The Prevention of Money Laundering Act, 2002 (“PMLA”) is considered to be the most dreaded legislation of recent times on account of the wide-ranging powers that its nodal agency Enforcement Directorate (“ED”) enjoys in respect of search and seizure, attachment, arrest etc., as well the stringent provisions relating to bail, the reverse burden of proof, admissibility of statements made before ED officials, etc. The constitutionality of such provisions of the Act was often challenged before various High Court and diverse opinion was given on different aspects of PMLA. However, the Hon’ble Supreme Court, in the recent judgment Vijay Madanlal Choudhary v. Union of India & Ors., SLP (Crl.) No. 4634 of 2014 has put the controversy to rest by upholding the constitutionality of almost all its provisions as well the powers of ED. The judgment has far-reaching consequences.
The wider definition of Money Laundering
The expression ‘Money laundering’ in the ordinary sense means the processing of criminal proceeds to disguise their illegal origin so that the criminal can enjoy these profits without jeopardising their source. The process typically follows three stages; Placement i.e., moving the funds from direct association with the crime; Layering i.e., disguising the trail to foil the pursuit and finally, integrating the tainted property into the formal economy.
Section 3 of the PMLA, as it originally was, had employed the above meaning in the definition laying emphasis on the need for projecting the proceeds of crime as untainted property to constitute the offence of money laundering. However, in 2019 the Legislature introduced an Explanation in the section effectively indicating that ‘projecting’ is not a necessary requirement for money laundering. The Hon’ble Supreme Court in the judgment has inter alia upheld this wider meaning ascribed to the offence. Thus, any kind of association, direct or indirect, with the proceeds of crime, even mere use or possession, is now sufficient to constitute money laundering within the meaning of PMLA. The definition of the proceeds of crime and money laundering has effectively become one and the same, which is a significant departure from the original meaning. This is the most significant aspect of this judgment.
Retrospective application of PMLA
One of the most crucial impacts of the above said interpretation is felt when it is read with the ruling of the court on the aspect of retrospective applicability of the provisions of PMLA. The Hon’ble Supreme Court has held that money laundering is not linked to the date of commission of predicate offence. For the uninitiated, predicate offence is the crime as a result of which proceeds are generated, which are then laundered. The PMLA has a schedule which contains the list of offences which can qualify as predicate / scheduled offences. In the beginning, only serious offences like those relating to drug and human trafficking, extortion, corruption etc. were part of the schedule. However, with time, the schedule was expanded and even regular crimes like cheating, forgery, offences relating to copyright and trademark violations etc. were included in this list. Moreover, the ED started invoking PMLA even in those cases where the alleged scheduled offences were committed either prior to the enactment of PMLA i.e., prior to 01.07.2005 or prior to the inclusion of respective predicate offence(s) in the PMLA schedule.
The action was challenged before the Courts because retrospective application of a criminal statute is impermissible under Article 20(1) of the Constitution. However, the Hon’ble Supreme Court in the latest judgment has ruled that the offence of money laundering is not dependent on or linked to the date on which the predicate offence has been committed. The relevant date, rather, is the date of carrying on the process or activity connected with the proceeds of crime.
Ordinarily, this would have meant the date on which the proceeds of crime were ‘laundered’. However, since money laundering has now been given a much wider meaning effectively bringing under its ambit every person having any association with proceeds of crime, it would also mean that any person charged with any scheduled offence at any point in time in the past, can be prosecuted and punished under PMLA if any connection with proceeds of crime can be shown. For example, take the case of a person who was charged with the offence of cheating in the year 1990. If the trial against him is still pending or he has been convicted of the said offence, he can immediately be booked under PMLA today on the mere allegation that the amount involved in cheating was used to purchase any property, moveable or immoveable, and the same is still in his use or possession.
The effect of this interpretation is concerning as it has given unbridled powers to the ED and the central government to apply the stringent PMLA provisions on any and every individual connected with any scheduled offence at any point in time in the past. The larger problem, however, is the potential selective targeting of people that may take place because the government now has the unbridled power to apply PMLA to anyone and everyone accused of any scheduled offence at any point in time, as per its sole discretion.
The frequency of ED raids has increased in recent times and this phenomenon may continue, especially on the political front. Nevertheless, the hope is that ED’s discretion in invoking the PMLA will be backed by judicious application of mind. This is necessary otherwise there is a high probability that the credibility of ED’s actions will come under doubt. It will be perceived largely as a political tool of the government which, in the long run, would be counter-productive in the fight against money laundering.
(Atul Agarwal is an advocate at the Supreme Court of India. He had represented some of the Petitioners in the above said PMLA batch of petitions in the Supreme Court).