In a landmark judgment, the Delhi High Court has ruled that a foreign offence with cross-border implications can be treated as a predicate offence under the Prevention of Money Laundering Act (PMLA) if the proceeds of that offence reach India. The ruling came in the case of Adnan Nisar v. Directorate of Enforcement (Bail Appln. No. 3056/2023 & connected matters), with the court presided over by Justice Vikas Mahajan. This decision establishes that cross-border financial crimes involving foreign laws can trigger penal action under Indian law if illicit proceeds are transferred to Indian accounts.
Background of the Case
The case arose from a Mutual Legal Assistance (MLA) request from the U.S. Department of Justice, which accused Vishal Moral, an Indian national, of committing wire fraud and money laundering under various sections of U.S. law. The U.S. authorities alleged that large sums of cryptocurrency, including Ethereum and Bitcoin, had been fraudulently siphoned from a victim’s Ledger Hardware Wallet in Leawood, Kansas. The illicit proceeds were traced to India, where the Enforcement Directorate (ED) took action under PMLA, initiating investigations and arrests in connection with the proceeds of the crime.
The ED alleged that the stolen cryptocurrencies were transferred to a WazirX account in India, which belonged to the accused, Vishal Moral, and were subsequently converted into cash and assets. The case also implicated two co-accused, Adnan Nisar and Shivang Malkoti, for assisting in the conversion of these illicit funds into cash through various means.
Key Legal Issues
1. Cross-border implications and predicate offences under PMLA: The central question was whether an offence committed abroad, with proceeds transferred to India, could be treated as a predicate offence under Indian law. The petitioners argued that PMLA proceedings could not be initiated unless there was a domestic predicate offence.
2. Applicability of corresponding law: The court examined whether foreign laws could be construed as corresponding to Indian laws under the PMLA, allowing for the registration of an Enforcement Case Information Report (ECIR) in India.
3. Breach of procedural requirements: The petitioners contended that the MLA request from the U.S. only sought the freezing of WazirX accounts and that the ED overstepped its mandate by lodging an ECIR and arresting the accused under PMLA.
Court’s Decision
In a detailed judgment, Justice Mahajan ruled that an offence committed outside India could indeed be considered a predicate offence under PMLA if the proceeds of the crime were transferred to India, fulfilling the conditions of a cross-border crime under Section 2(1)(ra) of PMLA. The court noted:
“When proceeds of crime derived from an offence committed abroad are brought into India, the offence attains cross-border implications. Such an offence would fall within the ambit of Part C of the Schedule of the PMLA.”
This observation aligns with the court’s broader interpretation that foreign laws corresponding to Indian enactments (under Section 2(1)(ia) of PMLA) can trigger enforcement actions in India, provided that the proceeds of the foreign offence are located within the country.
The court dismissed the petitioners’ argument that no scheduled offence was registered in India, affirming that the predicate offence’s registration in a foreign jurisdiction, in this case, the U.S., was sufficient. The court held that the ED was well within its powers to initiate proceedings under Sections 3 and 4 of the PMLA, as the foreign offence was equivalent to offences under Indian law, such as cheating (Section 420 IPC) and relevant provisions of the Information Technology Act, 2000.
Important Observations of the Court
Justice Mahajan made critical observations on the legislative intent behind PMLA, emphasizing its global scope:
“The PMLA is intended to combat money laundering, including crimes with cross-border implications. The very act of bringing illicit proceeds into Indian territory activates the PMLA’s provisions.”
The court further noted that the process of laundering money involved in the case—through cryptocurrency transfers—illustrated the global nature of financial crimes today. Therefore, the authorities’ actions, including the registration of an ECIR and the arrest of the accused, were justified.
Additionally, the court rejected the petitioners’ argument that there was procedural non-compliance regarding the MLA request. The ED had acted within its mandate under Section 60 of the PMLA, which allows for investigation and attachment of proceeds in India even if the initial offence occurred abroad.
Parties and Legal Representation
– Petitioners: Adnan Nisar, Shivang Malkoti, and Vishal Moral.
– Petitioners’ Counsel: Mr. Tanveer Ahmed Mir, Mr. Kartik Venu, and Mr. Amit Shukla.
– Respondent: Directorate of Enforcement (ED), represented by Special Counsel Mr. Zoheb Hossain.
