Beyond Borders: Transnational Impact of PMLA on Crimes Committed Abroad

Introduction

The Prevention of Money-Laundering Act, 2002 (hereinafter “the PMLA”) was originally promulgated to establish a framework for the prevention of money laundering associated with drug trafficking, terrorism and human trafficking. The legislature adopted this law in implementation of the resolution and declaration of the United Nations General Assembly calling for international commitment to tackle rigorously the threat of money laundering from the proceeds of crime, which has transnational implications and endangers the integrity and sovereignty of nations.¹ The crime landscape has evolved in today’s increasingly digital age, with criminals using innovative methods to launder money. In light of this, the law needs to be amended to effectively address these challenges while aligning with the PMLA’s objective of combating cross-border and intra-state money laundering activities.

It is against this backdrop that there is a judgment by a single judge of the Delhi High Court Adnan Nisar v. Enforcement Directorate²which has outlined important parameters regarding the application of the PMLA to offenses committed abroad, thereby empowering the Enforcement Directorate (hereinafter “ED”) to initiate proceedings under the Act. This article attempts to analyze this decision of the Delhi High Court and explore its implications for the evolving jurisprudence of the PMLA.

Broad scheme of the PMLA

The PMLA is a sui generis legislation that addresses any attempt to conceal the origin of illicit funds and provides for the legal consequences that may arise from it. When introducing the (amending) law on the prevention of money laundering in 2012, the then Minister of Finance had pointed out that ‘money laundering’ should not be interpreted in an informal sense. It is more than simply converting black money into white or white money into black. It requires the commission of a planned criminal offense, which must generate proceeds of crime. In other words, a planned crime must not only be committed, it must in turn generate proceeds of crime and then also be projected as untouched property to qualify for the crime of money laundering. As such, acquiring, possessing, using, concealing or disguising the illicit origin of ill-gotten funds to avoid legal consequences would constitute money laundering.

It is now a settled legal position that the commission of a scheduled offense is a sine qua non for an act to be considered a money laundering offense under Section 3 of the PMLA.³ What constitutes a planned offense is defined in Article 2(1) (j) of the PMLA, which provides that a scheduled offense includes an offense set out in the Schedule to the PMLA. The Schedule consists of three parts, namely Parts A, B and C, which list offenses under the various penal laws of the country, which are considered to be predicate or scheduled offenses for the purposes of the PMLA. Accordingly, the funds obtained or obtained directly or indirectly ‘as a result of’ criminal activities connected with a planned offense are termed ‘proceeds of crime’ under the PMLA. This distinction should be kept in mind when considering property mentioned in the scheduled crime as proceeds of crime.

Brief facts of the case

The Single Judge Bench was hearing bail applications filed by the accused after their arrest by the ED in connection with offenses committed in the United States (hereinafter “US”). The ED had received a Mutual Legal Assistance Request (hereinafter referred to as “MLA”) from the US authorities for assistance regarding collection of evidence against an Indian national. It was alleged that cryptocurrencies worth $527,615.45 were fraudulently transferred via malicious software, from the crypto wallet maintained by the victim for conducting his cryptocurrency-related transactions. It has been established that the said amount was received into the account held by the suspect.

The ED during its investigation found that the suspect had committed these offenses along with other people, who had helped in fraudulently transferring the cryptocurrencies and converting the stolen cryptocurrencies into cash. The proceeds were used for various purposes, including real estate investments.

The ED was satisfied that the offenses committed in the US constitute an offense with cross-border implications and correspond to the offenses listed in the Schedule under the PMLA. Consequently, the ED treated the same as a scheduled offense and registered a complaint against the suspect for money laundering as the proceeds of the crime were received in their accounts maintained in India. Accordingly, the ED has summoned and arrested the suspect for further investigation.

What are crimes with cross-border consequences?

The accused contended before the Single Judge Bench that a complaint can be registered under the PMLA only if there is a planned offense in connection with which the proceeds of crime have been obtained. In this case, since the offense was allegedly committed in the US, it could not be said that such a planned offense had been committed and thus the ED could not have arrested the suspect.

