The (Indian) Prevention of Money Laundering Act, 2002 (“PMLA”) sets out the legislative framework for the prosecution of the offence of ‘money laundering’ in India. The PMLA criminalizes ‘money laundering’ and allows for the provisional attachment leading up to confiscation of the ‘proceeds of crime’. The ‘Enforcement Directorate’ is the nodal agency that has been empowered to investigate and prosecute the offence of ‘money laundering’. The definition of the offence of ‘money laundering’ set out under Section 3 of the PMLA is as follows:

“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.”

Clearly, the definition of ‘money laundering’ is extremely broad and almost any kind of dealing with ‘proceeds of crime’ is brought within the purview of ‘money laundering’ and consequently made culpable. An understanding of the ambit of ‘proceeds of crime’ is crucial to the understanding of the crime of ‘money laundering’. The offence of ‘money laundering’ is attracted only when the laundered property falls within the ambit of ‘proceeds of crime’.

‘Proceeds of Crime’

To add teeth to the ability of the Enforcement Directorate to investigate and prosecute the offence of ‘money laundering’, the Government introduced amendments to the definition of ‘proceeds of crime’ through the Finance Acts of 2015 and 2019. The definition of ‘proceeds of crime’ under the PMLA (pursuant to the two above mentioned amendments) is as follows:

“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;”

The Finance Act of 2015 expanded the definition of ‘proceeds of crime’ by including within its ambit not only the specific property which is the subject matter of ‘money laundering’ or its value, but in a case where the property which is the ‘proceeds of crime’ has been taken or held outside India, then the property-equivalent in value held within India.

Subsequently, the Finance Act of 2019 inserted the above ‘explanation’ to the definition of ‘proceeds of crime’ and the issue of the properties that will fall within the ambit of ‘proceeds of crime’ by virtue of “any criminal activity relatable to scheduled offence” has now become thorny in light of the insertion of such ‘explanation’.

Constituents of ‘Proceeds of Crime’

The definition of ‘proceeds of crime’ under the PMLA may be broken down to essentially refer to three types of properties:

(a)    property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence;

(b)    value of any such property;

(c)    property equivalent in value held within the country, where such property is taken or held outside the country.

The first type of property may be traced back to the ‘proceeds of crime’ and would mean properties that have been derived or obtained pursuant to the commission of the scheduled offence. As per an illustration provided by the High Court of Delhi in the case of The Deputy Director Directorate of Enforcement Delhi and Ors. vs. Axis Bank and Ors[1], bribe or illegal gratification received by a public servant in form of money (cash) being undue advantage and dishonestly gained, is tainted property acquired ‘directly’ as a scheduled offence and is consequently ‘proceeds of crime’. Any other property acquired using such bribe as consideration is also ‘proceeds of crime’, it having been obtained ‘indirectly’ from a prohibited criminal activity within the meaning of the first limb of the definition of ‘proceeds of crime’. The necessary inference appears to be that for any properties to be included within the ambit of ‘proceeds of crime’, such property has to have a nexus to the alleged crime committed. Thus, for example, in the context of an allegation of ‘cheating’, the ‘proceeds of crime’ should be the fruits of the crime, i.e., the property (or value) derived from the alleged offence of ‘cheating’. For example, if an allegation has been made of an offence of ‘cheating’ to the tune of ‘X’ amount, then, the same ‘X’ amount should be treated as ‘proceeds of crime’.

The other two types of properties may not necessarily require the nexus discussed above, since, in particular cases, it may not be possible to trace the tainted property (acquired or obtained pursuant to the commission of the scheduled offence) or the value of such tainted property may be inadequate. Prior to the explanation inserted by Finance Act of 2019 (discussed below) there were certain fetters to this scope. The Bombay High Court considered the ambit of the expression ‘as a result of criminal activity relating to a scheduled offence’ in the case of Hasan Ali vs. Union of India[2]. The contention against the accused in the case was that by committing an offence under the Passports Act, 1967 (a scheduled offence under the PMLA), the accused could travel outside India and open a bank account abroad and therefore the money that was credited in the overseas bank account would be ‘property derived or obtained as a result of criminal activity relating to a scheduled offence’. The aforementioned argument was held to be far- fetched by the Bombay High Court which held that the properties or monies in question were not earned by committing offences under the Passports Act, 1967.

