Money laundering is a significant problem but when this problem reaches the cyber space, it causes more harm. The need is thus, to examine the lacunas that are there in the present legislation on the matter to identify the on-going challenges. These are to be remedied with measures that are stringent and detect the criminal activities in appropriate period of time. Moreover, it is essential that the culprits of such crimes do not get away with it through any technical or legal loophole that might exist.

Overview of Money Laundering

Money is considered as an important method of exchange and is prevalent all over the world. With the increase in hunger for having more money, it has contributed in many criminal activities and the root cause of intentional and illegal use of money. To understand money laundering, the need to see is that there persists several consequential sequence of chain of events along with the pre-planned activity that will cause damage to the economy of the country.

Money laundering means the process by which someone does a certain chain of transactions or other so as to make it seem that the illegal transaction is a legal transaction. It means that it expressly shows that the money has come from a way that is legal source. Money Laundering refers to the conversion of money with the intention and knowledge so as to show the tainted money as being untainted money. This leads to concealing the amount of money attained from the illegal sources. The “true location or source or nature” of the money is concealed which is a serious issue as it causes the illicit proceeds of money and hampers the growth and development of a country.

Cyber Laundering

Cyber money laundering or Cyber laundering is a way by which money laundering takes place on the internet or through the digital world. The ever-growing expanse and multi-fold of technological advancement had paved the way for crimes to happen at cyber space as well. Cyber crime happens with the breach of the digital technology and causes cyber threat and other criminal activities. One of which is cyber money laundering. With the invent of new methods like crypto currency, bitcoins and other money methods, it had given the way for the breach to happen at a faster and almost undetectable way causing major harm and distortion of data along the path of money being laundered or illegally converted through the transactions.

The use of the financial transactions by way of converting or adding the money to multiple bank accounts at the one instance (as they are readily available) by creating a fictitious method for changing the proceeds is apparent form of cyber money laundering. It can be done by different ways like by managing an e-wallet or to create a company or other organisation that does not exist in reality but in cyberspace it does, then transferring the financial transaction to that account to show in the way that the transaction is through a legitimate way and the money acquired is legal. These might be some of the ways through which the mind of the money launderer works to dupe the people and to act as the real owner and real earner of the illegal proceeds by showing the money in an untrue manner.

The instant rise in the virtual currency has created an issue and a gap in control mechanism by the way of governing and regulating the mechanism. The major issue that arises is that the Bitcoins and other crypto currencies are highly decentralised and anonymous as well as pseudonymous and irreversible in nature. This creates a problem of detecting the intermediary involved in the process and the identity of the person doing the crime as well. There arises chances of and high risk of not getting the money back.

Legislation at Present

The major legislation that exists in the matter is the Prevention of Money Laundering Act, 2002. This enactment makes sure that the banks, financial institutions and other authorities are diligent in their work so as to keep in check their customers or clients, the transactions happening and other related events. The act gives penal punishment in the matter where the minimum is three years and the maximum is seven years. It, further, provides that the punishment can increase from a term of maximum of seven years to ten years if the crime is one that is involved under the Narcotics Drugs and Psychotropic Substances Act, 1985 (NDPS). Thus, this legislation gives a comprehensive view on the money laundering and also, puts the burden of proof on the accused and he has to prove that his transaction is legitimate one.

In one of the important case of P. Chidambaram V. Directorate of Enforcement (2019), the court had talked about the broader issue of money laundering and said, “Money laundering is an economic offence committed with much planning and deliberate design and poses a serious threat to the nation’s economy and financial integrity…”. Thus, it is important to understand that money laundering with the “trails of money” being unaccounted for or accounted in illegal manner is the most serious case affecting the banking institutions, financial institutions, companies and their managements, along the way.

In another case of Supreme Court of Union of India V. Hassan Ali Khan & Anr., the court had examined Section 3 of the Money Laundering Act, 2002 which defines the term. The respondent was transferring the tainted money to foreign country affecting the economy at a large scale. The court said that it is a clear case of money laundering and no bail can be given to the person on the account.

