This article is written by Anubhav Garg, a student pursuing B.B.A. LL.B. from Delhi Metropolitan Education, with the insights from Advocate Dhruv Gupta. He has discussed the step by step investigation procedure in money laundering matters while addressing its various other aspects like attachment of property, power to arrest, cross border money laundering and a ton more. 

Introduction

There is no shred of doubt that money laundering is a curse to any country and it can fuel hundreds of terrorism activities, adversely impact foreign exchange, tax stealing, curtail the flow of FDI, poor prognosis of the economic growth, corruption, etc. Thus curbing money laundering with robust statutes and an efficient enforcement system is indispensable for any country. 

Prevention of Money Laundering Act, 2002 (PMLA) is one of the major statues in India that deals with most of the aspects of Money Laundering. Though it got the sanctity from the legislature on 17th January 2002 only, it only came into effect on 1st July 2005. Since then, it has undergone some major amendments like in the very year it came into force, that is, 2005, then 2009, then 2013, then 2015, and then finally with the Finance Act, 2019 (number 1 and 2), in 2019.  

Let’s not forget the overlapping/conflicting judgments/orders coming from Tribunals and High Courts every other day laying down the principles for the applicability of various provisions of PMLA, its interpretation, its scope, etc that change the applicable set of legal principles for money laundering matter every now and then. 

Investigation Procedure

Registration of FIR of a Cognisable Offence

Please take the note that Money laundering is not an independent offence, that is, in order to establish the offence of money laundering, there must be an offence which has made that money illegitimate, because if the money was not illegitimate is the first place, then there is no need to launder it to make it legitimate. The offences on which the offence of money laundering is dependent upon are called scheduled offences defined under S. 2(1)(y) of PMLA.

These schedule offences pertain to 30 statutes as envisaged in the schedule of PMLA from Part A to C. Few of them are Indian Penal Code, Customs Act, Explosive Substance Act, Unlawful Activities Prevention Act, 26 others. 

Though the government has attempted to make money laundering a separate and independent offence and in this regard a specific amendment has been made by amending it via Finance Act, 2019. Various aspects of amendments made via Finance Act, 2019 has been challenged in SC in a number of cases and in this regard the judgment passed in the case of  Seema Garg vs The Deputy Director (by hon’ble Punjab Haryana HC) &  Upendra Rai vs Directorate Of Enforcement (passed by the hon’ble Delhi HC) would be worth a mention. Thus, it would be interesting to see how the courts will interpret the amendments done through the Finance Act, 2019 especially in regards to pending cases and decide as to whether the same are if not held ultra vires, retrospective or prospective in nature. 

Registration of the ECIR

All the cases under PMLA are investigated by the Enforcement Directorate (ED). From here begin the steps that specifically deal with money laundering. An ECIR (Enforcement Case Information Report) is registered under Section 3 of the PMLA. It is the first document which is usually executed by the ED in the investigation process. ECIR contains grounds and allegations on the basis of which the investigation has been commenced. 

Another contentious part of this statute is that the copy of an ECIR is not routinely made  available to the accused unlike in the case of registration of an FIR. Thus, the accused is unable to know why he is being investigated by the ED and he becomes more vulnerable to the abuse of power by any government officer(s). Further, ED also has the authority to arrest under Section 19 of PMLA, so his liberty might also be at stake and he also won’t be able to prepare for the judicial proceedings he will be facing for the offence. Also, the possibility of anticipatory bail in such economic offences is very bleak. 

Though this practice of not providing the copy of ECIR has also been challenged before the hon’ble SC of India and this issue was also raised in the case of Rajbhushan Omprakash Dixit v Union of India and the matter is still sub-judice.  

Summon under Section 50 of PMLA

Now, the accused person, against whom the ECIR has been registered or any other person who might be an important link to the case, is served a summons by ED under S. 50 of the PMLA to record his statements. It is mandatory on the part of the receiver of such summons to be present in person or through his representative (as directed by ED) in the office of ED on the provided dates. 

Another interesting thing to note here is, unlike the normal offences under IPC, 1860, where the statement given to Police authorities is not admissible/doesn’t qualify as proof due to Section 162 of the Criminal Procedure Code and Section 25 of the Evidence Act, 1872 in money laundering matters, any statement made to ED under S. 50 will be admissible and can be held against the accused during the trial. Further, if the accused resiles from that statement in future, then he/she can face repercussions under S.193 of the IPC. 

