The "Sui Generis" Legislation

The recent decision of the Supreme Court of India in Vijay Madanlal Choudhary vs. Union Of India, wherein the constitutionality of various provisions of the Prevention of Money Laundering Act, 2002 (“PMLA”) were challenged has generated strong reactions. The three-member bench’s judgement has upheld most of the provisions of PMLA which had been challenged in a batch of over 240 petitions. Let us understand what the judgement has left us with.

Object of PMLA
The Parliament enacted PMLA as a result of international commitment to sternly deal with the menace of money-laundering of proceeds of crime having transnational consequences on the financial systems of the countries and also to their integrity and sovereignty.

The Preamble represents that PMLA has been enacted to prevent money- laundering and to provide for confiscation of property derived from or involved in money-laundering and for matters connected therewith or incidental thereto. It is neither a pure regulatory legislation nor a pure penal legislation.

The expanse of the provisions of PMLA is of prevention of money- laundering, attachment of proceeds of crime, adjudication and confiscation thereof, including vesting of it in the Central Government and also setting up of agency and mechanism for coordinating measures for combating money-laundering.

Various Amendments to PMLA
The Petitioners had questioned the amendments brought about by the Parliament by taking recourse to Finance Bill/Money Bill. This ground of challenge was not examined in these proceedings as it is pending for consideration before a Larger Bench in view of the reference order passed in Rojer Mathew vs. South Indian Bank Limited and Ors.

Proceeds of crime
The “proceeds of crime” being the core of the ingredients constituting the offence of money-laundering needs to be construed strictly. All properties recovered or attached by the investigating agency in connection with the criminal activity relating to a scheduled offence under the general law cannot be regarded as proceeds of crime. To be proceeds of crime, the property must be derived or obtained, directly or indirectly, “as a result of” criminal activity relating to a scheduled offence.

Possession of unaccounted property acquired by legal means may be actionable for tax violation and yet, will not be regarded as proceeds of crime unless the concerned tax legislation prescribes such violation as an offence and such offence is included as a scheduled offence under PMLA.

The Vienna Convention and the Palermo Convention were the very initial International Conventions attempting to establish a world order to curb money- laundering. They gave a very wide interpretation to the concept of money- laundering and a consensus can be seen that acquisition, possession, use, concealing or disguising the illicit origin of illegitimately obtained money to evade legal consequences would be money-laundering.

Dealing with proceeds of crime by way of any process or activity constitutes an offence of money-laundering under Section 3 of PMLA. Section 3 of PMLA defines the offence of money-laundering. The expression “money-laundering”, ordinarily, means the process or activity of placement, layering and finally integrating the tainted property in the formal economy of the country. Section 3 states that

"Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering."

Thereafter came the insertion of an Explanation to this Section in the year 2019 which (i) interpreted the word “and” above as “or” and (ii) introduced a new concept that the offence of money laundering would continue till the benefits are enjoyed by the person concerned from the tainted property, thereby making the offence of money laundering in India a continuing offence.

The Explanation (i) now made Section 3 widely worded with a view to not only investigate the offence of money-laundering but also to prevent and regulate that offence. This provision plainly indicates that any and every process or activity connected with the proceeds of crime results in offence of money-laundering. Projecting or claiming the proceeds of crime as untainted property, in itself, is an attempt to indulge in or being involved in money-laundering, just as knowingly concealing, possessing, acquiring or using of proceeds of crime, directly or indirectly.

The Explanation (ii) now meant that even though the criminal activity may have been committed before the crime had been notified as a scheduled offence for the purpose of PMLA, if a person has indulged in or continues to indulge directly or indirectly in dealing with proceeds of crime, derived or obtained from such criminal activity even after it has been notified as scheduled offence, he or she may be liable to be prosecuted for the offence of money-laundering. Therefore, the offence of money-laundering is not dependent on or linked to the date on which the scheduled offence is committed.

