India: (Indian) Prevention Of Money Laundering Act 2002 (PMLA) – Latest Amendments & Impact

By Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: vpdalmia@vaishlaw.com
Mobile No.: +91 9810081079
Linkedin: https://www.linkedin.com/in/vpdalmia/
Facebook: https://www.facebook.com/vpdalmia
Twitter: @vpdalmia
And Rajat Jain, Advocate
Email id: rajatjain@vaishlaw.com Mobile No. 9953887311
LinkedIn: https://www.linkedin.com/in/rajat-jain-75772398/

Recently by Finance Act, 2019, which received the assent of the President of India and became an Act, certain amendments have been made in the provisions of the Prevention of Money Laundering Act, 2002 (hereinafter also referred as "PMLA").

In this Article, the scope of some of the important amendments made in the PMLA vide the Finance Act, 2019, its application and impact, are being analyzed.

Insertion of explanation to the definition of "proceeds of crime" under Section 2(u) of the PMLA

The newly inserted explanation and the amended section read as under:

"proceeds of crime" 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 [or where such property is taken or held outside the country, then the property equivalent in value held within the country [or abroad]];

[Explanation.-- For the removal of doubts, it is hereby clarified that "proceeds of crime" include 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;]

This explanation seems sort of clarification for removal of the doubt that the proceeds of crime not only includes property derived or obtained through scheduled offence but also the property derived or obtained as a result of any criminal activity relatable to the scheduled offence.

As the amendment has been made by virtue of Finance Act, 2019 and it is not clear whether it will have retrospective or prospective operation. Considering it more of a clarificatory in nature, as it is just explaining what has been already stated in the definition of "proceeds of crime", therefore, it is likely to have retrospective effect. To understand the scope of an Explanation in a statute, para no. 60 of the judgment of High Court of Judicature for Rajasthan Bench at Jaipur in Civil Writ Petition No. 21751/2017, may please be referred to (https://bit.ly/2LgxWGt ).

As the term "any criminal activity" is not defined under the PMLA, it is likely to include any activity relatable to scheduled offence including concealment, possession, acquisition, use, projecting or claiming as untainted property, of the property obtained from scheduled offence. Accordingly, if Person A has derived Rs. 1 crore from scheduled offence and thereafter, in his bid to make it untainted money, Person A invests the tainted money in Bank Account; any interest earned on that tainted money will also form part of the definition of the proceeds of crime.

Insertion of explanation to the provision of "Offence of money-Laundering" under Section 3 of the PMLA

In section 3 of the PMLA, the following Explanation has been inserted, namely:--

"Explanation.-- For the removal of doubts, it is hereby clarified that,--

  1. a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:--

    (a) concealment; or

    (b) possession; or

    (c) acquisition; or

    (d) use; or

    (e) projecting as untainted property; or

    (f) claiming as untainted property,

    in any manner whatsoever;
  2. the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever."

EXPLANATION (i)

The explanation (i) added to the Section 3 of the PMLA, is just segregating the wordings of the Section 3. However, there seems an issue with the explanation. The Section 3 of the PMLA states as under:

"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."

The wording of the provision of Section 3 includes the word "and" after the word "use", the impact of which is that until the person who has done any activity relating to concealment, possession, or acquisition, or use will not be guilty of offence of money laundering, unless he tries to project or claim it untainted, or assist in such activities. In the explanation inserted to the Section 3 of the PMLA, use of the word "or" after the point (d), leads to the conclusion that a person will be guilty of offence of money laundering when he commits any of the activity mentioned in the explanation. There appears to be a conflict between the substantive provision and the explanation inserted to it. In the substantive provision the conditions are two fold as the word AND has been used, whereas in the explanation the word OR has been used in place of the word AND.

In the case of S. Sundaram Pillai, Etc vs V.R. Pattabiraman, 1985 AIR 582 ( https://indiankanoon.org/doc/969224/ ), the Hon'ble Supreme Court of India, while referring to the earlier precedents, held that an explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself. It is merely meant to explain or qualify certain ambiguities which may have crept in the statutory provision. It was further held that an explanation cannot in any way interfere with or change the enactment or any part thereof.

Therefore, the wordings of the provision of Section 3 of the PMLA shall override the explanation (i) inserted to it, in case of any ambiguity.

EXPLANATION (II)

The explanation (ii) added to the Section 3 of the PMLA, introduces 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.

