Prosecutions Under PMLA: Provisions And Key Issues

1. Introduction

The Prevention of Money Laundering, 2002 ('PMLA') is the fundamental special legislation dealing with money laundering in India. The legislation follows the international legislative mandate to curb and enforce offences of money laundering. The penalties provided in the law include criminal prosecution leading to punishment and attachment and confiscation of properties. The law adopts the Code of Criminal Procedure, 1973 ('CrPC') with respect to the procedural law that is to be followed to prosecute an offender¹. However, such a procedure is adopted by CrPC to the extent that they are consistent with the provisions of the PMLA. Thus, the procedure followed in money laundering prosecutions is a combination of CrPC and PMLA and thus requires a conjoint reading and application. This article attempts to examine and analyze criminal prosecutions conducted in cases and trials dealing with the offence of money laundering, keeping in mind such conjoint applications as well as issues arising from the same.

1. Offence of money laundering and its punishment

1. 2(p) of the PMLA states that 'money laundering' has the meaning assigned to it in s. 3 of the PMLA which provides 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 [proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of the offence of money-laundering.'

The definition, as can be seen from the plain reading of the provision, covers a broad range of an individual's actions. It essentially states that an individual, whether directly or indirectly, attempts to get involved or is involved or attempts to assist or assists in any process or activity connected with proceeds of crime in the form of concealment, possession, acquisition or use and projecting or claiming it as untainted property, then that person will be guilty of the money laundering.

It is pertinent to understand the proceeds of crime which have been defined under s. 2(u) of the PMLA as, '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 or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad'; further, an explanation was also added to it through 2019 amendment which is read as 'Proceeds of crime' includes property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.

The term scheduled offence has been defined under s. 2(y) of the PMLA and reads as 'scheduled offence' means— (1) the offences specified under Part A of the Schedule; or (2) the offences specified under Part B of the Schedule if the total value involved in such offences is [one crore rupees] or more; or (3) the offences specified under Part C of the Schedule.

To be precise, if a person commits an offence which is mentioned in the schedule of the PMLA and such an act results in the generation of any property then that property will be considered as the proceeds of crime. Further, if any person is found involved in the concealment, possession, or use of such proceeds of crime; then he/she shall be guilty of money laundering.

1. 4 of the PMLA is a penal provision which states that the person who commits the offence of money laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years, but which may extend to seven years and shall also be liable to fine. It further adds that if the money laundering relates to any offence specified under paragraph 2 of Part A of the Schedule (like for the offence NDPS), the punishment can be extended to ten years.

III. Interplay between prosecutions of predicate offence and the offence of money laundering

The commission of a predicate / scheduled offence² is a mandatory pre-requirement for money laundering. Thus, in case a person commits a predicate offence which results in proceeds of crime, and he thereafter launders such proceeds, he shall have committed two offences: (i) the predicate offence, and (ii) the offence of money laundering. It is judicially settled now that the offence of money laundering is a separate and independent offence³, and that it is also not hit by the double-jeopardy prohibition contained in a. 20 of the Constitution⁴.

Since these two offences are so intertwined and the offence of money laundering is derived from the predicate offence, the prosecution or trial of both offences is supposed to be conducted by the same court. S. 44 of PMLA provides that in case the predicate offence is being tried by another court, such court shall commit the trial to the special money laundering court. A doubt, therefore, would arise as to whether these trials, being conducted together, are joint trials or not.

This has been clarified through the amendment brought in s. 44 via the 2019 Amendment Act which added an explanation reading as, 'the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial'.

The combined reading of both the mentioned provisions makes it apparent that money laundering is an independent offence. To illustrate this scenario more comprehensively, let us take an example where person A committed a scheduled offence that generated some proceeds of crime and gave such proceeds to B to conceal for a few days. Now, here A will be prosecuted for the scheduled offence as well as the offence of money laundering. However, contrary to this B will suffer the proceedings only for money laundering.

However, here it must be noted that once an accused is acquitted of the scheduled offence on merits, the proceedings under money laundering shall also abate and cease. So, in the above-mentioned example if A is acquitted under the scheduled offence proceedings, then the proceeding of money laundering against A and B will also be stopped since if there is no scheduled offence, then there is no proceed of crimes and if there is no proceed of crimes then the question of money laundering doesn't even arise. It is notable to refer to the decision of the Hon'ble Supreme Court ('SC') in the case of Vijay Madanlal Chaudhary⁵, where the court has approved the above.

