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Government's crackdown on black money continues persistently and a series of prosecutions have been launched in the recent times under the Prevention of Money Laundering Act, 2002. This article is an attempt to clarify the law relating to money laundering in India and provide a brief overview of its scheme and operation in the country.


 v  What is Money Laundering?

Generally money laundering is defined as a process of creating an appearance that the money obtained from serious crimes has originated from a legitimate source. Sale of illegal arms, smuggling, drug trafficking, prostitution rings, insider trading, bribery and fraud schemes on computer can produce large profits. Money Laundering is the process of conversion of such proceeds of crime, that is to say the 'dirty money', to make it appear as 'legitimate' money.


 v  What is the usual modus operandi?

A case of money laundering apparently appears to be a straight forward financial transaction, however, the criminality underneath is hidden by a three stage process:

  1. The first stage is when the money is injected into the formal financial system. This is called 'placement'.
  2. In the second stage, the money is spread over various transactions, with a view to blur the tainted origin of the money. This process is called 'layering'.
  3. In the third and final stage, the money enters the financial system in such a way that original association with the crime is sought to be wiped out, so that the money can be used by the offender as clean money. This is called 'integration'.


 v  What are the common forms of Money Laundering?

Bulk cash smuggling, shell companies and trusts, gambling, real estate, fictional loans, hawala and false invoicing are some of the common methods of money laundering.


 v  What is the Indian Law on the subject?

In India, the specific legislation dealing with money laundering is the Prevention of Money Laundering Act, 2002 (PMLA). The law has three main objectives:

  1. To prevent and control money laundering;
  2. To provide for confiscation and seizure of property obtained from laundered money; and
  3. To deal with any other issue connected with money laundering in the country.

 Apart from the provisions of PMLA, there are other specialized authorities such as RBI, SEBI and IRDA, which provide for anti money laundering regulations. These authorities are also bound to provide suspicious transaction reports, which are analyzed by the intelligence units established by the Government.


 v  What is the legal definition of Money Laundering?

The offence of ‘Money Laundering’ is defined under Section 3 of the PMLA, which is as under:

Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering.

 It is clear that the section is very widely worded and almost any kind of dealing with the proceeds of crime is brought within the purview of the section and made punishable.

 An understanding of the phrase 'Proceeds of Crime' is also crucial for the understanding of the offence of money laundering. To understand what is meant by 'Proceeds of Crime', one has to turn to Section 2(u) of PMLA, which provides as under:

Any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offense or the value of any such property

 To further add teeth to this provision, Finance Act, 2015 has further widened the definition of proceeds of crime and included within its ambit not only the specific property which is the subject matter of money laundering, but also the equivalent value of the property held within the country, in a situation where property which is taken from the proceeds of crime is taken or held outside the country. To illustrate, if a person ‘X’ has been accused of having proceeds of crime in country ‘Z’, in that situation, his assets in India of the same value will qualify as proceeds of crime, even though these assets per se are not the proceeds of crime and are in no way connected to it. This has been done with a view to enable action in those cases where proceeds of crime are taken or held outside the country, and to allow action to be taken for attachment of equivalent assets located within the country.

 A reading of the above definition also makes it clear that the offence of Money Laundering is not an independent crime. It depends upon another crime, which is known as the 'scheduled offence', the proceeds of which are made the subject matter of offence of money laundering.


 v  What are the scheduled offences under PMLA?

Under PMLA, commission of any offence, as specified in the Part A, Part B and Part C of the Schedule of PMLA will attract the provisions of PMLA. Some of the Acts and offences are enumerated herein below:

  1. Part A recruits offences under various acts such as Indian Penal Code, Narcotics Drugs and Psychotropic Substances Act, Prevention of Corruption Act, SEBI, Customs Act, Foreigners Act, Arms Act, Antiquities and Art Treasures Act, Copyright Act, Trademark Act, Wildlife Protection Act, and Information Technology Act amongst others
  2. Part B offences cover the offences under the Customs Act, provided the value of property involved is more than one crore rupees or more
  3. Part C deals with trans-border crimes


 v  Which authorities have the power to investigate or prosecute under the PMLA?

The Directorate of Enforcement in the Department of Revenue under the Ministry of Finance is responsible for investigating the offences of money laundering. This authority is empowered to carry out interim measures such as survey, search, seizure and arrest of the accused. The offence of money laundering is cognizable, which means arrest can be made without a warrant [Chahagan Chandrakant Bhujbal v. Union of India (2016) SCC Bom 938]. Similarly, if an asset is found to be the proceeds of crime, the same can be confiscated and appropriated by the Central Government. The scheduled offences are separately investigated by agencies mentioned under those acts, for example - the local police, CBI, customs departments, SEBI or any other investigative agency, as the case may be. After investigation is complete for the offence of money laundering, a complaint is filed by the investigating authority before the Special Court, where the trial for the offence actually takes place.


 v  What is attachment of property?

