Modern commercial transactions rarely involve only two people. Lawyers draft documents, accountants prepare financial statements, consultants advise on structures, lenders assess creditworthiness and intermediaries introduce parties or coordinate transactions. When one participant is later accused of generating or laundering proceeds of crime, however, the involvement of everyone around the transaction can begin to acquire a suspicious character. The difficult question is where legitimate commercial association ends and criminal participation begins.

The Prevention of Money Laundering Act, 2002 was enacted to prevent the laundering of illicit wealth and to ensure that the proceeds of criminal activity do not enter the legitimate financial system. Those objectives are unquestionably important. But the seriousness of economic crime cannot remove the need to identify the conduct that makes a particular person liable under the Act. A person's presence in a transaction, professional relationship with another participant, or receipt of an ordinary commercial payment cannot by itself answer that question.

Section 3 of the PMLA is concerned with a person who directly or indirectly attempts to indulge, knowingly assists, knowingly becomes a party to, or is actually involved in a process or activity connected with proceeds of crime, including their concealment, possession, acquisition, use or projection as untainted property. The Supreme Court in Vijay Madanlal Choudhary -v/s- Union of India (https://www.livelaw.in/tags/vijay-madanlal-choudhary-vs-union-of-india-2022-livelaw-sc-633) explained that Section 3 has a wide reach and covers processes and activities connected with proceeds of crime. At the same time, the Court recognised that prosecution under the PMLA is triggered by the existence of proceeds of crime linked to criminal activity relating to a scheduled offence.

That distinction matters. The scheduled offence provides the source from which proceeds of crime are said to arise; the PMLA offence concerns the person's involvement in the processes or activities connected with those proceeds. The two cannot simply be collapsed into one. The fact that a person participated in a transaction in which another participant is alleged to have committed a scheduled offence does not, without more, establish that the first person committed money laundering.

The Supreme Court's decision in Pavana Dibbur -v/s- Directorate of Enforcement (https://www.livelaw.in/tags/pavana-dibbur-v-the-directorate-of-enforcement) is instructive in this regard. The Court made clear that a person need not necessarily be an accused in the scheduled offence to face a PMLA prosecution. That, however, does not mean that every person who appears in the commercial history surrounding the proceeds of crime can be prosecuted. The prosecution still has to connect the particular accused with conduct falling within Section 3. Pavana Dibbur also recognised that a person who comes into the picture after the scheduled offence by assisting in the concealment or use of proceeds of crime may be prosecuted even if that person was not an accused in the predicate case.

This distinction is particularly important for professionals. Modern commerce depends upon specialised roles. A chartered accountant may prepare accounts on the basis of information supplied by a client. An advocate may draft agreements and conduct due diligence within the scope of the engagement. A consultant may advise on financing. A broker may introduce two parties. A lender or financial intermediary may evaluate a transaction using documents and representations supplied by others. These activities may create proximity to a transaction, but proximity is not the same thing as participation in laundering.

The law should therefore ask a more precise question: what did the particular professional actually do, what did the person know, and how did that conduct connect with the proceeds of crime? Correspondence with an accused person, attendance at meetings, preparation of documents, introduction of parties or participation in routine commercial negotiations may justify investigation. They cannot, standing alone, be treated as proof that the professional knowingly assisted or was a party to money laundering.

The same caution is necessary when professional remuneration is treated as evidence of criminal enrichment. Lawyers receive fees, accountants receive professional charges, consultants receive consultancy payments and brokers receive commissions. A payment does not become proceeds of crime merely because the client who made it is later investigated. The relevant inquiry is whether the payment itself was part of a conscious process involving the proceeds of crime, rather than whether a professional happened to receive money in the ordinary course of a legitimate engagement.

This does not create an immunity for professionals. If the evidence shows that a lawyer, accountant, consultant, broker or intermediary knowingly assisted in concealing proceeds, deliberately structured transactions to disguise their origin, or otherwise participated in the processes identified in Section 3, the fact that the person was acting in a professional capacity cannot provide protection. Professional status cannot become a shield for deliberate criminal conduct.

The danger lies at the opposite extreme: treating commercial association as a substitute for proof. A criminal prosecution should identify the conduct attributed to the accused with reasonable specificity. It should be possible to ask what the person is alleged to have done, what knowledge is attributed to that person, and how the alleged conduct furthered the laundering process. General descriptions such as being 'associated with', 'connected to' or 'present during' a transaction do not answer those questions.

The constitutional dimension becomes particularly important when coercive powers are exercised. Investigations under the PMLA often depend heavily upon banking records, accounting material, electronic communications, statutory filings and other documents held by institutions. The existence of documentary evidence does not eliminate the State's investigative powers, but it does underline the need for proportionality when personal liberty is curtailed. Arrest is an intrusive power and its exercise must remain connected to the statutory requirements governing arrest and the genuine needs of the investigation.

The Supreme Court's decision in Tarsem Lal -v/s- Directorate of Enforcement is also significant in understanding the limits of the Enforcement Directorate's power of arrest after a Special Court has taken cognizance of a PMLA complaint. The judgment demonstrates that the statutory scheme cannot be separated from the procedural and constitutional safeguards governing deprivation of liberty.

None of this weakens the fight against money laundering. Organised financial crime can be sophisticated, and those who knowingly facilitate the movement, concealment or enjoyment of criminal proceeds must be held accountable. The point is narrower and more fundamental: the effectiveness of the PMLA depends upon distinguishing actual participation from mere proximity.

A mature approach to money-laundering prosecutions must therefore preserve both sides of the equation. The State must have the power to trace proceeds of crime and prosecute those who knowingly participate in laundering them. At the same time, individuals who merely occupy a professional or commercial position around a transaction should not be exposed to criminal liability unless the material establishes their own involvement in conduct covered by the Act.

Constitutional safeguards do not protect culpability; they ensure that culpability is established through evidence rather than assumption. The legitimacy of the PMLA will ultimately depend not only on how effectively it reaches those who launder criminal proceeds, but also on how carefully it avoids converting commercial proximity into criminal guilt.

Author is an Advocate practicing in Maharashtra. Views are personal.