1. Applicability of CrPC to money laundering prosecutions
2. 65 of the PMLA provides for the application of the CrPC to proceedings under the PMLA. It states that the provision of the CrPC will apply to investigations and prosecutions related to money laundering, as long as they are consistent with the provisions of the PMLA. S. 4 read with s. 5 of the PMLA provides that the provisions of the CrPC would be applicable to the extent that they are consistent with the provisions of any Special Act.

A joint reading of the above provisions would bring out the following positions in law:

• The provisions of CrPC are applicable to money laundering investigations and prosecutions to the extent that the former are consistent with the provisions of the PMLA.
• The overriding nature of PMLA provisions over CrPC provisions also derives from the maxim generalia specialibus non derogant meaning that general provisions do not derogate from special things.
• Since PMLA does not provide for detailed procedural law regarding investigations, arrest, prosecution, and other critical aspects related to criminal prosecutions, the provisions of CrPC would become applicable. For instance, for a person arrested by the ED, the investigation would have to be completed within 60 days otherwise making such person eligible for default bail u/s 167(2) of the CrPC.
• The constitutional validity of several provisions, including s. 45 of the PMLA which provides for stricter conditions regarding bail, would also be subject to adequate safeguards available to persons (including accused and/or witnesses) and such safeguards are to be borrowed from the CrPC.

A notable decision in this regard has been passed in the case of Vijay Madanlal Chaudhary (supra) by the SC, wherein the constitutionality of provisions of the PMLA, as well as the interplay between the two laws, has been adequately considered by the court and upheld. The court explained that all the proceedings under these provisions are performed by high-ranking officials that too after having sufficient material in possession based on which they have reasons to believe that such search, seizure, or arrest is necessary. Furthermore, they also must provide such reasons in writing as well. Thus, it cannot be said that there are not enough safeguards or checks and balances provided under these provisions. The court has clearly upheld the validity of PMLA provisions as well as the applicability of CrPC provisions to PMLA proceedings, including prosecution.

1. Burden of Proof

Being a strict law dealing with the offence of money laundering, PMLA has provided for a reversal of the burden of proof. S. 24 of the PMLA provides that in any proceeding relating to proceeds of crime, the court or authority can rely on a presumption that such proceeds are involved in money laundering. In short, this presumption provides that wherever there is a predicate offence committed, resulting in proceeds of crime, it may be presumed that money laundering has taken place.

This is a rebuttable presumption and can be contradicted by the accused by presenting evidence or other material dispelling the belief that proceeds were involved in money laundering. While this presumption may directly aid any attachment of property affected by the ED, the applicability of this presumption to prosecution under PMLA is interesting.

From a wider interpretation, it may be construed that since the presumption applies to 'any proceeding relating to proceeds of crime,' and since the prosecution of the offence of money laundering seeks to punish the accused for the laundering of such proceeds of crime, the presumption applies.

However, from a narrower perspective, and keeping constitutional safeguards in mind, it is settled that the law cannot provide for a presumption that the offence has been committed by any person. The presumption under s. 24 of the PMLA provides that the court 'shall presume that such proceeds of crime are involved in money laundering'. This shall mean that wherever there are proceeds of crime (which have arisen from the predicate offence, which is separately being prosecuted) there shall be a presumption that money laundering has taken place, and the accused shall have to make the court disbelieve. This is in serious contradiction to the established constitutional safeguards laid down in a. 20 of the Constitution as well as under the CrPC.

Law cannot provide for automatic criminal liability, without the need for any evidence or investigation. If a wide interpretation is adopted, this would mean that wherever there is a predicate offence, the accused may be charged with, prosecuted, and punished for the offence of money laundering as well, even if the ED did not conduct any investigation at all, if the accused is not able to disprove and establish that money laundering had not taken place. While conducting the prosecution under PMLA, such an automatic fixation of criminal liability cannot form a procedural basis.

1. Trial Procedure
2. 44(1)(a) of the PMLA states that the money laundering offenceshall be tried by the Special Court constituted for the area in which the offence has been committed. While sub-clause (b) of this section says that it is only on a complaint made by an authority, the court will take the cognizance of offence under s. 3 of the PMLA, without the accused being committed to it for trial.
3. 45 of the PMLA elaborates more on this and states that the special court shall not take cognizance of any offence punishable under s. 4 of the PMLA except upon a complaint in writing made by— (i) the Director; or (ii) any officer of the Central Government or a State Government authorised in writing in this behalf by the Central Government by a general or special order made in this behalf by that Government.

