HomeLegal NewsHow recent amendments to the money laundering law added to Chidambaram’s troubles

How recent amendments to the money laundering law added to Chidambaram’s troubles

Finance Bill, 2019 contained eight important amendments to the Prevention of Money Laundering Act (PMLA), 2002, which have added to Chidambaram's troubles.

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By Arvind Sukumar  September 9, 2019, 2:28:08 PM IST (Updated)

How recent amendments to the money laundering law added to Chidambaram’s troubles
Former Finance Minister P Chidambaram is now staring at 15 days in Tihar Jail. A special CBI court in New Delhi has remanded him to judicial custody till September 19, an order that Chidambaram’s counsel have vowed to “oppose stoutly”. This is a setback for the former finance minister and Congress leader, who has already spent 14 days in CBI custody – after a team of 30 CBI officials descended on his Jor Bagh residence in New Delhi and took him into custody after scaling the wall to enter the premises.


Ostensibly, P Chidambaram’s troubles began on August 20, when the Delhi High Court dismissed his plea for anticipatory bail in connection with the INX Media Case. Calling it a “classic case of money laundering”, the court said, “taking note of the huge magnitude of conspiracy angle qua petitioner, it would be premature to jump to a conclusion that provisions of PMLA would not imply… The gravity of offence committed in this case justify denial of pre-arrest bail.” In that same breath, however, the judge said he was refraining from commenting on the merits of the case. The development caused P Chidambaram to go “missing” for 24 hours, before he appeared at a Congress press conference, hours before the CBI resorted to acrobatics at his Jor Bagh residence.

Chidambaram’s troubles, however, probably started becoming bigger nearly 2 months ago. On July 5, Finance Minister Nirmala Sitharaman’s Finance Bill, 2019 contained eight important amendments to the Prevention of Money Laundering Act (PMLA), 2002. Many of these amendments were not changes to the laws and clauses directly, but took the form of explanations aimed at removing ambiguity and confusion in the existing law. The Finance Bill got Presidential assent on August 1, and became law – and with it, the amendments to the PMLA.

One of these amendments went towards expanding not only the scope of the offence of ‘money laundering’, but also the ambit of “proceeds of crime”. Section 3 of the PMLA, 2002 reads, “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 and projecting it as untainted property shall be guilty of offence of money-laundering.” The explanation inserted in The Finance Act, 2019 clarifies:

(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...


The inclusion of “in any manner whatsoever” in the explanation is telling, as it gives investigating authorities a wider latitude in both phases -- investigation and subsequent prosecution. With this explanation, the government effectively addressed an observation by a the Financial Action Task Force (FATF) that concealment, possession, acquisition and use of the proceeds of crime were not criminalised. It also allows the law to clamp down on the conversion of proceeds of a crime and/or projecting it as an untainted asset or property. 


Here’s where it gets a little more interesting: the explanation changes how one word – and – is read and understood. The original section reads, “…activity connected with the proceeds of crime and projecting it as untainted property shall be guilty…”. This makes it conceivable that one could have argued that projecting or claiming proceeds of crime as untainted alone is not money laundering. But by using the word “or” when spelling out specific acts that constitute offence of money laundering, that argument is rendered ineffective.

The explanation added to Section 3 goes on to say, “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.” Such usage of the “continuing offense” phrase means that the activity of money laundering does not end with the illegal routing or concealment of the movement of money. It remains in effect as long as the fruits of such activities are enjoyed by the perpetrator or perpetrators.

These explanations may well have helped the CBI and The ED better build their case leading up to P Chidambaram’s detention on August 21, but not necessarily the only ones. One other clarification inserted pertains to Section 45 of the PMLA. This section makes offenses of money laundering (and related activities) cognizable and nonbailable. The inserted explanation reads: "For the removal of doubts, it is clarified that the expression ‘Offences to be cognizable and nonbailable’ shall mean and shall be deemed to have always meant that all offences under this Act shall be cognizable offences and nonbailable offences notwithstanding anything to the contrary contained in the Code of Criminal Procedure, 1973, and accordingly the officers authorised under this Act are empowered to arrest an accused without warrant, subject to the fulfillment of conditions under Section 19 and subject to the conditions enshrined under this section." So bail can only be granted if the following conditions are met: a) the Public Prosecutor is given the opportunity to oppose bail; and b) when bail is opposed, the Court is satisfied that the accused is not guilty of the offence and he is not likely to commit any offence while on bail.

Now the Supreme Court had set aside this clause in 2017 as unconstitutional, saying it violates Article 21 which guarantees protection of life and personal liberty. The inserted explanation, however, brings in a tinge of retrospectivity to the law, and the ramifications of this are telling. After all, it is this second condition that seems to have tripped up P Chidambaram and his battery of lawyers at the Delhi High Court. It is also this explanation that has had them sweating when they sought an end to CBI custody of Chidambaram, as also interim-relief from an arrest by the Enforcement Directorate.

As the Supreme Court said in its judgment dismissing Chidambaram’s plea for anticipatory bail from arrest by the Enforcement Directorate, “Grant of anticipatory bail, particularly in economic offences would definitely hamper the effective investigation. Having regard to the materials said to have been collected by the respondent -Enforcement Directorate - and considering the stage of the investigation, we are of the view that it is not a fit case to grant anticipatory bail.” This view seems to have held sway even later in the day, when Chidambaram was remanded to judicial custody by a Special CBI Court, even though this means investigating officers do not have access to him for questioning without the express permission of the concerned Magistrate.

The insertion of explanations to an Act (without tweaking the clauses themselves) to strengthen future investigations and prosecutions is not new. Interestingly, it’s a leaf right out of the Congress’ own playbook. As you may recall, when Pranab Mukherjee was Finance Minister in 2008, he used the Finance Bill to insert explanations to the IT Act, 1961. These clarifications effectively amended the IT Act and enabled the Tax Department to claim tax on transactions that were entered into any time after 1962. Most notably, it immediately raised a tax demand of Rs 22,000 crores (including penalty & interest) on Vodafone for the British Telecom giant’s $11 billion deal to acquire a stake in Hutchison Whampoa in 2007.

That retroactive amendment has since been withdrawn -- by P Chidambaram when he succeeded Pranab Mukherjee as Finance Minister, no less. The explanations inserted into the PMLA through the Finance Bill, 2019, however, are here to stay, at least till the Supreme Court decides otherwise when it hears any challenges to these explanations. So for the foreseeable future, it’s these explanations that will set the frame of reference lawyers and judges use to interpret and enforce the law.