Some insights into PMLA

The Prevention of Money Laundering Act of 2002 (“PMLA”) was enacted as a comprehensive law, including:

• to prevent money laundering of proceeds from serious crimes,
• to provide for the confiscation of assets that originate from or are related to money laundering,
• for the establishment of agencies and mechanisms to coordinate anti-money laundering measures and
• for related matters.

Although the PMLA received the assent of the President of India on January 17, 2003 and was published on January 20, 2003, it came into force only on July 1, 2005.

2. “Money laundering” is the concealment of financial assets in order to use them without disclosing the “illegal activity” that created those assets. It is the process of processing illegally obtained funds by a legitimate company or foreign bank to make them appear reputable or legitimate. A close examination of the definition of “money laundering” shows that “Proceeds of crime“is a necessary ingredient for the offense of ‘money laundering’ within the meaning of Section 3 of the PMLA which reads as follows:

“3: Criminal offense of money laundering – Whoever attempts, directly or indirectly, to engage in, participate in or knowingly participate in any process or activity involving the proceeds of crime, including the concealment, possession, acquisition or use thereof and the projection or assertion thereof as untainted property or is actually involved in it, is guilty of the crime of money laundering”.

Explanation – For the avoidance of doubt, it is hereby clarified that – (i) a person is guilty of the offense of money laundering if it is found that such person has directly or indirectly attempted to donate money or has knowingly assisted or knowingly assisted a Is a party or is actually involved in one or more of the following processes or activities relating to the proceeds of crime, namely:-

a) concealment; or

b) possession; or

c) acquisition; or

d) use; or

e) Projecting as uncorrupted property; or

f) claim to undisturbed property,

In whatever way;

(ii) the process or activity relating to the proceeds of crime is an ongoing activity and continues until a person benefits directly or indirectly from the proceeds of crime by concealing, possessing, acquiring or using them or it represents or claims to be in any way deemed to be untainted property.”

Section 4 of the PMLA which provides the penalty for “money laundering” reads as follows:

“4: Penalty for money laundering – Anyone who commits the crime of money laundering is punished with a prison sentence of not less than three years, which can last up to seven years, and a fine.

To the extent that the proceeds of crime relating to money laundering relate to an offense listed in paragraph 2 of Part A of the Schedule, the provisions of this Section apply as for the words “which may last up to seven years”. The words “which may extend to ten years” have been replaced.

Section 2(u) of the PMLA defines the expression “Proceeds of crime” as follows –

“Proceeds of crime” means any property acquired or obtained by a person directly or indirectly as a result of criminal activity in connection with a planned crime, or the value of such property, or if such property is taken or stored outside the country, the asset of the same value at home or abroad.

Explanation – For the avoidance of doubt, it is hereby clarified that “proceeds of crime” includes not only property derived or obtained from the proposed crime but also any property derived directly or indirectly as a result of any criminal activity related thereto or can be obtained for the planned crime.”

3. Thus, “property” in the form of cash or property otherwise acquired illegally through the sale of contraband drugs can be laundered in extremely cash-intensive businesses such as laundromats or restaurants, where the illegal cash is mixed with business funds, thereby concealing the origin of the money from criminals Activities. In grammar, the word “predicate” means the action that the “subject” has performed, is performing or wants to perform. In the law there is a “pretext“is part or component of a larger crime or more complex criminal activity, often related to money laundering or organized crime. The “predicate offense” is the underlying crime that generates proceeds or funds. “Financial terrorism,” “drug trafficking,” “arms trafficking,” “organized crime,” “kidnapping,” “extortion,” “currency counterfeiting,” “counterfeiting and piracy,” “black marketing,” “illegal gambling,” etc. are examples of “ Predicate offenses.” Although “tax evasion” is a prohibited crime, it is not a “predicate offense.” However, it may be a “predicate offense” which amounts to “money laundering” if the ill-gotten gains from tax evasion are used to invest in legitimate businesses or to acquire property and these ill-gotten gains are considered to be genuine money. Thus, when the illegal proceeds of such tax evasion are eventually laundered (hidden by transferring them to foreign banks or legitimate companies), such “tax evasion” becomes a “predicate offense.” The question may arise as to whether a person who unwittingly makes a generous donation from his legitimate “business profits” to another businessman who uses the donation for “drug trafficking” is engaging in money laundering. In my opinion, the answer is negative because the amount of the donation is not “proceeds of crime” and the donor does not know that the recipient will use the money for a “predicate crime” unless it is proven that if the donor is a “proceeds of crime,” he or she is guilty of aiding and abetting one of the “predicate crimes.”.

4. Regrettably, there is a growing tendency on the part of Enforcement Directorate officers to pounce on most cases where a “scheduled offense” under the PMLA has been committed. Every commission of a “planned crime” does not necessarily mean that a “predicate offense” has been committed. There is a common misconception that the offense of “money laundering” is considered the moment a “planned crime” is committed. That’s not the case. The commission of any of the “scheduled offenses” covered by Parts A to C of the Schedule of the PMLA does not, by itself, necessarily constitute a “predicate offense” unless it generates “proceeds of crime” within the meaning of Section 2 (u) of the PMLA. To better illustrate the issue, the offense of “murder” punishable under Section 302 IPC is one of the “scheduled offenses” listed in paragraph 1 of Part A of the “Schedule” to the PMLA. A person may take revenge on their archenemy by murdering them. As a rule, such a crime alone cannot be a “predicate offense” because it does not generate “proceeds of crime” that could be laundered. Similarly, paragraph 8 of Part A of the “Schedule” to the PMLA contains offenses under the Prevention of Corruption Act, 1988. Where a corrupt “official” accepts bribes and uses the bribe for the treatment of his afflicted wife or son with cancer. Here he may have been guilty of an offense punishable under the Prevention of Corruption Act 1988. However, it cannot at all be said that he committed the offense of “money laundering” punishable under the PMLA. A person can run a successful business in the “stock market”, “lotteries” or “horse racing” by strictly adhering to the rules of business. The business of such person which generates income cannot attract PMLA unless it is proved that its proceeds or profits are derived from “proceeds of crime” within the meaning of Section 2 (u) of the PMLA or for criminal activities in the For the purposes of the definition, “proceeds of crime” were used.

5. The purpose of this article is simply to highlight the above aspect of the matter. I do not know whether the reported judgments of Constitutional Courts, including that of the Supreme Court of India, have highlighted this aspect of the matter as many of these judgments suffer from an avoidable verbosity which makes it difficult to derive the ratio decidendi from them.

6. This is my understanding of “money laundering” under the PMLA. Anyone who disagrees is free to correct me, if necessary, with legal reasons supporting such correction.

The author is a former judge, Kerala High Court. Views are personal