Filing the Final Compliant in Special Court

After the investigation is concluded by the ED in the matter, it files a final complaint in the Special Court (designated Session Court under Section 43 of the PMLA). Only these Special Courts have the authority to try an offence under PMLA, and from there after the trial is over, the appeal can be filed to the concerned High Court. 

Proceeds of Crime: Property that can Constitute the Offence of Money Laundering

Any property which gets covered under the definition of “proceeds of crime” under Section 2(1)(u) of the PMLA suffice for making a case of money laundering. As provided by the aforementioned provision, “proceeds of crime” means any property: 

• obtained or derived;
• directly or indirectly;
• by any person out of the criminal pursuits pertaining to the scheduled offences; 
• or the value of any such property (if the cash that has been generated from the scheduled offence is used for the purchase of some other assets like land, real estate, machinery, etc the value of such asset);
• If the property is located outside India, then the property equivalent in value held within India or abroad (usually utilized in case of corporate embezzlement of tax or in the matters of corruption);

The above definition coupled with the definition of Offence of Money Laundering under Section 3 gives a cohesive understanding of what actually the offence of Money Laundering is. As per Section 3: 

Whosoever directly or indirectly (on his own or by his agent) 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 the offence of money-laundering. 

Now, there is a fallacy with this definition. The word “and” (in the bold) has been substituted with the word “or”, due to which money laundering becomes an independent offence Meaning, before the amendment of 2019, one could only be charged under Section 3 for money laundering if: 

Condition 1: He/she has knowingly concealed/possessed or acquired the proceeds of crime matters; and 

Condition 2: He/She should also be using and projecting/claiming such proceeds as untainted (legitimate).

But after the amendment by Finance Act, 2019 an explanation has been added which provided that if anyone directly or indirectly indulges or knowingly been a part of any of the following in whatsoever manner, he can be charged under Section 3 for money laundering:

1. concealment; or
2. possession; or
3. acquisition; or
4. use; or
5. projecting as untainted property; or
6. claiming as untainted property.

So, by the way of point 4 and 5, money laundering became an independent offence, as provided by the explanation added by Finance Act, 2019. Thus, a bona fide purchaser of a house without the knowledge of the fact that the house is a proceeds of crime, can be roped in  for the offence of money laundering under Section 3. As a result, an innocent person can be trapped in litigation and his property can also get attached under Section 5. Though, there have been several orders by the PMLA tribunal where such practice has been prohibited, but after this amendment, it has been imbibed in the very statute. Though the matter is still sub-judice.   

For more clarity, reference can be made to Section 3 prior and after the amendment of 2019.

Attachment of Property in Money Laundering Matters

As provided under Section 2(1)(d) of PMLA, attachment of property means restraining the accused from transferring, converting, dispositioning or moving of impugned property by an order issued by the concerned authority. 

1. Provisional Attachment 

Under Section 5 of PMLA, ED can provisionally attach a property during the course of the investigation. The provisional attachment can’t be above the duration of 180 days. The prerequisite for the attachment of property is that in case of a cognisable offence, there must be an FIR registered for it and that offence must be a scheduled offence. A report under Section 173 of CrPC for the scheduled offence also needs to be filed by the Investigating Officer before Magistrate. But if ED has sufficient grounds to believe that, if the immediate attachment is not done, then it can lead to frustration of proceedings under PMLA, in such a situation  ED can directly attach the property even before the filing of the aforementioned report for the scheduled offence. 

Please take note that the property that has been provisionally attached, the people having a claim or who are entitled to claim can’t be denied the enjoyment of such property under Section 5(4). 

2. Confirmed Attachment

In this, adjudicating authority confirms the provisional attachment made by ED under Section 8 of PMLA. It is also known as Adjudicated attachment. If the adjudicating authority is of the belief that someone is in the possession of the proceeds of crime, then it serves a notice upon that person to disclose the source of that property within 30 days from the date of issue of such notice. 

After taking into the account the reply of the aforementioned notice, hearing the aggrieved person and ED, and all the substantial evidence place before it, if the adjudicating authority is of view that the impugned property is involved in money laundering, then it issues an order confirming the provisional attachment made under Section 5(1) of PMLA or retention of property or record seized under Section 17 or Section 18. 

