The Prevention of Money-laundering Act, 2002

What it does

The Act (Act No. 15 of 2003 in the government's own numbering) creates the offence of money laundering. A person commits it by directly or indirectly attempting to indulge, knowingly assisting or being a party to, or being actually involved in any process or activity connected with the proceeds of crime, including concealment, possession, acquisition, use, and projecting the proceeds as untainted property. The punishment is rigorous imprisonment of three to seven years and a fine, with a longer term where the proceeds relate to certain drug offences.

The offence depends on a predicate. The proceeds must derive from a scheduled offence, which is an offence listed in the Schedule to the Act. The Act therefore does not reach every dishonest gain. It reaches the property derived from the crimes it lists, and the property of equivalent value held in India or abroad.

The Act is also a law about property. It allows the Enforcement Directorate to attach property believed to be proceeds of crime, provides for adjudication of the attachment, and provides for confiscation by a special court. The site's note on the Act describes it as an asset statute and not only a criminal one, for that reason: the attachment can precede, and can outlast, the criminal case.

Who it binds

Any person, natural or juristic, who deals with proceeds of crime, and companies and their officers by the Act's provision on offences by companies. The Act also imposes duties on banks, financial institutions, intermediaries and other reporting entities, who must verify the identity of clients, maintain records and report certain transactions to the Financial Intelligence Unit. The Enforcement Directorate and the special courts are the authorities who exercise the powers the Act confers.

What has changed, and when

The Act came into force on 1 July 2005. It has been amended, among others, in 2009, 2012 and 2019, and by changes made through Finance Acts. The 2012 amendment, which took effect in 2013, widened the definition of the offence and added offences to the Schedule. In Vijay Madanlal Choudhary v. Union of India (2022), the Supreme Court upheld the main powers of arrest, attachment and search and the conditions the Act places on bail. The decision is the starting point for reading the Act's powers.

What turns on it in practice

For a company, the exposure comes less from its own wrongdoing than from its dealings. A payment received from a counterparty who is under investigation, an asset bought from a seller whose title is questioned, or a loan from a lender whose money is said to be tainted can all lead to a notice and to an attachment. The firm's PMLA practice acts for persons who are summoned, whose property is attached or who are arrested, before the Directorate and the authorities under the Act.

The second point is the bail provision. The Act imposes conditions on bail that are stricter than the ordinary law, and the court must be satisfied on the matters the Act states. Where a person is charged with both a scheduled offence and the money laundering offence, those conditions apply to the bail sought in the money laundering case.

The third is the interaction with other proceedings. The site's notes on criminal and sensitive litigation, on corporate and commercial law, and on corporate exposure under the Act discuss the point that the attachment, the criminal case and the underlying offence run on separate tracks, and the outcome of one does not decide the others. The glossary terms that rest on the Act, such as beneficial owner, are defined by reference to it.