Anti Money-Laundering Laws In India : The Prevention Of Money-Laundering Act, 2002 (PMLA) - Money Laundering

Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: vpdalmia@vaishlaw.com
Mobile No.: +91 9810081079
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As the name suggests, The Prevention of Money-Laundering Act (PMLA), 2002 is an Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. Illegally obtained funds are laundered and moved around the globe using shell companies, intermediaries. In this way, the illegal funds are given the colour of legitimacy, and it finds its way into the economy.

Offence of Money-Laundering

The definition of "Money-Laundering" is comprehensive enough to cover most of the instances of converting black money into white.

Money-laundering has been defined in PMLA under section 3, wherein a person shall be guilty of the 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:
- concealment; or
- possession; or
- acquisition; or
- use; or
- projecting as untainted property; or
- claiming as untainted property.

Section 2(u) of PMLA defines "Proceeds of Crime" 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.

"Proceeds of Crime" include property not only derived or obtained from a 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 Schedule to PMLA lists all offences which have been defined as scheduled offences.

As per Section 2(1)(y) of PMLA, Scheduled offence means:

the offences specified under Part A of the Schedule; or
the offences specified under Part B of the Schedule if the total value involved in such offences is one crore rupees or more; or
the offences specified under Part C of the Schedule.

An offence of money-laundering cannot exist independently. It is evident that money-laundering comprises a predicate offence as well and is usually the result of the commission of a predicate offence. It is sine qua non for the existence of an offence under PMLA that the money in question is 'proceeds of crime' derived from the commission of a predicate offence. In the absence of a predicate offence, there can be no offence of money-laundering. The predicate offences are mentioned in the Schedule to PMLA.

Attachment of Property under PMLA

Under Section 2(v) of PMLA, the term "property" has been defined as any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located.

It is often seen that the assets that may constitute "Proceeds of Crime" may be situated outside India, and it becomes difficult for the authorities to attach such property, which is in a foreign jurisdiction. Therefore, in order to overcome this hurdle, an amendment to the definition of "Proceeds of Crime" was made by the Finance act 2015, which enables the attachment and confiscation of equivalent assets in India where the asset located abroad cannot be forfeited.

The Finance Act 2018 has further amended the definition of 'proceeds of crime' to include the right of attachment of such property held, which is equivalent to the proceeds of crime.

Section 2(d) of PMLA defines the word "attachment" to mean the prohibition of transfer, conversion, disposition, or movement of property by an order under PMLA.

The power of attachment has been granted to, under section 5 of PMLA to a Director or any other officer not below the rank of Deputy Director authorized by the Director appointed by the Central Government to be authorities under the Act for the purpose of attachment of property involved in money-laundering. It is important that to exercise the right of attachment; the concerned officer has to show that based on material in his possession, he has reason to believe, which have to be recorder in writing, that such person is in possession of any proceeds of crime which is likely to be concealed, transferred, or dealt with in a way which might interfere with proceedings, investigations which relates to the confiscation of such proceeds linked with a crime, he may in such a case order the prohibition of transfer, conversion, disposition, or the movement of any such proceeds or property. The attachment is valid for a period of 180 days from the date of the order and following the attachment, the officer must forward the attachment order along with the material in his possession to the Adjudicating Authority of the matter. He must also explain the facts of the case and also the reasons for such attachment to the Adjudicating Authority. The aggrieved person also has the right to present his defense before the Adjudicating Authority records that the attached property forms part of the money-laundering ring and is considered as a proceed of the crime.

Nevertheless, the aggrieved person can challenge the attachment order and the validity of the Reasons to Believe formed by the authorized officer, for attaching the property of the aggrieved person, at the appropriate forum, and then it will be open to the Court or forum to examine whether the reasons for the believe have any rational connection with the material in possession, or the officer has any basis for forming such belief. On examination, if the Court or forum reaches the conclusion that the belief formed by the officer is not able to satisfy the statutory requirement as enumerated u/s. 5(1) of PMLA, then the whole proceedings for attachment of property of the aggrieved person will get vitiated. The attachment shall continue while the proceedings for the crime go on for the scheduled offence and will become final only after the guilty judgment from the Court has been passed.

Arrest Under PMLA

Under Section 19 of PMLA, the Director, Deputy Director, Assistant Director or any other officer authorized in this behalf by the Central Government by general or special order, has the power to arrest a person. A person can be arrested by the concerned authority if such authority on the basis of material in his possession,

has reason to believe that such person has been guilty of an offence punishable under PMLA, and
the reason for such belief has been duly recorded in writing.

