The Prevention of Money Laundering Act, 2002 (hereinafter ‘the Act’) is an Act to prevent money laundering, i.e conversion of black money into white, in India. The bill for the Prevention of Money Laundering Act was presented in 1998 and got the assent of the President of India on 1st July, 2005. The Act was amended from time to time in the year 2005, 2009 and 2012 for its effective implementation in the country.
What is Money Laundering?
People do money laundering so that they can move the illegitimate money into the society without the fear of getting traced. In layman’s language the term ‘money laundering’ refers to the conversion of illegally obtained money, that is black money, into legitimate one, that is white money. This black money is the result of criminal activities such as smuggling weapons, drug trafficking, kidnapping, terrorist funding etc.
The process of money laundering consists of three steps: placement, layering and integration. People with black money convert it into white it by placing it in the financial system so that it cannot be traced from where it was obtained. This process is called the placement of illegitimate money. Layering is the process of transfer of illegitimate money through various accounts. This is done to hide the origin of the illegitimate money. Integration is the process of mixing the illegitimate money with the legitimate one in such a way that origin is nearly impossible to get traced.
The definition of the offence of money laundering is provided under the Section 3 of the Prevention Money Laundering Act, 2002 which states that “whosoever directly or indirectly attempts to indulge or knowingly assist or knowingly is a part or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering” which means that anyone who, as a result of ‘proceeds of crime’, attempts to or assists anyone or is a party to convert any illegitimate property as the legitimate one, is guilty of money laundering.
In this section the word “Proceeds of Crime” is mentioned which is defined under Section 2(u) of the Act which states that it is any property obtained by a person as a result of criminal activity related to a scheduled offence or the value of any such property.
For the definition of “Scheduled offence”, Section 2(v) of the Act can be referred to which states that there are three types of offences provided in the Part A, Part B and Part C of the Schedule to this Act.
For the definition of “Property”, Section 2(v) can be referred which state that property is any asset of any description located anywhere (inside or outside India) whether it is corporeal or incorporeal, movable or immovable, tangible or intangible and also includes deeds and instruments.
Punishment for Money Laundering
Section 4 of the Act provides for the Punishment of money laundering that shall be punishable with rigorous imprisonment for a period not less than 3 years which can be extended to 7 years and shall also be liable with fine. For the offences specified under Paragraph 2 of Part A of the Schedule of the Act the words “which may extend to 7 years” will be replaced to “which may be extended to 10 years”.
The Director or Officer above the rank of Deputy Director has a power to confiscate and dispose of the attached property which is believed to be the part of “proceeds of crime” for 180 days. The order to acquire such property is given by an Adjudicating Authority.
As per Section 45 of the Act the offences under this Act shall be cognizable and non-bailable but for the offence punishable for a term of imprisonment more than three years under Part A of Schedule of the Act shall be released on bail.
Section 6 of the Act provides that the central government shall appoint an Adjudicating Authority that shall consist of a Chairperson and two other members. The members must have experience in the field of law (must have qualification of a district judge or has been a member of Indian Legal Services and held a post in grade 1 of that service), administration, finance and accountancy. Under Section 7 of the Act if the central government thinks fit it shall provide officers and employees to each adjudicating authority. The adjudicating authority is not bound by the Code of Civil Procedure, 1908 but it will follow the principles of natural justice and provisions of the Act.
The adjudicating authority shall have the same power as vested in in a civil court under the Code of Civil Procedure, 1908.
Financial Intelligence Unit-India (FIU) processes, analyses and disseminates information of money laundering to the Enforcement Directorate and Foreign FIUs. Some offences can also be investigated by the Police, SEBI, CBI etc. under their respective Acts.
Directorate of Enforcement are the investigating officers under the Act. According to Sections 48 and 49 they have the power to investigate and initiate the proceedings for attachment of property for the offences of money laundering. They can also launch prosecution in a Special Court.
Investigating officers shall have the following powers:
- to conduct a survey of a place within the area specified to him (Section 16).
- to conduct a search of a building, place, vessel, vehicle or aircraft and seize any record or property found in that search (Section 17).
- freeze such property found in the search which shall not be transferred without the prior permission of the officer making such order (Section 17).
