Monday, October 7, 2019

Guest Post: Understanding Recent Developments in Bail under the PMLA

(I am pleased to host a guest post by Mr. Anuraag Bukkapatnam, a Second Year student in the B.A., LL.B. program at NALSAR University of Law)

Section 3 of the Prevention of Money Laundering Act, 2002 (hereafter referred to as the PMLA) defines the offence of money laundering. Prior to the passing of Finance Act, 2019, the definition stood as follows: 

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.

This provision provided two essential elements to constitute the offence of money laundering, which are as follows: 

  • Existence of a predicate offence: An offence of money laundering cannot exist independently. It is sine qua non for the existence of an offence under the PMLA that the money in question is ‘proceeds of crime’, i.e. it was derived from another crime (which is referred to as the predicate offence). If there is no predicate crime, there can be no offence of money laundering [i]. The predicate offences are listed in Schedule I of the PMLA. 
  • Projection of tainted money as untainted money: The term ‘money laundering’ connotes the process of laundering money i.e. projecting tainted money as untainted. Money laundering has three stages, which are placement, layering and integration [ii]. Unless something has been done in furtherance of this, it cannot be said that the offence of money laundering has been committed. Mere possession of proceeds of crime could not constitute the offence under this definition. The word ‘and’ implies that both the elements must be satisfied in order to constitute an offence of money laundering. 

Numerous judgements in India have settled the point of law that an offence of money laundering is separate and distinct from the predicate offence. For example, an offence under the Prevention of Corruption Act, 1988 (hereafter referred to as the PCA) would constitute a separate offence from the offence under the PMLA, despite them being inherently connected to each other. A conviction under the PCA would not automatically result in a conviction under the PMLA. 

Understanding the distinction between the predicate offence and the offence of money laundering is crucial for understanding the provisions concerning bail for money laundering offences under the PMLA. 

Bail position Pre—2019 

Section 45 of the PMLA deals with bail related aspects of the offence of money laundering. The section, as it stood in 2017, read as follows: 

45. Offences to be cognizable and non-bailable.—
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule shall be released on bail or on his own bond unless—
(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail ... 

This section shows that to obtain bail, the accused must prove that there exists no reasonable grounds for believing that she has committed the predicate offence. The word “offence” in this section referred to the offences in Part A of the Schedule to the PMLA, and not the offence of money laundering under Section 3 of the PMLA. 

In Nikesh Tarachand v. Union of India, the Supreme Court struck down Section 45 of the PMLA on the grounds of it being unconstitutional. As Part A of the schedule consisted of diverse set of offences which vary significantly in the quantum of punishment, a bail provision treating all of them in the same manner would amount to treating unequals as equals, hence violating Article 14 of the Indian Constitution. 

Furthermore, writing for the Court, Nariman J. observed that the conditions for securing bail should be proportionate to the magnitude of the offence. This is implicit in the right to life and liberty under Article 21 of the Indian constitution. Under the provisions of the CrPC, an accused would not be required to prove prima facie innocence in the alleged offence (unless punishable by death or life imprisonment) in order to seek bail. However, under Section 45, as it stood then, an accused had to prove prima facie innocence with respect to not just the offence of money laundering, but also the predicate offence to secure bail despite the fact that no offence of money laundering was made out. In conclusion, the Supreme Court observed that absent any crucial state interest in denying bail, it violates Article 21 of the Indian Constitution. 

Amendments to the PMLA after Nikesh
Subsequently, in 2018, the government amended the section by means of the Finance Act, 2018 to comply with the judgement. The amended section starts as follows: 

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence under this Act shall be released on bail or on his own bond unless ...  [Emphasis mine]

The new section has narrower scope as compared to before the amendment, and confines itself only to the money laundering offence: The court would not be required go into the merits of the predicate offence. 

In 2019, the definition under Section 3 of the PMLA was amended by the Finance Act (No. 2), 2019. An explanation was added to this provision, which reads as follows: 

Explanation.-- For the removal of doubts, it is hereby clarified that,--  
(i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:--  
(a) concealment; or
(b) possession; or
(c) acquisition; or
(d) use; or
(e) projecting as untainted property; or
(f) claiming as untainted property,
in any manner whatsoever; 

The explanation states that by committing any of the acts from (a) to (f), the person has committed the offence of money laundering. We see a major departure from the original definition, as the act of projecting the proceeds of crime as untainted property is no longer a precondition for an offence under PMLA. The absence of the word ‘and’ before Explanation (i)(f) indicates that no act needs to be done to project the property as untainted. Post the amendment, mere possession of proceeds of crime can also be considered as an offence.

Before the Finance Act, 2019 and after the judgement in Nikesh Tarachand, bail proceedings would have been, theoretically, something like this. An accused would have to show, prima facie, innocence with respect to the PMLA offence only. But after the Finance Act, 2019, even possession of proceeds of crime has been criminalised. Thus, now, to show prima facie innocence in the PMLA offence today, an accused would again have to go back to the predicate offence to show that possession is not of proceeds of crime. In this manner, we see that the burden at the stage of bail post 2019 is similar to that seen before the judgement in Nikesh Tarachand

Consequences
The current legal position on bail in PMLA cases restores the problem of this judicial determination having larger consequences for the trial. Even though at the bail stage the court can only make a very preliminary determination, nevertheless, the determination being made is whether or not the accused is prima facie guilty of an offence. And, since the PMLA offence by its very nature relies upon another predicate offence, this translates into a dual finding by the court. Now, one might say that findings at the bail stage are usually guarded with the observation that "nothing in this order shall prejudice the trial". But, where such a finding takes place by a higher court (such as the High Court or the Supreme Court) it can still have a bearing on the actual trial by the lower courts. 

The shifting of the presumption of innocence, and the difficulty involved in getting bail, also gives an incentive to the executive to trigger the PMLA in cases where it might otherwise not have done so. The list of predicate "Scheduled Offences" is fairly long, and so one can imagine situations where a PMLA case is triggered using the new definition by alleging that an accused is in possession of alleged proceeds of crime, and then use the harsh bail provisions to cause prejudice. This creates a genuine risk of normalising an extraordinary process, for vast parts of the criminal law where some economic element might be involved.

Unless, of course, a legal challenge throws this regime under the bus. I would think that this is not a far-fetched possibility. Because while the 2019 amendments inserted an Explanation suggesting that the projection of the proceeds of crime can be an independent basis to trigger the Section 3 offence, it did so without amending Section 3 itself, which still suggests that projecting the proceeds of crime is a separate prerequisite. It will be fascinating to see how this legal setup goes ahead.    

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