Moreover, in the case of KA Rauf v. Directorate of Enforcement & Ors.⁶, the SC addressed the jurisdictional question of the Special Court. Despite the offences being committed in Kerala, the prosecution complaint under ss. 44 and 45 of the PMLA were filed before the Special Court in Lucknow. The petitioner sought to transfer the case to the Special Court in Kerala, arguing that the Special Court in Lucknow lacked jurisdiction due to most criminal activities occurring in Kerala, along with the majority of accused residents and witnesses being from there. However, the court heavily relied on the precedent set in Rana Ayyub v. Directorate of Enforcement⁷, asserting that the Special Court under the PMLA has jurisdiction even over scheduled offences, as mandated by s. 44(1)(a) of the PMLA. Additionally, the court clarified that residency or witness location alone cannot warrant a transfer of investigation, emphasizing that the Special Court in the jurisdiction where money laundering activities occurred holds jurisdiction, regardless of the accused's residency or witness location.

Another issue of concern in PMLA prosecutions arises with respect to committing cases from one court to another. Many a time, the court trying the predicate offence would be a senior court (in terms of hierarchy) – e.g., the Court of the Sessions Judge, compared to the special PMLA court – e.g., the Court of the Additional Sessions Judge. The requirement to move or commit the case from the senior court to the lower (in terms of seniority only) draws friction, resulting in an inordinate delay in the process. The outcome often seen is that while the PMLA prosecution may move much faster (maybe even completing the evidence stage), the predicate offence prosecution is still stuck at the charge stage.

VII. Bail Provision

The offence of money laundering under PMLA has been characterized as cognizable and non-bailable. In the case of a person who has been arrested for such offence, s. 45 of the PMLA provides for strict conditions regarding bail, over and above the established jurisprudence under s. 439 of the CrPC. The section provides for 'twin conditions', requiring the court which seeks to grant bail to a person for the offence of money laundering, to give the opportunity to the public prosecutor to oppose the bail application and thereafter give findings that there are reasonable grounds to believe that (a) such person is not guilty of the offence, and (b) he is not likely to commit any offence while on bail.

However, the twin conditions were struck down by the SC Nikesh Tarachand Shah v. Union of India⁸ on the ground that it is arbitrary and discriminatory in nature. However, s. 45 was immediately amended⁹ and the validity of the amended section has been upheld by the SC in Vijay Madanlal Chaudhary (supra).

In the case of persons arrested and granted bail, the findings given in the bail order carry significant weight and relevance in the prosecution. The requirement of giving a more-than-prima-facie¹⁰ conclusion that the accused is not guilty at the bail stage itself entails some analysis of the charges and evidence at the bail stage. Having done so, the prosecution already starts with a formation of belief by the court at the very initial stage itself. Most PMLA prosecutions, however and lately so, involve bail orders where such twin conditions have been overridden by other constitutional safeguards (e.g., excessive period of incarceration wherein the court has overridden the twin conditions in view of Part III of the Constitution).

VIII. Conclusion

The prosecuting offences under the PMLA navigate a complex interplay between substantive provisions and procedural aspects governed by the CrPC. The recent judicial interpretations have clarified key issues, including the treatment of predicate offences separately from the offence of money laundering and the overriding nature of PMLA provisions over the CrPC. The landmark decision in Vijay Madanlal Chaudhary (supra) affirming the constitutional validity of the PMLA, has provided clarity, and legal certainty and ensured effective prosecution. The evolving landscape of PMLA requires a deep understanding of its provisions and their application alongside established legal principles, highlighting the need for continuous legal education and training.

Footnotes

1 S. 65 of the Code of Criminal Procedure, 1973 provides that the provisions of the Code shall be applicable to PMLA to the extent they are not inconsistent. Similarly, ss. 4 and 5 of the CrPC provide for its applicability to special laws (i.e., laws other than the Indian Penal Code, 1860).

2 The terminologies 'scheduled offence' and 'predicate offence' may often be confusing. While the term 'scheduled offence' refers to the law, the term 'predicate offence' refers to the specific case/fact/matter. For instance, 'corruption' u/s 13 of the Prevention of Corruption Act, 1988 is a 'scheduled offence'. At the same time, for a particular money laundering case, corruption committed by Mr. X is the 'predicate offence' for that case.

3 Usha Agarwal v. Union of India 2017 SCC OnLine Sikk 146

4 Janata Jha v. Assistant Director, Directorate of Enforcement 2013 SCC OnLine Ori 619

5 Vijay Madanlal Chaudhary v. Union of India 2022 SCC OnLine SC 929

6 K.A. Rauf Sherif v. Enforcement Directorate 2023 SCC OnLine SC 375

7 Rana Ayyub v. Directorate of Enforcement 2023 SCC OnLine SC 109

8 Nikesh Tarachand Shah v. Union of India 2017 SCC OnLine SC 1355

9 Amended by the Finance Act, 2018.

10 State of Kerala v. Rajesh 2020 SCC OnLine SC 81

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