The Information Technology Act, 2000 is the one law at present that looks at the cyber crimes and issues that arises at the cyber space. It sections are diversified and amended in such a manner to account for any illegal activity that happens at the digital front. Furthermore, the Information Technology (Intermediaries Guidelines) Rules, 2011 highlights the concept of money laundering in the digital space or cyber money laundering under its Rule 3. It explains that the due diligence and care need to be observed on the cyber space in cases of money laundering as it is the economic offence happening and increasing at quick speed on the internet. The entity, i.e. intermediaries, has to provide the adequate measures for a safe and encrypted network that is not and cannot be detected. It has to do its duty of care and report when unusual activity occurs.

In another case of Ali Ibrahim V. The State of Kerala, the court had highlighted that the Economic Offences Division is formed by the Central Bureau Investigation of India (CBI) which looks at “major financial scams and serious economic frauds, …, and, Cyber Crime…”. This is necessary so that the procedure can be carried out easily and effectively. To detect, to investigate and to catch the culprit within the time frame, the use of specialized divisions for that work is necessary. Thus, the team that looks at economic offences and cyber crime ensures a systematic and faster way of solving the issues.

Existing Challenges

Cyber laundering is a serious matter. There are several different challenges and issues that present it in detecting the cyber laundering.

  1. Undetected on cyber space : One of the major problems is that the cyber laundering might goes undetected. Because of the vastness of the technology, the cyber breach can occur at the minimum of second. The undetected material is then further used for transactions and money is made to show that it is from legitimate source. This occurs by way of old and unused accounts. They do not report the accounts that suddenly start showing activity.
  2. Weak Enforcement and Procedural Mechanism : The enforcement mechanism is slow. It does not work at much faster rate as is needed. The CBI wing looks after the matter of it but it is very weak. The transactions are not caught at the early stage and the perpetrator goes on to do the work causing harm at a larger rate. The procedural mechanism takes a lot of time as well by carrying lengthy investigations and collecting data and other useful material which goes on for few months causing delay.
  3. Digital currency : There exist new technological developments by the way of digital currency. The crypto currency or the bitcoins are the ones through which transaction can take place over internet. This becomes a reason for money laundering when it is used as a way of illegal transaction. The chain of transaction takes place with the storing of the fiat coins and then, cashing it for alternate cash method. They do it by the way for forming a block chain reaction and covering up their tracks through layering up of a number of transactions. This causes harder to catch the person. Moreover, the act through the help of intermediary and verify their account which cannot then, be suspected of such activities.

Remedies/ Changes Required

The process of having an effective and efficient control mechanism is must as the challenges are increasing.

  • To have a secured and fully encrypted login and password credentials is must. It is necessary to ensure that whenever the unregistered and unauthorized attempts are made on the bank accounts or any other personal accounts; they can be easily caught and traced.
  • AI is the future of the world which cannot be denied. Development and investment in the artificial intelligence can help in the problem solving. It will help in detecting any kind of scrupulous activity happening in the website or any account and to trace the steps back to the person conducting the same at a faster rate.
  • The confidentiality of the financial transactions should be maintained appropriately so that the breach does not occur. This confidentiality makes it possible that the transactions take place in a secure and healthy way and that they are not inadequately dispersed or breached in a way to be accessible to public.
  • There is a need for an action plan which will bring about the involvement of authorities and state, central figures to issue faster procedural aspects which will curtail to catching of the person involved in the process.
  • One of the major problems is that people are not aware of these issues. The welfare and awareness schemes are necessary so that they are careful and take diligent efforts while engaging in e-commerce or in transactions online. The duping or cheating people through these means is there and so, the security of network and procedural awareness by people should be there.
  • The specialized strategies and the framework that provides for the protection against cyber laundering are necessary. For that matter, the changes, amends and modifications in the current or existing legislation.

Thus, these are some of the changes and remedies that can be applied in the case of the cyber money laundering..


Thus, to sum up it can definitely be said that there exist the new form of money laundering at current which is cyber laundering. It happens at a much larger and apparent stage on the digital world. This is the reason that the illegal transactions being converted to legal and legitimate ones are causing several challenges and problems in the law as well as the management prospect. They can only be reduced or stopped by the way of effective mechanism and implementation of legal forces, enactments and legislative framework in the matter.


Arushi Anand
College: Vivekananda Institute of Professional Studies