Mere possession of proceeds of crime sufficient to invoke PMLA: Madras High Court

The Madras High Court recently observed that the mere possession of the proceeds of a crime is sufficient to invoke the Prevention of Money Laundering Act (PMLA) [S. Srinivasan v. The Assistant Director, Directorate of Enforcement, Chennai].

A Bench of Justices SM Subramaniam and AD Maria Clete clarified that it is not necessary for an accused to have projected such proceeds of a crime as untainted property for the anti-money laundering law to come into play.

"Mere possession of proceeds of crime would be sufficient to invoke the provisions of PMLA. Using the proceeds of crime by itself is an offence. Since the scope of Section 3 is wider enough to cover various circumstances in order to curb the economic offences, High Court cannot restrict its meaning so as to restrain the Authorities from invoking the provisions of PMLA," the October 4 ruling said.

Any other interpretation (that an accused should have not only possessed the proceeds of crime but also projected it as untainted) would dilute the effectiveness of Section 3 (definition of the offence of money laundering) of the PMLA, the Court held.

”If that interpretation is accepted, the effectiveness of Section 3 of the 2002 Act can be easily frustrated by the simple device of one person possessing proceeds of crime and his accomplice would indulge in projecting or claiming it to be untainted property so that neither is covered under Section 3 of the 2002 Act. Thus, a person who is as longer as in possession and enjoyment of Proceeds of Crime, PMLA can certainly be invoked," the Court explained.

It noted that “money laundering” ordinarily, means the process or activity of placement, layering and finally integrating the tainted property into the formal economy of the country. However, the PMLA can be invoked when any of these activities are undertaken, the Court has said.

"Section 3 (of PMLA) has a wider reach. The offence, as defined, captures every process and activity in dealing with the proceeds of crime, directly or indirectly, and not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money- laundering," it observed.

The Court added that under the PMLA, the burden of proof to prove one's innocence lies on the accused person.

"The presumptions of the authorities, investigation conducted and documents collected would be sufficient to proceed against a person under PMLA. Unless contrary is proved, presume that such proceeds of crime are involved in money laundering," it said.

The Court made the observation while upholding a trial court's rejection of a discharge petition by a trustee of the All India Indian Overseas Bank Employees Union Welfare Charitable and Endowment (AIOBEU) Trust in a PMLA case.

The petitioner was the second accused in the case which involved allegations that funds collected in the name of the trust were embezzled.

The petitioner, S Srinivasan, was accused of abetting the first accused (Managing Trustee of the trust, one L Balasubramanian) in acquiring, possessing, and using the proceeds of the crime and in projecting such proceeds of crime as untainted properties.

Srinivasan filed a plea seeking discharge from the aforesaid case.

His counsel argued that Srinivasan was in no way connected with the money collected by the first accused (Balasubramanian) and that he was not involved in the administration of the trust. Therefore, he argued that implicating Srinivasan as an accused fell beyond the scope of the provisions of PMLA.

However, the Court found no reason to discharge Srinivasan and dismissed his plea.

Senior Counsel R Raja Rathinam and K Shankar appeared for Srinivasan.

Special Public Prosecutor P Sidharthan represented the Enforcement Directorate.

[Read Order]