After arresting such person, the authority is bound to

inform the arrested person about the grounds for his arrest.
forward a copy of the arrest order along with the material in his possession to the Adjudicating Authority.
Produce such person, within twenty-four hours, before the Special Court or Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction.

From the bare perusal of Section 19 of PMLA, it is apparent that there is no requirement under the section to obtain an arrest warrant from the Court before arresting a person. If the conditions mentioned in Section 19 of PMLA are fulfilled, the relevant authority under PMLA can arrest such person.

The question of whether the offences under PMLA are cognizable or non-cognizable is irrelevant for the purpose of arrest under PMLA. However, there are contradictory judgments of High Courts on the point whether the offences under PMLA are cognizable or non-cognizable. The matter is now sub-judice before the Hon'ble Supreme Court.

Bail under PMLA

Section 45 of PMLA deals with the provisions relating to bail under the Act. Under section 45, an offence under PMLA shall be cognizable and non-bailable. A cognizable offence means an offence in which a police officer has the authority to make an arrest without a warrant and to start an investigation with or without the permission of a court. Bail for an offence under PMLA cannot be given as of right but only after the accused has been presented before a judge in this case, before the relevant Special Court. It may be noted that the provisions of PMLA do not provide for any right of seeking anticipatory bail. The said right is derived from section 65 of PMLA, and as a result the accused can seek the relief of anticipatory bail given under the provisions of the Code Of Criminal Procedure, 1973 (Cr.P.C.). The privilege of the pre-arrest bail is not a matter of right, and is generally granted only in exceptional cases under section 438 of Cr.P.C.

Summon, Survey & Search

Section 16 of PMLA deals with the Power of Survey. An officer under PMLA has the power to enter and survey a property or premises if such officer believes that the survey will allow him the opportunity to inspect necessary records which might be available in the premises in question, help verify proceeds of a crime or any transactions related to the proceeds which might be found on the premises, or might assist them with any other proceedings being conducted under the Act. The officer is under an obligation to record the reasons for choosing to survey the premises as well as the findings.

Section 17 of PMLA deals with the power of search and seizure by the authority. A Director or any person authorized by the Director having reasons to believe on the basis of information provided to him or already in his possession, which needs to be put in writing, that a person has indulged in money-laundering or is in possession of any proceeds of crime, and such records evidencing such a crime, or is in possession of property related to the crime, in such a case he will be within his powers to authorize an officer to:

enter and search any building, place, vessel, vehicle, or aircraft where he has reason to suspect that such records or proceeds of crime are kept;
break open the lock of any door, box, locker, safe, almirah, or other receptacles where the keys thereof are not available;
seize any record or property found as a result of such search;
place marks of identification on such record or make or cause to be made extracts or copies therefrom;
make a note or an inventory of such record or property;
examine on oath any person who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under PMLA.

Section 18 of PMLA deals with the power to search a person. If an authority, has reason to believe (the reason for such belief to be recorded in writing) that any person has secreted about his person or in anything under his possession, ownership or control, any record or proceeds of crime which may be useful for or relevant to any proceedings under this Act, the authority may search that person and seize such record or property which may be useful for or relevant to any proceedings under this Act.

Retention of Records under PMLA

Section 21 of PMLA deals with the retention of records. As per the aforesaid section, where any records have been seized under section 17 or section 18 or frozen under sub-section (1A) of section 17 and the officer authorized by the Director in this behalf has, on the basis of material in his possession, reason to believe, which shall be recorded in writing, that such records are required to be retained for the purposes of adjudication under section 8, such records may, if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day on which such records were seized or frozen, as the case may be. On the expiry of the period of one hundred and eighty days, the records shall be returned to the person from whom such records were seized or whose records were ordered to be frozen unless the Adjudicating Authority permits retention or continuation of freezing of such records beyond the said period. The Adjudicating Authority, before authorizing the retention or continuation of freezing of such records beyond the period of one hundred and eighty days, shall satisfy himself that the records are prima facie involved in money-laundering and the records are required for the purposes of adjudication under section 8. The person from whom records seized or frozen shall be entitled to obtain copies of records.