Prior to this amendment, there are judgments of various High Courts, wherein it has been held that the offence of money laundering is not a continuing offence. The Bombay High Court in Hasan Ali Khan S/o. Ghousudin Ali Khan vs. Union of India (UOI), Thru' Asst. Director, Directorate of Enforcement and Anr., 2012 Bom CR(Cri)807 (https://indiankanoon.org/doc/744839/ ), has held that the offence of money laundering is not a continuing offence and once, proceeds of crime has been projected as 'untainted property", the offence of money laundering is over.

There are three stages to a transaction of money-laundering:

  • The first stage is Placement, where the criminals place the proceeds of the crime into normal financial system.
  • The second stage is Layering, where money introduced into the normal financial system is layered or spread into various transactions within the financial system so that any link with the origin of the wealth is lost.
  • The third stage is Integration, where the benefit or proceeds of crime are available with the criminals as untainted money.

Earlier, it used to be contended that the offence of money-laundering has to be constituted by determinate actions and the process or activity of money-laundering is over, once the third stage of integration is complete and unless such acts have been committed after the PMLA came into force, an offence of money-laundering punishable under Section 4 would not be made out.

However, with the insertion of this explanation, the above argument will not hold water. The impact of the insertion of the present explanation will be grave. The impact of the insertion of this explanation is more of substantive in nature.

Omission of proviso provided under Sections 17(1) and 18(1) of the PMLA

In Sections 17(1) And 18(1) of the PMLA, the following provision has been deleted, namely:--

"Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973(2 of 1974), or a complaint has been filed by a person, authorized to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorized by the Central Government, by notification, for this purpose."

The impact of deleting the proviso from Sections 17(1) And 18(1) of the PMLA, is that the authorized officer under the PMLA can enter any property for purpose of conducting search and seizure, and the search of any person, even in absence of any reporting of the scheduled offence to a Magistrate or court for taking cognizance of the scheduled offence or to the Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be.

The deletion of the proviso is only going to have prospective operation in law. There seems to be no conflict.

Insertion of explanation to the provision of "Offences to be cognizable and non-bailable" under Section 45(2) of the PMLA

In section 45 of the PMLA, after sub-section (2), the following Explanation has been inserted, namely:--

"Explanation.-- For the removal of doubts, it is clarified that the expression "Offences to be cognizable and non-bailable" shall mean and shall be deemed to have always meant that all offences under this Act shall be cognizable offences and non-bailable offences notwithstanding anything to the contrary contained in the Code of Criminal Procedure, 1973 (2 of 1974), and accordingly the officers authorized under this Act are empowered to arrest an accused without warrant, subject to the fulfillment of conditions under section 19 and subject to the conditions enshrined under this section."

This explanation puts an end to a much long controversy, as there were contradictory judgments of the various High Courts on the point whether the offence of money laundering is cognizable and non-bailable or non-cognizable and bailable.

Under the Criminal Procedure Code, 1973 (Cr.P.C), the meanings of cognizable and non-cognizable offence are as under:

  • 'Cognizable Offence' means an offence in which, a Police officer may arrest without any warrants or orders of the court.
  • 'Non-cognizable Offence' means an offence in which a Police Officer has no authority to arrest without warrants.

In general parlance, if an offence is a cognizable offence, it means that the Police Officer has the power to arrest and investigate without the permission of the Court, and for the non-cognizable offence, it is vice-versa.

The impact of the present explanation and the question of its retrospective or prospective operation are of not much importance, as, under the PMLA, there are separate provisions for search, seizure and arrest and the same are not dependent on the provision of the Cr.P.C. As per Section 65 of the PMLA, the provision of Cr.P.C shall apply only to the extent of not being inconsistent with the provisions of the PMLA. The issue of arrest of a person or investigation under PMLA are not dependent on whether the offence is cognizable or not.

The Division Bench of the Bombay High Court in the case of Chhagan Chandrakant Bhujbal v. Union of India (https://indiankanoon.org/doc/138917199/) has held that it does not matter whether the offence under PMLA is cognizable or non-cognizable since the power of arrest conferred under Section 19 of the PMLA is not restricted by such characterization.

The Government of India has again brought major amendments in the PMLA through the Finance Act, 2019, by avoiding the normal route of introduction of the amendment bill in both the houses of Parliament. Needless to mention, the recent amendments in the PMLA would beget multiple litigation and challenges to such provisions, their interpretation and application.

© 2018, Vaish Associates Advocates,
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Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

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