Such order can last for the whole investigation process not exceeding 365 days and the property is released under Section 5(6) of the PMLA if the property is found not involved in money laundering or it can become permanent if the guilt is proved followed by the passing of an order of confiscation is made under Section 8(7) or 8(8) and under Section 60(2A) in case of cross border money laundering. 

ED’s Power to Arrest

The relevant provision dealing with this part of the investigation is Section 19 vide Section 45 of the PMLA. It says that if the concerned officer, out of the evidence in his possession, has the reason to believe a person is involved in money laundering, then the officer can arrest that person. Please note that it is the right of the arrested person to know the reason for his arrest in such a situation and the concerned officer is obligated to tell him that. Further, the arrested person has to be presented before the Special Court/Judicial Magistrate/Metropolitan Magistrate within 24 hours of his arrest (obviously excluding the time of journey). 

Though, one can see that the standards for such belief is quite high from the words “guilty of an offence” as compared to other offences under IPC, CrPC, where the standard of belief is defined from the words “reasonable suspicion”, etc. Also, as previously mentioned, the plausibility of anticipatory bail in the matters of economic offences is close to none. 

Also, as per Section 45, the offence of money laundering is cognizable (ED has the authority to arrest without any warrant) and non-bailable (the bail can be granted by Special Court and not by ED) offence. 

Though, in the judgement of Nikesh Tarachand Shah v Union of India, SC set aside the twin condition laid down in sub-clause (ii) of sub-section (1) of Section 45. But after the Finance Act, 2018 which was followed by Finance Act, 2019, the legislature prepotently resurrected these twin conditions vy making amendments in the provision. In this regard, through the Finance Act, 2019 an explanation was added in Section 45, which provides “…shall mean and shall be deemed to have always meant that all offences under this Act shall be cognizable offences and non-bailable offences”.

Cross Border Money Laundering 

Cross border money laundering has been defined under Section 2(1)(ra) of PMLA as: 

1. any conduct outside India which is a scheduled offence if it has been done in India and the proceeds of such offences are remitted in India; or
2. Proceeds out of any scheduled offence committed in India and those proceeds are then transferred outside India or tried to be transferred outside India. 

Further, Part C of the Schedule entails that any offence which is envisaged in Part A of the Schedule and which has cross border implication is a scheduled offence. Now the provisions pertinent to investigation of cross border money laundering transactions are:  

Section 56: It provides that the government is allowed to enter into agreements (treaties) with foreign governments (mentioned as “contracting State”) for enforcing the provisions of PMLA, which includes investigating cross border money laundering cases, exchange of information and making relevant statutory provisions for implementing the same through notification in official gazette. 

Section 57: It provides that if the Investigating Officer is of the opinion that the impugn money laundering case has international ties and for the purpose of its investigation they may require some evidence with the cooperation of any foreign government, then IO can write an application for the same to the Special Court. 

After being satisfied with the requirement of such evidence, the Special Court can write a letter of request to the court or to the concerned authority of that country to examine the facts and circumstances of the case, take steps as mentioned in the letter of request and forward all the evidence to it. On these aspects also, the role of Financial Intelligence Unit of India which was constituted in 2004, and other the intelligence agencies play a crucial role in the investigation of cross border cases. 

Conclusion

Most of the important provisions pertaining to the procedure of investigation in the matters of money laundering have been challenged before the hon’ble SC and those matters are still sub-judice. Further, there have been conflicting judgments coming every other day from different HCs on various aspects of PMLA, laying down different propositions of law for dealing with matters of money laundering, which makes it difficult even for an innocent person to succeed in the litigation initiated against him, in view of these conflicting  judgments.

PMLA is a statute which has multiple loopholes in it that are needed to be plugged in by the judiciary and legislature. Finance Act, 2019 is another attempt by the government to plug-in those loopholes but most of these amendments have been challenged on the pretext of constitutionality and with conflict with past judgments of SC. Let’s not forget the fact that PMLA is one of the statutes which has been amended most frequently. 

The statutes dealing with economic offences in India are constantly evolving and some common grounds between the judiciary and legislature can take this evolution in the direction of stability and executive efficiency. 

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