An offense with transnational implications would be a planned offense within the meaning of Part C of the Annex. Part C covers offenses covered by Part A or otherwise, if they have “cross-border effects”. The Single Judge Bench ventured to analyze what constitutes an “offence having cross-border implications” within the meaning of the PMLA. Such offenses are defined in Article 2(1)(ra) of the PMLA, which provides for a twofold condition that must be met for an offense to be considered a crime with cross-border implications and therefore fall within the scope of the List. These two conditions are, first, that the alleged crime committed abroad would have been a planned crime if committed in India, and second, that the proceeds of the alleged crime have been transferred to India.

The Single Judge Bench has worked out the threshold to meet the first criterion. It examined Section 2(2) of the PMLA, which states that where the PMLA does not apply to an area, reference may be made to the corresponding law of that area. The term “area” mentioned therein was interpreted as a foreign country. This is also in accordance with Article 2(1)(ia), introduced through a 2013 amendment, which clarifies that foreign laws can be considered “corresponding laws” if they align with scheduled offenses under the PMLA.

By this interpretation, the Single Judge Bench has inter alia held that an offense committed abroad can be treated as a scheduled offense under the PMLA if it corresponds to a scheduled offense in India and the illicit proceeds are transferred to India. Accordingly, the ED is empowered to initiate proceedings under the PMLA even if the offense occurs abroad, provided the above-mentioned criteria are met.

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

Petitioners argued that the ED exceeded its jurisdiction by arresting them, while the US authorities’ MLA request was merely for assistance in gathering evidence. It was submitted that the conduct of the ED in registering the complaint under the PMLA and arresting the accused was beyond the powers of the ED. The Court rejected these arguments and noted that under Section 60 of the PMLA, when a request for assistance is received by a foreign authority, the ED may take any step, including investigation, to execute such request.

The term ‘investigation’ was interpreted by the Supreme Court in the 2022 ruling as having a broad connotation. Vijay Madanlal Choudhary v. Union of India⁴. It noted that the investigation as defined in section 2(n/a) of the PMLA is in the nature of an investigation to take action against the proceeds of crime. During such investigation, the ED may undertake all procedures under law for collection of evidence. This includes the power of arrest, which helps gather evidence when a degree of interrogation is required.

Judicial notice of foreign law

The Single Judge Bench pointed out an important condition that must be met before initiating proceedings under the PMLA for offenses committed abroad. This is related to the fact that the corresponding law must be specifically proven to constitute a scheduled offense under the PMLA.

Section 57 of the Evidence Act, 1872 provides that the courts shall take cognizance of the laws in force in the country and these laws need not be specifically proven. However, this principle does not apply to foreign laws and therefore any foreign law that is similar to the laws of India must be specifically proven. This should be done by identifying the relevant statute of foreign law referred to, accompanied by expert advice on the appropriate interpretation of the foreign law. This can only happen at the trial stage, because the corresponding law must be proven through examination of the evidence.

Based on this reasoning, the Court concluded that the ED failed to provide the specific statute of the relevant United States Code in the alleged offense. Without the necessary evidence of the corresponding law, a scheduled offense under Part C of the Schedule could essentially not be established. In the absence of a planned offense, the ED could not treat the recovered amounts as proceeds of crime. Thus, there was no prima facie case against the suspects justifying their arrest. As a result, the single judge released the suspect on bail.

Conclusion

The Single Judge Bench of the Delhi High Court has endorsed the specific criteria under which the PMLA should apply to offenses committed abroad. These relate to: (i) the criminal offense must have cross-border consequences; (ii) the proceeds of crime must be transferred to India; And (iii) the corresponding foreign law must be specifically proven as per the requirements laid down in the Evidence Act, 1872.

This judgment strengthens the legal framework while ensuring safeguards against arbitrary application. It has clarified that the scope of the ED’s powers is with respect to assistance requested by foreign authorities, confirming that the ED may take necessary measures, including arrests, to comply with such requests. At the same time, it emphasizes the need for caution in prosecuting suspected offenders under the PMLA’s stringent provisions for foreign crimes. The court’s ruling reminds us that while legal mechanisms must be robust to meet today’s challenges, they must also be grounded in established legal principles to ensure fairness and justice.