PMLA Consultancy- Brief Overview
As the name itself suggests, the Prevention of Money Laundering Act was introduced to tackle the tainted tactic of money laundering. It also provides for confiscation of property that is derived from, or involved in, money laundering. The PMLA authorises the ED to confiscate property or value thereof, being directly or indirectly obtained from illegal activities, otherwise known as the ‘proceeds of crime’. The main objective to introduce this is to combat or prevent channelizing of money into illegal activities.
What is PMLA?
PMLA stands for Prevention of Money Laundering Act. It came into force with effect from 2005 with an intent to prevent instances of money laundering and to punish those involved in the commission of the offence. The main objective of this legislation is to fight money laundering, that is, the process of converting black money into white money. The Act allows government authorities to confiscate properties and/or assets earned from illegal sources and through money laundering.
Objectives of PMLA
The main objectives of the Act are:
- To prevent money laundering;
- Combat the channelizing of money into illegal or criminal activities;
- Providing for property confiscation derived from or involved in money laundering;
- Providing for matters connected with or incidental to money laundering.
Offence of Money Laundering
The offence of money laundering has been defined under Section 3 of the PMLA, which provides that a person will be guilty of this offence if such a person is directly/indirectly attempted to indulge or knowingly assisted or is a party or is involved in one or more of the below mentioned activities connected with proceeds of crime:
- Concealment or;
- Possession or;
- Acquisition or;
Section 2(u) of the Prevention of Money Laundering Act states the definition of "Proceeds of Crime" as any property derived or received, directly/indirectly, by any person from criminal activity relating to scheduled offence or the value of such property, or where that property is taken or held outside the country, then the property equal in value held within the country or outside.
The offences laid down in the schedule to PMLA, 2002 are scheduled offence. It is divided into 2 parts- Part A & Part C.
Part A comprise of offences under IPC, NDPC, Explosive Substances Act, Unlawful Activities ( Prevention) Act, Arms Act, Wild Life (Protection) Act, Immoral Traffic ( Prevention) Act, Prevention of Corruption Act, Antiquities and Arts Treasures Act etc.
Part C deals with trans-border crimes.
Process of Investigation under PMLA
One of the most essential aspects relating to the money laundering offence is the investigation process involved therein. The investigation process followed under PMLA is as follows:
- Registration of FIR
Firstly FIR is registered in case of a cognizable offence as provided under CrPc before initiating an investigation.
- Registering an ECIR
ECIR stands for Enforcement Case Information Report. It is an established practice within the ED to record an Enforcement Case Information Report before initiating investigation into the matter. According to the ED, an ECIR is an internal document which is created for keeping a record of the cases. It is the first document executed by the Directorate of Enforcement during the investigation process. The ECIR comprises of the grounds and allegations based on which the investigation process moves ahead.
Is the ECIR similar to an FIR?
Unlike an FIR, which is registered under section 154 of the CrPC and then forwarded to the magistrate under section 157, there is no procedural requirement to forward an ECIR to magistrate. Further the ECIR copy is not routinely made available to the accused person unlike in the case of registration of an FIR.
- Issuance of summons (Section 50)
ED can issue summon to the accused person under section 50 of the PMLA to record his statements. The person to whom the summon is issued must show himself up in the ED office in person or through his representative. Further in money laundering cases, statement made to ED under Section 50 is admissible and can be held against an accused person during the trial.
- Final complaint in the Special Court
Once the investigation is completed by the ED, it files a complaint in the special court. The special court has the power to try offences under PMLA. Thereafter the trial is completed and then the appeal can be filed to the concerned HC.
As stated earlier ED, under the Ministry of Finance, Government of India, is the investigating authority under PMLA. It is a multi-disciplinary association that is responsible for securing proceeds of crime under different financial laws and enactments like PMLA, FEMA and also the Fugitive Economic Offenders Act. In 1956, an Enforcement Unit was formed to handle exchange control laws violations under FERA 1947. In 1957 the unit was renamed as Enforcement Directorate. ED enforces the provisions of FEMA and PMLA.
The main function of ED is to:
- Investigate contravention of provisions of laws resulting in financial crimes like money laundering or such offences that can affect sovereignty and integrity of the nation;
- Confiscate or attach properties and other proceeds of crime;
- Prosecute offenders;
- Summon, search, seize.
