‘Money Laundering’ Is Not Limited To Final Integration Of Tainted Property In Formal Economy, It Captures Every Activity Of Proceeds Of Crime: Madras HC

The Division Bench of Justice SM Subramaniam and Justice V Sivagnanam observed, “The expression "money-laundering", ordinarily, means the process or activity of placement, layering and finally integrating the tainted property in the formal economy of the country. However, Section 3 has a wider reach. The offence, as defined, captures every process and activity in dealing with the proceeds of crime, directly or indirectly, and not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money- laundering. This is amply clear from the original provision, which has been further clarified by insertion of Explanation vide Finance (No. 2) Act, 2019, Section 3, as amended.”

Senior Advocate R Raja Rathinam appeared for the Petitioners, while SPP P Siddharthan appeared for the Respondent.

Criminal revision petitions were filed under Section 397, read with Section 401 of the Code of Criminal Procedure, 1973, seeking to set aside an order passed by the Sessions Judge dismissing discharge petitions filed by the Accused.

The brief facts of the case were that the accused were working at Unaccompanied Baggage (Air), Customs, Chennai. One day, a surprise check was conducted by CBI at the Unaccompanied Baggage Unit of Chennai, (Air) Customs, at the Air Cargo Complex, Chennai, on the information that their officials of Customs, working in the Unaccompanied Baggage (Air) Unit had obtained illegal gratification from the passengers arriving at Chennai from foreign countries for clearance of their unaccompanied baggage by charging less or no duty through private person. An FIR was filed by CBI against four Superintendents of Customs, four Preventive Officers of Customs, one Senior Tax Assistant and two private persons under Sections 7, 8, 13(2) r/w Section 13(1)(d) of Prevention of Corruption Act 1988 r/w 120(B) of the Indian Penal Code, 1860. Based on the FIR, the Enforcement Directorate had also registered an ECIR and the provisional attachment of Rs. 41,60,000/- seized from one of the accused was completed.

The Accused contended that when the cash seized by the CBI was deposited immediately in the Court’s custody in the year 2009 itself, the Accused(s) were not in possession of “Proceeds of Crime” as per the pre-amended PMLA. Therefore, the amendment cannot have a retrospective effect.

The main issue for the Court’s consideration was whether the mere acquisition of Proceeds of Crime/accumulation of money by indulging in corrupt practice would fall under the ambit of Section 3 of PMLA or not.

The Court referred to the landmark judgment of the Supreme Court in Vijay Madanlal Chaudhary v. Union of India (2022) and said, “The act of projecting or claiming proceeds of crime to be untainted property presupposes that the person is in possession of or is using the same (proceeds of crime), also an independent activity constituting offence of money-laundering. In other words, it is not open to read the different activities conjunctively because of the word "and". If that interpretation is accepted, the effectiveness of Section 3 of the 2002 Act can be easily frustrated by the simple device of one person possessing proceeds of crime and his accomplice would indulge in projecting or claiming it to be untainted property so that neither is covered under Section 3 of the 2002 Act.”

The Court also considered the issue of whether the mere receipt of bribe money is an act of money laundering or not. Regarding this, the Court relied on the judgment of the Supreme Court in Y. Balaji v. Karthik Dasari (2023) and held that the Petitioner herein had fixed the bribe amount and received illegal gratification for the fraudulent clearance of goods in commercial quantity in the guise of unaccompanied baggage during his tenure, hence, mere acquisition of bribe amounts to proceeds of crime and thereby falls under Section 3 of PMLA.

The Court also placed its reliance on Directorate of Enforcement v. Padmanabhan Kishore (2022) and R. Kannan v. Assistant Director, Directorate of Enforcement (2022).

Therefore, the Court concluded that the ground raised on restrospectivity by the Accused(s) deserves no merit consideration, and involvement in corrupt activities itself is Proceeds of Crime within the definition of Section 2(1)(u) of PMLA.

Accordingly, the Court upheld the decision of the Sessions Court and dismissed the revision petitions.

Cause Title: Pallab Sinha and Anr. v. The Deputy Director, Directorate of Enforcement and connected matter.

Appearances:

Petitioners: Senior Advocate R Raja Rathinam, Advocates MS Sriram and A Ashwin Kumar.

Respondent: SPP P Siddharthan

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