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Prevention of Money Laundering Act, 2002 (PMLA) was 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, which came into force w.e.f. 01.07.2005 and thereafter, has undergone multiple amendments from time to time, extending the scope and reach of this special law enacted to prevent money laundering, with both civil and criminal consequences.

The administrative and implementing agency to enforce this law is the Enforcement Directorate (ED) with a wide range of powers and authorities including that of arrest, prosecution, attachment and confiscation under the various provisions of the Act. The judicious and/or non-judicious, justified and/or unjustified, use and/or misuse or abuse the power and authorities conferred, are not unheard of.

The statute as originally enacted was already a stringent piece of law to deal with an structured organized crime of money laundering involving cross border implications by laundering of crime-money which in-turn further perpetuates and promotes serious crimes like terror-funding, narcotics and such other heinous crimes, venturing into being a global problem for which international community came together for having stringent laws to investigate and prosecute such offenders of money laundering.

Prevention of Money Laundering Act, 2002 Stringent becoming more Stringent

However, over the period of time of its implementation, this statute PMLA lost sight of its prime object i.e., dealing with such serious organized crimes and ventured into offences of far lesser gravity by extending the list of scheduled offences to include all sorts of offences from IPC 1860, company law, tax laws, bank loan defaults to even environmental law, immigration law, trademark and copyright infringement, with a long list of all sorts of offences, the proceeds wherefrom is alleged to be proceeds of crime and the criminal and civil consequences follow in terms of arrest, prosecution, attachment and confiscation proceedings by the ED, without hardly any effective safeguards for the suspect and/or accused and with hardly any effective remedy under this stringent law which by way of amendments made it more and more stringent and tilted in favor of the ED.

Aggrieved with these ground realities and excessive abuse of power, coupled with legislative overreach by such lop sided amendments, a batch of Petitions challenging the constitutional validity of many such provisions of PMLA came to be filed before the Hon’ble Supreme Court of India, which the Hon’ble Court decided on 27.07.2022, while holding valid almost all the stringent provisions of PMLA considering money laundering to be a very serious and heinous crime against the entire economic fabric and with larger international amplitude. With all humbleness, humility and utmost regard, the Petitioners somehow missed to convince the Hon’ble Court about the blatant abuse of these powers and authorities in the hands of ED. The judgement over relied on the statutory safeguards which the authorities below, hardly adhere to in its letter and spirit, rendering the suspects and/or accused with hardly any effective legal remedy and the judgement left the petitioners high and dry seeking the legal recourse with lower authorities and to face the excessiveness in the implementation of this Act.

Some of the issues as decided in the above judgement in the lead matter of Vijay Madanlal Choudhary & Ors Vs. Union of India, SLP(Crl.) No. 4634 of 2014 are discussed hereunder,

1. Aims and Objects: The Hon’ble Court distinguished the PMLA being a preventive law to prevent money laundering, before the offence of money laundering is actually committed, and therefore, holding that it is not a law which only investigates and prosecutes the offenders after commitment of the offence, but it is preventive in nature. This preamble of the PMLA seems to be quite impressed upon in interpretation of various stringent provisions and constitutional validity thereof, read with such aims and objects of the Act. Further, the international amplitude of money laundering offence and the recommendations and observations of Financial Action Task Force (FTAF) in the light of international conventions also seems to have played a vital role in its background, in interpretations given in the aforesaid judgment.

2. Statements recorded before ED admissible in Evidence: The argument that the functioning of ED while doing investigation is like that of the police and therefore, the same protection should be available regarding the statements recorded before ED, was rejected by the Hon’ble Court by holding that the “investigation” under PMLA is akin to “inquiry” and thus, in the nature of collecting evidence and further until a prosecution complaint is filed, the inquiry through summons under Section 50 of PMLA and recording of the statement therein at that stage, the person facing such inquiry cannot be termed as “accused” and therefore, the statements before ED cannot be equated with the statements before the Police and the argument that such statements before ED should be inadmissible under Section 25 of the Indian Evidence Act, 1872 was not accepted by the Court and further, at that stage of “inquiry” when the person facing such inquiry is not an “accused” at that stage, the protection under Article 20(3) of the Constitution of India of self-incriminating witness has no applicability.

