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Money Laundering Offence Attracted By Mere Possession Of Crime Proceeds ; Projection As Untainted Property Not Required : SC Interprets "And" In Sec 3 PMLA As "Or"

Sohini Chowdhury
27 July 2022 12:55 PM GMT
Money Laundering Offence Attracted By Mere Possession Of Crime Proceeds ; Projection As Untainted Property Not Required : SC Interprets And In Sec 3 PMLA As Or
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By interpreting "and" in Section 3 of the Prevention of Money Laundering Act 2002 (PMLA) as "or", the Supreme Court held that mere possession or concealment of the proceeds of the crime is sufficient for the offence of money laundering and that it need not be projected as an untainted property.The Court on Wednesday held that Section 3 of Prevention of Money Laundering Act, 2002 (PMLA)...

By interpreting "and" in Section 3 of the Prevention of Money Laundering Act 2002 (PMLA) as "or", the Supreme Court held that mere possession or concealment of the proceeds of the crime is sufficient for the offence of money laundering and that it need not be projected as an untainted property.

The Court on Wednesday held that Section 3 of Prevention of Money Laundering Act, 2002 (PMLA) has a "wider reach and captures every 'process and activity', direct or indirect, in dealing with the proceeds of crime and not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money-laundering".

In the judgment passed by a Bench comprising Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar in a batch of petitions concerned with challenges to interpretation of the various provisions of the PMLA, it was clarified that the word "and" preceded by the expression "projecting or claiming" in the main provision of Section 3 ought to be construed as "or" so that the projection of the proceeds of crime as untainted property is considered as an offence on its own.

"Section 3 - Offence of money laundering - 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."

In this regard the Bench rejected the submission made by the petitioners that offence of money-laundering is limited to only the projection of proceeds of crime as legitimate property.

The Court also rejected the argument of the petitioners that if this interpretation is adopted there will be no distinction between the scheduled offence and money laundering offence.

"We may also note that argument that removing the necessity of projection from the definition will render the predicate offence and money-laundering indistinguishable. This, in our view, is ill founded and fallacious. This plea cannot hold water for the simple reason that the scheduled offences in the 2002 Act as it stands (amended upto date) are independent criminal acts. It is only when money is generated as a result of such acts that the 2002 Act steps in as soon as proceeds of crime are involved in any process or activity. Dealing with such proceeds of crime can be in any form —being process or activity. Thus, even assisting in the process or activity is a part of the crime of money-laundering. We must keep in mind that for being liable to suffer legal consequences of ones action of indulging in the process or activity, is sufficient and not only upon projection of the ill-gotten money as untainted money. Many members of a crime syndicate could then simply keep the money with them for years to come, the hands of the law in such a situation cannot be bound and stopped from proceeding against such person, if information of such illegitimate monies is revealed even from an unknown source", the Court said.

ED can investigate money laundering offence only if FIR for scheduled offence has been registered; acquittal in schedule offence will close money laundering case as well

The Bench further held that the authorities under the PMLA cannot prosecute on assumption that a scheduled offence has been committed, unless it is registered with the jurisdictional police or pending enquiry or trial. Moreover, it held that once the accused is acquitted or discharged in respect to the scheduled offence or the case is quashed by the competent Court, there can be no offence of money-laundering against them.

"If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or any one claiming such property being the property linked to stated scheduled offence through him."

Evolution of the definition of 'money laundering' under Section 3 PMLA

International Conventions

The origin was traced back to Article 3 of the Vienna Conventions of 1988, which enumerated the offences and sanctions. Thereafter, the Bench referred to Articles 2 and 6 of the Palermo Convention. Culling out the relevant provisions, it noted that in order to curb money laundering globally, the said Conventions had given a wide interpretation to the concept of money laundering. Acquisition, possession, use, concealment or disguising origin of the tainted money were considered to constitute the offence of money-laundering.