Coming to the explanation inserted by the Finance Act of 2019. The explanation makes the scope of “proceeds of crime’ even wider by stating that these include not only the property that has been derived or obtained from the commission of the scheduled offence but also any other property which may ‘directly or indirectly’ be obtained as a result of commission of the scheduled offence or any property that may be attributable to the commission of the scheduled offence. Accordingly, as an example, if a sum of money is derived or obtained as a result of a scheduled offence and thereafter, such sum of money is invested then not only the principal amount invested but also any interest or returns earned on the tainted money will also form part of the definition of ‘proceeds of crime’. Similarly, once the ‘proceeds of crime’ are converted into profits of a company, any transfer of such profits by way of dividend payments to shareholders or royalty payments to a related or third parties may also be covered within the ambit of ‘proceeds of crime’. Applying the above ‘explanation’ to the fact pattern in the case of Hasan Ali vs. Union of India[3], it appears that the amounts deposited in the overseas bank account would be ‘proceeds of crime’. Accordingly, the legislative intent behind the insertion of the ‘explanation’ appears to be to prosecute and attach all ‘proceeds of crime’ even if the property sought to be attached / confiscated may be remotely related to the scheduled offence.

Attachment and confiscation of ‘proceeds of crime’

The PMLA prescribes an elaborate procedure for dealing with matters relating to attachment leading to confiscation of ‘proceeds of crime’. Such process begins with ‘provisional attachment’ of the property. This is the first stage. A ‘complaint’ is thereafter filed with the adjudicating authority, which holds an enquiry and passes an order of confirmation. This is the second stage. At this stage, the order of attachment does not attain finality, though it is confirmed. The order of attachment reaches finality upon the establishment of guilt of the accused before the Special Court which is the third stage. Therefore, there are 3 different stages relating to attachment, the PMLA uses 3 different expressions: (i) ‘provisional attachment’ in Section 5; (ii) ‘confirmation’ in Section 8(3); and (iii) ‘final’ in Section 8(3)(b).

Provisional attachment of property

As per the first proviso to Section 5(1) of the PMLA, ‘provisional attachment’ of the property can be ordered by the relevant official upon the prima facie satisfaction that the property in question constitutes ‘proceeds of crime’. The satisfaction must be arrived at by the relevant official on his / her own and on the basis of:

(a)    the report as to the scheduled offence forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973; or

(b)    a complaint filed, by a person authorized to investigate a scheduled offence, before a Magistrate or a court for taking cognizance of the scheduled offence or a similar report or complaint under the corresponding law of any other country.

The property may also be attached under the second proviso to Section 5(1) of the PMLA if the relevant official is satisfied, to be recorded in writing, that there is a ‘reason to believe’ that if the property involved in ‘money-laundering’ is not attached immediately, such non-attachment is likely to frustrate proceedings under the PMLA.

No notice or provision of an opportunity to the person in possession, ownership or control of the property, believed by the relevant official to constitute ‘proceeds of crime’ or being involved in ‘money laundering’ is envisaged or obligated at the stage of ‘provisional attachment’ under Section 5(1) of PMLA. As per the decision of the High Court of Delhi in the case of The Deputy Director Directorate of Enforcement Delhi and Ors. vs. Axis Bank and Ors[4] the statutory authorities vested with the jurisdiction to provisionally direct or confirm attachment are, however, expected to assess, even if tentatively, the value of proceeds of crime so that it is ensured that only proceeds or assets of the offender of money-laundering of equivalent value are subjected to restraint.

As mentioned above, a critical ingredient for attachment of property under the second proviso to Section 5(1) of the PMLA is the existence of ‘reason to believe’. The Appellate Tribunal under the Prevention of Money Laundering Act, New Delhi in its decision dated September 12, 2019 in the case of Naresh Jain and Ors. vs. the Deputy Director, Directorate of Enforcement, Delhi[5] held that the words ‘reason to believe’ casts an onerous duty on the relevant official. The Appellate Tribunal held that:

(a)    a person must have ‘reason to believe’ if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned.

(b)    at the initial stage for believing the existence of a thing, condition or a statement of fact, one would collect information and then examine the information and come to a final conclusion on the basis of that information, that such a thing, condition or statement of a fact exists.

(c)    the officer concerned may act on direct or circumstantial evidence but not on mere suspicion or the allegations mentioned in the FIR or charge-sheet so that the same can be scrutinized in order to verify whether they are relevant and germane or not.