3. Scope of Money Laundering Offence: It was an argument before the Hon’ble Court that offence of money laundering in terms of Section 3 of PMLA is not complete until and unless, it is not proved by the prosecution that apart from the “accused” being involved in concealment, acquisition, possession etc. of property involved in money laundering, the prosecution has to further prove that the accused was involved in projecting or claiming the proceeds of crime as untainted property and it is only thereafter, an offence under section 3 of PMLA, can be made out. The explanation to Section 3 inserted by Finance Act, 2019 making the projection of proceeds of crime, an independent offence apart from other activities of concealment, acquisition, possession, etc., which themselves are independent offence, was under challenge before the Hon’ble Court, such explanation being ultravires of the main provision of Section 3 itself which defines the offence of money laundering. The Hon’ble Court upheld the validity of the explanation, holding it to be only clarificatory in nature whereas the judgment held that the main provision itself was to prescribe all the activities therein to be independent offence of money laundering and the word “and” was to be read as “or”. Thus, all the activities connected with proceeds of crime were upheld to be independent and sufficient to make out the offence of money laundering as clarified by way of explanation inserted by Finance Act, 2019.

4. Proceeds of Crime: It has been upheld by the Hon’ble Court that all the property derived or obtained, whether directly or indirectly, both constitutes “proceeds of crime” and it includes the value of such property and further, when such property is taken or held outside the country, then the property equivalent in value held within the country or abroad also, constitutes “proceeds of crime”. It has been upheld by the Hon’ble Court that “proceeds of crime” is essential ingredient for any offence to be made out in terms of Section 3 of PMLA. “Proceeds of crime” means any property which comes as result of any criminal activity relating to scheduled offence in terms of clause (u) of Section 2(1) of PMLA. Without the property being part of “proceeds of crime”, it cannot be subject to any attachment and/or confiscation proceedings and the expressions “proceeds of crime” has to be construed strictly. Any property being derived or obtained in connection with any criminal activity related to any scheduled offence, if it is exchanged for any other property, such exchanged property also constitutes “proceeds of crime”.

5. Money Laundering not a Standalone Offence: The next question before the Hon’ble Court was whether the offence of money laundering under Section 3 of PMLA is a standalone offence and therefore whether the trial of money laundering offence can stand on its own without and independent of, the trial of the scheduled offence. the Hon’ble Court held that offence of money laundering as defined under Section 3 is dependent on “proceeds of crime” which itself is defined as a property out of criminal activity relating to as scheduled offence. Therefore, there can be no offence made out under Section 3 of PMLA without any scheduled offence. And if, a person is acquitted under the trial pertaining to scheduled offence, then no proceeds of crime can be proved and thus no offence of the PMLA can survive. However, the Hon’ble Court held that the action under PMLA can precede the scheduled offence in as much as, if in any “investigation” under PMLA, the Ed uncovers any scheduled offence, then the ED can pass on the information to the jurisdictional Police under Section 66(2) of the PMLA and then the Police can register an FIR on information received from ED and then, both the trials, one under PMLA and another for the scheduled offence, can proceed simultaneously.

6. Attachment Proceedings: The next issue before the Hon’ble Court was regarding the attachment proceedings under Section 5 of PMLA, wherein, the main provision regarding attachment stipulates twin conditions, namely, that (a) any person is in possession of any proceeds of crime and (b) such proceeds of crime are likely to be concealed, transferred or dealt with, in any manner, which may result in frustrating any proceedings relating to confiscation of such proceeds of crime. Before initiating such attachment proceedings, the ED has to record reasons in writing. The first proviso to Section 5 of PMLA, provides the safeguard that attachment proceedings shall not be made unless a charge sheet has been filed relating to scheduled offence u/s 173 of Code of Criminal Procedure (CrPC). This protection is provided for initiation of attachment proceedings such that attachment proceedings are initiated only after an investigation into the scheduled offence, resulting into filing of chargesheet therein. However, this protection available upto the stage of filing of chargesheet in scheduled offence, has been taken away by virtue of second proviso, wherein, notwithstanding the protection under first proviso, the ED can initiate attachment proceedings on recording specific reasons in writing, based on material in its possession that if such property involved in money laundering is not attached immediately, the non-attachment of such property is likely to frustrate any proceedings under PMLA. It is a common knowledge that almost in all cases, the ED invokes the second proviso and hardly waits for the chargesheet in scheduled offence. The Hon’ble Court has upheld the second proviso in the light of aims and objects of PMLA, particularly, when the statute is for prevention of money laundering. However, the Hon’ble Court has held that the second proviso should be invoked only in appropriate cases where immediate attachment is required on the basis of material with the ED in its possession. The Hon’ble Court has even observed that the attachment proceedings can be initiated even before lodging of FIR pertaining to the scheduled offence, taking into account that the FIR in scheduled offence may be registered as a result of investigation by ED by sharing relevant information by ED with the jurisdictional Police u/s 66(2) of PMLA.

