This article has been written by Yash Agarwal pursuing a Diploma in White Collar Crime Litigation and Specialty Legal Defense from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

The offence of money laundering, as per the Oxford English, is “the concealment of the origin of illegally obtained money, which can involve foreign banks and legitimate businesses.” Going further with this definition, it can be said that the offence of money laundering is a form of financial offence that infers money that is illegally obtained by an underlying offence. To curb these types of offences, the Prevention of Money Laundering Act, 2002 (PMLA) was enacted. This act is enacted to protect the economy of the nation and with the enactment of this act, it has given immense powers to the Enforcement Directorate (ED). Under PMLA, only the ED can register any case against any person. Although any person can complain to the ED with information of money laundering, only the ED can register a case under PMLA.

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Predicate offence

The most essential element in a PMLA case is the predicate offence. If PMLA can be considered a genesis, then a predicate offence can be considered as a species. No offence of money laundering can take place without a predicate offence. A predictive offence can be termed the primary crime, which generates the proceeds to a bigger crime that can be subjected to money laundering. It can also be defined as the component of a complex criminal activity. Predicate and scheduled offences are defined under Section 2(y) of the PMLA Act. The schedule provides a wide list of offences under various penal legislation, such as the Indian Penal Code, 1860, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, and the Prevention of Corruption Act, 1988. The scheduled list of predicate offences are divided into 3 parts: Part A, Part B, and Part C.

Genesis of predicate offence

The intention of the legislation behind the enactment of predicate offences was not only to curb illicitly gained wealth but also to curb the income that is legally acquired but concealed with the eyes of public authority. While presenting the prevention of money laundering act bill in Rajya Sabha Mr. P. Chidambaram read that “it postulates that there must be a predicate offence and it is dealing with the proceeds of a crime. That is the offence of money-laundering. It is more than simply converting black money into white or white money into black. That is an offence under the Income Tax Act.” The reasons can be as follows: 

  • Some individuals intend to conceal income to escape their statutory contributions, which are put in place for the social welfare of society.
  • Escaping income from tax authorities, be it income tax, sales tax, or excise duty, resulting in money laundering.
  • Some entities are involved in concealing income to avoid compliance with various industrial laws such as the Minimum Wages Act, Factories Act, etc.

Mapping predicate offences: a follow up to predicate offences

Predicate offences are classified by the legislation in different schedules consisting of three parts: Part A, Part B, and Part C. These schedules have undergone several amendments by expanding their scope and incorporating new offences.

Part A: This section deals with the offences that are under Indian Penal Code, 1860. From offences like criminal conspiracy, kidnapping for ransom, to forgery of a valuable security, Part A deals with all the criminal activities.

Part B: In this section, offences under the Customs Acts become predicate offences if their value exceeds one crore rupees. This section specifically deals with the offences under customs duties and regulations.

Part C: This section deals with the offences that involve cross-border implications and are specified in Part A of the schedules, along with the offences against property under Chapter XVII of the Indian Penal Code. Additionally, it deals with the offence of the wilful attempt to evade any tax, penalty or interest referred to in Section 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Significance of a predicate offence and its relationship with money laundering 

The essence of predicate offences in the context of PMLA lies in their pivotal role in the larger framework of money laundering. A predicate offence acts as the foundation on which money laundering is built. For e.g., offences under Part A such as the offence of kidnapping for ransom under Section 354A, here the predicate offence is kidnapping for ransom, which will result in the receiving of illicit money from ransom, which will result in money laundering. The illicit gains generated by the predicate offence become the ‘dirty money’ that can be laundered to make it appear legitimate. A predicate offence is necessary to find out the source of that ‘dirty money’. In the case of Kavitha G. Pillai vs. The Joint Director (2015), the importance of predicate offence is laid down. This case highlighted that a predicate offence is the underlying criminal activity that generates proceeds, which, when laundered, gives rise to the offence of money laundering. This alignment between predicate offences and money laundering emerges as an integral aspect of maintaining international standards and coherence within the legal framework. The Apex Court in the case of Pavana Dibbur vs. The Directorate of Enforcement (2013) has held that it is not necessary to have a linkage between the date of the predicate offence and the commitment of money laundering because there can be ample time between the commission of a predicate offence and the time when the money is brought back to the system. 

