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Introduction

In the rat race to earn more and more money, few resort to unethical or illegal activities for financial gain. To give legality to their money obtained illegally different techniques are used and money laundering is one. Money laundering is an offence wherein an individual or establishment is involved in transfer of illegal funds through complex channels to give it a legal appearance. The finances pass through various phases of conversions and transfers to reach a legally accepted institution. Illegal money is disguised as legal money as such amounts are usually obtained by illegal means like corruption, fraud, cheating, tax evasion, etc. Till date around 4954 warrants are issued, 45 accused are convicted for money laundering and a total of 15623.665 crores has been confiscated by the Directorate of Enforcement in India[1].

Forms of money laundering

• Structuring, also referred as smurfing
• Cash-intensive businesses
• Bulk cash smuggling
• Trade-based laundering
• Shell companies
• Round tripping
• Gambling
• Black salaries
• Tax amnesties
• Transaction laundering

Steps Taken by Government of India to Prevent Money Laundering

Criminal Law Amendment Ordinance (XXXVIII of 1944) covers proceeds of specific wrongdoings such corruption, breach of trust and cheating.

The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 covers punishment of unlawfully procured properties of runners and unfamiliar trade controllers and for issues associated therewith and coincidental thereto.

Narcotic Drugs and Psychotropic Substances Act, 1985 accommodates the punishment of property derived from, or used in illegal traffic in narcotic drugs.

Financial Intelligence Unit-IND, is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.

Enforcement Directorate (ED), is a law enforcement agency and economic intelligence agency liable for upholding monetary regulations and battling monetary wrongdoing in India. One of the primary elements of ED is to Examine offenses of illegal tax avoidance under the arrangements of money laundering under the provisions of Prevention of Money Laundering Act, 2002. It can make moves like seizure of property if the same is determined to be proceeds of crime derived from a Scheduled Offence under PMLA and to prosecute the persons engaged in the offence of money laundering

Prevention of Money Laundering Act (PMLA)

The Prevention of Money Laundering Act, 2002 provides a comprehensive legal framework to investigate, prosecute and prevent money laundering, making it a powerful weapon against individuals and entities engaged in the unlawful process of money laundering. Indian legal system has witnessed a series of pivotal judicial decisions in 2023, that bring clarity and precision to the nuanced facets of money laundering and the PMLA.

Through Prevention of Money Laundering (Amendment) Act, 2012, the concept of reporting entity which would incorporate a banking company, financial institution, intermediary, etc., has been added. The 2002 Act had set a maximum fine of 5 lakhs for economic fraud, but the amendment has removed the limit. It contains a provision for the provisional attachment and confiscation of any individual involved in such illegal activities.

• Vivo case

In July 2022, the ED raided Vivo in relation to money laundering offences. The ED alleged that Rs 62,476 crore was illegally transferred by Vivo to China to avoid payment of taxes in India. According to the ED, these transfers were made to show losses and avoid paying taxes in India.

Recently ED arrested four persons in connection with a money laundering probe against smartphone maker Vivo. In its remand application, the ED alleged that the accused had cheated the government by entering India in a “disguised and fraudulent manner to set up an elaborate Chinese-controlled network throughout the country, carrying out activities prejudicial to the economic sovereignty of India”[2]. Hari Om Rai, MD of Lava International Company, Chinese national Andrew Kuang, and chartered accountants Nitin Garg and Rajan Malik are the four persons arrested. They were charged with criminal conspiracy, cheating, using forged documents and money laundering. The accused were sent to ED custody for 3 days by Additional Sessions Judge Devender Kumar Jangala. 

ED blamed the four for covering Chinese command over Indian elements from the government of India. The Chinese control of the organization was uncovered through the [email protected], which China had given to its Vivo representatives. An organization called GPICPL was made to lead fraudulent exercises, according to the organization. GPICPL however not answered to be an auxiliary of Vivo in true records, projects itself openly to be an auxiliary of Vivo. The ED claimed infringement of FDI standards by Vivo from 2014 to 2018 and found out during its examination that settlements over Rs 1 lakh crore were supposedly moved out of India to Trading Organizations so that Vivo couldn’t be seen by the government of India. Zero profits were displayed from 2014 to 2020 and no annual taxes were paid in India by vivo. ED entered the test following a grievance by the Corporate Affairs Ministry charging that GPICPL and its investors utilized ‘forged’ identification proof records and false locations at the hour of its incorporation in 2014.

