Money laundering
Criminal enforcement
Which government entities enforce your jurisdiction’s money laundering laws?
Under the stipulations outlined in the Prevention of Money Laundering Act 2002 (PMLA), the establishment of the Financial Intelligence Unit of India (FIU-IND) took place in 2004, serving as the central hub for orchestrating India’s anti-money laundering initiatives. Tasked with the primary mandate of receiving, analysing, processing and disseminating information pertaining to suspicious financial transactions, FIU-IND plays a pivotal role in coordinating and bolstering the efforts of national investigative agencies, as well as international intelligence and enforcement bodies, in combating global money laundering and terrorism financing endeavours.
Beyond this, the PMLA, under section 54 endows upon certain officers the responsibility to assist the authorities in the enforcement of the Act. Such officers include the officers of the Customs and Central Excise Departments, the officers of the income tax authorities, the members of the stock exchanges as recognised under section 4 of the Securities Contracts (Regulation) Act 1956, officers appointed in terms of certain provisions of the Narcotic Drugs and Psychotropic Substances Act 1985, police officers, officers of the Pension Fund Regulatory and Development Authority, officers of the Department of Posts in the government of India, among several others, including but not limited to officers of any other body corporate constituted or established under any Central or State Acts or specified in this behalf by notification.
Thereafter, in 2005, the government of India introduced the ED, empowering it with exclusive authority concerning investigations and prosecutions under the PMLA. The ED, operating under the Department of Revenue within the Ministry of Finance, holds the primary responsibility for investigating and prosecuting money laundering offences in India as per the PMLA. Additionally, regulatory bodies such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI) are authorised to address issues related to money laundering activities and establish guidelines on anti-money laundering standards.
These authorities and guidelines, when read in conjunction with the provisions of the PMLA and PML Rules, form the fundamental legal structure that governs AML laws and their enforcement in India.
Defendants
Can both natural and legal persons be prosecuted for money laundering?
Yes, under the provisions of the PMLA, individuals and entities, whether natural or legal, are subject to prosecution for offences related to money laundering.
The definition of 'person’ within the PMLA encompasses a broad spectrum, including individuals, Hindu undivided families, companies, partnerships, associations, legal entities and their subsidiaries. The ambit also includes agencies, offices and branches controlled by such entities. The PMLA delineates a comprehensive array of punitive measures that may be imposed on individuals possessing proceeds of crime arising from scheduled offences (offences specified under Part A, B or C of the Schedule under the PMLA). Section 70 of the PMLA clarifies that if a corporate entity (comprising firms or association of individuals) violates any provisions of the PMLA, both the individuals in charge of the corporate entity (and accountable for its operations) at the time of the offence, and the corporate entity itself, are deemed culpable for the breach of the provisions under the PMLA.
The offence of money laundering
What constitutes money laundering?
PMLA, under section 4 of the Act recognises money laundering as a predicate offence and criminalises it. In order to proceed against a person under the PMLA, a scheduled offence (as defined under section 2(y) and mentioned in Parts A, B and C of the Schedule of the PMLA) should have been committed, which should have been registered before a competent forum basis where the proceeds of crime were generated.
Section 3 of the PMLA provides that a person shall be guilty of the offence of money-laundering subject to the following criteria:
- A person is involved in concealment, possession, acquisitions, use, projecting as untainted property or claiming as untainted property, the proceeds of crime.
- A person is directly or indirectly involved in the process or activity connected with the proceeds of crime with the intention of claiming, using or projecting it as untainted property.
- A person is knowingly assisting or is knowingly a party or actually involved in the process or activity connected with the proceeds of crime with the intention of claiming, using or projecting it as untainted property.
PMLA is not a strict liability offence as the element of ‘knowledge’ is an essential component in making out the offence of money laundering. However, under section 70 of the PMLA, individuals in charge of company are held liable for contravention of provisions by the affiliated body corporate unless they are able to prove that the particular activity of money laundering took place without their knowledge after they have exercised all due caution to ensure compliance with the obligations laid down for the reporting entities in terms of the PMLA and other affiliated rules, guidelines and master directions formulated by the RBI, SEBI and IRDAI. The same principle applies to banks, financial institutions and other reporting entities (as defined under section 2(wa) of the PMLA) (reporting entities). Therefore, the plea of negligence cannot be invoked to break free from the clutches of investigating authorities.
Qualifying assets and transactions
Is there any limitation on the types of assets or transactions that can form the basis of a money laundering offence?
