The term "PROCEEDS OF CRIME", which is an essential ingredient of Money-Laundering has been defined under Section 2(u) of PMLA, and it means and includes

  • Any property
  • derived or obtained
  • Directly or indirectly
  • By any person
  • as a result of criminal activity
  • relating to a
    • scheduled offense or
    • value of any such property, or 
    • where is property is taken or held outside the country,
      • then the property equivalent in value held within the country.

So, only when proceeds of crime are projected or claimed as untainted property, the offense of Money- Laundering is deemed to have been committed which is lacking in the present matter.

One essential requirement to constitute an offence of money laundering is to be involved in any process or activity connected to proceeds of crime. Proceeds of crime have its genesis in a criminal activity relating to a scheduled offence. Moreover, the legislature did not intend that in every case, where a charge sheet is filed for commission of a scheduled offence, the proceedings under PMLA for the offence of money laundering should be initiated 

Money laundering while facially appears to comprise one or more clear and simple financial transactions, it is not so, and it involves and comprises a complex web of financial and other transactions. It has been held that the money laundering transaction has to essentially involve the following three stages:

(i)      The Placement Stage: the malfeasant places the crime money into the normal financial system;

(ii)     The Layering Stage: the money introduced into the financial system is layered-spread out into several transactions within the financial system with a view to concealing the origin of the original identity of the money and to make this origin/identity virtually disappear.

(iii)    The Integration Stage: the money is thereafter integrated into the financial system in such a way that its original association with crime is totally obliterated and the money could be used by the malfeasant and/or the accomplices to get it as untainted/clean money.

The above-stated three stages have been held to be quintessential ingredients of money laundering by High Court of Andhra Pradesh in B. Rama Raju v. Union of India, [[2011] 164 CompCas 149 (AP)], High Court of Bombay in Hasan Ali Khan v. Union of India, [2012 BomCR(Cri) 807] and High Court of Madras inM. Shobana v. Assisstant Director, Directorate of Enforcement [2013 (4) MLJ (Crl) 286].

It is only when proceeds of crime are projected or claimed as untainted property i.e. uncorrupted; the offense of Money- Laundering is committed.

In the case of B. Rama Raju, S/o B. Ramalinga Raju Vs. Union of India (UOI), [MANU/TN/1696/2011]; [(2012)1MLJ419], the "proceeds of crime" was defined as under:

"103. Since proceeds of crime is defined to include the value of any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and evidence having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the reply furnished by a noticee in response to a notice issued under Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the Section 8(2) process."

You may also refer to the following link for details on anti-money laundering (AML) laws in India: http://moneylaundering.legal .

*Vijay Pal Dalmia, Advocate & Partner Vaish Associates Advocates
Email: vpdalmia@vaishlaw.com   Mobile: 09810081079

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