On the basis of various cases that have come before judicial authrotities for adjudication, the following 3 possible scenarios which may have bearing on determining whether offences under PMLA (AML of India), have to be looked into and answered:-

  1. The offence of money laundering committed before the PMLA came into effect in the year 2005;
  2. The offence of money laundering committed after the PMLA came into effect into force 2005 and the alleged offence was a scheduled offence; and
  3. The offence of money laundering committed after the PMLA came into effect into force 2005 and the alleged offence was not a scheduled offence.

Section 3 of the Prevention of Money Laundering Act, 2002 (“PMLA”) defines the offence of money laundering as under:

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.

The High Court of Jharkhand while deciding a writ petition, concerned with the provisions of PMLA, W.P.(Cr.) No.257 of 2012 along with Cr.Rev.No.920 of 2012 and with Cr. Rev. No. 699 of 2011, tilted as Binod Kumar Sinha vs. State of Jharkhand through Directorate of Enforcement (http://jhr.nic.in/hcjudge/data/7-699-2011-19022013.pdf), observed as under:

“Keeping in view the provision as is enshrined in Section 3 postulating therein that

·         whoever is connected with the proceeds of the crime

o   projecting it as untainted property

would be committing offence of Money Laundering Act, and further that

·         the proceeds of crime must have been derived or obtained, directly or indirectly by any person

o   as a result of criminal activity

§  relating to scheduled offence in terms of sub-section (u) of Section 2 of the Prevention of Money Laundering Act”

From the bare reading of the above section and judgment, it is apparent that the offence of money laundering is only committed on fulfilment of 2 conditions:

  • Firstly, a person should be involved in any activity relating to the concealment, possession, acquisition or use of the proceeds of crime,

AND

  • Secondly, that person should project or claim such proceeds of crime as untainted property.

The Hon’ble Supreme Court in the case of State of Bihar v. Deokaran Nenshi & Anr., AIR 1973 SC 908, while dealing with the term “continuing offence”, held as under:

“A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all. It is one of those offences which arises out of a failure to obey or comply with a rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement is obeyed or complied with. On every occasion that such disobedience or non-compliance occurs and recurs, there is the offence committed. The distinction between the two kinds of offences is between an act or omission which constitutes an offence once and for all and an act or omission which continues and therefore, constitutes a fresh offence every time or occasion on which it continues. In the case of a continuing offence, there is thus the ingredient of continuance of the offence which is absent in the case of an offence which takes place when an act or omission is committed once and for all.

Primarily, the money laundering transaction involves three stages which have been held to be quintessential ingredients of money laundering by High Court of Andhra Pradesh inB. Rama Raju v. Union of India, MANU/AP/0125/2011 / [2011] 164 Comp Cas 149 (AP)]:

(i)         The Placement Stage: the malfeasant, who is holding the money generated from criminal activities, places the crime money into the normal financial system;

(ii)        The Layering Stage: the money introduced into the financial system is layered-spread out into several transactions within the financial system with a view to concealing the origin of the original identity of the money and to make this origin/identity virtually disappear; and

(iii)       The Integration Stage: the money is thereafter integrated into the financial system in such a way that its original association with crime is totally obliterated and the money could be used by the malfeasant and/or the accomplices to get it as untainted/clean money.

In the case of Mahanivesh Oils & Foods Pvt. Ltd. vs. Directorate of Enforcement, W.P.(C) 1925/2014* and CM No. 4017/2014, the High Court of Delhi while showing disinclination to accept that offence under Section 3 of the Act is a continuing offence observed as under:

“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.

According to the respondent, the possession of any property linked to a scheduled offense irrespective of when it was acquired would itself constitute the offence of money-laundering.

It is important to understand the import of such interpretation. This would mean that a person who has committed a scheduled crime; acquired proceeds therefrom; and thereafter, projected it as untainted money, prior to the Act coming into force, would nonetheless be guilty of the offence of money-laundering only for the reason that he is in possession of some property.“

The Court further observed as under:

“The first stage is Placement, where the criminals place the proceeds of the crime into normal financial system.

