Amendments to PMLA by Finance Act 2019: Widening the scope of the Legislation

Bar & Bench August 21 2019
pmla

MS Krishna Kumar

In the Finance Act, 2019, which recently received the assent of President of India and became an Act with effect from August 1, some important amendments under the Prevention of Money Laundering Act, 2002 (PMLA) were brought in.

It is significant to note that many of the amendments were brought in by way of insertion of  an “Explanation” to the corresponding Sections, ostensibly to clear the ambiguity that existed earlier.

Expanding the scope of the offence of Money Laundering

Section 3 contains provisions relating to “offence of money laundering”. An Explanation was inserted to Sec. 3 to the following effect:

‘‘Explanation.—For the removal of doubts, it is hereby clarified that,—

(i) a person shall be guilty of offence of money-laundering if such person

is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:—

(a) concealment; or

(b) possession; or

(c) acquisition; or

(d) use; or

(e) projecting as untainted property; or

(f) claiming as untainted property,

In any manner whatsoever;

(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.". (emphasis supplied)

To examine the effect and impact of the present amendment, we should go back to the provisions that existed earlier. Sec.3 of the PMLA deals with provisions relating to “offence of money laundering”. It previously read as follows:

"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. (emphasis supplied)"

The above amendment was made after the observation of the Financial Action Task Force (FATF) in 2010 that concealment, possession, acquisition and use of the proceeds of crime were not criminalized earlier under Section 3 of the PMLA.

With the  insertion of this Explanation, a person shall be guilty of money laundering if he is actually involved or knowingly a party to one or more of the following processes: (a) concealment (b) possession (c) acquisition (d) use (e) projecting as untainted property (f) claiming it as untainted property, in any manner whatsoever.

Section 3 criminalizes the possession/conversion of the proceeds of crime which includes projecting or claiming the proceeds of crime as untainted property. It ensures that the proceeds of crime is not subject to money laundering.

Laundering of proceeds of crime – Continuing Activity

As per Explanation (ii) to Sec. 3, the process/activity connected to the proceeds of crime is a continuing offence. Now the term ‘proceeds of crime’ would cover one or more processes of laundering and projecting it as untainted property in any manner whatsoever.

If the amended provisions of Section 3 is read with Section 2 (1) (u) of the Act, process or activity connected with the proceeds of crime is a continuing offence till such time a person enjoys the proceeds of crime. In other words, the offence of laundering of proceeds of crime would not come to an end once the process of placement, layering is complete, but would continue till the fruits are enjoyed by the person concerned.

The term ‘continuing offence’ was examined by the Supreme Court under different circumstances in a few reported cases.

In Gokak Patel Volkart Ltd v. Dundayya Gurushiddaiah Hiremath, it was held,

The concept of continuing offence does not wipe out the original guilt, but it keeps the contravention alive day by day. The expression `continuing offence' has not been defined in the Code. The question whether a particular offence is a 'continuing offence' or not must ,therefore, necessarily depend upon the language of the statute which creates that offence, the nature of the offence and the purpose intended to be achieved by constituting the particular act as an offence.”

In State of Bihar v. Deokaran Nanshi & another, the Supreme Court held, 

"A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once for all."

However, the Delhi High Court disagreed with the stand that money laundering is a continuing offence on the ground that if such a view is taken, it would give retrospective dimension to the PMLA.

Although, the Respondent has not contended so in clear terms, it appears that the respondents are proceeding on the basis that an offence under Section 3 of the Act is a continuing offence…….The words "concealment, possession, acquisition or use" must be read in the context of the process or activity of money-laundering and this is over once the money is laundered and integrated into the economy…"

It is also noticed that some authors use the term ‘continuing offence’ and ‘retrospective effect’ interchangeably. As of now, the persons who are charged with money laundering under the Act have been taking a stand that proceeds of crime should have a direct relationship with the alleged scheduled offence, as the offence of money laundering is a derivative one.

On the other hand,  it is the stand of the enforcement authorities that an offence under the Act is a continuing offence.

The offence of money laundering starts when the intention to conceal ends. Probably for this reason, the Explanation has been inserted. It is to be noted that the dimension of 'continuing offence' is rather limited to the offence of money laundering alone so as to enable the authorities trace, freeze, seize and confiscate such proceeds of crime which are continued to be laundered over a period of time.

Such incessant laundering, often across borders, makes the task of investigation difficult, thereby warranting statutory protection. The legislative intent in the said context may be right in bringing out a change to the definition of proceeds of crime, probably based on past investigations and feedback.

Expanding the scope of Proceeds of Crime

Section 2(1)(u),  defines the term “proceeds of crime”. In the above Section, the following Explanation has been inserted by the Finance Act, 2019 :

"Explanation.—For the removal of doubts, it is hereby clarified that "proceeds of crime" including property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence". (emphasis supplied)

The Supreme Court in the case of Rohit Tandon v. Enforcement Directorate held,

“…Indeed the expression ‘criminal activity’ has not been defined. By its very nature the alleged activities of the accused referred to in predicate offence are criminal activities...However, the stated activity allegedly indulged into by the Accused named in the commission of predicate offence is replete with mens rea.

