BEYOND THE PAPER TRAIL: Digital Hawala and the Enforcement Gaps in India's Anti-Money Laundering Regime

Abstract

The rapid digitalisation of financial systems has transformed illicit financial transactions, enabling traditional hawala networks to operate through online banking, fintech platforms, virtual digital assets, and encrypted communication technologies. While these innovations improve financial accessibility, they also complicate the detection and prosecution of money laundering offences. The Prevention of Money Laundering Act, 2002 (PMLA) is India's primary anti-money laundering legislation; however, its effectiveness in addressing technology-enabled hawala networks remains a challenge. This paper adopts a doctrinal and comparative approach to evaluate the adequacy of the PMLA by examining its statutory framework, the enforcement role of the Enforcement Directorate (ED) and the Financial Intelligence Unit-India (FIU-IND), judicial developments, and reporting obligations. Drawing on the Financial Action Task Force (FATF) Recommendations and international anti-money laundering frameworks, the paper identifies regulatory gaps and advocates technology-driven reforms, including AI-enabled financial intelligence, stronger compliance measures, enhanced inter-agency coordination, and improved cross-border cooperation. It concludes that modernising India's anti-money laundering framework is essential to effectively combat digital hawala while balancing financial innovation, regulatory efficiency, and due process.