Case laws

Chidambaram vs. Directorate of Enforcement

In 2019, the Supreme Court of India ruled on the case of Chidambaram vs. Directorate of Enforcement, addressing the issue of bail in relation to allegations of money laundering connected to predicate offences. The case involved senior politician P. Chidambaram, who was accused of money laundering based on predictive offences related to corruption.

The court delved into the evidentiary requirements necessary to establish a predicate offence and the subsequent laundering of proceeds. The judgement emphasised the significance of the Enforcement Directorate (ED) presenting prima facie evidence of both the predicate offence and the laundering activities to justify detention.

During the trial, the prosecution needed to demonstrate that Chidambaram had committed the predicate offence, which in this case was corruption. To establish this, the prosecution had to present evidence that Chidambaram had engaged in corrupt practices, such as accepting bribes or misusing his position for personal gain.

Once the predicate offence was established, the prosecution then had to demonstrate that the proceeds from that offence were laundered. This could involve showing that Chidambaram had transferred or concealed the money or assets obtained through corruption, with the intention of disguising their illicit origin.

The court highlighted the need for the ED to present strong evidence linking Chidambaram to both the predicate offence and the subsequent money laundering activities. This could include financial records, witness testimonies, or other forms of evidence that establish Chidambaram’s involvement in the crimes.

The judgement in Chidambaram vs. Directorate of Enforcement set an important precedent for future cases involving money laundering. It emphasised the importance of due process and the need for the prosecution to present sufficient evidence to justify detention in money laundering cases.

The case also raised questions about the role of the ED in investigating and prosecuting money laundering offences. Critics argued that the ED’s broad powers could lead to abuse and that there needed to be more robust safeguards to protect the rights of accused individuals.

Overall, the Chidambaram vs. Directorate of Enforcement case highlighted the complex legal and evidential issues surrounding money laundering offences and the need for a balanced approach to ensure both the effective investigation of such crimes and the protection of individual rights.

Rohit Tandon vs. Enforcement Directorate (2018)

This case involved the alleged laundering of proceeds derived from a predicate offence of tax evasion and other financial irregularities. The Delhi High Court discussed the scope of the ED’s powers to investigate and attach properties linked to predicate offences. The judgement emphasised that the prosecution must establish a clear connection between the predicate offence and the alleged money laundering activities.

Satyam Computer Services Ltd. vs. Directorate of Enforcement (2011)

In this case, the Andhra Pradesh High Court dealt with the infamous Satyam scam, in which the company’s founder was accused of embezzling funds and falsifying accounts. The court examined the concept of predicate offences in detail, noting that fraudulent activities and misappropriation of funds constituted predicate offences under the PMLA. The judgement clarified the process of tracing the proceeds of these offences and the subsequent steps for prosecution under money laundering laws.

State of Maharashtra vs. Ishrat Ali Rizvi (2019)

This case involved the investigation of organised crime activities, which were considered predicate offences under the Maharashtra Control of Organised Crime Act (MCOCA). The Bombay High Court discussed the interrelation between predicate offences and the charges of money laundering. The judgement provided insights into how proceeds from organised crime are treated under the PMLA and the evidentiary standards required to prove such offences.

Enforcement Directorate vs. M/s Obulapuram Mining Company Pvt. Ltd. (2017)

In the case of Enforcement Directorate vs. M/s Obulapuram Mining Company Pvt. Ltd. (2017), the Supreme Court of India addressed the significant issue of illegal mining activities being used as predicate offences for money laundering. The court’s primary focus was on examining the connection between illegal mining operations and the subsequent laundering of proceeds derived from these activities.

