Introduction
The offence of money laundering, as per the definition in Black’s Law Dictionary is “the act of transferring illegally obtained money through legitimate people or accounts so that its original source cannot be traced”. Further to this definition, it is only but natural to assume that the money, if illegally obtained, must be obtained in relation to the commission of an underlying criminal offence. The commission and requirement of this underlying offence, commonly known as a predicate offence, has been a point of debate since the introduction of the Prevention and Money Laundering Act, 2002 (“the Act”), which provides a list of offences in the Schedule appended thereto as ‘scheduled offences’.
While the Supreme Court and multiple High Courts of India have opined on the absolute necessity of the commission of a scheduled offence for the offence of money laundering to be made out, the establishment of the sequence of commission of the scheduled offence and that of money laundering, and of the incredulousness of accusing an individual of money laundering prior to even the establishment of the scheduled offence has been discussed by the Supreme Court while delivering its judgment in Vijay Madanlal Choudhary and Ors. v. Union of India and Ors.[1] along with 240 connected petitions which has sought to concretize the understanding of the concept of predicate offence. (hereinafter called “the SC PMLA judgment”)
Meaning of the term ‘predicate offence’
The concepts of money laundering and predicate offence cannot be better explained than the speech delivered by the then Finance Minister, Mr. P. Chidambaram, while introducing the Prevention of Money Laundering (Amendment) Bill, 2012 in the Rajya Sabha on December 17, 2012. It read:
“…firstly, we must remember that money-laundering is a very technically-defined offence. It is not the way we understand ‘money-laundering’ in a colloquial sense. It is a technically-defined offence. It postulates that there must be a predicate offence and it is dealing with the proceeds of a crime. That is the offence of money-laundering. It is more than simply converting black-money into white or white money into black. That is an offence under the Income Tax Act. There must be a crime as defined in the Schedule. As a result of that crime, there must be certain proceeds — It could be cash; it could be property. And anyone who directly or indirectly indulges or assists or is involved in any process or activity connected with the proceeds of crime and projects it as untainted property is guilty of offence of money-laundering. So, it is a very technical offence. The predicate offences are all listed in the Schedule. Unless there is a predicate offence, there cannot be an offence of money-laundering.” [emphasis supplied]
Further, the Apex Court’s celebrated judgment in P. Chidambaram v. Directorate of Enforcement,[2] in line with the above legislative intent, has also 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.
Predicate or scheduled offence is defined under Section 2(y) of the Act as the offences specified under Part A of the Schedule to the Act or the offences specified under Part B of the Schedule if the total value involved in such offences is one crore rupees (INR 1 crore) or more. While the Schedule lays down a vast laundry list of offences under various penal legislations such as the Indian Penal Code, 1860, Narcotic Drugs and Psychotropic Substances Act, 1985, Unlawful Activities (Prevention) Act, 1967, Prevention of Corruption Act, 1988 and even Securities And Exchange Board of India Act, 1992, the relevance of such offences is emphatically understood when read along with the definition of money laundering.
The intrinsic linkage of the scheduled offence with the offence of money laundering[3] is also found in the explanation to the definition of ‘proceeds of crime’ under Section 2(u) of the Act which clarifies that it would 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.
The Supreme Court on predicate offences
The Supreme Court has made it clear that while the offence of money laundering is an independent offence, it is still dependent on the underlying predicate offence to the extent of the proceeds of crime having been derived or obtained as a result of criminal activity relating to or in relation to the scheduled offence.[4] Further, while the whole quantum of a tainted property need not be regarded as proceeds of crime, the property qualifying under the definition clause of Section 2(u) of the Act will necessarily be treated as crime property, or laundered property.
Accordingly, it has been held that in the event a person is acquitted in relation to the scheduled offence who rightfully owns or possesses an alleged tainted property, then such a property cannot be termed as proceeds of crime. The natural consequence of such understanding is that in the event there are no identified proceeds of crime, the authorities under the Act, being the Enforcement Directorate, cannot step in or initiate any prosecution.
Although) the SC PMLA judgment gives finality to the question of predicate offence being sine qua non for the offence of money laundering , the position remains fairly unaltered since 2019 with the judgment in P. Chidambaram (supra). However, the present judgment will definitely prevent stray conflicting judgments in this regard.
Interplay between the timing of the predicate offence and the offence of money laundering
A pertinent submission made by a senior counsel for one of the petitioners was that the Court must decide on questions on retrospectivity. The senior counsel pointed out several instances to show that if a proper sequence in relation to the inclusion of the predicate offence in the Schedule to the Act, commission of the predicate offence, acquiring of tainted property, and commission of the offence of money laundering is not established by the Court, instances of absurdity may arise.
The senior counsel has reasoned that only by committing a predicate offence can proceeds of crime be generated, and only thereafter can the offence of money laundering be committed. Accordingly, proceeding against the accused in relation to the offence under the Act will be absurd and antithetical if the underlying offence is not yet notified in the Schedule to the Act or if the projection/ utilization of the proceeds of crime predate the commencement of the Act.[5]
However, the Supreme Court has held that there is not and should not be any linkage between the dates of predicate offence and the commission of the offence of money laundering. Only the date on which a person commits any of the acts as given under Section 3 of the Act is relevant to the offence of money laundering. Such an interpretation of Section 3 amplifies the catchment area of the Act multifold as it leads to a situations whereby even if the source, i.e. the predicate offence may not have been notified or the utilization or conversion of the proceeds of crime may have taken place before the commencement of the Act, such acts, if connected with the offence of money laundering after the Act has commenced, will flow into and trigger investigation under the Act.
Conclusion
A key takeaway from the SC PMLA judgment lies in its categorical confirmation that if the predicate offence fails, then the prosecution under the Act cannot be continued by the Enforcement Directorate. In fact, just ten days after the SC PMLA judgment), on August 8, 2022, an order was passed by a special Court under the Act granting interim bail to individuals in a money laundering case. Accordingly, it can be concluded that the judgment in the present matter specifically in relation to the concept of ‘predicate offence’ is a welcome move that will pave the way for the closure of many ongoing cases under the Act.
For further information, please contact:
Bharat Vasani, Partner, Cyril Amarchand Managaldas
bharat.vasani@cyrilshroff.com
[1] Special Leave Petition (Criminal) No. 4634 of 2014 before the Supreme Court of India, judgment dated July 27, 2022.
[2] (2019) 9 SCC 24.
[3] Section 3 of the Act defines the offence of money laundering as, “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 with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.”
