Prevention of Money Laundering Act, 2002 (PMLA 2002): Courts on curbing Financial Terrorism

Money Laundering, most commonly understood to as the conversion of black money into white money, has time and again been held to be one of the most serious offences by the Courts in India.

The Prevention of Money Laundering Act, 2002 was passed in furtherance of United Nations resolution (June 1998) to curb and deter economic offences.  It imposes criminal liability on those who know or suspect that someone is involved in laundering the proceeds of crime and fail to report it. The act money laundering involves the process of placement, layering and integration of “proceeds of crime” as envisaged under Section 2 (u) of the Act, derived from criminal activity into mainstream fiscal markets and transmuted into legitimate assets. It has been realized globally that laundering of tainted money having its origins in large scale economic crimes pose a solemn threat not only to the economic stability of nations but also to their integrity and sovereignty.

The offence of money laundering has been made punishable and defined under Section 3 of the Prevention of Money-Laundering Act, 2002 as 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 and projecting it as untainted property shall be guilty of offence of money-laundering.

Recently, the Orissa high Court in Mohammad Arif v. Directorate Of Enforcement, Govt. Of India[1]passed an order rejecting bail application of the accused alleged to be involved in money laundering mainly on grounds that (i) presence of knowledge is not a sin qua non for holding the accused culpable under the Act; and that (ii) the discretion of the Court in granting of a bail has to be exercised judiciously in cases involving economic offences as they are nothing but acts of financial terrorism that pose a serious threat not only to the financial system of the country but also to the integrity and sovereignty of a nation.

The accused herein is alleged to have been involved in floating money amounting to approx. 703 crores by way of a multi layer ponzi scheme inviting deposits from public by inducing the them through misrepresentation and promising immediate refund in case of any default and timely payment of return. Investigation further revealed that this money immediately got transferred to different bank accounts of individuals as well as firms under the management and control of the accused and his associates.

The Court held that the Machiavellian layering by the accused in this case is nothing but an act of sheltering “proceeds of crime” as it appears that he along with others have attempted to project the same as untainted money by transferring the same to different bank accounts in a bid to camouflage it and project it to be genuine transactions. “Proceeds of crime” as envisaged under Section 2 (u) of the PML Act means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property.

The Court very clearly opined that the question of a “pre-existing knowledge” in the act of money laundering is not a deciding factor of culpability as whether the accused had prior knowledge needs to be culled out from the facts and circumstances of each case; and even otherwise, the use of the disjunctive “or” in Section 3 makes it clear that presence of knowledge is not the only criteria making the accused culpable under the Act.

Section 45 of the PML Act makes the offence of money laundering cognizable and non-bailable and provides that no person accused of an offence under PMLA shall be released on bail or on his own bond unless the twin conditions have been satisfied (i) that the Public Prosecutor has been given an opportunity to oppose the application for such release and (ii) where the Public Prosecutor opposes the application, the court is satisfied that there are “reasonable grounds for believing” that the accused is not guilty of such offence and the accused is not likely to commit any offence while on bail.  Section 45 has been amended (by the Amendment Act 13 of 2018) whereby the original expression “imprisonment for a term of more than three years under Part A of the Schedule“(pre-amendment) now stands substituted by the expression “no person accused of an offence under this Act shall be released on bail or on his own bond”.  The twin conditions under Section 45(1) for the offences classified under in Part-A of the Schedule was held arbitrary and discriminatory and invalid in Nikesh Tarachand Shah v. Union of India and Another.[2]

Section 24 of the PML Act creates presumption of guilt and places burden of proving the proceeds of crime as untainted money on the accused. As opined in Rohit Tandon vs. Directorate of Enforcement[3], while deciding on a bail applications, both provisions under Section 45 and 24 will have to apply simultaneously.

The Courts in State of Gujarat v. Mohanlal Jitamalji Porwal and others[4] observed that an economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless to the consequence to the community.

The Supreme Court in Y.S. Jagan Mohan Reddy v. CBI[5] observing that economic offences constitute a class apart has held that:

“Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offences having deep-rooted conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country.

While granting bail, the court has to keep in mind the nature of accusations, the nature of evidence in support thereof, the severity of the punishment which conviction will entail, the character of the accused, circumstances which are peculiar to the accused, reasonable possibility of securing the presence of the accused at the trial, reasonable apprehension of the witnesses being tampered with, the larger interests of the public/State and other similar considerations.”

The offence of Money Laundering is nothing but an act of financial terrorism that poses a serious threat not only to the financial system of the country but also to the integrity and sovereignty of a nation. The International Monetary Fund estimates that laundered money generates about $590 billion to $1.5 trillion per year, which constitutes approximately two to five percent of the world’s gross domestic product.

The Supreme Court of India has consistently held that economic offences are sui generis in nature as they stifle the delicate economic fabric of a society. These offences permeate to human consciousness posing numerous questions on the very integrity of the business world. The act of money laundering is done in an exotic fashion encompassing a series of actions by the proverbial renting of credibility from the innocent investors. The offenders often target the unsuspecting, rural and economically distressed populations of our state who while hoping for a dreamy return, part with their hard-earned monies. The abuse of financial system has great potential to negatively impact a country’s macro economic performance and may also adversely impact its cross-border externalities. Such an offence can inflict reputational damage of the country in the world of business and commerce both inside the country and abroad.[6] The Courts have thus always taken serious view in cases involving large scale white collar economic offences.

Notes:-

[1] 2020 (7) TMI 425

[2] (2018) 11 SCC 1

[3] (2018) 11 SCC 46.

[4] (1987) 2 SCC 364

[5] (2013) 7 SCC 439

[6] Mohammad Arif v. Directorate of Enforcement, Govt. Of India, 2020 (7) TMI 425

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I am Graduate in B. Com(Hons) in 2001 from Delhi University and also Law Graduate, Fellow Member of the ICSI and Fellow Member of the Institute of Chartered Accountants of India Since 2003 and into practice since then. I got rich experience in handling the matters at CIT (Appeals), High Court, C View Full Profile

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