Banking Institutions And Anti-Money Laundering Compliance In India: A Critical Analysis Of The Legal And Institutional Framework
Vidhika Roy Parihar, BA. LL.B., The Law School, University of Jammu
ABSTRACT
Money laundering has become one of the major threats to the integrity, transparency, and stability of modern financial systems. Presently financial transactions grow more digital and interconnected across borders, banking institutions play a key role in stopping the movement and legitimization of illegal funds. In India, the anti-money laundering (AML) framework mainly follows the Prevention of Money Laundering Act, 2002 (PMLA). This framework is backed by the institutions such as the Reserve Bank of India (RBI), the Financial Intelligence Unit–India (FIU-IND), and various enforcement bodies. Banks serve as the first line of defense against money laundering. They do this by enforcing customer due diligence, following Know Your Customer (KYC) rules, monitoring transactions, reporting suspicious activities, and keeping records.
This paper examines the role of banks within India's AML framework and assesses the effectiveness of the legal and institutional measures aimed at fighting money laundering. The study looks at the laws governing AML compliance, including key parts of the PMLA, the Banking Regulation Act of 1949, and the Reserve Bank of India Act of 1934. It also reviews the institutional framework, which includes the RBI, FIU-IND, Enforcement Directorate, adjudicatory bodies, and financial institutions. Special focus is given to the operational tasks required by banks and how they help detect, prevent, and report suspicious financial activities. It evaluates the important court rulings on the relationship between banks and enforcement agencies in money laundering investigations. It also highlights major challenges to AML enforcement, such as low conviction rates, technological limitations, informal financial networks, poor coordination among agencies, and the growing complexities from digital assets and cross-border transactions. Based on these findings, the study suggests several reforms, including updating technology, improving coordination among institutions, creating specialized adjudicatory bodies, and enhancing international cooperation which is elemental for safeguarding the integrity of India's financial system.