The offence of money laundering arises from criminal activity committed by a person in relation to scheduled offences. Scheduled offences (as defined in section 2(y) of the PML Act) are those offences that are mentioned in Parts A, B and C of the Schedule to the PML Act and refers to any type of property or assets derived from proceeds of crime or used in the commission of crime in relation with the scheduled offences. The ED, can also attach alternative properties equivalent to the value of properties that may have been derived out of proceeds of crime, as may be applicable.
Part A of the PMLA delineates an exhaustive list of scheduled offences drawn from various criminal legislations in India, including but not limited to the Indian Penal Code 1860 (IPC), Narcotic Drugs and Psychotropic Substances Act 1985, Unlawful Activities (Prevention) Act 1967, Arms Act 1959, Prevention of Corruption Act 1988, and others, for which no monetary threshold has been provided. Notably, Part B also encompasses offences under Indian tax laws, such as the Customs Act 1962, for which a monetary threshold of 3 million rupees or 10 million rupees has been prescribed as may be applicable.
Furthermore, Part C of the PMLA specifies that any offence mentioned under Part A, particularly offences with cross-border implications, falls within the purview of the Act for which no monetary threshold has been provided.
The attachment of properties may also include rights of third parties who may have acquired a bona fide interest in the property, which may further interfere with their peaceful possession or rights in the property.
The central government, on 7 March 2023, also included cryptocurrencies and non-fungible tokens under the ambit of the PMLA to ensure that cryptocurrency transactions comply with the due processes under the PMLA act and to keep pace with the dynamics of the metaverse.
Predicate offences
Generally, what constitute predicate offences?
The AML regime in India recognises the concept of predicate offences, and the foundation for any money laundering case to be initiated is the requirement of an investigation to be opened in relation to a predicate offence by another law enforcement agency.
The term ‘predicate offense’ is not expressly mentioned in the PMLA; instead, it refers to ‘scheduled offenses’, with the related crimes being listed in a schedule. These scheduled offences are comprehensively defined under section 2(1)(y) of the PMLA, encompassing offences specified in Part A, Part B and Part C of the Act. A critical element for the offence of money laundering is the commission of a scheduled offence, as it serves as the foundation for generating proceeds of crime.
Money laundering, while being an independent offence, hinges upon the predicate offence, as the proceeds of crime must originate directly or indirectly from criminal activities associated with the predicate offence (P. Chidambaram v Directorate of Enforcement (2019) 9 SCC 24).
Part A of the PMLA delineates an exhaustive list of scheduled offences drawn from various pieces of criminal legislation in India, including but not limited to the IPC, Narcotic Drugs and Psychotropic Substances Act 1985 and others, notably, Part B encompasses offences under Indian tax laws, such as the Customs Act 1962. Furthermore, Part C of the PMLA specifies that any offence mentioned under Part A, particularly offences with cross-border implications, falls within the purview of the Act and section 2(ra) of PMLA recognises offences with cross-border implications.
Defences
Are there any codified or common law defences to charges of money laundering?
In the legal context of India’s AML regime, common law defences against charges of money laundering are not explicitly codified. However, one recognised defence that may apply is demonstrating a lack of knowledge or awareness of the unlawful activities associated with the financial transactions in question. This defence hinges on proving that the accused party had no knowledge or suspicion regarding the illegal origins of the funds being handled or processed. This might include demonstrating a lack of involvement in the underlying criminal activity, absence of knowledge about the source of the funds, or inability to discern the unlawful nature of the transactions.
However, while lack of knowledge can serve as a defence in money laundering cases, it may not absolve the accused of liability if they were wilfully blind to the illicit activities or if they should have reasonably known about them.
Resolutions and sanctions
What is the range of outcomes in criminal money laundering cases?
Under Indian law, the concept of plea bargaining is recognised under sections 265A to 265L, Chapter XXIA of the CrPC. However, it is not applicable to offences that the government has notified as impacting the socio-economic condition of the country or offences carrying punishments such as death, life imprisonment, or imprisonment exceeding seven years. The PMLA stipulates that the provisions of the CrPC will apply, provided they do not conflict with the provisions of the PMLA. In India, the PMLA does not explicitly address the option of plea bargaining and thus offers no conflict. Moreover, money laundering is considered a non-compoundable offence under the PMLA, considering the absence of any provisions laying out any settlement procedures.
The following are the possible ramifications of failing to comply with AML laws:
Imprisonment: Money laundering carries a penalty of imprisonment ranging from three to seven years under section 4 of the PMLA. In cases falling under the Narcotic Drugs and Psychotropic Substances Act 1985, the maximum sentence can extend to 10 years.
