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Quantification of Proceeds of Crime Under PMLA

The Prevention of Money Laundering Act, 2002 (PMLA) has been in the news due to recent high-profile cases, such as Vijay Madan Lal Choudhary v. Union of India. This article focuses on the crucial issue of quantifying the Proceeds of Crime under the PMLA. The PMLA was enacted to meet international obligations and has been in effect since 2005. "Proceeds of Crime" refer to property obtained directly or indirectly from criminal activities related to scheduled offenses. Accurate quantification is necessary for legal proceedings as the burden of proof rests with the prosecution. This article highlights the complexity of quantification and its essential role in PMLA cases, emphasizing the need for a comprehensive investigation by the court.


Introduction

One law that has garnered significant recent attention is the Prevention of Money Laundering Act, 2002 (“PMLA”). Whether it pertains to discussions regarding the landmark judgment of Vijay Madan Lal Choudhary v. Union of India[i], delivered by the Hon’ble Supreme Court last year, which upheld the validity of various provisions of the PMLA, or the concerns about the extensive powers granted to the investigative agency of the PMLA, the Enforcement Directorate (“ED”), the PMLA often appears in the news for various reasons. This article aims to explore a critical aspect of the PMLA that has also been extensively discussed and debated recently – the quantification of Proceeds of Crime.


The PMLA was enacted to fulfill India’s international obligations under the Political Declaration and Global Program of Action of the United Nations General Assembly on January 20, 2003. It came into effect on July 1, 2005, with primary objectives including the prevention and control of money laundering/proceeds of crime, confiscation and seizure of property obtained from the laundered money/proceeds of crime and dealing with any other issue connected with money laundering/proceeds of crime in India. In pursuit of the objectives that the PMLA aims to achieve, the legislature has introduced several amendments, the most recent being in 2022.


Proceeds of Crime– Meaning and Quantification

Section 2(p) of the PMLA provides that “money laundering” has the meaning assigned to it in section 3 of the PMLA. Section 3, in turn, provides that: -


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 [proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of the offence of money-laundering.

In simpler terms, if an individual, whether directly or indirectly, endeavours to participate or actually participates in any process or activity related to proceeds of crime—such as concealing, possessing, acquiring, or using the proceeds—and tries to present it as legitimate property, they shall be deemed to have committed the act of money laundering. This leads us to the question of what constitutes “Proceeds of Crime.” Section 2(u) of the PMLA provides the answer by defining “Proceeds of Crime” as follows: -


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 or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad.”


An explanation was also added to it through the 2019 amendment, which is read as follows: -


“Proceeds of crime” include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.


Scheduled Offence has been defined under section 2(y) of the PMLA as: -


“Scheduled offence” means— (i) the offences specified under Part A of the Schedule; or (ii) the offences specified under Part B of the Schedule if the total value involved in such offences is [one crore rupees] or more; or (iii) the offences specified under Part C of the Schedule.”


Upon careful examination of the provisions, money laundering is understood to encompass a scenario in which an individual commits an offense outlined in the PMLA schedule, leading to the generation of property. This property subsequently qualifies as the proceeds of the crime. Furthermore, should an individual engage in activities such as concealment, possession, or utilization of said proceeds of crime, they shall be deemed to have committed the offense of money laundering.


It is essential to note that each element, including the acts of “claim” or “project,” stands independently. The presence of any of these elements alone is adequate to establish liability for the offense of money laundering. There is no requirement to establish the elements of “claim” or “project” in addition to the other elements, namely concealment and possession.


In essence, the following categories of properties are categorized as Proceeds of Crime:-

  • Property directly or indirectly derived or obtained by any person as a consequence of criminal activity related to a scheduled offense.

  • The value associated with such property.

  • Property of equivalent value held within the country, in instances where the property is situated or held outside the country.

In the case of The Deputy Director Directorate of Enforcement Delhi and Ors. v. Axis Bank and Ors[ii],the Hon’ble High Court of Delhi provided a comprehensive elucidation of the several types of properties that qualify as Proceeds of Crime. It observed that: -


“To illustrate, bribe or illegal gratification received by a public servant in the form of money (cash) being an undue advantage and dishonestly gained, is tainted property acquired “directly” by a scheduled offence and consequently “proceeds of crime.” Any other property acquired using such bribe as consideration is also “proceeds of crime,” it having been obtained “indirectly” from a prohibited criminal activity within the meaning of first limb of the definition.”

Illustration To simplify, let us consider a scenario: Suppose a person named A committed theft at the home of B and took away a sum of 10 lakhs rupees. This entire amount would qualify as Proceeds of Crime because it originates directly from the criminal act of theft, which is a scheduled offence under the law. Now, let us expand on this example. Imagine that A then handed over the stolen money to a third individual named C, who agreed to pay A at a 10 % interest rate. As a result, A earned an additional two lakhs rupees on top of the original 10 lakhs, making the total 12 lakhs. In this situation, the entirety of 12 lakhs, not just the initial 10 lakhs, would be considered as Proceeds of Crime. This is because the entire amount is connected to the criminal activity though it occurred indirectly as it stems from the same scheduled offence.

In both cases, whether the money is gained directly from the theft or indirectly through interest, the crucial factor is that the property is linked to the criminal act, making it qualify as Proceeds of Crime as defined by the law.


The relationship between identifying Proceeds of crime and subsequent quantification is pivotal; without proper identification, quantification becomes unfeasible. This quantification, in turn, plays an essential role in enabling necessary preventive measures, including property attachment under sections 5 and 8 of the PMLA, and ultimately, the confiscation of the said assets.


