Data explainer: How ED goes about its money laundering probes

In mid-September, the Financial Action Task Force (FATF), a global body focused on fighting money laundering and terror financing, released a report detailing India’s efforts in these areas. For the first time, the report sheds light on how the ED operates, from gathering leads to the outcomes of its investigations. Here are five key takeaways:

Sources of suspicion

To get its leads, the ED appears to rely minimally on financial data provided by other government agencies. For instance, the Financial Intelligence Unit (FIU) of the finance ministry, which tracks suspicious transactions, regularly shares its findings with the ED. As a norm, the FIU monitors high-value activities such as cash transactions exceeding ₹10 lakh, real estate purchases over ₹50 lakh, and international wire transfers above ₹5 lakh. 

Between 2020-21 and 2022-23, the FIU compiled 1.68 million reports of ‘suspicious transactions’. However, from April 2018 to October 2023, the ED used FIU-provided data in only 23 cases.

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Money laundering is intricate, typically covering three stages. The first is ‘placement’, when illegal money is placed into the financial system—like splitting a large sum of cash into small amounts and depositing it in multiple accounts. The second stage is ‘layering’, where the money is moved between multiple bank accounts (often across countries). The third stage is ‘integration’, where it is used to buy equity stakes or high-value assets.

Complaints and tip-offs

For the ED to be effective, it must stay attuned to predicate offenses—criminal activities like drug trafficking that generate illegal money—and be capable of tracing the movement of those funds through the three stages of money laundering for successful prosecutions and convictions.

At the moment, unstructured information flow dominates leads for ED. Between April 2018 and October 2023, of the 4,163 cases investigated by the ED, as many as 47% were the result of information it received via a public complaint, a tip-off or media reporting. The second-largest source (37% of these probes) was from state law enforcement agencies. The Crime and Criminal Tracking Networks and Systems (CCTNS), where all cases are logged and its progress monitored digitally, accounted for about 13% of leads. FIU disseminations accounted for just 0.6% of leads.

Financial aspect

A strong starting point for investigating money laundering is tracking criminal offenses to identify potential laundering activities—these are known as predicate offenses. These offenses are primarily handled by state law enforcement agencies, each of which has a nodal officer responsible for coordinating with the ED. After a chargesheet, which marks the conclusion of an investigation, is filed, the nodal officer decides whether to alert the ED.

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Between April 2018 and October 2023, 2.61 million FIRs were registered under 16 predicate offence categories. FIRs in about 0.53 million of these cases—about 20%—mentioned a financial component. Fraud and forgery cases led the way, followed by illicit arms trafficking. 

In its report, FATF observed that, “...there was no indication that there was a uniform understanding across authorities on the minimum level of financial investigations that are required beyond attaching assets identified upon lodging of the FIRs and to what level of sophistication financial investigations should be pursued for different cases".

Capacity issues

FATF has also observed that “law enforcement agencies and state police are attaching significant quantities of proceeds, indicating that they are seeking to identify assets as part of their predicate investigations". But numbers also indicate a wide gap between the number of cases that came under the radar as a possible offence under the Prevention of Money Laundering Act (PMLA)— an indication of which is the issue of summons—and actual investigations.

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Capacity training of state law enforcement officers to identify money laundering offences and being able to trace financial transactions is crucial to tackle money laundering in India. The ED now has five regional, 30 zonal and 18 sub-zonal offices in India. As of October 2023, it had 1,052 investigators, with that number having increased by 50% since 2018. Further, according to the FATF report, the ED is planning a three-fold increase in personnel over the next five years.

Low conviction rate

Once the ED files a prosecution complaint, cases involving both money laundering and predicate offenses are heard by special courts established under the Prevention of Money Laundering Act (PMLA). Currently, there are 104 such courts across India, up from 66 in 2018, with 173 dedicated prosecutors working on these cases. The number of investigations initiated by the ED has surged in recent years, rising from 195 in 2018-19 to 562 in 2019-20, and reaching 1,180 in 2021-22.

However, the number of prosecution complaints filed hasn’t increased correspondingly—51 in 2018-19, 130 in 2019-20 and 144 in 2021-22. 

“On average, 20% of all money laundering investigations were prosecuted, with 3% reaching the conclusion not to prosecute," says the FATF report. Of the 4,163 cases in which the ED initiated investigations, only 28 have resulted in convictions, with just one acquittal. The remaining cases remain either under investigation or pending in court.

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