Basics of PMLA: Rights, Offences & Bail Provisions

The Prevention of Money Laundering Act, 2002 (PMLA) is one of the most significant financial laws in India that is meant for suppressing the conversion of “black money” into lawful assets. The PMLA is enforced by the Enforcement Directorate (ED) and relates to illegal money laundering offences, allowing the ED to punish, attach, seize, and confiscate the property of persons which represent the proceeds of crime. The PMLA follows a stringent procedure for investigation, prosecution and bail. Familiarity with the basics of the PMLA, especially one’s rights, what constitutes an offence, and the bail provisions, is crucial not only for lawyers and law students, but also for any citizen in India who could potentially be affected by its expansive scope.

Purpose and Scope of the Act

The primary goal of the Prevention of Money Laundering Act (PMLA) is to prevent criminals from benefitting from their illegal activities. Money laundering generally occurs when money obtained through criminal means (such as drug trafficking, corruption, tax evasion, smuggling, or fraud) is concealed as “clean money” as various transactions occur.

The ambit of the Act is very wide. It not only punishes those engaged directly in money laundering, it extends to anyone who is found helping, concealing, acquiring, or using any “proceeds of crime.” The PMLA also enables the government to effect freezing and forfeiture of those property thereby demonstrating that crime does not pay.

Key Definitions and Important Sections

For a better understanding of PMLA, it will be helpful to understand some of the key terms and sections:

• Money Laundering (Section 3): The concept of money laundering includes the direct or indirect concealment, possession, acquisition, or use of “proceeds of crime” and projecting these proceeds as untainted or legitimate money.
• Proceeds of Crime (Section 2(u)): This includes any property or value that is derived from a criminal activity and which is associated with offences which fall under the Scheduled offences of PMLA.  Hence, it covers both movable and immovable property.
• Scheduled Offence: These include offences that are stated under the Schedule of the Act.  It includes offences under a variety of legislation which contain criminal offences, including the Indian Penal Code, NDPS Act, Prevention of Corruption Act, Arms Act, Wildlife Protection Act, etc.

Punishment for Money Laundering (Section 4): A person who is convicted of money laundering leading to a scheduled offence may be punished to rigorous imprisonment between 3 to 7 years with a higher term of up to 10 years for offences occurring under the Narcotic Drugs and Psychotropic Substances (NDPS) Act.

Authorities and Their Powers under PMLA

The Prevention of Money Laundering Act (PMLA) created a robust institutional framework to address money laundering offences. 

1. Enforcement Directorate (ED): The most notable institution is the Enforcement Directorate (ED) which is the principal investigatory agency under the Act. The ED has wide-ranging powers to investigate suspected money laundering offences. The powers available to the ED include summoning persons for questioning, requiring the production of documents, entering and searching subjection premises, taking possession of records, issuing notices for attachment of property whether corporeal or incorporeal, potentially arresting persons believed to be guilty of laundering activities etc. It is these wide-ranging powers that make the ED the central authority in tracing illegal funds and preventing the entry of proceeds of crime into the economy, particularly in terms of the future use of proceeds of crime.

2. Adjudicating Authority: Another important authority under the Prevention of Money Laundering Act (PMLA) is the Adjudicating Authority, which operates as a quasi-judicial authority. The functionality of the Adjudicating Authority is triggered when the ED prohibits persons or entities from using seized property on the basis that such property is linked with proceeds of crime. The Adjudicating Authority will analyze whether those property attachments were reasonable and based on sufficient evidence. This is an important safeguard against the powers of the ED as it prevents the wrongful attachment of property where the ED does not have legal grounds to do so.

3. Appellate Tribunal: Where a person is aggrieved by the decision of Adjudicating Authority, the statute allows appeal to the Appellate Tribunal. The Appellate Tribunal is an independent tribunal, which hears appeals of such cases and affords relief in the case of unlawful attachment or confiscation. This acts as a protective mechanism for the person and businesses against excesses or arbitrary actions of authority.

4. Special Courts: Finally, the Act also provides for Special Courts to try the offences under PMLA. Special Courts are notified and established by the Central Government. This enables quick and specialized case handling of money laundering cases. Thus, with those authorities there is at least a mechanism, which is a multilayered working of investigative authority and legal safeguards.

Offences and Punishments for Money Laundering

What Constitutes the Offence

Money laundering is defined in Section 3 of the PMLA. A person commits the offence if they directly or indirectly conceal, possess, acquire, use or project proceeds of crime as if it was not the proceeds of the crime. This is not only for criminals who earn illegal money, but also those who help to conceal. 

For example:

• Moving illegal money through a number of accounts, 
• Using illegally acquired money to buy real estate, 
• Converting illegal money into legal assets, all constitutes money laundering.

