Proceeds of Crime: Definition under Section 2(1)(u) of Prevention of Money Laundering Act.
- Sunny S
- Oct 4, 2025
- 5 min read
Understanding "Proceeds of Crime" Under PMLA
The term "proceeds of crime" is a crucial element of the Prevention of Money Laundering Act, 2002 (PMLA) in India. This article will break down the meaning of this term, examine its scope, and explore its implications.
Definition of "Proceeds of Crime"
Section 2(1)(u) of the PMLA defines "proceeds of crime" as "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 any such property". This definition encompasses any asset, tangible or intangible, obtained through activities connected to a scheduled offense, regardless of whether the acquisition is direct or indirect.
Key Issues and Interpretations
The broad definition of "proceeds of crime" raises several important questions. Let's examine a hypothetical scenario presented in the source:
Scenario: Person A obtains Rs. 60 crore through criminal activity. They distribute Rs. 20 crore each to D and E as bonuses. E is aware of the illegal origin of the money, while D is not. Both E and D invest their bonuses in various assets.
This scenario highlights the following questions:
Issue 1: Do the assets acquired by E, who was aware of the criminal origin of the funds, constitute "proceeds of crime"?
Issue 2: Do the assets acquired by D, who was unaware of the criminal origin of the funds, constitute "proceeds of crime"?
Issue 3: If D sells their assets to Y, who then sells them to Z, are these transactions and Z's possession of the assets considered "proceeds of crime"?
Supreme Court Judgments
The Supreme Court of India has addressed these issues in landmark judgments.
B. Rama Raju v. Union of India: In this case, the Court upheld the constitutionality of attaching and confiscating property considered "proceeds of crime," even if the possessor is not accused of a scheduled offense. The Court reasoned that neither mens rea (guilty mind) nor knowledge of the property's criminal origin is required for such action, as the PMLA's definition of "proceeds of crime" covers property obtained "directly or indirectly" from criminal activity. Applying this to our scenario, the assets of both E and D, as well as the subsequent transactions and Z's possession, could be subject to attachment and confiscation.
Rohit Tondon v. Directorate of Enforcement: This case clarified that if the Enforcement Directorate can establish a link between the property and criminal activity related to a scheduled offense, the property falls under the PMLA's definition of "proceeds of crime".
Expansion of "Proceeds of Crime" and Continuous Offenses
The Finance Act of 2019 further broadened the definition of "proceeds of crime" to include property derived from any criminal activity "relatable to the scheduled offence," not just directly from the scheduled offense itself. This expansion aims to capture a wider range of assets potentially linked to criminal activity.
The 2019 amendment also clarified that money laundering is a "continuous offence". This means that the criminal activity extends beyond the initial stages of "placement" (introducing illegal funds into the financial system) and "layering" (concealing the origin of the funds through complex transactions) and persists until the "integration" stage, where the offender enjoys the benefits of the illicit proceeds.
Conclusion
The concept of "proceeds of crime" under Indian law is broadly defined and interpreted to effectively combat money laundering. The PMLA targets not only those directly involved in criminal activities but also individuals who may unknowingly possess or benefit from assets derived from such activities. While the law aims to ensure effective enforcement, it also raises concerns about potentially implicating individuals with no knowledge of the criminal origin of assets they possess. The ongoing legal interpretation of "proceeds of crime" seeks to strike a balance between these competing interests.
FAQ: Proceeds of Crime Under the PMLA
What constitutes "proceeds of crime" under the Prevention of Money Laundering Act, 2002 (PMLA)?
"Proceeds of crime" is defined under Section 2(1)(u) of the PMLA as any property obtained directly or indirectly by any person as a result of criminal activity related to a scheduled offense, or the value of such property. This includes not only assets derived directly from the scheduled offense but also any property obtained through criminal activities connected to it. The 2019 amendment to the Act further clarifies that this encompasses properties derived or obtained indirectly from criminal activity related to the scheduled offense.
Can property acquired by an innocent individual through transactions with someone involved in a scheduled offense be considered "proceeds of crime"?
Yes, according to the Supreme Court's interpretation in the B. Rama Raju v. Union of India case, even if an individual unknowingly receives property derived from a scheduled offense, that property can still be considered "proceeds of crime." This means that even without knowledge of the illicit origin, the property is subject to attachment and confiscation proceedings under the PMLA.
What is the difference between prosecution for money laundering and attachment/confiscation of proceeds of crime?
Under the PMLA, prosecution and attachment/confiscation are two separate proceedings. Prosecution targets individuals directly involved in money laundering activities, requiring mens rea (guilty mind) and leading to potential imprisonment upon conviction. Attachment/confiscation, however, focuses on the "proceeds of crime" themselves, regardless of the possessor's knowledge of their illicit origin, and aims to recover assets gained through criminal activity.
Does the PMLA consider money laundering a continuing offense?
Yes, the 2019 amendment to the Act added an explanation to Section 3, clarifying that money laundering is a continuing offense. This means that the offense doesn't end with the initial placement and layering of funds but continues as long as someone benefits from the "proceeds of crime" – through concealment, possession, acquisition, use, or projection as legitimate.
How does the 2019 amendment impact the scope of "proceeds of crime"?
The 2019 amendment expands the definition of "proceeds of crime" by including property obtained not only from the scheduled offense itself, but also from any criminal activity related to it. The Supreme Court in Rohit Tondon v. Directorate of Enforcement clarified that this encompasses activities with demonstrable criminal intent connected to a scheduled offense.
If an individual unknowingly possesses property derived from criminal activity, are they liable for prosecution?
No, while unknowingly possessing property derived from criminal activity can lead to attachment and confiscation of the property, the individual is not liable for prosecution under the PMLA. The Act requires knowledge and intent for prosecution, focusing on those who knowingly engage in money laundering processes.
What is the significance of the "indirectly attempts to indulge" phrase in Section 3 of the PMLA?
The phrase "indirectly attempts to indulge" broadens the scope of the PMLA to include individuals who, while not directly involved in the initial offense, participate in activities that facilitate the integration of illicit funds into the legitimate economy. This emphasizes the Act's focus on targeting all stages of the money laundering process.
What happens to property considered "proceeds of crime" if the possessor is unaware of its illicit origin?
Even if the possessor is unaware of the illicit origin, property deemed "proceeds of crime" is subject to attachment and confiscation proceedings under the PMLA. These proceedings aim to seize and recover assets gained through criminal activity, regardless of the current possessor's knowledge or involvement.