It includes all proceedings under PMLA conducted by the Director or an Authority authorised by the Central Government under PMLA for collection of evidence. The expression “proceedings” is given an expansive meaning to include actions of the Authorities and of the Adjudicating Authority, including before the Special Court.

The task of the Director or an Authority authorised by the Central Government under PMLA for the collection of evidence is the intrinsic process of adjudication proceedings. In that, the evidence so collected by the Authorities is placed before the Adjudicating Authority for determination of the issue as to whether the provisional attachment order issued under Section 5 deserves to be confirmed and to direct confiscation of the property in question. The expression “investigation”, therefore, is to be be regarded as interchangeable with the function of “inquiry” to be undertaken by the authorities for submitting such evidence before the Adjudicating Authority.

There must be a crime
For PMLA offence to come into play there must be an FIR registered for an offence mentioned under any of the schedules of PMLA. These offences can be termed as scheduled offences. The offence of money laundering is dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence.

The authorities under PMLA cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the police or pending inquiry by way of complaint before the competent forum.

Similarly, in the event the person named in the crime relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the criminal case against him/her, there can be no action for money-laundering against such a person or person claiming through him in relation to the property linked to the stated scheduled offence.

Provisional Attachment
To initiate “prosecution” for offence under Section 3 of PMLA registration of scheduled offence is a prerequisite, but for initiating action of “provisional attachment” under Section 5 of PMLA, there need not be a pre-registered criminal case in connection with scheduled offence. Thus, it may extend to a person who has not yet been named as an Accused in an FIR having scheduled offences. However, Section 5(1) envisages that such an action can be initiated only on the basis of material in possession of the authorised officer indicative of any person being in possession of or involved in any process or activity connected with the proceeds of crime and not just an assumption or presumption.

In case the scheduled offence is not already registered by the jurisdictional police or complaint filed before the Magistrate, it is open to the authorised officer to send information to the jurisdictional police under Section 66(2) of PMLA for registering FIR in respect of cognizable offence or report regarding non-cognizable offence.

If such property is taken or held outside the country, even in such a case, the property equivalent in value held within the country or abroad can be proceeded with as it is the legislative intent to recover the proceeds of crime and vest it in the Central Government for effective prevention of money-laundering.

Conducting Search and Seizure
For initiating action of search and seizure under Section 17 of PMLA, there need not be a pre-registered criminal case in connection with scheduled offence. The inbuilt safeguards are said to be that only the rank of Director or Deputy Director authorised by the Director in that regard, can conduct search and seizure and they must adhere to other stipulations of recording of reasons regarding the belief formed on the basis of information in their possession about commission of offence of money-laundering and possession of proceeds of crime involved in money-laundering.

Conducting Search of a person
For conducting search of a person under Section 18 of PMLA, there need not be a pre-registered criminal case in connection with scheduled offence. In addition to the similar safeguards as mentioned above, the Authority is obliged to take the person who is about to be searched to a Gazetted Officer or a Magistrate before the search of such person is carried out.

Statement before the Authority when summoned
If the statement made by a person who has been summoned under Section 50 of PMLA reveals the offence of money-laundering or the existence of proceeds of crime, that becomes actionable under PMLA. At the stage of recording of statement for the purpose of inquiring into the relevant facts in connection with the property being proceeds of crime is not an investigation for prosecution as such; and in any case, there would be no formal accusation against the person summoned. However, after further inquiry on the basis of other material and evidence, if the involvement of such person is revealed, the authorised officials can certainly proceed against the person for acts of commission or omission. In such a situation, at the stage of issue of summons, the person cannot claim protection under Article 20(3) of the Constitution which is right against self-incrimination.

However, if the person’s statement is recorded after a formal arrest by the ED official, the consequences of Article 20(3) or Section 25 of the Evidence Act may come into play to urge that the same being in the nature of confession, shall not be proved against the person.

