Budget 2018: PMLA – Government’s magic wand against launderers of illegal money

October 01,2018
Rate this story:
Sudarshan Rangan (Advocate)

1. Prelude

Money laundering is not mere siphoning of funds or black money, money laundering arises when money earned through illegitimate means is camouflaged to bring it as earned/originated through legitimate source. In order to curb this practice, The Prevention of Money Laundering Act, 2002 (‘PMLA’) was enacted pursuant to the United Nations Political Declaration, where the declaration was called upon to the member states to adopt national money laundering legislation and thereby penalise person converting illegal money to a legal money. Accordingly, the PMLA was enacted in India to curb the growing menace of money-laundering and also confiscate properties obtained through the tainted and laundered money. Even though the PMLA legislation is in vogue for more than a decade, it has remained innocuous largely and has not served its desire purpose.

However, the current Government has been really vociferous against black money etc. and accordingly has been taking lot of initiatives to crackdown the illegal money holders as well those who have converted/camouflaged the illegal money into legal money. In order to walk its talk, the Government is taking measures to give more teeth to the PMLA thereby making it an effective tool to curb this endemic menace.  There were some significant amendments made to the PMLA during the last budget 2017. Those amendments were indeed loud and signalled to the money launderers that the Government is on the prowl to hunt the launderers who convert illegal earnings to legal earnings.  In this article, we will look at the major amendment proposals made under the PMLA during Union Budget 2018.

2. Proposed Amendments

A. Proceeds of Crime – Definition

Existing: “Proceeds of Crime” as defined under Section 2(1)(u) [1]is the backbone of the PMLA legislation. The property under the money laundering offence gets triggered when the tainted property falls under the said definition. The said section was amended in 2015 to expand the scope of the definition of proceeds of crime to include wherein any property or its value derived out of a criminal activity is not restricted only to the specific property but also to a property equivalent in value held within the country.

Proposal:The said definition is now amended to give a wider ambit to include value of specific property equivalent in value held outside the country as well.  For example, if a person in India is being labelled for having proceeds of crime in a country outside India, then in such a scenario, his property situated in India shall be attached even though it may not have a relation to the proceeds of crime. The current proposal has extended the ambit, whereinthe authorities can now proceed against such property equivalent to proceeds to crime held outside the country also.

B. Scheduled offence – Inclusion of offence under Companies Act

Existing: For a money laundering offence to happen, proceeds of crime is imperative and proceeds of crime can arise only if the tainted property is derived as a result of a criminal activity relating to a scheduled offence. The scheduled offence is defined under Section 2(1)(y) of the Act wherein offences mentioned to the Schedule of PMLA (Part A, B &C)approximately offences under thirty odd legislations shall be treated as scheduled offence. It is worth to mention here that offence under Companies Act, Income Tax Act, Foreign Exchange Management Act are not part of the scheduled offence. Thereby any tax evasion made shall not qualify as an offence under the PMLA.

Proposal:The current budget has now included an offence under Section 447 of the Companies Act, 2013 -Punishment of fraud, whereby any person who is accused for corporate fraud under Section 447 of the Companies Act 2013, shall be treated as scheduled offence and accordingly PMLA provisions can be enforced upon the said person.

C. Leniency of bail provision to less serious PMLA cases

Existing: Section 45 of the PMLA has very onerous provisions pertaining to bail, wherein it provides that offences under the PMLA are cognizable and non-bailable. Further no person shall be released on bail or bond unless there is a reasonable ground to believe that the accused is not guilty of offence. However,for minors under the age of 16 years, woman and persons who are sick/infirm the Special Court may grant bail.

Proposal: With the bail provisions being very strict owing to the fact that Section 45 of PMLA overrides the Code of Criminal Procedure 1973, the accused be provided innocence till guilty shall not be applicable to PMLA and thereby grant of a bail becomes an ardent task. Therefore, considering the fact that said provisions are too harsh, amendment has been proposed to Section 45 wherein limit of Rupees one crore shall allow court to apply bail provisions more leniently to less serious PMLA cases.

D. Leniency for restoration of property attached during trial

Existing: Section 8 of PMLA mentions about the procedure for adjudication of a complaint under Section 5 of PMLA. Further if the Special Court on conclusion of the trial, finds that offence under money laundering has been committed then it shall order for confiscation of the property to the Central Government. If the Special Court reaches the conclusion that the offence has not taken place, it shall order release of such property to the person entitled to receive it.

Proposal: Therefore, from the above, PMLA provisions allow distribution of confiscated property to the rightful claimants, only after the trial is complete. In order to provide some leeway for the accused, present amendment allows Special Court, if it thinks fit, to consider the claims of the claimants for the purposes of restoration of such properties even during trial. This will help accused, who might be innocent to get the property back at the time of trial so as to avoid undue hardship.

E. Attachment of property -Administration measures

Existing: Section 5(1) of the PMLA gives powers to the authorities to attach properties suspected to be involved in Money Laundering. Therefore, if the authorities have reason to believe (recorded in writing) that based on the material in possession, the tainted property can be provisionally attached for a period of 180 days.

Proposal: Based on the above, every order of provisional attachment passed by an officer of Enforcement Directorate shall cease to have effect after 180 days from the date of the provisional attachment order, unless confirmed by the Adjudicating Authority under PMLA within that period. The section is proposed to be amended to include the period of stay in this time limit of 180 days and also further period of not more than 30 days to take care of delays if any in communication of judicial orders.

3. Epilogue

Money laundering is a global menace, which is evident from the fact that in the recent past, we have witnessed many leaks in the form of Panama paper Leak, Paradise paper leak etc. and the amount of illegal money slashed abroad. Many countries have identified necessary steps to curtail, prevent and stop the laundering. India has been taking significant steps on this endemic menace in the recent past. PMLA legislation is indeed a magic wand for the Government to use against the launderers/perpetrators of illegal money. The current budget proposals do give significant impetus for the nodal agency the Financial Intelligence Unit to proceed against the accused launderers. It would be interesting to watch as to how these are effectively being used and more importantly disseminate the information to relevant intelligence/ law enforcement agencies in a time bound manner to take effective measures against the money launderers.

One would hope that the PMLA legislation completely launders the endemic illegal money menace.

[1]“proceeds of crime” means any 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 any such property 2[or where such property is taken or held outside the country, then the property equivalent in value held within the country];