The PMLA gives extremely wide powers to the authorities to attach properties, suspected to be involved in money laundering. Section 5 of the PMLA authorises the Director or any other officer not below the rank of Dy. Director to attach properties. This power is to be exercised if the authority, as specified above, has a reason to believe, on the basis of material in their possession, that any person is in possession of any proceeds of crime, and such proceeds of crime are likely to be concealed, transferred, or dealt with in any manner, which may result in interruption of any proceedings relating to confiscation of such proceeds of crime. If the aforementioned conditions are satisfied, the authority may provisionally attach such properties for a period not exceeding 180 days from the date of order. It may be noted that there is no provision for a prior notice of a provisional attachment.

 After provisional attachment, the Director or any other officer, has to file a complaint stating the facts of such attachment before the Adjudicating Authority, within a period of thirty days from such attachment.

 The remedy available to the person aggrieved by the provisional attachment is that he may file his objections before the Adjudicating Authority. However, an order without jurisdiction or suffering from any jurisdictional error may be challenged directly before the High Court by invoking Article 226 of the Constitution.

 In various decision, the Courts have held that a mere mechanical noting that the property in question is likely to be concealed or transferred, would not meet the requirements of Section 5(1) of the Act, and such a non-speaking order by a Director can be set aside in writ proceedings by the High Court if it is devoid of strong and cogent reasons [Mahanivesh Oils & Foods Pvt. Ltd. v. Directorate of Enforcement (2016) SCC Del 475].


 v  What proceedings take place post attachment of the property?

We have already seen that after provisional attachment under section 5 of the PMLA, the Director has to file a complaint before the Adjudicating Authority. Section 8 of PMLA lays down an elaborate procedure for adjudication of a complaint. It calls for a show cause notice to be issued to the offender from whom the property has been seized, so as to give the person an opportunity to make a case against the attachment. Such a person, in order to avoid confiscation, can demonstrate the legitimate sources of his income, earning or assets out of which or by means of which he has acquired the property attached. The person may also provide the evidences on which he relies and other relevant information and particulars, and can convince the authority as to why all or any of such properties should not be declared to be the properties involved in money laundering and should not be confiscated by the Central Government. The Authority, after giving him a hearing, reaches to a finding. If the Adjudicating Authority, after the enquiry, comes to the conclusion that any property is involved in money laundering, it can, by an order in writing, confirm the attachment of the property. Decisions of the adjudicating authority of first instance can be appealed to the Appellate Tribunal created under the Act. Such attachment shall continue during the pendency of proceedings before a Court, and become final after the guilt of the person is proved before the Special Court and order of such Court becomes final. After the confirmation of provisional order of attachment, the Director or any other officer authorized by him in this behalf shall forthwith take the possession of the attached property.

 Essentially, once the provisional attachment is confirmed, the final fate of the property depends on the decision of the Special Court. If the offence under PMLA stands proved, the Special Court shall order confiscation of the property to the Central Government. If the Special Court reaches the conclusion that the offence has not taken place, it shall order release of such property to the person entitled to receive it.


 v  Whether an accused can be called upon to disclose documents and give statements, or can he exercise the right to silence?

Section 11(2) and section 50(3) of the PMLA makes it mandatory for a person so summoned by the adjudicating authority to attend in person, and makes him bound to disclose the documents as may be required, and answer such questions as are put forth. Moreover, Section 50(1) prescribes that the adjudicating authority can take Affidavits on oath with respect to discovery of any facts.

 Now, whether the accused can be compelled to disclose documents and disclose facts is a serious question, as it seriously trespasses the constitutional right of silence of the accused, as guaranteed under Article 20(3) of the Constitution. However, the law as it stands makes the statement recorded before the investigating officer under PMLA admissible in evidence before the Court. This is in stark contrast to any other criminal prosecution, where statements given to Police during investigation are not admissible in evidence during trial.


 v  What are the powers vested with Enforcement Directorate relating to search, seizure and arrest?

Section 17 of the PMLA gives wide powers of search and seizure of a premise to the investigating agency, while section 18 of the Act provides for search of an individual. If the investigating agency has reason to believe of commission of offence under PMLA and possession of proceeds of crime, it can enter and seize property and records, and can make an inventory of the same. If the investigating authority has a reason to believe that a person has secreted about his possession, ownership, control or proceeds of crime, in that case the person can be searched.

The offence is cognizable, which means arrest can be made without a warrant. Section 19 gives the authority the power to arrest. Standard safeguards relating to arrest apply under PMLA. Every person arrested has to be produced before the Magistrate within 24 hours. The provision also mandates that such arresting official has to forward a copy of such arrest memo with the material in his possession to the adjudicating authority in a sealed envelope.


v  Is there a right to bail available to the offender?

Section 45 of the PMLA makes the offence of money laundering non-bailable, which means that a person arrested is not entitled to bail as a matter of right, and bail becomes a matter of discretion for the Court. If the scheduled offence provides for punishment more than 3 years, then there is a ban on release on bail, unless either the offence concerns a child, woman or a sick person. Otherwise, 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.


v  Can a Company and its Directors/Managers/Secretaries be accused of an offence under PMLA?