Penalties: Violations of the PMLA can result in monetary fines ranging from a minimum of 10,000 rupees to a maximum of 100,000 rupees. Notably, recent instances have seen the RBI imposing substantial penalties on Indian banks for non-compliance with RBI directives related to KYC, AML and current account opening standards.
Freezing of assets: Section 17(1-A) of the PMLA empowers the ED to issue orders freezing property in situations where seizure is impractical or where property cannot be transferred or dealt with without prior permission.
Other consequences: While specific penalties are not explicitly outlined in the PMLA or its Rules, section 45-MC of the Reserve Bank of India Act 1934 empowers the RBI to initiate winding-up proceedings against non-banking financial companies engaged in activities deemed detrimental to national interests.
Sanctions under the AML regime in India
The possible sanctions for breach of AML laws in India are confined to the imposition of fines and imprisonment. For instance, section 4 of the PMLA provides for imprisonment of three to seven years along with a fine. Further, under section 62 of the PMLA, if any officer exercises powers under the PMLA without any reason inspects any place; or detains, searches or arrests any person, will be liable for imprisonment up to two years or with a fine not more than 50,000 rupees, or both. Similarly, section 63 of the PML Act provides that any person who willingly gives false information to cause an arrest or search under the PMLA will be liable to imprisonment up to two years or with a fine up to 50,000 rupees, or both.
Forfeiture
Describe any related asset freezing, forfeiture, disgorgement and victim compensation laws.
Proceeds of crime are subject to asset freezing and forfeiture under the following provisions:
- Section 5 of the PMLA empowers ED to provisionally attach proceeds of crime for a period not exceeding 180 days when there is reason to believe that such property amounts to proceeds of crime. The definition in section 26 of IPC, ie ‘a person is said to have “reason to believe” a thing, if he has sufficient cause to believe that thing’ has been imported into the PML Act (see P. Chidambaram v Directorate of Enforcement).
- Section 17(1A) authorises PMLA to freeze assets if it appears impracticable to seize a particular property.
- Sections 8(5) and 60 stipulate that ED has the power to confiscate assets involved in money laundering upon conclusion of a trial.
Pursuant to a provisional attachment order, the ED is required to forward the relevant details on the properties attached to the Adjudicating Authority under PMLA.
Limitation periods on money laundering prosecutions
What are the limitation periods governing money laundering prosecutions?
By way of background, the IPC serves as a foundational substantive law governing a myriad of criminal offences and prescribing corresponding penalties. Conversely, the Code of Criminal Procedure 1973 (CrPC), functions as a procedural statute delineating the requisite procedures to be adhered to in criminal proceedings. In essence, the IPC and the CrPC operate in tandem within the legal framework, with the former defining offences and their penalties while the latter establishes the procedural rules governing criminal trials. This holds true unless such procedures conflict with the provisions outlined in the PMLA, as specified in section 65 of the PMLA.
The PMLA does not expressly delineate a limitation period pertaining to the prosecution of money laundering offences. However, it is crucial to note that provisions of section 468 of the CrPC, govern the limitation periods for categories of offences in India. According to section 468, offences punishable with imprisonment exceeding three years are not subject to any limitation period. Since the term ‘offense’ under the CrPC encompasses any act or omission punishable by law, the offence of money laundering under the PMLA falls within this purview. Since money laundering carries a penalty of imprisonment ranging from three to 10 years, it aligns with section 468 of the CrPC, thereby rendering it exempt from any limitation period.
Additionally, the Finance Act 2019 also introduced amendments to the Prevention of Money Laundering Act (PMLA), specifically addressing section 3. These revisions aimed to rectify the misconception that money laundering constitutes a one-time offence that concludes upon the concealment or use of proceeds of crime. Instead, the amended provision clarifies that individuals can be liable for money laundering as long as they retain possession of the proceeds of crime or engage in any actions involving such proceeds while asserting their legitimacy.
Extraterritorial reach of money laundering law
Do the money laundering laws applicable in your jurisdiction have extraterritorial reach?
The PMLA confers extraterritorial jurisdiction to ensure compliance with laws for offences that took place in India for which the proceeds of crime were remitted abroad or vice versa and also includes provisions for attachment and confiscation of properties in India of value equivalent to properties derived out of proceeds of crime held outside India under section 5. Further, section 56 of the PMLA grants wide powers to the central government to initiate and enter into reciprocal arrangements with other nations to enforce provisions of the PMLA and exchange corresponding information under the laws prevalent and as applicable in both nations. Moreover, in the case of offences having cross-border implications as elucidated under Part C of the Schedule under PMLA, PLA would have extra-territorial and cross-border applicability.