·       The National Herald case

In the year 2022, congress president Sonia Gandhi and party leader Rahul Gandhi along with others, were accused of financial irregularities under the PMLA. In 2012, a complaint was filed before the trial court by BJP leader and advocate Subramanian Swamy, that few leaders of the Congress party were involved in some fraud and breach of trust in the acquisition of Association Journals Ltd. by Young Indian Ltd. (YIL) and that YIL took over the assets of the National Herald in a malicious way. Rahul Gandhi and Sonia Gandhi were summoned by the ED in a probe in relation to this case and the ED is still carrying out investigation in this case.

·       Emta Coal Limited & others v. The Deputy Director of Enforcement

An FIR was lodged against the petitioner (Emta Coal Limited & Ors.) along with the West Bengal State Electricity Board and West Bengal Power Development Corporation Ltd. based on discrepancies in the allocation of captive coal blocks. The FIR was filed under sections 120-B IPC read with Section 420 of the IPC and section 13(2) read with section 13(1)(d) of the PC Act. Subsequently, an ECIR was also lodged against the petitioner and other accused. A provisional attachment order was passed under section 5 of the PMLA, while the CBI had filed a closure report regarding the FIR against petitioner. The closure report essentially formed the basis of the ongoing money laundering proceedings, including the attachment order. The petitioner argued that since the CBI had filed a closure report, the money laundering proceeding couldn’t continue, as no scheduled case was established and relied on the Vijay Madan Lal Chaudhary v. Union of India case[3]. Court ruled that trial court had concluded, that the closure report should be accepted since no criminality could be ascertained due to the unavailability of documents. Based on the settled legal position established in the Vijay Madan Lal Choudhary case and subsequent decisions and orders, the court held that the impugned attachment orders and ECIRs should be quashed.

·       ED v. Aditya Tripathi

Aditya Tripathi was charged under sections 120-B, 420, 468, and 471 of the IPC, Section 66 of the Information Technology Act, 2000, and section 7(c) read with section 13(2) of the PC Act in the FIR lodged against them by the economic offense wing of Bhopal, Madhya Pradesh. The economic offense wing investigated and filed a charge sheet before the competent court. Based on the charge sheet, the Enforcement Directorate, Hyderabad initiated a money laundering investigation. During investigation, the respondent was arrested and later the High Court released him on bail on the grounds that the charge sheet had already been filed in relation to the predicate offense. The said bail order was challenged on appeal. Court held that Investigations for predicate offenses and investigations for scheduled offenses under the PMLA are distinct and separate. The mere fact that a charge sheet may have been filed for the predicate offenses cannot serve as a basis for releasing the accused on bail in connection with scheduled offenses under the PMLA. High Court’s consideration was held to be irrelevant. The High Court neither accounted for the severity of section 45 of the PMLA nor weighed the gravity of the alleged offenses for the scheduled offenses under the PMLA. Additionally, the High Court failed to recognize that the ED’s investigation for the scheduled offenses under the PMLA was ongoing. The impugned orders issued by the High Court granting bail to the respondent are unsustainable and matters need to be remitted back to the High Court for a fresh decision on the bail applications, considering the observations made[4].

Conclusion

Courts ruling maintain the standards of equity and decency despite monetary intricacies and underline the significance of the PMLA in the battle against money laundering. The two main drivers of financial scams and money laundering cases are corruption and greed. Despite the fact that our nation has explicit regulations to resolve this issue, the cases include crores showing that our regulations should be more severe and rapid.

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Written by- K R Bhuvanashri

[1] KEY DETAILS OF PMLA CASES UP TO 31.01.2023 ; enforcementdirectorate.gov.in

[2] CRL.M.C. 7488/2023 & CRL.M.A. 27920/2023

[3] W.P.(C) 3821/2022 and CM APPL. 11325/2022, 37473/2022

[4] CRIMINAL APPEAL NO. 1401 OF 2023