It may be noted that ED is the investigating agency under PMLA but predicate offences are investigated by various agencies like Police, customs, SEBI, CBI etc. In case where a predicate offence is made out then, the investigating agency can notify ED, and the ED has the authority to attach properties which falls under the ambit of proceeds of crime. ED cannot act on its own until an FIR or a regular case is registered.
When can ED send notice under PMLA?
- If the ED considers it necessary to summon a person whose attendance he considers imperative whether to give evidence or to produce any records during the course of an investigation or proceedings under this Act, then it can issue notice.
- Further on receipt of a complaint under PMLA, if the adjudicating authority has a reason to believe that a person has committed an offence under Section 3 or the person is in possession of the proceeds of crime then it may issue a notice to such person calling him/her to indicate his/her sources of income, earnings, assets out of which or by means of which the property attached has been acquired.
Attachment of Property under PMLA
Section 2(d) of the PML Act defines the term attachment as the prohibition of transfer, conversion, disposition or movement of property by an order. The power of attachment has been granted to a Director or any other officer not below the rank of deputy director authorised by the director. To order for attachment, the concerned officer needs to show that based on material in his possession, he has a reason to believe, that such person has any proceeds of crime which may be concealed, transferred or dealt with in a manner that can interfere with proceedings which relates to confiscation of such proceeds linked with a crime, in such a scenario, he may order for prohibition of transfer, conversion, disposition or movement of such proceeds.
Such attachment is valid for a period of 180 days. The aggrieved person can defend himself before the adjudicating authority. The aggrieved person can challenge the order of attachment and the validity of “reasons to believe” made by the authorized officer at the appropriate forum. Then such court or forum will examine whether the reasons have any rational connection with the material in possession.
Arrest under PMLA
As per Section 19 of the PMLA, the director, deputy director, assistant director, or any other officer authorised by the central government has the power to arrest a person.
When can a person be arrested?
A person can be arrested by the authority if such authority on the basis of the material in his possession has the reason to believe that such person is guilty of an offence under PMLA and such reasons should be recorded in writing.
What happens after arrest?
The authority needs to inform the person arrested about the grounds for his arrest. The copy of the arrest order should be forwarded to the adjudicating authority, along with the material in his possession. The arrested person should be produced before the special court or JM or MM within 24 hours of arrest.
Presumption and the burden to prove
According to Section 24 of the PMLA, the burden of proof lies on the one who claims that the proceeds of crime that has been alleged to be involved in money laundering, are not involved. Moreover, also in the case of records of properties found in the possession of any person during survey or search under PMLA, a presumption is made that such records or property belongs to that person.
In case a transaction of acquisition of property is part of the inter-connected transactions, the burden to establish that the property acquired is not related to the money laundering activity, lies on the one who has the ownership, control or possession of property, even if the person is not accused of Section 3 offence under the Act, provided that one or more interconnected transactions is proved to be involved in money laundering.
A person who has been called to give a statement before the authorities under PMLA cannot be termed as an accused person. It is part of the investigation process to collect evidence. It is only at the stage of filing of the complaint under PMLA for prosecution that such person or suspect is termed as an accused.
Special Courts under PMLA
Considering that PMLA is a special statute, it provides for the setting up of Special Courts for trying offences mentioned under the Act. Section 43 and 44 of the PMLA talks about the constitution of special courts and lists offences that may be tried by the special courts.
Section 43 provides that the central government in consultation with the chief justice of the High Court, shall designate one or more court of session as special court for trial of offence punishable under Section 4.
Section 44 states that an offence punishable under Section 4 and any scheduled offence related to the offence under that section will be triable by the special court set up for the area where the offence has been committed.
Penalties under PMLA
Various penalties have been prescribed under the PMLA that can be initiated against those who are found guilty of money laundering. It includes the following:
- Freezing or seizing of property and records and or attachment obtained from proceeds of crime.
- Rigorous imprisonment of minimum 3 years and a maximum of 7 years.
- In case the offence is involved with NDPS Act, the punishment can go up to 10 years.
How can Enterslice Help?
The statutes, provisions and various process under PMLA can be complex to understand which necessitates interpretation by competent experts in this field. We at Enterslice, have a team of experts and consultants who can assist you in handling representation before Deputy Director / Joint director, assist in PMLA audit, provide legal advisory related to PMLA i.e., PMLA Consultancy and help in filing writ petition to the PMLA in the High Court.