The Prevention of Money Laundering Act, 2002 (hereafter PMLA) was passed in the year 2002 but was brought into force in 2005. Section 3 of PMLA defines money laundering as:
"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."
Actually it is a non definition. It simply makes act of money laundering illegal without actually defining what money laundering is. We shall delve deep into it while discussing the scheme of PMLA.
PMLA was introduced, as its Statement of Objects and Reasons mentions, to make money laundering an offence, and to attach property involved in money laundering, so that this serious threat to the financial system of India is adequately dealt with. The Statement of Objects and Reasons gives to the Act, read as under:
"It is being realised, world over, that money- laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty. Some of the initiatives taken by the international community to obviate such threats are outlined below:—
(a) the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, to which India is a party, calls for prevention of laundering of proceeds of drug crimes and other connected activities and confiscation of proceeds derived from such offence.
(b) the Basel Statement of Principles, enunciated in 1989, outlined basic policies and procedures that banks should follow in order to assist the law enforcement agencies in tackling the problem of money-laundering.
(c) the Financial Action Task Force established at the summit of seven major industrial nations, held in Paris from 14th to 16th July, 1989, to examine the problem of money-laundering has made forty recommendations, which provide the foundation material for comprehensive legislation to combat the problem of money-laundering. The recommendations were classified under various heads. Some of the important heads are:
(i) declaration of laundering of monies carried through serious crimes a criminal offence;
(ii) to work out modalities of disclosure by financial institutions regarding reportable transactions;
(iii) confiscation of the proceeds of crime;
(iv) declaring money-laundering to be an extraditable offence; and
(v) promoting international co-operation in investigation of money-laundering.
(d) the Political Declaration and Global Programme of Action adopted by United Nations General Assembly by its Resolution No. S-17/2 of 23rd February, 1990, inter alia, calls upon the member States to develop mechanism to prevent financial institutions from being used for laundering of drug related money and enactment of legislation to prevent such laundering.
(e) the United Nations in the Special Session on Countering World Drug Problem Together concluded on the 8th to the 10th June, 1998 has made another declaration regarding the need to combat money-laundering. India is a signatory to this declaration.
2. In view of an urgent need for the enactment or a comprehensive legislation inter alia for preventing money-laundering and connected activities confiscation of proceeds of crime, setting up of agencies and mechanisms for coordinating measures for combating money-laundering, etc., the Prevention of Money-Laundering Bill, 1998 was introduced in the Lok Sabha on the 4th August, 1998. The Bill was referred to the Standing Committee on Finance, which presented its report on the 4th March, 1999 to the Lok Sabha. The recommendations of the Standing Committee accepted by the Central Government are that:
(a) the expressions "banking company" and "person" may be defined;
(b) in Part I of the Schedule under Indian Penal Code the word offence under section 477A relating to falsification of accounts should be omitted;
(c) 'knowingly' be inserted in clause 3(b) relating to the definition of money-laundering;
(d) the banking companies, financial institutions and intermediaries should be required to furnish information of transactions to the Director instead of Commissioner of Income-tax
(e) the banking companies should also be brought within the ambit of clause II relating to obligations of financial institutions and intermediaries;
(f) a definite time- limit of 24 hours should be provided for producing a person about to be searched or arrested person before the Gazetted Officer or Magistrate;
(g) the words "unless otherwise proved to the satisfaction of the authority concerned" may be inserted in clause 22 relating to presumption on inter- connected transactions;
(h) vacancy in the office of the Chairperson of an Appellate Tribunal, by reason of his death, resignation or otherwise, the senior- most member shall act as the Chairperson till the date on which a new Chairperson appointed in accordance with the provisions of this Act to fill the vacancy, enters upon his office;
(i) the appellant before the Appellate Tribunal may be authorised to engage any authorised representative as defined under section 288 of the Income-tax Act, 1961,
(j) the punishment for vexatious search and for false information may be enhanced from three months imprisonment to two years imprisonment, or fine of rupees ten thousand to fine of rupees fifty thousand or both;
(k) the word 'good faith' may be incorporated in the clause relating to Bar of legal proceedings.
The Central Government have broadly accepted the above recommendations and made provisions of the said recommendations in the Bill."
Scheme of PMLA
Prevention of Money Laundering Act enacted by Parliament in 2003 has been drastically amended in 2016. Notice the vast scope of definition of money laundering. Any holder of public office or even after demitting office, if found in possession of assets disproportionate to his/her income can be prosecuted for money laundering the money generated from bribes or favouritism.
The punishment for money laundering is minimum 3 three years and may extend to ten years as per section 4 of the PML Act. However the powers to take action under PML Act rests with Enforcement Directorate. Please also note that the burden of proving the known source of income is upon the ostensible owner of the property.
