Explanation of – Definition of Section 3 of the Prevention of Money Laundering Act

Podcast on Explanation of – Definition of Section 3 of the PMLA

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Section 3 of the Prevention of Money Laundering Act, 2002 (PMLA)¹ defines the offense of money laundering. According to this section, anyone who, directly or indirectly:

• Attempts to engage in

• Knowingly assists

• Knowingly participates in

• Is actually involved in

any process or activity connected with the proceeds of crime, including:

• Concealment

• Possession

• Acquisition

• Use

• Projecting it as untainted property

• Claiming it as untainted property

is guilty of the offense of money laundering.

The explanation provided within the section further clarifies its scope:

• A person is guilty of money laundering if they are found to have engaged in one or more of the listed processes or activities connected with proceeds of crime.

• The process or activity connected with proceeds of crime is a continuing activity, lasting until the person benefits from the proceeds of crime through any of the means mentioned above (concealment, possession, etc.)

• Section 3 comprises of two essential limbs, namely, (i) involvement in any process or activity; and (ii) connection of such process or activity to the proceeds of crime. The expression “proceeds of crime” is defined in Section 2(1)(u) to mean any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. The scope of Section 3 of PMLA was expounded in the case of Rana Ayyub v. Directorate of Enforcement ²

• The Hon’ble Supreme Court in the case of Satyander Kumar Jain v. Directoreate of Enforcement ³ relied upon the observations in Vijay Madanlal Choudhary v. Union of India ⁴ in order to expound the contours of Section 3 of PMLA. It held that- the offence of money laundering under Section 3 has a “wider reach”. The offence as defined captures every process and activity in dealing with proceeds of crime, directly or indirectly, and is not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money-laundering. 

• The Hon’ble Supreme Court drew a parallel with undisclosed income and the trigger of Section of PMLA. The Hon’ble Court held that Section 3 of PMLA will not be invoked solely on the ground that the there exists undisclosed income. The expression “proceeds of crime” under PMLA must be satisfied to attract Section 3 of PMLA. 

  
  

Therefore, Section 3 of the PMLA casts a wide net, criminalizing a range of actions related to the proceeds of crime, even beyond the act of laundering itself.

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¹ 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.] 

² [2023 4 SCC 357]

³ (2024) 6 SCC 715

⁴ (2023) 12 SCC 1

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FAQ of Section 3 of the Prevention of Money Laundering Act

1. What is money laundering?

Money laundering is the process of disguising the illegal origins of money obtained through criminal activities. It involves making the "dirty" money appear "clean" or legitimate, making it difficult to trace back to its criminal source.

2. What are the key stages of money laundering?

3. What are the common methods used for money laundering?

4. What are the consequences of being involved in money laundering?

5. Who can be held liable for money laundering?

6. What are the specific offenses related to money laundering?

7. What does it mean to "project or claim" proceeds of crime as "untainted property"?

8. Is money laundering considered a "continuing activity"?