[Opinion] Between the Scheduled Offense and Money Laundering – A Line Drawn in Chalk

The Supreme Court has clarified an aspect of the jurisprudence relating to The Prevention of Money Laundering Act, 2022, in its judgement Directorate of Enforcement v. Padmanabhan Kishore [2022] 144 taxmann.com 28 (SC). The Supreme Court was seized with the question as to whether a giver of a bribe to an accused under the Prevention of Corruption Act, 1988, can be prosecuted for the offense of Money Laundering.

Section 3 of the Prevention of Money Laundering Act defines the offense 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.

[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,
(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.]

The Supreme Court held that

“so long as the amount is in the hands of a bribe giver and till it does not get impressed with the requisite intent and is actually handed over as a bribe, it would definitely be untainted money. If the money is handed over without such intent, it would be a mere entrustment. If it is thereafter appropriated by the public servant, the offence would be of misappropriation or species thereof but certainly not of bribe. The crucial part therefore is the requisite intent to hand over the amount as bribe and normally such intent must necessarily be antecedent or prior to the moment the amount is handed over. Thus, the requisite intent would always be at the core before the amount is handed over. Such intent having been entertained well before the amount is actually handed over, the person concerned would certainly be involved in the process or activity connected with “proceeds of crime” including inter alia, the aspects of possession or acquisition thereof. By handing over money with the intent of giving bribe, such person will be assisting or will knowingly be a party to an activity connected with the proceeds of crime. Without such active participation on part of the person concerned, the money would not assume the character of being proceeds of crime. The relevant expressions from Section 3 of the Prevention of Money Laundering Act are thus wide enough to cover the role played by such person.”

A perusal of the above observation brings out that the terms proceeds or activity connected with ‘proceeds of crime’ have been given an expansive meaning by the Court. The nature of the offense (corruption) perhaps has something to do with this. All the scheduled offenses cannot be treated with the same brush as they are fundamentally different. It is important that the Supreme Court acknowledges that the money gets tainted only upon it exchanging hands as a bribe, it holds that

“By handing over money with the intent of giving bribe, such person will be assisting or will knowingly be a party to an activity connected with the proceeds of crime”.

But what exactly is the person who is handing over the bribe doing? The Person is most certainly committing a predicate offense. The predicate offense, being scheduled, the person is definitely committing a scheduled offense. That intention can certainly be imputed into the person’s actions. However, to stretch it to the limit where just because a property is used in the commission of a scheduled offense, the person using such property for commission of the scheduled offense is also proceeded against for money laundering has the effect of blurring the line between the commission of scheduled offense and the offense of money laundering. The offense of money laundering depends upon the commission of a scheduled offense, however, they are not the same. They are independent offenses. The trial before the special court is not a joint trial for the two offenses. The scheme of the act deliberately places a Laxman Rekha between the scheduled offense and the offense of money laundering. This judgement has the effect of blurring the line between the two offenses.

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