Financial Action Task Force (FATF)

In 1989, an intergovernmental organization, namely, Financial Action Task Force (FATF) was founded to develop policies to combat money laundering. On 20.06.2003, FATF had made 40 recommendations to ensure compliance with the international conventions.

Bona fides of Indian legislature

As India was lagging behind in curbing money-laundering, recommendations were made to India time and again. It appears certain recommendations were made with respect to the definition of money-laundering. Eventually, the PMLA was enacted in 2002 and brought to force in 2005. India has shown inclination to follow FATF's recommendations to move away from the colloquial understanding of the term 'money laundering' to a 'technically defined offence'. It was noted that it is more than simply converting black- money into white or white money into black. Considering that India has amended the provision in order to implement the recommendations of the FATF to curb money-laundering, the Bench was of the opinion that Section 3 ought to be read in such a manner that 'will help not only stop but prevent money-laundering by nipping it in the bud'.

Definition of money-laundering in Section 3 has wider reach

The Bench noted that even from a reading of the original provision it is clear that the expression "money laundering" includes within its ambit every process and activity in dealing with the proceeds of crime, directly or indirectly, and not limited to the happening of the final act of integration of tainted property in to the formal economy to constitute an act of money-laundering. It reckoned Section 3 is widely worded with a view to not only investigate the offence of money laundering but also to prevent and regulate it.

The PMLA as it stood prior to the 2019 amendment, made it abundantly clear that involvement in "any process or activity" connected with the proceeds of the crime would constitute offence.

Section 3 as it stood prior to the 2019 Amendment reads as under -

"3. Offence of money-laundering.—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."

It was observed by the Bench that the underlined portion (above) which includes concealment, possession, acquisition or use, projecting or claiming it as untainted property, only elaborates on "any process or activity". The same has been clarified by way of insertion of an Explanation in 2019. The Explanation inserted by way of the 2019 Amendment has only clarified the word 'and' preceding the expressing 'projecting or claiming' would read as 'or'.

The Explanation inserted in Section 3 by way of the 2019 Amendment is as under - 

Explanation.--For the removal of doubts, it is hereby clarified that,--

(i) a person shall be guilty of 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:--

(a) concealment; or

(b) possession; or

(c) acquisition; or

(d) use; or

(e) projecting as untainted property; or

(f) claiming as untainted property,

in any manner whatsoever;

(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.

Amendment to Section 3 being clarificatory, whether introduced by Finance Bill or not, would not make a difference to original provision

The explanation inserted in Section 3 being clarificatory in nature, whether introduced by way of Finance Bill or not, the Bench opined, would not make a difference to the main original provision as it stood prior to the 2019 amendment.

"Explanation inserted by way of amendment of 2019 was only to restate the stand taken by India in the proceedings before the FATF, as recorded in its 8th Follow-Up Report Mutual Evaluation of India June 2013 under heading "Core Recommendations".

Referring to a catena of judgements the Bench noted that it was obligated to give due regard to international conventions and norms (FATF guidelines) for construing domestic laws.

"And" can be read as "Or" to give full effect to legislative intent

The Bench noted that the core recommendation of FATF mentioned that usage of "and" in Section 3 of 2002 Act is not in line with the Vienna and Palermo Conventions. But India has ably, it notes, had clarified the doubt by referring to the judicial precedents which permits interpreting the word "and" as "or" in order to give full effect to the legislative intent. The Bench also thought it fit to read "and" in Section 3 as "or" so as to bring within its ambit "every process of activity" including projection of proceeds of crime as untainted.

Involvement in any one of the "process or activity" would attract offence of money laundering

'Process or activity' in Section 3 includes concealment, possession, acquisition or use, projecting or claiming it as untainted property and involvement in any one of these activities would constitute the offence of money-laundering.

Relevant date under PMLA is not when the schedule offence was committed but when the person indulges in "any process or activity"

The criminal activity may have been committed prior to the offence being notified as scheduled offence, but if the person has indulged in "any process of activity" as elucidated in Section 3, after the criminal activity was notified as scheduled offence, they would be liable under PMLA.