Section 70 of PMLA deals with offences by Companies. It states that where a Company commits a contravention of any of the provisions of this Act or of any Rule, Direction or Order made there under, in that case the Company as well as every person who, at the time the contravention was committed, was in charge of and was responsible to the company for the conduct of the business of the company, shall be deemed to be guilty of the contravention and shall also be liable to be proceeded against and punished under PMLA. This is an instance of what is known as 'Vicarious Liability', where liability for the acts of the Company is also attributed on the individuals heading responsible positions in the Company, on the premise of them being the alter egos of the Company. The possible defense and exception to this for the individual is to argue and prove that the contravention took place without his knowledge or despite all due diligence.


v  What are the obligations of Banking Companies, Financial Institutions and Intermediaries?

Section 12 of PMLA makes it mandatory for all Banking Companies, Financial Institutions and Intermediaries to maintain records of all transactions, including information relating to transactions, for a period of 5 years. The record is to be maintained in such manner so as to enable the investigating agency or Court to reconstruct individual transactions and find out the criminality. The aforesaid agencies are required to furnish to the concerned authorities under PMLA, all information relating to such transactions, whether attempted or executed, along with the nature and value of such transactions. These entities also have to verify the identity of its clients and the beneficial owner, if any, and maintain record of documents evidencing identity of its clients and beneficial owners.


v  How is trial of PMLA offence and Scheduled offence conducted?

Since the offence of money laundering is inextricably connected with the scheduled offence, PMLA provide that the trial for the scheduled offence as well as offence punishable under Section 4 shall be conducted by the Special Court. If a Court which has taken cognizance of the scheduled offence is other than the Special Court, it shall, on an application by the authorized authority, to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court. The Special Court, thereafter, on receipt of such case, should proceed to deal with it from the stage at which it was committed. However, this by itself should not be construed to mean a clubbing of trial proceedings. The simultaneous trial in both the cases by the same court is a way to reduce delays. Needless to state, both the cases are independently tried and decided on the basis of evidence in each case. The trial of scheduled offence and PMLA offence is to be conducted by the same court only for the sake of expediency.

It would be a cliché to say that the offence of money laundering is inextricably linked with the scheduled offence and, logically, an acquittal in the latter should, by itself, lead to a discharge for the offence of money laundering too. This view seems not only just and legal but also deserves to be adopted for its eminent common-sense, for if there is no scheduled offence, there cannot be any proceeds of crime either, as the crime in the phrase 'proceeds of crime' is nothing but the scheduled offence.


v  What are the various presumptions under PMLA?

Section 24 of the PMLA casts the burden of proof on the accused to prove that the proceeds of crime are not involved in money laundering. The section cannot be read so as to obviate the requirement for the prosecution to prove these foundational facts. Any other view shall seriously undermine the fairness of the process, as one has to keep in mind that negative proof, i.e. proof of innocence, as opposed to proof of commission, by its very nature, is extremely difficult to be established. The language of Section 24(a) demonstrates that a person should be charged for an offence under Section 3, in order for the presumption to follow. Charge has to be read to mean a specific charge and not a vague allegation. However, once that charge is made, the accused will have to justify that the property is not tainted with wrong. This can be done by making it reasonably probable that the property is legitimately acquired by lawful means. As per fairly established principles of standard of proof, the accused does not have to prove all this beyond all reasonable doubts, but on a standard of preponderance of probability.

Section 23 incorporates the presumption that where money laundering involves two or more connected transactions, and one or more of such transactions is proved to be involved in money laundering, then for the purposes of adjudication or confiscation, it shall, unless otherwise proved to the satisfaction of the adjudicating authority, be presumed that the remaining transactions form part of such interconnected transactions, i.e. are also involved in money laundering.

Section 22 incorporates the presumption that property, records or documents found or seized from the possession or control of a person actually belong to such person, and the contents of such records are true. Further, there is also a presumption as to the records being in the handwriting or signatures of the person from whose possession they are seized.


v  What is the punishment under PMLA?

Section 4 of PMLA prescribes the punishment for money laundering as under:

  1. rigorous imprisonment for a term

-        which shall not be less than 3 years, but

-        which may extend to 7 years (10 years in case the offence is relating to Narcotics Drugs and Psychotropic Substances Act), and

  1. shall also be liable to fine.

 A notable feature is that there is no upper limit on the fine that may be imposed for an offence under the PMLA. The obvious intent is for the fine imposed to be commensurate to the nature and extent of offence committed and the money laundered.




Money laundering poses a serious threat not only to the financial system of the country, but also to its integrity and sovereignty. To obviate such threats, certain legislations including PMLA, have been enacted. The above analysis of the PMLA manifests that the Act, although extremely well intentioned, compromises on the fundamental principles of natural justice, fair trial and due-process. In its enthusiasm to fight black money, the Act trespasses the basic rights and liberties, as provided under the Constitution. Since the Act is fairly new, it is expected that the Hon'ble Courts would interpret or read-down these provisions in such a manner, so as to make the Act less prone to arbitrary exercise of power and ensure that its operation is constitutionally compatible.

Posted on: 12-09-2017