The second stage is Layering, where money introduced into the normal financial system is layered or spread into various transactions within the financial system so that any link with the origin of the wealth is lost.

And, the third stage is Integration, where the benefit or proceeds of crime are available with the criminals as untainted money.

There is much merit in this description of money-laundering and this also indicates that, by its nature, the offence of money-laundering has to be constituted by determinate actions and the process or activity of money-laundering is over once the third stage of integration is complete.”

* The findings recorded by the learned Single Judge of the Delhi High Court in the said judgment has been stayed by the Division Bench of the Delhi High Court in the interim order dated 30th November 2016, passed in LPA 144/2016 filed by Directorate Of Enforcement against the order of the Single Judge.

The BombayHigh Court in Hasan Ali Khan S/o. Ghousudin Ali Khan vs. Union of India (UOI), Thru' Asst. Director, Directorate of Enforcement and Anr., 2012 BomC R(C ri)807, has held that  the offence of money laundering is not a continuing offence and once, proceeds of crime has been projected as ‘untainted property”, the offence of money laundering is over. The relevant extract from the judgment is as under:

“It is clear that the essence of the offence of the money-laundering is "projecting of the proceeds of crime as untainted property. It is this 'projecting' that attracts the applicability of the penal provisions of PML Act.

Now, where such sale proceeds, or the property derived from a crime, which, at that time, was not a scheduled offence, but was a scheduled offence when such sale proceeds or such property was projected as untainted, there would be no bar to the applicability of the PML Act. If the provisions of Section 3 of the PML Act are interpreted in this manner, it would not amount to giving retrospective effect to the said Legislation. If the proceeds of a crime, which has been declared as a 'scheduled offence' on the day on which the 'projection of such proceeds' as 'untainted' is attempted or undertaken, the provisions of the PML Act would apply. Such a course, cannot be said to be violative of Article 20 of the Constitution.

In other words, the crucial date would be the date on which the projection of the proceeds of crime as 'untainted' takes place, and, if this has taken place before the commencement of the PML Act, then it cannot be suggested that a person can be prosecuted for the offence punishable under Section 4 thereof. In the instant case, most of the transactions, which are the subject matter of the case against the Applicant, have taken place before coming into force of the PML Act. They cannot be the subject matter of prosecution for the offence punishable under the PML Act. It was faintly suggested, to overcome this difficulty, that the offence of money-laundering is a continuing offence. This Dixit contention, -if it is intended thereby to suggest that even the cases where the money-laundering had already been done before the commencement of the PML Act, would give rise to the prosecution under the provisions of the PML Act, -has to be rejected forthwith.”

It is also a tenet of criminal law that an act cannot be an offence before such act is declared as an offence by a legislation. Article 20 (1) of the Constitution of India prescribes as under:

“No person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.”

From the above discussion, it can be interpreted that the offence of money laundering is not a continuing offence and the offence of money laundering is over once the third stage of integration is completed, prior to the year 2005 when PMLA came into force.

However, the offence of money laundering will continue to be an offence under PMLA, provided such offence of money laundering is committed after the PMLA came into effect into force 2005 and the alleged offence was a scheduled offence.

Further, the third issue mentioned above is a disputed proposition as on date. In the view of the authors, if any scheduled offence is committed and the proceeds of crime derived from such offence has been projected as untainted after coming of PMLA into effect but prior  to inclusion of such offence under the scheduled offence, such acts will be outside the scope of PMLA.\

Article by

Mr. Vijay Pal Dalmia, Advocate & Partner Vaish Associates, Email: vpdalmia@vaishlaw.com / Mobile: 09810081079

Mr. Rajat Jain, Advocate, Email: rajatjain@vaishlaw.com / Mobile: 09953887311

PS: The author (Mr. Dalmai) is a senior litigator with 32 years of experience in court trials and deals with cases relating to prosecution under the Income Tax Act, 1961, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Money Laundering Act, economic offenses and white collar crimes.

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