- conduct personal search if the person has been credited with anything under his possession, ownership or control. (Section 18).
- summon to produce evidence and record the statements of persons concerned (Section 50).
Rights of a person on being searched during ‘Search’ under the Act:
- The person has the right to be presented within 24 hours to the nearest Magistrate.
- The officer must not detain the person for more than 24 hours.
- If the magistrate does not find any reasonable ground of detention after the person is presented before him he can discharge such person
- Search shall be made in the presence of two or more person
- No female shall be searched by any one except a female officer.
The Central Government in consultation with the Chief Justice of the High Court shall designate one or more Courts of Session as Special Courts for the trial of the offences under the schedule offence and the offence punishable under Section 4 of the Act. The High Court of the jurisdiction of that Special Court will act as the Appellate Authority against the order passed by the Special Court.
Abdul Karim Telgi and Sohail Khan v. Union of India through CBI
The defendant was accused of counterfeiting the used stamp paper back into the system by washing them into chemicals. The trial court held the defendant liable for the offence and sentenced him imprisonment. An appeal was filed by the accused in the High Court. The High Court dismissed the appeal saying that the accused was causing loss to the government and the trial court rightly sentenced him under the Act.
Pareena Swarup v. Union of India
The constitutional validity of the Adjudicating Authority and the Appellate Tribunal under the Act was challenged. It was contended that it breached the scheme of the constitutional provision and power of judiciary. A PIL was filed regarding the issue in the Supreme Court of India. It was held that it was not the breach of the Articles of the Constitution but a line must be drawn which the executive must not cross while exercising the powers of judicial functions. However, it is the duty of the government to keep a check on these authorities and Tribunals.
Union of India v. Hasan Ali Khan and anr
The accused was arrested under Section 4 of the Act. On investigation by the Deputy Director, Directorate of enforcement found that the accused was holding foreign exchange of rupees 36,000 crore in Indian currency in his account of the Union Bank of Switzerland. Accused also had forged passports and documents in his name. The Special Court, however, released the accused on bail. The Union of India filed Special Leave Petition in the Supreme Court as a result, the accused was taken into custody. It was held in this case that for the offence of ‘Money Laundering’ no person could be acquitted for such a grave offence.
Hari Narayan Rai v. Union of India through Enforcement Directorate
The accused committed the offence which was punishable under Section 4 of the Act. The accused was holding properties as a result of “proceeds of crime” and attempted to convert them into untainted property. The Appellate Court, however, granted the bail to the accused on satisfying the reasonable grounds. But it later got rejected after the court observed that the crime that he had committed was of serious nature. It was observed that although Section 45 of the Act provides to grant bail to the accused but it can be rejected if the crime committed is of serious nature.
Arun Kumar Mishra v. Directorate of Enforcement
It was held that if any offence is committed under the Act and the accused is guilty of the offence under one of the Sections of the Act but the offence is committed before the commencement of the Act then the accused cannot be held liable as the Article 20(1) of the Constitution of India bars Ex-Post facto laws and thus the Act has no retrospective effect. It was held that the Directorate may file a fresh proceedings.
Shivkant Tripathi v. State of Uttar Pradesh
After the investigation, the directorate did not submit any report to the Special Court as they stated that the Act has no provision to submit a search report to the court. It was held that it is the duty of the Enforcement Directorate to submit a final report or charge-sheet before the Special Court designated by the Central Government under Section 43 of the Act as the term “investigation” includes “commission of final report” as defined in the code.
B Rama Raju v. Union of India
In this case the constitutional validity of Section 2(1) of the Act was challenged. It was contended that the property owned by or in the position of person other than the person charged of the offences is also liable and if not then the Section 2(1)(u) was invalid. The Court held that the main objective of this Act is to prevent money laundering and confections of proceeds of crime. Thus, the person in the possession of the property is equally liable to attachment and fixation proceedings.
- 2014 (2) JLJ 136.
- 2008 14 SCC 107.
- 2011 11SCR 778.
- B.A. No. 6829 of 2010.
- CRL. M.C. 5508/2014.
- Criminal Misc. Writ Petition No. 4909/2010.
- 2011 108 SCL 491AP.
BY ROOPAM VISHWAKARMA | GAUTAM BUDDHA UNIVERSITY