Is existence of a predicate offence necessary to invoke anti money laundering law?

Introduction

As the name suggests, The Prevention of Money-Laundering Act (“PMLA”), 2002 is an Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. The essence of the statute in creating economic security has resulted in wide powers being granted to the Enforcement Directorate (“ED”). A number of judgements have been passed which have dealt with the procedural and substantive aspects of the law, one such recent case being Rajeev Sharma v. Directorate of Enforcement a part of which has discussed the relationship between predicate offences and offences under PMLA.

PREDICATE OFFENCES AND PMLA

In the present case, Rajeev Sharma was arrested by Delhi Police under the Official Secrets Act, 1923 on the ground that he supplied confidential and sensitive information to Chinese intelligence officers, in exchange for remuneration. However, he was subsequently released on default bail. Later, Enforcement Case Information Report (ECIR) was registered on the basis of the same offences under Official Secrets Act and he was arrested again. The Court held that offences punishable under Official Secrets Act were not scheduled offences under PMLA, thus, ECIR registered by the respondent and arrest made pursuant to it was without any jurisdiction. The question which arises at the present moment is whether investigation by the ED can continue if the predicate offence (scheduled offences) has ceased to exist.

Section 44 of the PMLA which deals with offences triable by Special Courts was amended vide the Finance Act 2019 to include the following explainantion:

“For the removal of doubts, it is clarified that, –

the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial;

the complaint shall be deemed to include any subsequent complaint in respect of further investigation that may be conducted to bring any further evidence, oral or documentary, against any accused person involved in respect of the offence, for which complaint has already been filed, whether named in the original complaint or not.”

Thus, it is clear from the above explanation that the trial of the scheduled offence is independent of the trial conducted by the Special court under PMLA. The High Court of Madras, however, has stated in VGN Developers P. Ltd. & Ors. vs. The Deputy Director, Directorate of Enforcement that the amendment is merely clarificatory in nature, and therefore will apply to trials that have already begun before the amendment takes effect. This judgement goes against the well-established legal norm that criminal laws cannot be amended retroactively.

In Babulal Verma & Ors. v. Enforcement Directorate & Ors., the High Court of Bombay has given a rather contradictory ruling an offence under PMLA merely requires registration of a scheduled offence. It is irrelevant whether the scheduled offence is compromised, compounded, quashed or the accused therein is acquitted as the investigation by the ED under the PMLA will not be affected and will continue. In P. Chidamabaram vs. Directorate of Enforcement, the Supreme Court has held that a scheduled offence is a sine qua non for the offence of money laundering which would generate the money that is being laundered.

While relying on Radha Mohan Lakhotia vs. The Deputy Director, PMLA, Department of Revenue, the Bombay High Court in Babulal Verma (supra)held that an investigation into the offence of money laundering under Section 3, PMLA is not dependent upon the ultimate result of the scheduled offence and in fact, it is a totally independent investigation. On a strict interpretation of Sections 3 and 4, it can be deduced that the person against whom the ED investigation is ongoing need not necessarily be charged of having committed a scheduled offence. In fact, a scheduled offence is only needed for the registration of the ECIR, and the ultimate result of the investigation of the scheduled offence cannot have bearing on the proceedings under the PMLA. Furthermore, the 2019 amendment to Section 44(1)(d) of the PMLA adds an explanation to the effect that the criminal courts’ trial of the predicate offence is completely separate from the special court’s trial of the money laundering offence.

CRITICAL ANALYSIS

At the outset, the legal principle that an offence under PMLA does not require the support of a predicate offence may be viewed as contradictory to the settled view on the subject. While the Supreme Court has expressly stated in P. Chidambaram (supra) that a predicate offence is sine non qua for an investigation by the ED, the Bombay High Court in Babulal has interpreted the same to mean that mere registration of the predicate offence is necessary and nothing more. However, the Delhi High Court in Rajeev Sharma did grant bail to the accused even when the charge sheet filed in the predicate offence was under the Official Secrets Act read with Section 120B of IPC which is a scheduled offence under PMLA. The Court was of the opinion that Section 120B was not involved substantively and that it would be for the Trial Court to decide the involvement of Section 120B in the matter.

Several other High Courts have taken the view that if an ECIR has been registered based on a predicate offence which has ceased to exist by any reason whatsoever, it would also lead to the ECIR being infructuous and thus the investigation by ED would come to an end. The Karnataka High Court in M/S Obulapuram Mining Company Pvt. Ltd. vs. Joint Director, Directorate of Enforcement held that the ECIR will not be maintainable since of the offences of the accused did not fall under Schedule A of the PMLA. Moreover, the Delhi High Court in Rajiv Chanana v. Dy. Director of Enforcement has held that when an accused is acquitted of the charge brought under the predicate offence, that in itself takes away the very basis of the offence of money laundering. Thus, it is clear by the above judgements that the Courts have time and again taken the view that predicate offence is necessary for an investigation to take place by the ED; this is based on the legal principle that once the foundation of the matter is removed, the structure built thereupon must fall.

In the matter of Rajeev Sharma, it is clear that a new offence (Section 411) came to light only during the course of arguments before the Delhi High Court; the same was not present either in the charge sheet filed by the Special Cell or in the complaint filed by the Trial Court. In Arun Kumar Mishra vs Directorate of Enforcement, wherein the ECIR was lodged by the ED based on two FIRs, and while a closure report was filed in one and the petitioner was exonerated in another, a third FIR was lodged by the SIT, UP Police against the Petitioner with respect to a potential money laundering angle. The Delhi High Court, while quashing the ECIR based on the first two FIRs, observed that if an investigation into the third FIR establishes the offence of money laundering, the ED would be at a liberty to initiate fresh proceedings against the petitioner.

CONCLUSION

The main object of the PML Act is to prevent money-laundering and confiscate the proceeds of crime. In that light, there exists an indissoluble link between the PML Act and the occurrence of a crime. Although it cannot be disputed that the offence of money-laundering is treated as an offence under Section 3, which is punishable under Section 4, the offence of money-laundering relates to the proceeds of crime, the genesis of which is a scheduled offence. The irresistible conclusion flowing from the statutory scheme, therefore, is that the offence of money laundering cannot be an independent offence.

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