As per the above decision of the Appellate Tribunal, all the above ingredients are pre-requisites for forming an opinion based on ‘reason to believe’.

In the said case, the Appellate Tribunal also held that the second proviso of section 5(1) of the PMLA is different than the rest of the section and has additional checks and balances as the word ‘money laundering’ is used and not just ‘proceeds of crime’. Therefore apart from merely suggesting that there exist ‘proceeds of crime’, the onus is on the relevant official to make a prima facie case of ‘money laundering’. Similarly, the Appellate Tribunal under the Prevention of Money Laundering Act, New Delhi, in the case of GLS Films Industries Pvt. Ltd. vs. The Deputy Director, Directorate of Enforcement, Patna[6], held that the second proviso of Section 5(1) of the PMLA can only be invoked in special circumstances in emergency cases.

The order of provisional attachment has the outside validity of a maximum of one hundred eighty days (subject to certain exceptions) and the relevant official must take the matter to the adjudicating authority for confirmation in the form of a ‘complaint’ within thirty days from the date of provisional attachment.

Confirmation of attachment of property

Subsequently, upon the filing of the complaint, the adjudicating authority is required to take into account all relevant materials and submissions and pass an order on whether all or any of the properties that have been provisionally attached are involved in money-laundering. Once the adjudicating authority passes an order confirming that the property in question is involved in money laundering, he / she is entitled to pass an order ‘confirming’ attachment of the property. The attachment of the property thereafter continues during the pendency of any proceedings relating to any scheduled offence.

Further, on confirmation of an order of provisional attachment, the relevant authorities are enjoined to take ‘possession’ of the attached property. In the case of A. Kamarmmisa Ghori vs. the Chairperson, Prevention of Money Laundering[7], the High Court of Madras opined that it is well settled that the expression ‘possession’ has different connotations such as ‘actual physical possession’, ‘constructive possession’ and ‘symbolic possession’ and held that the expression ‘possession’ appearing in Section 8(4) of the PMLA, in the context of confirmation of the order of ‘provisional attachment’, means constructive or symbolic possession. An order of ‘attachment’ entails prohibition of transfer, conversion, dispossession or movement of such property whereas confiscation entails all the rights and title in such property vesting absolutely in the Central Government free from all encumbrances.

Confiscation of attachment of property

Upon conclusion of the trial regarding commission of a scheduled offence under the PMLA, if the Special Court comes to the conclusion that the offence of money-laundering has been committed, it can order the confiscation of the property involved in money-laundering or property which has been used for commission of the offence of money-laundering. Confiscation of the property therefore is dependent and contingent upon proof of guilt and finality of an order of conviction of a person, of the offence of money-laundering. Once such order of confiscation is passed, the Special Court directs release of all properties other than properties involved in money laundering to the person from whom such properties were seized.

The Fugitive Economic Offenders Act, 2018 – an insight to the intent of the Government?

The Government has also recently enacted the Fugitive Economic Offenders Act, 2018 (“FEO Act”). As is the case with PMLA, the FEO Act also focuses on certain specified economic offences and the focus of the legislation, upon declaration of a person as ‘fugitive economic offender’, is on the attachment leading to confiscation of the ‘proceeds of crime’. The definition of the expression ‘proceeds of crime’ under the FEO Act is identical to the definition contained in the PMLA. The definition of ‘proceeds of crime’ under the FEO Act, however, does not have the benefit of an ‘explanation’ as is the case with the definition of ‘proceeds of crime’ under the PMLA. Such an explanation to the definition of ‘proceeds of crime’ under the FEO Act may not have been warranted since the FEO Act contemplates attachment and confiscation of any properties of the ‘fugitive economic offender’ and not just the properties which are benami properties or properties which are the ‘proceeds of crime’. Therefore, the FEO Act and the PMLA appear to have a commonality of objective as far as the scope / extent of the attachment leading up to confiscation of the properties of the individuals accused of committing the prescribed offences are concerned.

Author:

Harsh Kabra, Senior Associate

[1] 259 (2019) DLT 500
[2] 2012BomCR(Cri)807
[3] 2012BomCR(Cri)807
[4] 259 (2019) DLT 500
[5] FPA-PMLA-1332/DLI/2016
[6] FPA-PMLA-2692/PTN/2018
[7] 2012 (4) CTC 608