The PMLA as originally enacted was to identify and confiscate properties and assets created from proceeds of various crimes. These crimes were normal crimes against property under Penal Code, Drug Money, Unlawful or Terror Activity, Wildlife trafficking and Prostitution etc. Later on Prevention of Corruption Act was also added to this list. Another interesting amendment made in 2013 made it a presumptive offence. Section 24 stipulates that in case of a person charged with money laundering, the court shall presume that such proceeds of crime are involved in money laundering. Similarly in case of a person not charged under the Act, even in that case the courts shall presume that the proceeds of crime are being money laundered. Proceeds of Crime has been defined by section 2(1)(u) of PMLA
"...'proceeds of crime' 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"
Section 24 places Burden of proof on accused. It provides that:
"In any proceeding relating to proceeds of crime under this Act,— (a) in the case of a person charged with the offence of money-laundering under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and
(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering."
As a matter of fact, the courts have understood this provision rather unambiguously, in these words:
"…. We have independently examined the materials relied upon by the prosecution and also noted the inexplicable silence or reluctance of the appellant in disclosing the source from where such huge value of demonetized currency and also new currency has been acquired by him. ………. The fact that no limit for deposit was specified, would not extricate the appellant from explaining the source from where such huge amount has been acquired, possessed or used by him. The volume of demonetized currency recovered from the office and residential premises of the appellant, including the bank drafts in favour of fictitious persons and also the new currency notes for huge amount, leave no manner of doubt that it was the outcome of some process or activity connected with the proceeds of crime projecting the property as untainted property. No explanation has been offered by the appellant to dispel the legal presumption of the property being proceeds of crime. Similarly, the fact that the appellant has made declaration in the Income Tax Returns and paid tax as per law does not extricate the appellant from disclosing the source of its receipt. No provision in the taxation laws has been brought to our notice which grants immunity to the appellant from prosecution for an offence of money-laundering. In other words, the property derived or obtained by the appellant was the result of criminal activity relating to a scheduled offence ….....The possession of such huge quantum of demonetized currency and new currency in the form of Rs.2000/ notes, without disclosing the source from where it is received and the purpose for which it is received, the appellant has failed to dispel the legal presumption that he was involved in money laundering and the property was proceeds of crime. "
Rohit Tandon vs The Enforcement Directorate decided by SC on 10 November, 2017.
The above observations clearly clinch the issue of burden of proof but an academic question may arise why the legislature took this route to place burden of proof. The problem lies in the nature of beast. Right to property is a Constitutional right under article 300-A of the Constitution. Any law declaring assets not derived from genuine source of income would have to undergo a different set of scrutiny. Therefore PMLA provides that a notice may be given to a person to disclose the source of income of the asset and if responder fails, it be confiscated as a proceeds of crime for which there is a legal presumption.
Second problem is about Cash which is a legal tender. A Government can not make possession of any amount of cash as unlawful because it is a legal tender under Reserve Bank Act but it can declare a large amount in possession of a person presumed to be proceeds of crime to confiscate the same. This is exactly what has been done.
Benami Act
Benami literally means 'No Name' or Anonymous. The proceed of crime or not but if an asset has been created by a person in which payment has been made by another person, it is a benami transaction and the property becomes a 'Benami Property'. Section 2(8) and 2(9) of Prohibition of Benami Property Transactions Act, 1988 (45 of 1988) defines it as under:
"benami property"means any property which is the subject matter of a benami transaction and also includes the proceeds from such property;
"benami transaction"means,—(A) a transaction or an arrangement—(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration,….."
Under Benami Act too a property can be confiscated by the authorities after giving an opportunity of hearing to the ostensible owner i.e. the person in whose name property was purchased. If such owner fails to show as to how he paid for the property and what was the source of income, it can be confiscated as Benami Property under said law even if it is not a "proceed of crime".
Both these legislations are aimed at turning the table on creation of assets from 'black money' which is the most favourite method of criminals as well corrupt who find surrogates or benamidars who hold the property in their name while it is enjoyed by the corrupt or the criminal.
The Benami Act vide section 6 thereof prohibits the Benamidar (the person who paid for it) from transferring the property to any other person and a transfer if made is void.
But here is the catch. The department concerned for Benami Act is Income Tax Department but the department for PMLA is Enforcement Directorate.
Thus if the proceedings under PMLA fail, the matter shall have to be transferred to adjudicating authority under Benami Act, to proceed a fresh.
It would have been more efficient if both laws and it's enforcement authorities were same but as always, multiple authorities chase similar transactions and produce not so efficient results.
Bail under PMLA
Section 45(1)of PMLA imposed two conditions for grant of bail where an offence punishable for a term of imprisonment of more than 3 years under Part A of the Schedule to the Act is involved. The conditions are that the Public Prosecutor must be given an opportunity to oppose any application for release on bail and the Court must be satisfied, where the Public Prosecutor opposes the application, that there are reasonable grounds for believing that the accused is not guilty of such offence, and that he is not likely to commit any offence while on bail.
Supreme Court however found these conditions unconstitutional as it violated Articles 14 and 21 of the Constitution of India and therefore struck it down.
Nikesh Tarachand Shah vs Union Of India, AIR 2017 SC 5500: (2018) 11 SCC 1.
Interestingly similar provisions in in Anti Terror Law and Anti Drug Laws were upheld by Supreme Court, earlier.