Assisting in the "process or activity" is a part of crime of money laundering

The Bench was of the view that projection of the tainted money as untainted was not required to constitute an offence; being involved in the "process or activity" was sufficient to constitute a crime under PMLA. It noted that even assisting in the process or activity is a part of the crime of money-laundering. The petitioners has argued that only projecting untainted money as tained is to be the offence under PMLA. The Bench opined that if it is so then members of crime syndicate would simply keep the money with them and no one can proceed against them as there is no effort to legitimize the ill-gotten money.

Offence of money-laundering gets triggered only if there exists proceeds of crime

It was of the view that the existence of proceeds of crime as defined in Section 2(1)(u) PMLA was essential to attract the offence of money laundering. If the offence is a scheduled offence only then the property received would take the colour of proceeds of crime enabling the authorities to take further action.

Authorities cannot prosecute on an assumption that the person is in possession of proceeds of crime

Authorities cannot prosecute on an assumption regarding possession of proceeds of crime. There ought to be tangible and credible evidence to indicate involvement of a person in "any process or activity" connected with the proceeds of crimes and only then action with respect to attachment and confiscation of such proceeds can be taken.

Onus on the Government to identify and seize tainted money is heavy

Acknowledging that money laundering is detrimental to the functioning of a good financial system, the Bench observed -

"Tainted money breeds discontent in any society and in turn leads to more crime and civil unrest. Thus, the onus on the Government and the people to identify and seize such money is heavy. If there are any proactive steps towards such a cause, we cannot but facilitate the good steps. However, passions aside we must first balance the law to be able to save the basic tenets of the fundamental rights and laws of this country. After all, condemning an innocent man is a bigger misfortune than letting a criminal go."

The conclusions in this regard were summarized as follows :

(a) Section 3 of the 2002 Act has a wider reach and captures every process and activity, direct or indirect, in dealing with the proceeds of crime and is not limited to the happening of the final act of integration of tainted property in the formal economy. The Explanation inserted to Section 3 by way of amendment of 2019 does not expand the purport of Section 3 but is only clarificatory in nature. It clarifies the word "and" preceding the expression projecting or claiming as "or"; and being a clarificatory amendment, it would make no difference even if it is introduced by way of Finance Act or otherwise.

(b) Independent of the above, we are clearly of the view that the expression "and" occurring in Section 3 has to be construed as "or", to give full play to the said provision so as to include "every" process or activity indulged into by anyone. Projecting or claiming the property as untainted property would constitute an offence of money-laundering on its own, being an independent process or activity.

(c) The interpretation suggested by the petitioners, that only upon projecting or claiming the property in question as untainted property that the offence of Section 3 would be complete, stands rejected.

(d) The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property, which constitutes the offence of money- laundering. The Authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or any one claiming such property being the property linked to stated scheduled offence through him.

Other reports on the judgment :

Supreme Court Upholds ED's Power Of Arrest, Attachment, Search & Seizure And "Twin-Conditions" For Bail; Says PMLA Has Stringent Safeguards

ED Authorities Are Not Police Officers; Article 20(3) Protection Available Only After Arrest & Not At Summons Stage : Supreme Court

Case details

Vijay Madanlal Choudhary vs Union of India | 2022 LiveLaw (SC) 633 | SLP (Crl) 4634 OF 2014 | 27 July 2022 | Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar

Counsel: Senior Advocates Mr. Kapil Sibal, Dr. Abhishek Manu Singhvi, Mr. Sidharth Luthra, Mr. Mukul Rohatgi, Mr. Vikram Chaudhari, Mr. Amit Desai, Mr. S. Niranjan Reddy, Ms. Menaka Guruswami, Mr. Siddharth Aggarwal, Mr. Aabad Ponda, Mr. N. Hariharan and Mr. Mahesh Jethmalani, appearing for private parties and Solicitor General of India Mr. Tushar Mehta, and Additional Solicitor General of India Mr. S.V. Raju, for the Union of India.

Click here to Read/Download Judgment


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