In this article, Nawlendu Bhushan of Campus Law Centre discusses inspection of family members under money laundering Act.

Introduction

The scope of the offence of money laundering has been widened by virtue of the Prevention of Money Laundering (Amendment ) Act, 2012. Now, the rigours of this Act also extend to any person who assists money laundering by concealment, possession, acquisition or use of any proceeds of crime. [1]This amendment has enabled the authorities to investigate and prosecute those family members of an offender, who assisted money laundering through any of the mentioned acts.  

What is money laundering?

Money laundering is the process of creating an appearance that large amounts of money obtained from criminal activity, such as drug trafficking or terrorist activity, originated from a legitimate source. [2]

The offence of money laundering is defined in section 3 of the Prevention of Money Laundering Act, 2002 (PMLA). As per this section, a “person” who

• 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 the offence of money laundering.

Here the term “Person” includes an individual, a Hindu Undivided Family, a firm, a company, or association of persons.[3]

The definition of money laundering in the Act is very wide and includes within its fold every kind of dealing with the proceeds of crime.

Proceeds of crime

Proceeds of crime mean any property or its value, derived or obtained by any person as a result of criminal activity relating a scheduled offence. Such property may be derived or obtained directly or indirectly.[4]

The Finance Act 2015 contains the provision that if such property is taken or held outside the country, then proceeds of crime is the property equivalent in value held within the country.

It is clear that proceeds of crime include within its definition not only property or its value obtained within the country but also property held outside the country. The person possessing such property should not necessarily be the person who has committed criminal activity related to a scheduled offence.

Scheduled Offence

Money laundering depends upon another offence, the proceeds of which are the subject matter of crime of money laundering. These offences are called “Scheduled” or “Predicate” offences.

The scheduled offences are enumerated in the schedule given in the Act. The schedule in the PMLA contains three parts namely Part A, B and C. Offences falling under Part A and C of the schedule will attract the provisions of the PMLA. Offences falling under Part C of the schedule will fall within the ambit of money laundering only if the value involved is more than one crore rupee.

Money laundering is usually not an independent offence. But after 2013 amendment, It is possible to extend the definition of ‘proceeds of crime’ to property used in the commission of an offence. It is, therefore, possible to treat money laundering as a ‘stand-alone’ offence, dehors, a scheduled offence, if circumstances warrant.[5]

Schedule of offences

Some of the offences given in the schedule which attract the provisions of PMLA are as follow:-

• Part A enlists offences under various acts such as : Indian Penal Code, 1860, Narcotics Drugs and Psychotropic Substances Act, 1985, Prevention of Corruption Act, 1988, SEBI, Customs Act, 1955, Foreigners Act, Arms Act, Antiquities and Art Treasures Act, Copyright Act, 1957, Trademark Act,1999, Wildlife Protection Act, 1872, Information Technology Act, 2000 etc.
• Part B offences (offence under the Customs Act), provided the value of property involved is more than one crore rupees or more;
• Part C deals with trans-border crimes and reflects the commitment to tackle Money Laundering across International Boundaries.

Punishment for money laundering

Money laundering is a cognizable and non-bailable offence. As per section 4 of the Act, offence of money laundering is punishable with rigorous imprisonment for a term varying from three years to seven years and with fine also. If the offence falls within Part B of the Schedule, then maximum punishment may extend to ten years.

Apart from imprisonment and fine, the property obtained by proceeds of crime will be attached provisionally during the investigation or permanently after conviction.

Investigation of offence under PMLA

The offence of money laundering is connected with scheduled offences. Under PMLA two parallel investigations are carried out, one for money laundering and the other for scheduled offences.

Investigation Agency

The Enforcement Directorate in the Department of Revenue, Ministry of Finance is empowered to investigate the offence of money laundering under the PMLA. The scheduled offences are investigated separately by the authorities mentioned under those Acts.

Investigation of money laundering case begins with registration of Enforcement Case Information Report (ECIR) by the Enforcement Directorate.

Powers of Investigation Officer

The investigation authority has the power to survey, search a place or person and seize or freeze any record or property. The Director or any other officer authorized by the Central Government may also arrest a person accused of money laundering. As the offence is cognizable, an arrest may be made without a warrant.

