[PMLA IMBROGLIO] Can An Accused Face Trial For Money Laundering If The Scheduled Offence Is Struck Down?

Section 2(1)(u) of the Act defines that proceeds of crime is any property that has been derived, obtained (directly or indirectly) by any person as a result of a criminal activity relating to a scheduled offence or the value of any such property.

It is common understanding from this definition that a criminal activity relating to a scheduled offence is an essential condition (sine qua non) for obtaining proceeds of crime.

However, what is a criminal activity is not defined under this Act.

A conjoint reading of Section 2(1)(u) and section 3 of PMLA Act makes out that PMLA is not an independent offence and is dependent on the offences listed under the schedule to the Act.

In addition, the first proviso to the section 5(1) of the PMLA Act talks about forwarding a report to the magistrate relating to the scheduled offence, as one of the conditions necessary for provisional attachment of the proceeds of crime.

In essence, the Act makes it clear that the existence of a scheduled offence is mandatory for provisional attachment.

One then wonders how PMLA can become independent; meaning, why should an accused face trial for money laundering when the scheduled offence itself is not proven?

The Delhi High court in the case of M/S Mahanivesh Oils & Foods Pvt. vs Directorate of Enforcement on 25 January, 2016 has held that the power to attach is only with respect to the "property derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence or the value of such property. A commission of a scheduled offence is the fundamental pre-condition for any proceeding under the Act as without a scheduled offence being committed, the question of proceeds of crime coming into existence does not arise." However, this judgement has been stayed.

Further, some High courts have held that PMLA has got independent existence. Recently the Karnataka high court has held that the PMLA is independent and it is immaterial when the scheduled offence was committed but if there is projection now that it falls under money laundering.

With due respect to the judgement, it cannot be countenanced as the projection is of the proceeds of crime which is connected with scheduled offence.

The ambivalent stand of the department is evident from the fact that they filed a intervention petition against the closure of the scheduled offence investigation against Shri Naresh Goyal which was successively dismissed by the jurisdictional court, sessions court and the High court. If money laundering is an independent offence, where was the need for the above. Whereas in the OMKAR case it was argued by the department that PMLA is independent and has been accepted by the Bombay High court.

Further if the accused has been acquitted in the scheduled offence, it is believed then also a PMLA trial can proceed. As ED is not empowered to investigate scheduled offence, the moot point then is, who will prove the criminal activity relating to scheduled offence in the PMLA trial. These are lingering questions.

From the recent amendments by way of clarification also, one cannot conclude the independent existence of Money laundering in the absence of a scheduled offence.

The clarifications or explanations do not govern section 3 of PMLA. Money laundering per se is not an independent offence. However, this can be settled only when the Supreme Court decides the issue.

Views are personal

The Author is a Retired Deputy Legal Adviser, Enforcement Directorate

Also see Powers Of Attachment Of The Directorate Of Enforcement Under The Prevention Of Money Laundering Act, 2002 and;

Prevention Of Money Laundering Act, 2002: An Inherently Flawed Legislation?