See Kartar Singh v. State of Punjab, (1994) 3 SCC 569 at 707; Ranjitsing Brahmajeetsing Sharma v. State of Maharashtra and Anr, (2005) 5 SCC 294 at 317
In the case of bail under PMLA the Supreme Court itself held that 'Corruption' is not threat serious enough to warrant such restrictions. It observed:
" We must not forget that Section 45 is a drastic provision which turns on its head the presumption of innocence which is fundamental to a person accused of any offence. Before application of a section which makes drastic inroads into the fundamental right of personal liberty guaranteed by Article 21 of the Constitution of India, we must be doubly sure that such provision furthers a compelling State interest for tackling serious crime. Absent any such compelling State interest, the indiscriminate application of the provisions of Section 45 will certainly violate Article 21 of the Constitution. Provisions akin to Section 45 have only been upheld on the ground that there is a compelling State interest in tackling crimes of an extremely heinous nature."
The reasoning, to say the least, is ironical in a country where there is just one Anti Terror Police called NIA and has 7 agencies to deal with corruption alone. The details of these agencies and working has already been addressed in Chapter 4.
However the section 45 did have other discriminatory issues. For example it did not deal with Anticipatory bail. That means a person can get pre-arrest bail without meeting the above twin conditions but not after the arrest. Further the offences under the Act are actually incorporated in the schedule which are originally offences under some other laws. How come that after incorporation in the Schedule, all those offences could be treated as one? Thus section 45 was not linked exclusively to 'Money Laundering' alone but to any offence which the Director of Enforcement could investigate.
These shortcomings are also reflected poor drafting of the provision which was not strictly aimed at curtailing corruption alone.
Attachment & Confiscation of Property
The Director of Enforcement Directorate if on the basis of material in his possession, has reason to believe (and after recording in writing the reason for such belief) that:
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order.
The Enforcement Department has so far attached just one property under PMLA which is outside India and this property is at Australia. There is attachment of numerous properties within India and complete list can be accessed here.
After attachment the matter is decided by Adjudicating Officer to determine if property is created from the proceeds of money laundering. The Adjudicating Authority shall, after—
(a) considering the reply, if any, to the notice issued;
(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and
(c) taking into account all relevant materials placed on record before him,
by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering.
Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering.
In addition to adjudicating officer, the Special Court has also been vested with powers to confiscate the property created from the proceeds of crime, at the time of trial of a person accused of possession of proceed of crime.
Once the property is found to be acquired from proceeds of crime, it is confiscated and vested in Central Government. In this way it is the most stringent provision in which burden of proving the sources of funds lies on accused.
The PMLA also cast an obligation on 'reporting entity' to inform the acquisition of property of specified description. If it fails to do so, it may be saddled with a fine by ED.
The ED also has power of search and seizure of properties etc. as also the arrest of persons suspected of committing of offence.
Section 22 of the PMLA provides an interesting presumption in respect of papers of properties situated in India:
"Where any records or property are or is found in the possession or control of any person in the course of a survey or a search or where any record or property is produced by any person or has been resumed or seized from the custody or control of any person or has been frozen under this Act or under any other law for the time being in force, it shall be presumed that—
(i) such records or property belong or belongs to such person;
(ii) the contents of such records are true; and
(iii) the signature and every other part of such records which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a record, stamped, executed or attested, that it was executed or attested by the person by whom it purports to have been so stamped, executed or attested."
Thus title to the property can not be disputed by an accused pleading some defect in the documents, which may have been due to some omission or some oblique purpose.
Another presumption in section 23 is that 'where 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 to the satisfaction of the Adjudicating Authority or the Special Court, be presumed that the remaining transactions from part of such inter-connected transactions.'
For example if a deed of sale of property is executed in favour of an accused which states that accused paid certain sum for purchase, the payment of that sum can be presumed. It shall therefore be not necessary for prosecution to prove the payment.
In criminal law, the proceedings for prosecution of the persons accused abate on the death of the person. However under PMLA, the proceedings continue even after the death of an accused or even when accused has been declared insolvent. (See section 72)
The PMLA also confer powers on authorities and the Government to provide elaborate procedure for interacting with Governments and Courts in other countries to retrieve information and properties.
The existence of such drastic powers and so many authorities should have eliminated corruption from India. But it has not happened. Why?
In 1995, the Transparency International launched the Corruption Perceptions Index which has become it's flagship research product, and a global indicator of public sector corruption. In 2012, Transparency International revised the methodology used to construct the index to allow for comparison of scores from one year to the next. The 2018 CPI draws on 13 surveys and expert assessments to measure public sector corruption in 180 countries and territories, giving each a score from zero (highly corrupt) to 100 (very clean).
On this Corruption Index, Denmark is placed at top with 88 marks. Indiaranked at 78th position with 43 marks. Bhutan was at 25th position with 68 marks. For consolation Nepal was at 124th position with 31 marks.
Corruption Perception Index 2018
Why India lags behind all these 77 countries even though so much resources and man power is invested in anti-corruption efforts?
In the first Chapter we had seen the evolution of anti-corruption laws, especially post 1947 and the events which led to different enactments. All measures were aimed at showing that the Government in power to be non-corrupt. The politics of democratic country like India as also most other countries also prevents or should we say harness the corruption.
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