LIJDLR

financial regulation

SHADOW BANKS AND DIRTY MONEY: INVESTIGATING THE USE OF NBFCS IN MONEY LAUNDERING AND FINANCIAL CRIMES

Volume III Issue III /

SHADOW BANKS AND DIRTY MONEY: INVESTIGATING THE USE OF NBFCS IN MONEY LAUNDERING AND FINANCIAL CRIMES Sudiksha Dhungel, B.Com. LL. B (Hons), Institute of Legal Studies and Research, GLA University (India). Suyash Upadhyay, B. Com (Hons), Shri Ram College of Commerce, University of Delhi (India). Download Manuscript doi.org/10.70183/lijdlr.2025.v03.96 This paper examines how, despite their role in providing access to financial services, Non-Banking Financial Companies (NBFCs) have emerged as significant facilitators of money laundering in India. This is brought on by legal loopholes, lax enforcement of anti-money laundering regulations, and a lack of systemic openness. Using a qualitative doctrinal approach, augmented by a small amount of quantitative data, and by looking at actual instances of high-profile financial crimes like the PMC-HDIL fraud and the Chinese lending app scam, the paper dissects money laundering techniques like shell companies, round-tripping, hawala operations, and fake loans. The regulatory frameworks of banks and NBFCs are thoroughly compared, compliance with RBI and PMLA standards is assessed, and potential regulatory adjustments are delineated. The findings demonstrate that the NBFC sector is now more exposed due to inadequate monitoring, uneven enforcement of KYC/AML regulations, and a lack of agency cooperation. The study is limited, though, in that it only uses secondary sources; field interviews, direct data collecting, and access to internal compliance records are not included. The study comes to the conclusion that until India moves toward centralized risk intelligence and predictive, technology-integrated regulation, NBFCs will remain high-risk facilitators of illicit funding.

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REGULATORY INNOVATION OR LEGAL EROSION? INVESTIGATING THE ACCIDENTAL ARBITRAGE CREATED BY GIFT CITY’S DUAL FINANCIAL REGIME

Volume III Issue II /

REGULATORY INNOVATION OR LEGAL EROSION? INVESTIGATING THE ACCIDENTAL ARBITRAGE CREATED BY GIFT CITY’S DUAL FINANCIAL REGIME Devesh, Fourth Year B.Com LL.B. (Hons.) Student at Institute of Law, Nirma University, Ahmedabad Radhika Dinesh, Fourth Year B.Com LL.B. (Hons.) Student at Institute of Law, Nirma University, Ahmedabad Download Manuscript doi.org/10.70183/lijdlr.2025.v03.54 This paper provides a comprehensive analysis of the legal and constitutional ramifications arising from establishing and operating the Gujarat International Finance Tec-City (GIFT City) and its International Financial Services Centre (IFSC). Conceived as a flagship initiative to position India as a global financial hub, GIFT City offers a suite of regulatory exemptions, tax incentives, and operational flexibilities designed to attract international capital and financial institutions. However, the paper argues that these exceptional measures have created a parallel regulatory regime that contrasts India’s unified financial architecture. Through doctrinal and comparative legal analysis, the authors explore how GIFT City’s unique framework facilitates regulatory arbitrage, enabling entities to bypass domestic regulations related to taxation, capital controls, and insolvency. The paper highlights the risks of forum shopping, tax base erosion, and the dilution of investor and creditor protections, drawing on both Indian and international precedents. It further examines the constitutional questions raised by the selective privileges granted to GIFT City entities, particularly about the principles of equality before law, fiscal federalism, and the separation of powers between the legislature and the executive. The study also assesses the broader policy implications of allowing such regulatory enclaves within the Indian legal system, including potential impacts on market integrity, regulatory coherence, and public accountability. In conclusion, the paper offers targeted policy recommendations to reconcile GIFT City’s operational objectives with India’s constitutional and regulatory commitments. These include enhancing transparency, instituting robust economic substance requirements, and ensuring integrated oversight by domestic regulators to prevent the emergence of enclave exceptionalism and to safeguard the integrity of India’s financial and legal systems.

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