Enforcement Case Information Report (ECIR)
Considering the mechanism of inquiry/investigation for proceeding against the property (being proceeds of crime) under PMLA by way of civil action (attachment and confiscation), there is no need to formally register an ECIR, unlike registration of an FIR by the local police in respect of cognizable offence under the ordinary law. ECIR is an internal document created by the department before initiating penal action or prosecution against the person involved with process or activity connected with proceeds of crime. Thus, ECIR is not a statutory document, nor there is any provision in PMLA requiring the Authority to record ECIR or to furnish a copy thereof to the accused. The fact that such ECIR has not been recorded, does not come in the way of the Authorities to commence inquiry/investigation for initiating civil action of attachment of property being proceeds of crime by following prescribed procedure in that regard.

If the Director, Deputy Director, Assistant Director, or any other officer authorised in this behalf by the Central Government, has material in his possession giving rise to reason to believe that any person has been guilty of an offence punishable under the PMLA, he may arrest such person. If necessary, any person may be arrested for being involved in the commission of offence of money-laundering even before filing of the complaint before the Special Court under Section 44(1)(b) of PMLA in that regard. It is enough, if the Enforcement Directorate at the time of arrest, contemporaneously discloses the grounds of such arrest to such person. It is not mandatory to furnish a copy of ECIR to the Accused.

Twin conditions for Bail and Anticipatory Bail
While granting bail the Court has to observe the twin conditions which are:-

  1. There are reasonable grounds for believing that the accused is not guilty of offence of money-laundering.
  2. That he is not likely to commit any offence while on bail.
After arrest, the manner of dealing with an Accused involved in offence of money-laundering would then be governed by the provisions of the Code of Criminal Procedure as there are no inconsistent provisions in PMLA in regard to production of the arrested person before the jurisdictional Magistrate within twenty-four hours and also filing of the complaint before the Special Court within the statutory period, if not released on bail before expiry thereof.

An exception is carved out to the strict compliance of the twin conditions in the form of Section 436A of the Code of Criminal Procedure, which could be invoked by an Accused arrested for an offence punishable under PMLA, being a statutory bail. This Section states that where a person has, during the period of investigation, inquiry or trial of an offence (not being an offence for which the punishment of death has been specified as one of the punishments under that law) undergone detention for a period extending up to one- half of the maximum period of imprisonment specified for that offence under that law, he or she shall be released by the Court.

Burden of Proof
The prosecution or the Authorities have to succeeded in establishing at least three basic or foundational facts:-

  1. That the criminal activity relating to a scheduled offence has been committed.
  2. That the property in question has been derived or obtained, directly or indirectly, by any person as a result of that criminal activity.
  3. The person concerned is, directly or indirectly, involved in any process or activity connected with the said property being proceeds of crime.
On establishing these foundational facts in terms of Section 24 of PMLA, a legal presumption would arise that such proceeds of crime are involved in money-laundering.

The person falling under the first category of Section 24 is a person charged with the offence of money-laundering, which presupposes that a formal complaint has already been filed against the person by the Authority authorised naming the person as an Accused in the commission of the offence of money-laundering. Therefore the Court “shall presume” that proceeds of crime are involved in money-laundering.

The person falling under the second category is a person other than the person charged with the offence of money-laundering under Section 3 of PMLA. In this case, the Court “may presume” that proceeds of crime are involved in money-laundering. This is essentially a factual presumption or discretionary presumption. This presumption is not a mandatory legal presumption, unlike in the case falling under the first category.

The provisions of PMLA are not only to investigate into the offence of money- laundering, but more importantly to prevent money-laundering and to provide for confiscation of property related to money-laundering and matters connected therewith and incidental thereto.

The Hon’ble Supreme Court has termed PMLA as a sui generis (unique) legislation, not only dealing with the prevention, detection, attachment, confiscation, vesting and making it obligatory for the banking companies, financial institutions and intermediaries to comply with certain essential formalities and make them accountable for failure thereof, but also permits prosecution of the persons found involved in the money- laundering activity.

By - Lakshmi Raman