In that, the concealment, possession, acquisition or use of the property by projecting or claiming it as untainted property and converting the same by bank drafts, would certainly come within the sweep of criminal activity relating to a scheduled offence. That would come within the meaning of Section 3 and punishable Under Section 4 of the Act, being a case of money-laundering..”  

By virtue of this Explanation, the sweep of Section 2(1)(u) has become wider to bring in proceeds arising out of criminal activity related to the scheduled offence. As the term ‘any criminal activity’ is not defined in the Act, it is enough if the authorities under the Act procure evidence to prove that properties are derived out of any criminal activity.

Amendment to Section 44 of PMLA

Section 44 contains provisions relating to ‘offence triable by Special Courts’. A Proviso has been inserted to Section 44(1)(b) as per which on the conclusion of the investigation, if no offence of money laundering is made out, the said authority shall submit a closure report before the Special Court. This amendment provides for closure of the case if no offence is made out upon investigation by authorities concerned.

After Section 44(1)(d), an Explanation has been inserted as per which the jurisdiction of the Special Court during investigation, inquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as a joint trial.

The Explanation further clarifies that “Complaint” includes subsequent complaint as a result of further investigation against any accused person involved in the offence, whether named in the original complaint or not.

The first part of the Explanation appears to have been inserted to take care of the situation of trial of “standalone money laundering offence”, as the trial of a money laundering offence is not dependent on the outcome of the trial.

As per the second part of the Explanation, it now vests powers with the authorities to file a supplementary complaint as the investigation progresses, for the reason that the statute uses the word ‘complaint’ in the singular.

Offence of Money Laundering a Cognizable Offence

Through the Finance Act, in Section 45 of the PMLA, after sub-section (2), the following Explanation shall be inserted:

"Explanation.—For the removal of doubts, it is clarified that the expression "Offences to be cognizable and non-bailable" shall mean and shall be deemed to have always meant that all offences under this Act shall be cognizable offences and non-bailable offences notwithstanding anything to the contrary contained in the Code of Criminal Procedure, 1973, and accordingly the officers authorised under this Act are empowered to arrest an accused without warrant, subject to the fulfillment of conditions under section 19 and subject to the conditions enshrined under this section."

The effect of the Explanation is that it clarifies that offences under the Act shall be cognizable and non-bailable offences, notwithstanding anything contained in the CrPC. Accordingly, officers empowered can arrest an accused without a warrant subject to the fulfillment of conditions laid down under Section 19.

Earlier, Section 45(1) of the PMLA was a matter of challenge in the case of Nikesh Tarachand Shah v. UOI. After examining the Act and its history, the Supreme Court held that the indiscriminate application of Section 45 will certainly violate Article 21 of Constitution. Section 45(1), in so far as it imposes twin conditions for release on bail, is unconstitutional as it violates Articles 14 and 21.

As per Section 45 (1) (b) as it stood, no person accused of an offence punishable for more than 3 years under Part A shall be released on bail – unless the following twin conditions are satisfied:

(a) the Public Prosecutor has been given opportunity to oppose bail

(b) when the Prosecutor opposes bail, the Court, if it is satisfied that the accused is not guilty of the offence and he is not likely to commit any offence while on bail, shall release the accused on bail.

Later, in the case of Rajbushan Omprakash Dixit v. UOI, a Division Bench of the Delhi High Court  referred the following question to a larger Bench:

“Consequent on the amendment in Section 45 of PMLA  with effect from 1st July 2005, are the offences under PMLA cognizable or non-cognizable?”

By virtue of Explanation inserted to Section 45(2), the doubts are put to rest, as the offences are cognizable and non-bailable, and provisions of PMLA shall apply notwithstanding anything contained contrary contained in CrPC. The moot question will be whether it is prospective or retrospective.

Conclusion

Major amendments through the Finance Act, 2019 have been brought in by way of inserting Explanations to respective Sections. There is every possibility that the authorities might implement the same with retrospective effect while aggrieved persons may challenge the retrospective application, leading to litigation in courts of law.

Already certain executive actions under the PMLA such as attachment of proceeds of crime acquired prior to the Act and the predicate offence committed prior to their being declared as scheduled offence under the Act, have been challenged. In a few reported decisions, retrospective application has been held invalid and violative of Article 20(1) of Constitution, while in a few other reported decisions, retroactive legislation is upheld.

The matter is yet to reach finality, as batch cases are pending before the Supreme Court. The recent amendments will  in all likelihood have serious repercussions in the days to come.

MS Krishna Kumar is a practicing Advocate based at Chennai and a Guest Faculty in Tamil Nadu Dr Ambedkar Law University, Chennai.