LATEST DEVELOPMENTS IN THE PREVENTION OF MONEY LAUNDERING ACT, 2002: VAIBHAV CHAUDHARI

 

Prevention of Money-laundering Act (hereinafter also referred to as “PMLA”), 2002 was introduced by the previous NDA government to curb the raising practice and incidences of money laundering and also confiscate those properties which were derived from money laundering in India. PMLA came into force with effect from July 1, 2005. The acts made it clear that even if the value of individual cash transaction is less than Rs.10 Lakh each, but are between related parties and if all such transactions take place in a month, then records are supposed to be maintained.[1] The act was introduced with a motive to prevent and control money laundering, to cease all those properties obtained from money laundering all other issues connected with money laundering in India.

The punishment for offences under the act is rigorous imprisonment for 3 to 7 years and a fine which may extend up to Rs.5 lakh.[2] If money laundering offence is related to drugs, then it would come under the Narcotics Drugs and Psychotropic substances act (NDPS), the penalty may extend up to five years.[3]

The act was amended in the year 2005, 2009, 2012 and the latest amendment was done in the year 2019.

 

LATEST DEVELOPMENTS

The case of Nikesh Tarachand vs. Union of India:

On 24^th of November 2017, the Supreme Court in the case of Nikesh Tarachand Shah vs. Union of India[4] ruled in the favour of citizens’ liberty by declaring section 45(1) of the PMLA Act unconstitutional. It was observed that the provision in question was violating article 14 and article 21 of the constitution. Section 45 provides that no person can be granted bail for any offence under the act unless the public prosecutor, appointed by the government, gets a chance to oppose his bail. And if at all the public prosecutor choose to oppose the bail, the court has to be convinced that the accused was not guilty of the crime and added that he was not likely to commit any offense while out on a bail.  

While striking down the provision, the bench dismissed the arguments made on behalf of the state by the attorney general KK Venugopal that strict provisions were required to deal with money laundering.[5] The AG argued contended that this legislation was an attempt made by the parliament to get back money which has been siphoned off from the economy, and the twin condition in section 45 is only in furtherance of this object of bringing back the black money[6].

 

The court, in this case, has very rightly observed that.

·       There is no nexus existing between the object of the PMLA Act, which penalizes for the offense of money laundering and the aim of section 45, which applies to other offenses.

·       Classification of an offense based on the sentence of imprisonment of more than three years in part A of the schedule is unjustified and arbitrary. Also, it doesn’t match with the objective of the PMLA Act.

·       The provision would result in manifestly “arbitrary, discriminatory and unjust results” and will violate article 14 and 21.

 

Finance act, 2019

The finance act, 2019 recently received the assent of President of India and became an act. This legislation also made certain amendments in the PMLA, 2002. Below are some highlights of amendments made in the PMLA, 2002.

·       Insertion of explanation to the definition of “proceeds of crime” under section 2(u) of PMLA, 2002:

The explanation added is a clarification for removal of doubt that the proceeds of crime not only include property derived or obtained through scheduled offence but also property obtained through any criminal activity related to the scheduled offence. As the definition added is explanatory, as it is just explaining the already stated definition of “proceeds of crime”, it will likely have a retrospective effect.

 

·       The omission of proviso provided under section 17(1) and section 18(1) of PMLA:

The deletion of this proviso is going to have a prospective operation. The impact of this deletion is that the officer under PMLA can enter any property to conduct search and seizure, search any person even in absence of any reporting of the scheduled offense to a magistrate or court for taking cognizance of the scheduled offense.

 

·       Insertion of explanation to the proviso of “offences to be cognizable and non-bailable” under section 45(2) of the PMLA:

The explanation has clarified the meaning of “offences to be cognizable and non-bailable”. It says that all the 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. The explanation further states that the officers authorized under this Act are empowered to arrest an accused without a warrant provided that the conditions given under section 19 are fulfilled.

This explanation ends to a much long controversy as there were contradictory judgments of various high courts on the matter that whether the offence of money laundering is cognizable and non-bailable or non-cognizable and bailable.

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[1] Anti-Money laundering act kicks off, Economic Times (Aug. 28, 2020, 10:00 AM) https://economictimes.indiatimes.com/news/economy/policy/anti-money-laundering-act-kicks-off/articleshow/1156901.cms

[2] PMLA 2002, Section 4.

[3] Supra Note 1.

[4] (2018) 11 SCC 1.

[5]Samanwaya Rautray, SC holds stringent bail condition in PMLA as unconstitutional,  Economic Times, (Aug. 29, 2020, 11:21 AM) https://economictimes.indiatimes.com/news/politics-and-nation/sc-holds-stringent-bail-condition-in-pmla-as-unconstitutional/articleshow/61771530.cms?from=mdr

[6] Ibid.