Interconnected Transactions

Section 23 of PMLA deals with presumption relating interconnected transactions. As per the aforesaid section, here money-laundering involves two or more inter-connected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation under Section 8, or for the trial of the money- laundering offence, it shall unless otherwise proved, be presumed that the remaining transactions form part of such inter-connected transactions associated with money-laundering.

Presumptions & Onus of Proof

Under section 24 of PMLA, the burden of proof lies on the person who claims that the proceeds of the crime alleged to be involved in money-laundering, are not so involved. The presumption against the accused or any 3rd party is good enough to discharge the onus of the authorities under PMLA. Even in the case of records and properties which are found in the possession or control of any person in the course of a survey or search under PMLA (Section 16, Section 17, and Section 18), under section 22 of PMLA, a presumption is raised that such records or property belongs to such person, and the contents of such records are true, and further that signatures and any part of such records is in hand-writing of a particular person or in the hand-writing of such person.

Where any records have been received from any place outside India, duly authenticated by such authority or person and in such manner, as may be prescribed, in the course of proceedings under PMLA, the Special Court, the Appellate Tribunal or the Adjudicating Authority, as the case may be, shall presume, that the signature and every other part of such record which purports to be in the hand-writing of any particular person or which the Court may reasonably assume to have been signed by, or to be in the hand-writing of, any particular person, is in that person's hand-writing; and in the case of a record executed or attested, that it was executed or attested by the person by whom it purports to have been so executed or attested.

The presumptions are absolute, and the onus to prove the same otherwise lies on such person.

It is clear that a person accused of an offence under Section 3 of PMLA, whose property is attached and proceeded against for confiscation, shall discharge the onus of proof (Section 24) vested in him by disclosing the sources of his income, earnings or assets, out of which or means by which he has acquired the property attached, to discharge the burden that the property does not constitute proceeds of crime. Where a transaction of acquisition of property is part of inter-connected transactions, the onus of establishing that the property acquired is not connected to the activity of money-laundering, is on the person in ownership, control or possession of the property, even if such person is not accused of a Section 3 offence under the Act, provided one or more of the interconnected transactions is or are proved to be involved in money-laundering.

Under the Act, a person accused or being investigated for money-laundering is required to give a truthful statement if such person is summoned by the Director. This power to the Director is given under section 50(2) of PMLA, which provides that the Director (or additional Director, joint Director, deputy director or assistant Director) has the power to summon any person whose attendance he considers necessary whether to give evidence or to produce any records during the course of any investigation or proceeding. All such summoned persons are bound to state the truth or make statements and produce such documents as may be required under section 50(3) of the Act.

A person called upon to make a statement before the authorities under section 50 of PMLA during investigation cannot be said to be accused of an offence. The investigation is only for the purpose of collecting evidence with regard to proceeds of crime in the hands of the persons suspected and their involvement in the offence of money-laundering. It is only at the stage of filing of the complaint for prosecution under PMLA envisaged under Section 44, that such persons or suspects be termed as accused. Accordingly, all such statements can be used against the accused during the course of prosecution.

Offenses of Cross-Border Implications

Offences with cross-border implications are scheduled offences under Part C of the Schedule to PMLA and, accordingly, PMLA may be applicable to such offences. The offence of wilful attempt to evade tax under section 51 of the Black Money Act has also been included in the list of scheduled offences under PMLA, and accordingly, PMLA may be applicable to such offences. Further, the UN Security Council Resolution 1373 obliges countries to freeze without delay the funds or other assets of persons who commit, or attempt to commit, terrorist acts, or participate in or facilitate the commission of terrorist acts; entities owned or controlled directly or indirectly by such persons; and persons and entities acting on behalf of or at the direction of, such persons and entities, including funds or other assets derived or generated from property owned or controlled, directly or indirectly, by such persons and associated persons and entities.

Each country has the authority to designate the persons and entities that should have their funds or other assets frozen. Additionally, to ensure that effective cooperation is developed among countries, countries should examine and give effect to, if appropriate, the actions initiated under the freezing mechanisms of other countries. To give effect to the requests of foreign countries under UN Security Council Resolution 1373, the Ministry of External Affairs examines the requests made by the foreign countries and forwards it electronically, with their comments, to a designated officer for freezing of funds or other assets. The freezing orders shall take place without prior notice to the designated persons involved.

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

India: Anti Money-Laundering Laws In India : The Prevention Of Money-Laundering Act, 2002 (PMLA)