The Interplay Between The POCA & PML ACT: Through The Lens Of ED V. Padmanabhan Kishore Judgement

The Directorate of Enforcement (‘ED’), a financial investigation unit of the Department of Revenue under the Union Government, is responsible for the enforcement of the PMLA.^[4] The ED has the legal authority to issue the summons,^[5] obtain statements,^[6] make arrests,^[7] carry out searches, and seize property in the exercise of its investigative functions under the PMLA.^[8] Despite having investigative powers, the ED is not considered a “police agency”^[9] and is not compelled to comply with The Code of Criminal Procedure, 1973 (CrPC).

Money laundering is not a standalone offense and it has a three-part schedule of offenses (or predicate offenses) for which the primary sources of unlawful proceeds of crime are terrorism, drug trafficking, and corruption, as well as white-collar crimes like tax, business crimes, fraud, embezzlement, and crimes related to intellectual property. The Supreme Court has made it apparent that while money laundering is a distinct offense, it is reliant on the underlying predicate offense to the degree that the proceeds of crime were produced or gained as a consequence of criminal behaviour related to or in connection to the scheduled offense^[10]. In addition, although the whole value of a tainted property need not be considered as criminal profits, the property qualifying under the defining clause of Section 2(u) of the Act must be recognized as criminal property or as property that has been laundered.

In keeping with the foregoing legislative aim, the Supreme Court's landmark ruling in P. Chidambaram v. Directorate of Enforcement^[11] has also concluded that a "scheduled offense" is a sine qua non for the offense of money laundering that creates the money that is being laundered. The resultant criminal activity gives rise to tainted money and the subsequent act of transforming criminal gains into money that appears to be legitimate is money laundering.^[12]

The term ‘proceeds of crime’ has been discussed by a Division Bench of the Apex Court in the recent case of Enforcement Directorate vs. Padmanabhan Kishore^[13]. refers to whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party 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 the offense of money-laundering. One of the main challenges in combating money laundering is the ability of criminals to conceal the proceeds of their activities. They may use complex financial transactions, shell companies, and other techniques to hide the true ownership of assets and make it difficult to trace the proceeds of crime. The purported ‘proceeds of crime’ need to have a nexus, direct or indirect, to the underlying crime. Therefore, the ED cannot act against a person based on the premise that the property seized by them must be the proceeds of a crime and that a predicate offense has been committed unless the predicate offense has been recorded. As a direct consequence, no procedures will be permissible under the PMLA if the individual listed in the planned offense is exonerated by the court by a way of discharge, acquittal, or dismissal of the criminal case involving the predicate offense. The court determined that money laundering requires the illicit acquisition of property as a consequence of criminal behaviour linked to a scheduled offense. The offenses enumerated in the PMLA's Schedule are scheduled offenses according to Section 2(1)(y). The bench opined that the Enforcement Directorate (ED) could not prosecute anyone on a spurious basis or on the assumption that a scheduled offense has been committed, unless it is so registered with the competent police and/or is under investigation/trial, including by way of a criminal complaint before the competent forum. Furthermore, it said that only if the alleged offense is a scheduled offense would the property collected by the authorized officer be considered 'proceeds of crime' under Section 2(1)(u) of the PMLA.

Scope of PMLA and POCA & its Applicability

In the recent Padmanabhan Kishore Judgment, Kishore reportedly transferred Rs.50,000,000 to a government employee. This transaction itself and the circumstances surrounding it, as described in the FIR, resulted in the registration of a crime under Section 120B of the Indian Penal Code of 1860 and Sections 7, 12, 13(1)(d), and 13(2) of the Prevention of Corruption Act of 1988. The Enforcement Directorate thereafter lodged a complaint against Kishore and another individual under Sections 3 and 4 of the PMLA.

Kishore argued that the amount in issue could not be considered tainted while it was in his possession, and that it only became such after it was received by the public servant. As a result, he could not be considered associated with proceeds of crime and could not be prosecuted under the PMLA. The Apex Court noted that, as long as the money is in the possession of the bribe-giver, and until it acquires the essential purpose and is given over as a bribe, it would be untainted money. The Supreme Court ruled that the required purpose must always be present before the is being transferred. In interpreting Section 3 of the Prevention of Money Laundering Act of 2002, the Supreme Court determined that a person who knowingly assists or participates in an activity involving proceeds of crime is guilty of aiding or being a party to such action (PMLA). "Without such active participation on part of the person concerned, the money would not assume the character of being proceeds of crime. The relevant expressions from Section 3 of the PML Act are thus wide enough to cover the role played by such a person...", the court further held.

