Beyond Borders: Transnational Effect of PMLA on Offences Committed Abroad

Introduction

The Prevention of Money-Laundering Act, 2002 (hereinafter “the PMLA”) was originally promulgated to establish a framework for preventing the laundering of money related to drug trafficking, terrorism, and human trafficking. The legislature enacted this law to implement the United Nations General Assembly Resolution and Declaration calling for international commitment to sternly deal with the menace of money laundering of proceeds of crime, which has transnational repercussions and jeopardises the integrity and sovereignty of nations.¹ The landscape of crime has evolved in today’s increasingly digital age, where criminals employ innovative methods to launder money. In light of the same, the law must adapt to effectively address these challenges while aligning with the PMLA’s objective of combating cross-border and intra-State money laundering activities.

In this backdrop, there is a decision rendered by a Single Judge Bench of the Delhi High Court in Adnan Nisar v. Enforcement Directorate², which has outlined significant parameters concerning the application of the PMLA to offences committed overseas authorising the Enforcement Directorate (hereinafter “ED”) to undertake proceedings under the Act. This article seeks to analyse this decision of the Delhi High Court and explore the implications of the same on the evolving jurisprudence of the PMLA.

Broad scheme of the PMLA

The PMLA is a sui generis legislation that addresses any attempt to obscure the origin of illicit funds and provides for the legal repercussions that can ensue. While introducing the Prevention of Money- Laundering (Amendment) Bill in 2012, the then Finance Minister, had pointed that “money laundering” must not be understood in a colloquial sense. It is more than simply converting black money into white or white money into black. It requires the commission of a scheduled offence, which must generate proceeds of crime. In other words, not only does a scheduled crime need to be committed, it in turn needs to generate proceeds of crime and it must also then be projected as untainted property to qualify for the offence of money laundering. As such, acquisition, possession, use, concealing or disguising the illicit origin of illegitimately obtained money to evade legal consequences would be money laundering.

It is now a settled position of law that the commission of a scheduled offence is sine qua non for an act to be considered an offence of money laundering under Section 3 of the PMLA.³ What constitutes a scheduled offence is provided under Section 2(1)(y) of the PMLA, which provides that a scheduled offence includes an offence stipulated under the Schedule of the PMLA. The Schedule consists of three parts i.e. Parts A, B and C, which enlist offences under various criminal laws of the country which will be considered predicate or scheduled offences for the purposes of the PMLA. Consequently, the funds derived or obtained, directly or indirectly, “as a result of” criminal activity relating to a scheduled offence are called “proceeds of crime” under the PMLA. This distinction must be borne in mind while reckoning any property referred to in the scheduled offence as proceeds of crime.

Brief facts of the case

The Single Judge Bench was dealing with bail petitions filed by the accused after they were arrested by the ED in relation to offences committed in the United States (hereinafter “US”). The ED had received a mutual legal assistance (hereinafter “MLA”) request from the US authorities for assistance with respect to collection of evidence against an Indian national. It was alleged that cryptocurrencies worth USD 527,615.45 were fraudulently transferred through a malicious software, from the crypto wallet maintained by the victim for carrying out his cryptocurrency related transactions. The said amount was confirmed to have been received in the account maintained by the accused.

The ED, during its investigation, found that the accused had been committing these offences along with other people, who had assisted in getting the cryptocurrencies fraudulently transferred and converting the stolen cryptocurrencies into cash. The proceeds were being used for various purposes, including investing in immovable property.

The ED was satisfied that the offences committed in the US constitute an offence having cross-border implications and correspond to offences listed in the Schedule under the PMLA. Consequently, the ED treated the same as a scheduled offence and registered a complaint against the accused for money laundering as the proceeds of the crime had been received in their accounts maintained in India. Accordingly, the ED issued summons to the accused and arrested them for further investigation.

What are offences having cross-border implications?

The accused argued before the Single Judge Bench that for a complaint to be registered under the PMLA, there must be a scheduled offence in connection with which the proceeds of crime have been derived. In this case, since the offence was allegedly committed in the US, no such scheduled offence could be said to have been committed and thus, the ED could not have arrested the accused.