The significance of this connection between identification and quantification was highlighted by the Hon’ble Delhi High Court in the case of The Deputy Director Directorate of Enforcement Delhi and Ors. v. Axis Bank and Ors.[iii] wherein the court emphasized that the authorities empowered to provisionally direct or confirm attachment should endeavour to make an initial assessment, even if tentative, of the value of the proceeds of crime. This assessment serves the purpose of ensuring that only assets or proceeds of the money-laundering offender, equivalent in value, are subjected to restraint.


To explain the quantification of the procedure of crime comprehensively, reference could be made to the case discussed herein below: -


Gautam Khaitan v. Union of India[iv]

In this case, allegations of corruption arise from the Indian Air Force’s 1999 proposal to replace MI-8 VIP helicopters. A procurement process initiated in the year 2000 involving M/s Augusta Westland was suspected of kickbacks via consultancy contracts. The petitioner, acting as the legal advisor of IDS India, was alleged to have played a significant role in this corruption scheme. The Central Bureau of Investigation (“CBI”) conducted an inquiry, leading to an FIR and an ECIR under sections 3 and 4 of the PMLA.


This sequence of events resulted in the issuance of a provisional attachment order for specific assets owned by the petitioner, contested through a writ petition. The court meticulously examined the properties classified as proceeds of crime and the assets subject to attachment. Following the adjudicating authority’s determinations under section 5 of the PMLA, an exhaustive investigation was conducted to trace the proceeds of the crime. This investigation revealed that M/s Augusta Westland had remitted 2.166 million euros to IDS India, leading to the creation of a subsidiary, IDS Sarl, in Tunisia.


Concurrently, Aeromatrix Info Solution Ltd. was established in India with the petitioner as its inaugural director. Approximately 24.06 million euros were transferred from M/s Augusta Westland to IDS Sarl in Tunisia. Subsequently, 3.88 million euros were funnelled to Aeromatrix Info Solution Ltd., and 1.88 million euros were directed to IDS India, disbursed among individuals involved in the scheme. The remaining 18.94 million euros were retained by IDS Sarl in Tunisia.


The court characterized the entire 24.06 million euros as proceeds of crime and determined that the remaining 18.94 million euros had undergone money laundering through inflated invoices as part of a criminal conspiracy involving the petitioner and others. This conspiracy inflated invoices beyond reasonable value additions to software services, mainly by inflating man-hours, rather than adhering to an accurate hourly basis.


The court meticulously tracked the allocation of sums transferred to individuals through Aeromatrix Info Solution Ltd. and IDS India. The court explored the utilization of these funds, notably considering instances such as the purchase of immovable properties and jewellery by the petitioner and his spouse. Consequently, the court declared those properties also as the proceeds of crime which were procured during the corresponding period.


Taking into account the aforementioned case, the following insights can be gleaned concerning the quantification of Proceeds of Crime: -

  • To commence, the initial step involves the identification of property that has been derived or obtained as a consequence of criminal activity associated with a scheduled offense.

  • Moreover, any subsequent property acquired or derived from the initially identified property should be considered as potential proceeds of crime. For instance, as evident in the aforementioned case, the immovable properties procured using funds derived from criminal activity related to a scheduled offense were deemed as proceeds of crime.

  • The comprehensive procedure of property tracing necessitates a thorough examination by either the court or the adjudicating authority, tailored to the particulars of the case. This process may encompass meticulous scrutiny of all properties acquired or derived by the accused during the alleged timeframe of both the scheduled offense and subsequent money laundering activities. Such a process may entail property inspections to establish links and uncover the flow of assets.

Therefore, the quantification of the Proceeds of Crime involves a multifaceted approach. It begins with the identification of initial assets stemming from criminal activity, subsequently encompassing any assets obtained through these initial proceeds. To execute this, a meticulous property tracing process is essential, entailing a comprehensive examination by either the court or the adjudicating authority. This process may extend to property inspections, to reveal the interconnectedness of properties acquired or derived by the accused during the period encompassing both the scheduled offense and money laundering activities.


Lastly, it is pertinent to observe that in cases governed by the PMLA, if the proceeds of crime cannot be accurately quantified or remain indeterminate, it can jeopardize the entire case. This is because the PMLA is a criminal law, and the burden of proof rests on the prosecution to establish guilt beyond a reasonable doubt. Consequently, the requirement to calculate the precise amount of Proceeds of crime is an essential corollary of this burden of proof.


In essence, if the exact amount of Proceeds of Crime remains uncertain or imprecise, the entire case falls. Thus, accurate quantification is crucial for ensuring that the prosecution can demonstrate the accused’s guilt beyond any reasonable doubt, as the law demands.


Conclusion

Amid ongoing controversies and divergent opinions surrounding the PMLA, the judicial system continues to adopt stringent measures against individuals implicated under its provisions, including the forfeiture of assets and penalties as stipulated in section 4 of the PMLA. This article delved into the intricacies of identifying and quantifying Proceeds of Crime, a vital process for the potential confiscation or attachment of such assets under the pertinent clauses of the PMLA. The discourse underscored that the quantification of Proceeds of Crime is not a standardized procedure; rather, it hinges on the court’s comprehensive investigation into any property derived or acquired, whether directly or indirectly, as a consequence of criminal activity linked to a scheduled offense.


End Notes

[i] 2022 SCC OnLine SC 929.

[ii] 259 (2019) DLT 500.

[iii] Supra (n2).

[iv] (2019) 10 SCC 18.


Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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