment Firms, and Fintechs in India?
Banks (RBI-regulated) must follow RBI’S KYC Master Directions to verify customer identities. They are required to submit Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs). Additionally, each bank must have an AML policy monitoring financial crime risks.
Crypto/Virtual Digital Asset Providers in India are under the Prevention of Money Laundering Act (PMLA) as of March 2023. All Virtual Asset Service Providers (VASPs) must register with FIU-IND and follow strict AML/CTF regulations. This process includes conducting KYC checks, monitoring suspicious behavior and filing Suspicious Transaction Reports (STRs). Although India does not currently license crypto exchanges, PMLA compliance is mandatory for any VASP.
Payment Institutions (UPI, Wallets, Aggregators) are required to follow RBI’s KYC guidelines. They must also monitor daily transaction limits and velocity checks. To ensure security, institutions use professional AML tools to flag any suspicious activity.
Fintech and Non-Banking Financial Companies (NBFCs) must strictly follow Prevention of Money Laundering Act (PMLA) and RBI guidelines. They are required to implement Central KYC Registry (CKYC) processes, using Aadhaar-based authentication. These firms use risk scoring tools to report suspicious transactions (STRs) and manage AML obligations.
Note: India is currently developing AML guidelines to improve the methods to combat financial crime. These efforts are for encouraging the use of AI-based fraud detection technologies and RegTech solutions particularly in the fintech sector.
What Are the Penalties for AML Non-Compliance in India?
If financial institutions fail to follow Anti-Money Laundering (AML) regulations in India, this can cause in serious consequences that include:
- Financial penalties reach up to INR 5 lakh, or even higher depending on how severe the case is.
- Criminal charges include seizing assets gained through illegal activities.
- Regulatory action is to cancel business licenses.
- Public disclosure is publicly announcing the name of the financial institution, which harms its credibility and market trust.
Has India Been Reviewed by FATF or Other International Bodies?
Since 2010, India has been a member of the Financial Action Task Force (FATF). It means that its compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) is
regularly evaluated.
- Periodic FATF reviews: India periodically undergoes mutual evaluations to strengthen its AML/CFT frameworks and address weaknesses.
- Current status: India is not on the FATF's greylist or blacklist, which means that it is compliant with international standards.
- Upcoming review: India’s next FATF mutual evaluation will be in 2024-2025. In this process, policies and systems will be reviewed.
In India, it is a must to stay compliant with AML/CFT regulations. Institutions avoid penalties, maintain credibility and support a transparent financial system across the world.
Recent AML Developments in India
India has a significant process in strengthening its Anti-Money Laundering (AML) framework and identifying ongoing financial risks. Some of the measures are:
- Crypto Sector Regulation: Starting in March 2023, Virtual Digital Asset Providers (VASPs) must comply with the Prevention of Money Laundering Act (PMLA).
- E-KYC Expansion: Digital onboarding has improved with professional tools such as video KYC to verify customer profile.
- Broader Coverage: Updates to PMLA now include more professionals and companies from all over the world.
- SEBI Oversight: SEBI has recently improved its control over financial crimes.
How Can Sanction Scanner Help with AML in India?
Sanction Scanner provides a professional and reliable solution that is created for businesses in India. Whether you are in banking, fintech or crypto, our services efficiently help you comply with anti-money laundering (AML) regulations. Sanction Scanner offers these services for you:
- Compliance with PMLA, RBI, and FIU-IND requirements: Stay compliant with PMLA, RBI, and FIU-IND rules. Sanction Scanner has built easy-to-use tools for your safety.
- Real-time screening against UN, OFAC, and domestic sanctions lists: Protect your organization with Sanction Scanner’s up-to-date, professional tools. Instantly screen your customers and their transactions against global sanctions lists including UN, OFAC, and local Indian sanctions lists.
- Adverse media and PEP screening built into onboarding flows: Catch customers’ red flag early. Identify politically exposed persons (PEPs) and find negative media news about them.
- Case management for audit trails and regulatory inspections: Maintain compliance cases and follow records easily with our services.
Stay compliant, reduce risk, and build trust with Sanction Scanner.
FAQ's Blog Post
AML in India refers to laws and regulations designed to prevent money laundering and related crimes. It is primarily governed by the Prevention of Money Laundering Act (PMLA), 2002.
The Financial Intelligence Unit – India (FIU-IND) and the Reserve Bank of India (RBI) are the primary regulators. They oversee reporting entities and ensure compliance with AML obligations.
The core legislation is the Prevention of Money Laundering Act (PMLA), 2002. It is supported by rules issued by regulators like RBI, SEBI, and IRDAI.
The PMLA criminalizes money laundering and sets out procedures for confiscation of property involved. It also mandates reporting and due diligence for financial institutions.
Banks, NBFCs, insurance companies, securities firms, and other financial intermediaries are subject to AML compliance. Even casinos and real estate companies may be covered.
KYC (Know Your Customer) is a process of verifying a customer’s identity, essential for AML compliance. It helps prevent illicit actors from misusing financial systems.
Violators may face fines, asset seizure, and imprisonment under the PMLA. Both individuals and corporate entities can be held liable.
India is a member of the Financial Action Task Force (FATF) and the Egmont Group. It shares intelligence and aligns its AML standards with global best practices.