The judgement delved into the procedural aspects of attaching properties obtained through criminal activities, emphasising the need for a clear and established link between the predicate offence (illegal mining in this case) and the laundered money. The court recognised the importance of distinguishing legitimate business activities from those involving illegal proceeds.

The Supreme Court’s judgement in this case set a precedent for how predicate offences related to illegal mining should be treated in the context of money laundering cases. It emphasised the necessity of thoroughly investigating the source of funds and establishing a direct connection between the criminal activity and the laundered money. Furthermore, the court highlighted the significance of following due process and adhering to the principles of natural justice while attaching properties believed to be derived from illegal activities.

The judgement also underscored the importance of international cooperation in combating money laundering. It acknowledged the global nature of financial crimes and emphasised the need for collaboration among nations to effectively address the problem of illicit financial flows. The court recognised the value of mutual legal assistance treaties and international conventions in facilitating the exchange of information and evidence related to money laundering investigations.

Overall, the Supreme Court’s decision in Enforcement Directorate vs. M/s Obulapuram Mining Company Pvt. Ltd. (2017) provided valuable guidance on handling cases involving illegal mining as predicate offences for money laundering. It established essential principles for investigating and attaching properties associated with such criminal activities, highlighting the significance of procedural fairness and international cooperation in combating money laundering effectively.

Sanjay Kansal vs. Assistant Director, Directorate of Enforcement

Sanjay Kansal vs. Assistant Director, Directorate of Enforcement is a significant case from 2023 that delves into the intricate relationship between becoming an approver in a predicate offense and its implications on subsequent proceedings under the Prevention of Money Laundering Act (PMLA).

The central issue debated in this case was whether the evidence provided by an accused who becomes an approver in a predicate offense could be utilized in a money laundering proceeding against that same individual. The Delhi High Court, in its order, delivered a landmark ruling, holding that such evidence cannot be used for the purpose of a money laundering proceeding.

The court’s reasoning hinged on the principle of fairness and the right to a fair trial. It recognized that an accused who becomes an approver does so in exchange for certain concessions, including the promise of pardon in the predicate offense. Allowing the evidence given by the approver to be used against them in a subsequent money laundering proceeding would undermine the spirit of this arrangement and potentially expose them to double jeopardy.

Furthermore, the court highlighted the distinct nature of money laundering proceedings under PMLA. It emphasised that PMLA is a special statute aimed at combating the menace of money laundering and that the evidentiary requirements and procedures in such proceedings may differ from those in regular criminal cases. Therefore, the court reasoned, the evidence provided by an approver in a predicate offence cannot be automatically transposed and utilised in a PMLA proceeding.

In addition to this key legal principle, the Delhi High Court also considered the specific circumstances of the case before it. The accused, Sanjay Kansal, had become an approver in a predicate offence and had fulfilled the conditions laid down in Section 45 of PMLA. Based on these factors, the court granted him bail.

The Sanjay Kansal judgement serves as a valuable precedent in the interpretation of PMLA and its interplay with other criminal laws. It reinforces the importance of ensuring a fair and just process for individuals who choose to cooperate with authorities as approvers and provides clarity on the evidentiary parameters in money laundering proceedings.

Conclusion 

 It can be concluded that the predicate offence is necessary for prosecuting the case of money laundering against any individual by the Enforcement Directorate. The legislative intent to curb both illegal gains and concealed legal income within the framework of PMLA law has shown the intention to combat financial wrongdoings. To curb these illegal gains and concealed legal income, the importance of a predicate offence cannot be neglected, as without a predicate offence, these individuals cannot be prosecuted with the due course of law. As this law will evolve with time, the importance of predicate offences cannot be neglected at any stage. Traversing the intricacies of predicate offences highlights the nuanced yet essential interaction among legality, illegality, and the quest for justice, which is yet to evolve further.

References

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