7. Possession of Property by ED: Another issue raised before the Hon’ble Court was that on confirmation of provisional attachment order u/s 8(3) of PMLA, the ED has been given authority to, forthwith, take possession of the property attached, as provided for u/s 8(4) of PMLA, whereas the trial for the money laundering offence before the Special Court may be pending and even when, the prosecution complaint by ED is still to be filed u/s 44(1)(b) of PMLA, and ED is still investigating the offence of money laundering. The Hon’ble Court held that the provision of possession in terms of section 8(4) of PMLA ought to be invoked only in exceptional situations keeping in mind the peculiar facts of the case. Merely because the provisional attachment order u/s 5 of PMLA is confirmed, it does not follow that the property stands confiscated and there is no reason to hasten the process of taking possession of such property. That this taking over of possession is certainly avoidable, unless it is absolutely necessary to invoke the option u/s 8(4) of PMLA. This provision should be an exception and not as a rule. Thus, a saving grace has been provided in the judgment, though, it is to be seen as to how much the ED will adhere to such guidelines.

8. Search and Seizure: The next issue before the Hon’ble Court was pertaining to search and seizure u/s 17 of PMLA. There was protection available in terms of proviso to section 17(1) to the effect that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to the Magistrate u/s 157 of CrPC. This protection has been taken away by omitting this proviso to Section 17 (1) of PMLA, by the Finance Act, 2019. The Hon’ble Court upheld the omission of the proviso by the Finance Act, 2019, after taking into account the nature of PMLA being a special self-contained law and the aims and objects of the PMLA Act, being prevention of money laundering.

9. Arrest: The next issue before the Hon’ble Court was about the power of arrest available with the ED in terms of Section 19 of PMLA without even providing the copy of ECIR which the Petitioners argued to be equivalent to FIR and thus, should mandatory be available to the person being inquired and/or arrested. The ECIR was accepted to be an internal document of ED and not equivalent to FIR. The Hon’ble Court upheld the provisions of Section 19 pertaining to the arrest for custodial interrogation. The Hon’ble Court held that the PMLA is not limited to provide for prosecution of the person involved in the offence of money laundering, but mainly intended to prevent the money laundering activities. The Hon’ble Court found that the provisions of Section 19 providing for the reasons to be recorded in writing by high-ranking officials, constitute sufficient safeguards and thus, upheld the current provisions of arrest in terms thereof.

10. Bail: Further, the stringent provisions of granting bail as per the provisions of Section 45 of PMLA were challenged before the Hon’ble Court. The Hon’ble Court upheld the constitutional validity of the twin conditions provided for u/s 45 of PMLA to grant bail, namely, (a) the public prosecutor has to be given an opportunity to oppose the application of bail, and (b) where the Public Prosecutor opposes the bail application, the trial court has to record its satisfaction that there are reasonable grounds for believing that the accused is not guilty of the offence of money laundering and that he is not likely to commit any offence while on bail. These twin conditions are very strict and stringent in nature, in as much as, the trial court is required to record its satisfaction of believing for the accused to be not guilty and such a condition at the stage of bail is quite excessive by any standard and particularly, when the imprisonment for the offence of money laundering is 3-7 years only. The Hon’ble Court upheld that the legislation was competent to remove the constitutional infirmities noted by the Hon’ble Supreme Court in the matter of Nikesh Tarachand Shah vs. Union of India & Anr., (2018) 11 SCC 1 and thus, upheld the amendments made in Section 45 of PMLA by Amendment Act, 2018. The Hon’ble Court upheld the validity of the above twin conditions for grant of bail.

11. Burden of Proof: Likewise, the provisions of “reverse burden” in terms of section 24 of PMLA has been upheld by the Hon’ble Court, whereby once a person is accused of and charged with the offence of money laundering, the adjudicating authority and/or the trial court shall presume that such “proceeds of crime” are involved in money laundering until and unless the contrary is proved by the “accused”. This reverse burden is again a very stringent provision in criminal jurisprudence wherein it is a general understanding that any accused is supposed to be innocent until proven guilty by the prosecution on the basis of evidence of a degree which prove the offence beyond reasonable doubts.

The above is a summarized note of the latest judgement of the Hon’ble Supreme Court of India in the matter of Vijay Madanlal Choudhary & Ors Vs. Union of India, SLP(Crl.) No. 4634 of 2014, highlighting the main features and various provisions of PMLA as interpreted and decided by the Hon’ble Court, holding the said statute to be preventive in nature and not merely post facto investigation and prosecution, and further holding the offence of money laundering to be a very serious crime against the entire economy with wider amplitude of cross-border implications and therefore, justifying the stringent scheme of law.

Author: –  Vipin Garg, Advocate, AAVNA Legal, New Delhi | vipingarg@vgnc.in

Author Bio

The Author of this article is Managing Partner at AAVNA Legal, a law firm with a proficient and competent team of Advocates and Chartered Accountants, having legal expertise in the areas of Money Laundering (PMLA), Income Tax, Bankruptcy (IBC), Benami (PBPT), Taxation (Direct & Indirect Tax), Ec View Full Profile

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