In India, the Prevention of Money Laundering Act (hereinafter also referred as PMLA) is one of the most methodical legislation concocted to combat money laundering in India. PMLA and the Rules notified there under came into force with effect from the 1st day of July, 2005.
The preamble to the act opines, that it is an act devised to:
- Prevent money laundering,
- Provide for confiscation of property derived from or involved in laundered money,
- Punish those who commit the offence of money laundering.
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.
The definition of money laundering is provided u/s 3 of the PMLA, 2002, which states that:
whosoever: directly or indirectly attempts to indulge or knowingly assists, knowingly is party or is actually involved in any process or activity connected with the Proceeds Of Crime, including it's concealment or possession or acquisition or use and projecting and claiming it as untainted property shall be guilty of offence of Money Laundering.
It therefore, emerges that the definition is a very wide definition and is not exhaustive and almost any kind of dealing with the proceeds/fruits of crime, is brought within the scope of the section.
The word Proceeds Of Crime has been underlined above because of the imperative nature it carries as the offence of money laundering as defined above and liability for punishment u/s 4 is attracted only when the laundered property falls within definition of ‘proceeds from crime'. The newly inserted explanation and the amended section read as under:
Section 2(1)(u) of PMLA, defines the term as to mean any property derived or obtained, directly or indirectly by any person as a result of criminal activity related to a scheduled offence or the value of any such property.
The PMLA also enumerates a list of offences which are classified as ‘scheduled offences' constitute as ‘crimes'. The growing number of financial crimes and high profile embezzlement have become a matter of grave concern. As a result of which, he Finance Act, 2019, has introduced few amendments to the PMLA to curb the same.
The Amendments provide stringent and in certain cases even draconian directives for investigation, seizure, confiscation and adjudication. The Amendments also apprises the befuddled lot on certain required clarifications on ambiguities that existed prior to the amendments. It is significant to note that the amendments have been made by inserting an ‘Explanation'.
Key Amendments:
- Explanation to Section 2 (u) inserted:
This Explanation clarifies the position of ‘proceeds of crime'. Now, ‘proceeds of crime' will be understood to relate to any property that directly or indirectly derived or obtained through an activity relatable to scheduled offences.
Accordingly, offence of money laundering is not an independent crime but in sooth depends upon another crime, which is known as the ‘scheduled offence' the proceeds of which are made the subject matter of crime of money laundering.
- Explanation to Section 3:
Section 3 of PMLA relates to offences of money laundering. The Explanation u/s mentions, a person shall be guilty of money laundering if the person is directly involved or is knowingly a party to one or more of the following processes, connected with the ‘proceeds of crime':
Concealment, (b) Possession, (c) Acquisition, (d) Use, (e) Projecting as untainted property, (f) Claiming it as untainted property, in any manner whatsoever.
The Explanation also states that the process or activity connected with proceeds of crime continues till such time a person is directly or indirectly enjoying the proceeds of the crime. Accordingly, the entire process/activity connected to the proceeds of crime is a continuing offence.
The above Explanation was inserted on the basis of an observation made by Financial Task Action Force (FATF), that concealment, possession, acquisition and use of the proceeds of crime were not criminalized earlier under Section 3 of the PMLA.
- Proviso to Section 17(1) and 18(1) omitted:
Omitting the above proviso now gives the authorized officer under PMLA the authority to enter any property for purpose of conducting search and seizure, and the search of any person, even in the absence of the reporting of a scheduled offence to a Magistrate or any other competent authority in this regard.
Where prior to the amendment it was provided, that no search ( also inc. persons) 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 (which sets out the Procedure for Investigation) or a complaint has been duly filed by a person, authorised 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.
- Amendment to Section 44 of the PMLA:
Section 44 of the PMLA encompasses the provisions for offences which can be tried by Special Courts. A proviso has been inserted to Section 44(1)(b) of the PMLA which talks about submitting of a ‘Closure Report' upon conclusion of investigation. It states that if no offence of money laundering can be determined after investigation, the authority shall submit a ‘Closure Report' before the Special Court. It insists on closing of cases where investigation was completed and no offence was found.
An Explanation has been inserted to Section 44 (1) (d) of PMLA which gives the Special Court an exclusive jurisdiction regarding scheduled offences. The Explanation mentions that the trial conducted by the Special Court for scheduled offences shall be distinct from any other trial being conducted for the same scheduled offence. It shall not be considered as a joint trial. The Explanation further adds that Complaint shall include any subsequent complaint that arises as a result of further investigation against any accused person. It shall be applicable for all persons, whether or not such person was included in the original complaint.
- Explanation to Section 45 (2) of PMLA:
This Explanation injected in section 45 clarifies that the offence of money laundering is a cognizable and non-bailable offence. Accordingly, an authorized officer can arrest the accused without a warrant. Which in common parlance means that a person arrested is not entitled to bail as a matter of right, and the bail becomes a matter of discretion for the court and if the offence provides for punishment which more than 3 years, then bail can only be granted after hearing the prosecutor and only after the court comes to the conclusion that there are reasonable grounds for believing that he is not guilty of such an offence and that he is not likely to commit any offence while on bail.
The above amendments to the Prevention of Money Laundering Act, 2002 brought in by the Finance Act, 2019 brings the much needed clarity on various unaddressed aspects of money laundering. It can be said that these amendments now confer the authorities with better command, regarding investigation, seizure, search, confiscation, closure and adjudication.
However, the crucial question for consideration would be whether these amendments will be applicable retrospectively? As the amendments has been made by virtue of Finance Act, 2019 and it is not clear whether they will have an retrospective or prospective operation, Considering it more of a clarificatory in nature, as it is just explaining what has been already opined in the definition of "proceeds of crime", therefore, in my opinion, it is likely to have an retrospective effect. It is also believed that courts in future can throw some light on the same by way of litigation that may arise during the trials of such matters.
Written By: Amrit Rajan Jhangiani