The ruling is significant because it expands the scope of the PMLA to include not just those who receive bribes, but also those who give bribes. It is intended to help combat corruption and financial crimes in India by holding all parties involved in such activities accountable.

The court relied on the following statements made in the context of Vijay Madanlal Choudhary v. Union of India^[14]. In this judgment, the SC bench in its ruling acknowledged the government's argument that a drafting mistake had snuck in and said that "and" in Section 3 should be interpreted as "or." This interpretation would imply that presenting the object as pristine would not be an additional need for concealment, ownership, acquisition, or usage. If "and" is to be interpreted as "or," then projecting the property as a clean property might be a different criterion.

Since the PMLA's enactment in 2005, several new offenses have been added to the Schedule. The key to establishing money laundering is ascertaining whether the property in question is the consequence of a "scheduled offense."

In its judgment, the Supreme Court said that money laundering, or enjoying the "proceeds of crime," is a "continuous offense" that may be prosecuted regardless of when the scheduled crime was committed. This implies that retaining property resulting from an offense that was not a scheduled offense at the time of its conduct will also be considered money laundering. Consequently, the legislative objective behind the addition of the 'interpretation' seems to be to prosecute and attach all 'proceeds of crime,' even though the property sought to be attached/seized may have only a tangible connection to the managed offense.

Critical Analysis and the Future Implications

The Supreme Court ruled that, unlike criminal procedures under the PMLA, where registration of a predicate offense is a prerequisite, registration of a predicate offense is not required for instituting proceedings for provisional attachment of property. However, a proceeding for the temporary attachment of property may only be commenced if the authorized official provides evidence that a person is in possession of the proceeds of the crime. Only those properties that seem to be proceeds of crime might be seized, not all of an accused's property.

The Supreme Court determined that the PMLA's provisions for the search and seizure of property and the search of persons have built-in safeguards, not only by mandating the exercise of power only by high-ranking officials, but also by requiring them to adhere to procedures guaranteeing impartiality, integrity, and accountability throughout the entire process of search and seizure. This is in contrast to the provision of the Code of Criminal Procedure, 1973 ("CrPC"), according to which any police officer may proceed only based on an accusation or suspect of a predicate offense. Moreover, searches and seizures conducted under the PMLA are conducted not just to investigate money laundering, but also to prevent money laundering^[15].

In addition, the Supreme Court ruled that even while the PMLA authorizes Special Courts to continue with the trial of a predicate offense, it may be oppressive to an accused who is not charged with money laundering but merely with a predicate offense. This would result in the loss of one appeal or revision chance before a competent superior forum. However, the aforementioned problem does not necessitate the Supreme Court's involvement or reconsideration of the validity of PMLA's provisions regarding Special Courts. Even if the complaint is legitimate, it should be addressed immediately before the Special Court in an application submitted by the ED requesting the transfer of the trial of the underlying offenses to itself. In addition, such petitions must be reviewed on a case-by-case basis by the Special Courts.

The Court further highlighted that the punishment specified by the PMLA is distinct from the nature of the predicate offenses, and that the sentencing is for the offense of money laundering, not for the conduct of the predicate offenses.

Subsequently, in the case of Naresh Jain and Ors. vs. the Deputy Director, ED, Delhi^[16], the Appellate Tribunal under the Prevention of Money Laundering Act, New Delhi determined that the phrase "reason to believe" imposes an onerous duty on the relevant official. The Appellate Court duly noted:

• A person must have "reason to believe" if the circumstances are such that a reasonable man would deduce or infer the nature of the matter in question based on probable reasoning.
• in the first phase of believing the existence of a thing, condition, or statement of fact, one would acquire information, study the information, and reach a conclusion based on that information, namely, that the item, condition, or statement of fact exists.
• the officer in question may act based on direct or circumstantial evidence, but not based on mere suspicion or the accusations included in the FIR or charge sheet, so that they may be examined to see if they are relevant and pertinent.