The Director, Additional Director, Joint Director, Deputy Director or Assistant Director of the Enforcement  Directorate has the power to summon any person whose attendance he considers necessary whether to give evidence or to produce any records during the course of any investigation or proceeding under this Act. [6]

Power to provisionally attach the property which arises out of proceeds of crime is also there.

Provisional attachment of property

The Director or any other officer not below the rank of Deputy Director authorized by the Director may, by order in writing, provisionally attach the property obtained from proceeds of crime up to a period of 180 days.

For attaching such property the officer must have reason to believe, on the basis of material under his possession, 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.[7]

For the purpose of attaching the property, it is not necessary that such property should be in the possession of the person accused of a scheduled offence.

Order for attachment of property can be made only after:-

A report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973, or

A complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, or

A similar report or complaint has been made or filed under the corresponding law of any other country. [8]

If there is no such complaint or report, even then the property may be attached. For this, the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section must have reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that the non-attachment of the property is likely to frustrate any proceeding under this Act. [9]

After the attachment, the Director or any other officer has to file a complaint stating the facts of such attachment before the Adjudicating Authority established under the Act.[10]

Adjudication Authority

On receipt of a complaint or applications for seizure or freezing, if the Adjudicating Authority has reason to believe that any person has committed an offence of money laundering, it may serve a notice on such person. The authority calls upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached, the evidence on which he relies and other relevant information and particulars. The Authority asks him to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government.[11]

The Adjudicating Authority shall, after—

(a) Considering the reply;

(b) Hearing the aggrieved person and the Director or any other officer authorized by him in this behalf; and

(c) Taking into account all relevant materials placed on record before it,

by an order, record a finding whether all or any of the properties referred to in the notice are involved in money-laundering. [12]

The Adjudicating Authority has powers similar to a civil court under the Code of Civil Procedure in relation to discovery, inspection, compelling the attendance of any person and production of any record.[13]But, the procedures for adjudication is guided by principles of natural justice, not by the Civil Procedure Code.

Appellate Tribunal

Orders of the Adjudicating Authority and any other authorities can be appealed to an Appellate Tribunal established under the Act. On receipt of an appeal, the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders as it thinks fit, confirming, modifying or setting aside the order appealed against.[14]

The Adjudicating Authority and the Appellate Tribunal have power only in relation of questions of continuation of attachment and/or retention of the property involved in money laundering and not the trial of the offence of money laundering or the scheduled offence.

Provisions for bail in case of arrest under PMLA

Section 45 of the PMLA deals with provisions of bail. As per this section, a person arrested for an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule shall be released on bail or on his own bond unless:-

(i) The Public Prosecutor has been given an opportunity to oppose the application for such release; and

(ii) Where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail.

The Supreme Court has held these twin conditions for bail to be unconstitutional as it violates Article 14 and 21 of the constitution. [15] Now, the bail is granted as per the provisions of the CrPC.

Trial by special courts

For deciding the offence of money laundering and scheduled offences expeditiously, trials for both (money laundering and scheduled offence) are conducted by Special Courts. The Central Government, in consultation with the Chief Justice of the High Court, designates one or more Courts of Sessions as Special Courts.[16]

The trial is conducted in accordance with the provisions of the Code of Criminal Procedure, 1973. Both the cases are independently tried by the same Special Court and decided on the basis of evidence for each case.[17]

Presumptions and burden of proof

Money laundering being a complex case to investigate, the provisions of the PMLA make a departure from the well-established principle of presumption of innocence till proven guilty. 

Burden of proof on the accused

The burden of proof in any proceeding relating to proceeds of crime is upon the person charged with the offence of money laundering, and in the case of any other person i.e. a person not charged with such offence, the Court may presume that such proceeds are involved in money laundering. [18]

Presumption as to records and property

Where any records or property are found in the possession any person in the course of a survey or a search, it is 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 are in that person’s handwriting.[19]

Presumption in inter-connected transactions

Where money-laundering involves two or more inter-connected transactions and one or more such transactions are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation it is presumed that the remaining transactions form part of such interconnected transactions.[20]

Anti Money Laundering laws in India

The PMLA is only a curative legislation, not a preventive one. Prevention of money laundering can be done only by a full-fledged Anti Money Laundering (AML) compliance by banking companies, financial institution and intermediaries.

