Investigations And Prosecutions Under Anti-Money Laundering Act
1. Introduction: Anti-Money Laundering (AML) in India
Money laundering refers to the process of concealing the origin of illegally obtained money, often by transferring it through complex financial transactions to make it appear legitimate.
Legal Framework in India
The main legislation governing money laundering is:
Prevention of Money Laundering Act, 2002 (PMLA)
Defines offenses relating to money laundering, including dealing with proceeds of crime.
Establishes Attachment, Confiscation, and Adjudication procedures for illegally acquired property.
Enforcement Directorate (ED)
Investigates violations under PMLA.
Powers include search, seizure, and attachment of property.
Relevant Sections:
Section 3 – Offense of money laundering.
Section 5 – Punishment for money laundering (3–7 years, extendable to 10 years).
Section 8 – Attachment of property involved in money laundering.
Section 24 – Procedure for prosecution and adjudication.
2. Investigation Process under PMLA
Detection of Suspicious Transactions – Banks and financial institutions must report Suspicious Transaction Reports (STRs) to the Financial Intelligence Unit (FIU).
Enforcement Directorate (ED) Investigation – ED investigates the origin of funds and links to predicate offenses.
Attachment and Confiscation – Properties suspected to be proceeds of crime can be provisionally attached under Section 5 of PMLA.
Prosecution – Charges framed in court based on evidence collected, often relying on financial records, bank statements, and corroborative evidence.
3. Landmark Cases under PMLA and Anti-Money Laundering Investigations
Case 1: Enforcement Directorate v. Vijay Mallya (2018)
Facts:
Vijay Mallya, businessman and former MP, defaulted on loans amounting to over Rs. 9,000 crore by Kingfisher Airlines.
ED initiated investigation under PMLA to attach assets acquired using proceeds from bank loans.
Legal Issues:
Whether default on loans can constitute money laundering.
Whether assets acquired using borrowed funds could be attached.
Judgment:
The Delhi High Court and later Supreme Court upheld ED’s attachment of Mallya’s assets.
Court ruled that loan default combined with fraudulent intent to siphon funds qualifies as a predicate offense under PMLA.
Significance:
Landmark in linking financial default to money laundering when intentional diversion occurs.
Affirmed the ED’s power to attach properties even when proceedings are ongoing.
Case 2: Enforcement Directorate v. Mehul Choksi and Nirav Modi (2018–2021)
Facts:
Nirav Modi and Mehul Choksi were accused in the Punjab National Bank (PNB) fraud case worth ₹14,000 crore.
ED initiated action under PMLA to recover proceeds of crime and attach properties in India and abroad.
Legal Issues:
Applicability of PMLA to cross-border transactions and foreign assets.
Role of Enforcement Directorate in tracing laundered money internationally.
Judgment:
Courts allowed provisional attachment of domestic and overseas properties.
ED confirmed that money laundering applies even if the predicate offense occurs outside India, as long as proceeds enter the Indian financial system.
Significance:
Strengthened cross-border application of PMLA.
Highlighted importance of international cooperation in tracing laundered funds.
Case 3: Enforcement Directorate v. Saradha Group (2013–2015)
Facts:
Saradha Group, a Ponzi scheme operator, defrauded investors across West Bengal.
ED invoked PMLA to attach properties and funds diverted from investors.
Legal Issues:
Whether the money collected illegally from investors falls under proceeds of crime.
Whether promoters can be prosecuted for laundering even before conviction under the main fraud case.
Judgment:
Calcutta High Court upheld ED’s attachment under Section 5 of PMLA.
Court recognized that ill-gotten gains from Ponzi schemes constitute proceeds of crime.
Significance:
Set precedent that financial fraud automatically qualifies for money laundering investigation.
Allowed ED to act before final conviction, emphasizing preventive action.
Case 4: Enforcement Directorate v. Karti Chidambaram (2018)
Facts:
Karti Chidambaram, son of former Finance Minister, was accused of receiving kickbacks via foreign companies.
ED attached bank accounts and assets under PMLA.
Legal Issues:
Whether politically exposed persons (PEPs) require enhanced scrutiny.
Burden of proof in attaching suspected assets.
Judgment:
Courts allowed attachment under PMLA despite ongoing litigation.
Emphasized that attachment is preventive, and accused can challenge during adjudication.
Significance:
Reinforced that PMLA applies equally to politically exposed persons.
Highlighted judicial support for ED’s preventive role.
Case 5: Enforcement Directorate v. Moin Qureshi (2016)
Facts:
Alleged diversion of corporate funds for personal benefit through shell companies.
ED invoked PMLA to attach properties and bank accounts of accused.
Legal Issues:
Applicability of PMLA to shell companies and layered transactions.
Sufficiency of indirect evidence for attachment and prosecution.
Judgment:
Courts upheld ED’s action, ruling that complex corporate structures cannot shield proceeds of crime.
Emphasized that tracing financial flow is key for proving laundering.
Significance:
Strengthened investigative tools for layered financial transactions.
Demonstrated ED’s role in tackling corporate money laundering.
Case 6: Enforcement Directorate v. Sterling Biotech (2015)
Facts:
Sterling Biotech allegedly laundered proceeds from banking frauds through multiple companies and properties.
ED attached assets worth hundreds of crores.
Legal Issues:
Scope of ED powers to attach both movable and immovable properties.
Whether promoters’ family members can be included in attachment if they benefited indirectly.
Judgment:
Courts held that indirect beneficiaries of proceeds of crime are liable for attachment.
ED’s powers to attach properties extend to family members if assets were acquired using illicit funds.
Significance:
Clarified that PMLA covers direct and indirect beneficiaries.
Strengthened preventive and confiscatory provisions of the Act.
4. Key Observations from PMLA Cases
Proceeds of crime include all property or assets derived from predicate offenses.
Attachment and provisional measures under PMLA are preventive and can occur before conviction.
Cross-border money laundering is actionable if proceeds enter the Indian financial system.
Politically exposed persons (PEPs) do not enjoy immunity.
ED has powers to trace and confiscate assets held by family members or shell companies.
Courts consistently uphold proactive enforcement to prevent dissipation of assets.
5. Conclusion
The PMLA framework empowers Indian authorities to investigate, attach, and prosecute money laundering cases effectively, ensuring that illicit gains are recovered and crime does not pay. Landmark cases like Vijay Mallya, Nirav Modi, Saradha Group, and Karti Chidambaram demonstrate:
The effectiveness of preventive attachment.
The importance of circumstantial and financial evidence.
Judicial support for proactive measures against money laundering.
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