An offence having transnational ramifications would be a scheduled offence under Part C of the Schedule. Part C covers offences falling under Part A or otherwise if they have “cross-border implications”. The Single Judge Bench ventured into analysing what constitutes an “offence of cross-border implications” under the PMLA. Such offences are defined under Section 2(1)(ra) of the PMLA which provides for two-fold condition for an offence to be considered as having cross-border implications and thereby being covered under the ambit of the Schedule. These twin conditions are firstly, the alleged offence committed in a foreign country would have constituted a scheduled offence if it had been committed in India, and secondly, the proceeds of the alleged crime have been transferred to India.

The Single Judge Bench elaborated on the threshold to meet the first criterion. It examined Section 2(2) of the PMLA, which postulates that when the PMLA is not applicable to an area, the corresponding law of that area can be referenced. The term “area” stipulated therein was interpreted to include a foreign country. This is also in line with Section 2(1)(ia), introduced through an Amendment in 2013, which clarifies that foreign laws can be considered as “corresponding law” if they align with scheduled offences under the PMLA.

Through this interpretation, the Single Judge Bench has inter alia held that an offence committed in a foreign country can be considered a scheduled offence under the PMLA if it corresponds to a scheduled offence in India and the illicit proceeds are transferred to India. Consequently, the ED is empowered to initiate proceedings under the PMLA, even when the offence occurs abroad, provided the aforementioned criteria are satisfied.

Does ED have the power to arrest while assisting foreign authorities?

The petitioners argued that the ED overstepped its jurisdiction by arresting them when the MLA request from the US authorities merely related to assistance for collection of evidence. The conduct of the ED by registering the complaint under the PMLA and arresting the accused was argued to be beyond the powers of the ED. The Court rejected these arguments and observed that under Section 60 of the PMLA, when a request is received for assistance by any foreign authority, the ED can take any step, including investigation, for executing such request.

The term “investigation” was interpreted to have wide connotations by the Supreme Court in the 2022 ruling in Vijay Madanlal Choudhary v. Union of India⁴. It observed that investigation as defined under Section 2(na) of the PMLA is in the nature of an inquiry to initiate action against the proceeds of crime. In the process of such investigation, the ED can undertake all proceedings under the Act for the collection of evidence. This includes the power to arrest which aids in collection of evidence when some extent of interrogation is required.

Judicial notice of foreign law

The Single Judge Bench pointed out a significant condition necessary to be fulfilled before proceedings can be initiated under the PMLA for offences conducted in a foreign country. This relates to the fact that the corresponding law must be specifically proved in order to constitute a scheduled offence under the PMLA.

Section 57 of the Evidence Act, 1872 contemplates that the courts take judicial notice of the laws in force in the country and these laws do not need to be specifically proved. However, this principle does not apply to foreign laws and consequently, any foreign law corresponding to the laws of India needs to be specifically proved. This has to be done by identifying the relevant statute of the foreign law being referenced, accompanied by the opinion of an expert on the correct interpretation of the foreign law. This can only happen at the stage of trial as the corresponding law needs to be proved through examination of the evidence.

Applying this reasoning, the Court concluded that the ED failed to provide the specific statute of the relevant US Code in the alleged offence. In essence, without the necessary proof of the corresponding law, a scheduled offence under Part C of the Schedule could not be established. In the absence of a scheduled offence, the ED could not treat the recovered amounts as proceeds of crime. Therefore, there was no prima facie case against the accused to warrant their arrest. As a consequence, the Single Judge granted bail to the accused.

Conclusion

The Single Judge Bench of the Delhi High Court has ratified the specific criteria for the PMLA to apply to offences committed abroad. These relate to: (i) the offence must have cross-border implications; (ii) the proceeds of crime must be transferred to India; and (iii) the corresponding foreign law must be specifically proved as per the requirements contemplated under the Evidence Act, 1872.

This judgment enhances the legal framework while ensuring safeguards against arbitrary application. It has clarified that the scope of the ED’s powers with respect to assistance requested by foreign authorities affirming that the ED can take necessary actions, including arrests, to fulfil such requests. Simultaneously, it emphasises the need for caution when prosecuting suspected offenders under the stringent provisions of the PMLA for foreign offences. The court’s ruling serves as a reminder that while legal mechanisms need to be robust to deal with contemporary challenges, they must also be grounded in established legal principles to ensure fairness and justice.