For having a comprehensive view of AML compliance, see this blog.

The AML compliance in India has a lacuna in the form that it ensure compliance for foreign PEPs only. PEPs are politically exposed persons who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc. Domestic PEPs, their family members and close associates are not in the ambit of AML compliance.

Culpability of the family members of the offender

In the Act, the word “family members” has not been used. But, under Section 3 of the Act, the kind of persons responsible for money laundering is extremely wide. Words such as “whosoever”, “directly or indirectly” and “attempts to indulge” would show that all persons who are even remotely involved in this offence are sought to be roped in.

Owing to their proximity and position, the family members and close associates of an offender are a vulnerable group. They can easily be charged, prosecuted and their property which is suspected of being obtained from proceeds of crime can be attached, seized or frozen. If the Director or other officer has reason to believe their involvement, they can be arrested.  They can be convicted of the offence of money laundering even if they have not committed any scheduled offence.

Currently, the trend followed by the Enforcement Directorate is to frame family members and close associates of the offender in the ECIR.(See [21],[22])  

Earlier for provisional attachment of the property, the concerned officer must have had reason to believe that such person has been charged with having committed a scheduled offence.But after the amendment of section 5 of the Act in 2012, it is now no longer necessary that the person who is in possession of the property alleged to be proceeds of crime must also be charged with a scheduled offence.

Conclusion

Money laundering is a serious crime. It affects not only the economy of a nation but also threatens its integrity and sovereignty. It can be termed as “economic terrorism”. Unfortunately, the PMLA contains the same flawed provisions as various anti-terror laws have. Reverse burden of proof, the presumption of guilt before the charge is proved, compulsion on witnesses to make truthful statements are the clauses which militate against the principle of natural justice, rule of law and due process. Non-inclusion domestic PEPs, their family members and close associate under the scanner of AML compliance reflects poorly on the Government’s commitment to prevent money laundering. The framing of family members with the accused creates additional hardship for the accused. Half-baked preventive measures coupled with overzealous punitive measures have been the features of India’s fight against money laundering.  The Supreme Court’s decision of striking down section 45 of the Act is a welcome move. Let’s see when the court applies the constitutional test to the other problematic provisions.

References

[1] https://indiankanoon.org/doc/193896994/

[2]https://www.investopedia.com/terms/m/moneylaundering.asp#ixzz56Ve132Bf

[3] Section 3, The Prevention of Money Laundering Act, 2002

[4] Section 2(u) The Prevention of Money Laundering Act, 2002

[5]K. Sowbaghya Vs. Union of India, Ministry of Finance, North Block Department of Revenue and Others (https://www.legalcrystal.com/case/1177308/k-sowbaghya-vs-ministry-department)

[6] Section 50(2), The Prevention of Money Laundering Act, 2002

[7] Section 5(1), The Prevention of Money Laundering Act, 2002

[8] Proviso 1 section 5(1), The Prevention of Money Laundering Act, 2002

[9] Proviso 2 section 5(1), The Prevention of Money Laundering Act, 2002

[10] Section 5(5), The Prevention of Money Laundering Act, 2002

[11] Section 8(1), The Prevention of Money Laundering Act, 2002

[12] Section 8(2), The Prevention of Money Laundering Act, 2002

[13] Section 11, The Prevention of Money Laundering Act, 2002

[14] Section 26(4), The Prevention of Money Laundering Act, 2002

[15]http://sci.gov.in/supremecourt/2017/13393/13393_2017_Judgement_23-Nov-2017.pdf

[16] section 43(1)The Prevention of Money Laundering Act, 2002

[17]http://www.mondaq.com/india/x/589978/Money+Laundering/All+You+Need+To+Know+About+The+Law+Relating+To+MoneyLaundering+In+India

[18] Section 22, The Prevention of Money Laundering Act, 2002

[19] Section 23, The Prevention of Money Laundering Act, 2002

[20] Section 24, The Prevention of Money Laundering Act, 2002

[21][http://www.thehindu.com/news/national/other-states/ed-registers-money-laundering-case-against-lalu-prasad-family/article19370449.ece

[22]http://www.thehindu.com/todays-paper/tp-national/ED-summons-Qureshi-family-in-money-laundering-case/article15802580.ece