"We must remember that economic activity must not be hindered by mindless investigation and prosecutions... All legitimate trading and investment activity must be fully respected and protected even while we investigate crimes involving money and laundering of money," he said while addressing officials of Enforcement Directorate (ED).
He further said caution was necessary in deciding which cases to prosecute under the money laundering law. "Otherwise, we will be overwhelmed with cases that we would be required to prosecute," he said.
The ED, which probes cases involving foreign exchange violation and laundering of money, is investigating alleged violation of FEMA regulation by cash and carry chain Bharti-Walmart, money laundering by Saradha Group and other high profile cases.
"What drives the economy is trade and investments, especially foreign trade. Investments can flow both ways... We must facilitate foreign trade. We must facilitate investments," Chidambaram said.
Stating that money laundering was behind crimes like human and drug trafficking and terror financing, the Minister called for greater international cooperation to deal with the menace.
"It is important that agencies across the world cooperate, share technology, share information and chase the offenders," Chidambaram said.
Extending support to the measures taken by ED to come down heavily on violators of foreign exchange laws, the Minister said that there was a need to strengthen the directorate and fill up the positions lying vacant for long.
"I would like to appeal to the CVC, UPSC and Department of Personnel and Training (DoPT) to please understand the gravity of situation arising out of these vacancies and work harder and quicker to ensure that these vacancies are filled," Chidambaram said.
The biggest limitation is number of people attached to the department, he said, adding that against the sanctioned strength of 2,064, it has in place only 660 people, leaving 1,404 vacancies.
Elaborating on the provisions of the Prevention of Money Laundering Act (PMLA), the Minister said: "The PMLA rests on the principle of a predicate crime and when there is an offence which has anything that has to do with proceeds of crime.
"Even if you are acquitted in the trial of a predicate crime, it is possible that you could be convicted of an offence under money laundering," he said.
The Minister further said that theft, breach of trust, misappropriation and cheating could throw up cases of money laundering, but the ED must carefully select the cases for prosecution.