Punishment under Section 4

The punishment for money laundering is listed in Section 4 of the Act. Any person convicted will be liable to rigorous imprisonment for not less than three years, but could be as much as seven years. If the money laundering offence is connected to a crime under the Narcotic Drugs and Psychotropic Substances (NDPS) Act, then the maximum can go up to ten years. In addition to imprisonment, the law allows for fines which could be huge amounts of money. Money laundering is not only illegal, it is financially risky as well.

Liability of Accomplices

The law does not limit punishment solely to the primary offender. Those who knowingly assist in the act of laundering are also liable. For example, knowing that the documents are false, preparing false documents, acting as a safe conduit for funds to be transferred, purchasing properties from terrible funds, or even holding money for another person. PMLA expands the ambit of liability, so that the entire laundering enterprise is targeted, rather than just the person who generated the dirty funds.

The Wider Impact 

The offence of money laundering under PMLA will, therefore, apply to the entire cycle from “dirty” money to “clean” money. The expansive scope and serious sanctions suggest that the law was intended not just to punish, but to also deter people and networks from engaging in such circumvention of the law.

Investigation and Trial Process

1. Beginning an Investigation: The investigation under the PMLA typically begins when another law enforcement agency such as the police, the CBI, or the Income Tax Department has either registered a case of a scheduled offence or initiated a preliminary enquiry. Once ED gets information that illegal money has been generated, it will commence its procedure to trace or investigate the laundering of that money. Thus, the PMLA does not function in a vacuum but rather has a connection with other criminal statutes. 
2. Powers of Summons, Search, and Seizure: The ED has significant power under conditions laid out in Sections 16, 17 or 18 of the Act. With the summons power, the ED can require individuals to give evidence or produce documents for purposes related to the case. Not only that, but the ED has the authority to enter any premises, search the premises, and seize documents or properties which are relevant to money laundering. These powers are comparable to those of a civil court and used to ensure that evidence is not destroyed or secreted during the investigation.
3. Power of Arrest: Under Section 19 of the PMLA, an officer of the ED has the authority to arrest any person whom he believes is guilty of money laundering. However, the officer is required to record in writing the reasons for the arrest; and, the person arrested is to be informed of the grounds of his arrest. The person must be presented to either a Special Court or a magistrate, within 24 hours, and must be placed under the supervision of a court
4. Filing of Complaint and Trial in Special Courts: Once the ED completes investigation in cases concerning money laundering, it files a complaint before the Special Court designated under the provisions of the PMLA. These Special Courts are empowered to conduct the trial of offences under the Act of money laundering. The trial itself is similar to the manner in which criminal trials are conducted under other laws. As such, the prosecution must prove the guilt beyond a “reasonable doubt”. These Special Courts are also competent to hear applications for bail, property attachments and confiscation.

Rights of Individuals under PMLA

1. Rights Against Self- Incrimination

Under Article 20(3) of the Constitution, no person can be made to incriminate themselves. This applies to all proceedings under the ED as well, because nobody can be compelled to make a statement against their own interests.

2. Right to Counsel

An accused person is entitled to Counsel of their choice throughout the interrogation, any proceeding before the Adjudicating Authority and trials in Special Courts. This will ensure there are legal protections at each stage.

3. Right to be Informed of Arrest

As per Section 19 of the PMLA, the arrested person must be informed in writing for the grounds of arrest, which complies with Article 22(1) of the Constitution.

4. Right to fair trial / Due Process 

A person is entitled to a fair trial in terms of the PMLA, and the trial must comply with the principles of natural justice. Also, the accused is presumed innocent until proven guilty; they are also entitled to cross examine witnesses; and lead witnesses in their defence.

5. Protection of Property Rights

If the property is to be taken by an order of attachment, then the individual has a right to be heard by the Adjudicating Authority before the property can be taken away wrongfully.

Bail Provisions and Judicial Interpretations

• Section 45 and the Twin conditions: The PMLA provides for bail that is stricter than in a normal criminal case. Under section 45 of the PMLA bail may be granted if the Public Prosecutor has an opportunity to oppose the bail and the Court is satisfied that the accused is not guilty of the offence and is not likely to commit another offence while out on bail.
• Relief for Certain Categories: The PMLA gives relief for bail from women, minors under 16 years old, and for persons who are sick or have infirmities when the twin conditions are not imposed.

Significant Judicial Pronouncement: In Nikesh Tarachand Shah v. Union of India (2017), the Supreme Court struck down the twin conditions imposed under section 45 as unconstitutional, but after which Parliament amended section 45, and in Vijay Madanlal Choudhary v. Union of India (2022) the Supreme Court upheld the amended section and made bail extremely difficult again.

Practical Impacts: Because of the twin conditions, bail under PMLA is more difficult and the restrictions of bail by the Courts balance the right of individual liberty with serious money laundering offences.

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