Invoking India’s Money Laundering Regime for Environmental Crimes: Impact on Businesses

[Rajat Jariwal is a partner and Saniya Mirani is an associate at Trilegal]

The recent verdicts of the National Green Tribunal (“NGT”), a special tribunal in India dealing only with environmental issues, have brought to fore the money laundering aspect of environmental crimes. India’s principal anti-money laundering statute, the Prevention of Money Laundering Act, 2002 (“PMLA”) was amended in 2013 to include money laundered upon commission of specified environmental crimes. However, in the nine years since these provisions were introduced, there have been no publicly known prosecutions under the PMLA for environmental offences.

The NGT, by way of its recent decisions, has observed that corporations or natural persons committing environmental crimes can be held liable for the offence of money laundering. These observations may trigger a fresh trend of invoking additional criminal remedies under the PMLA to protect the environment. In this article, the authors provide an overview of how India’s money laundering regime may be triggered against a corporation that commits certain specified environmental offences, as well as the consequences for such corporation.

Proceeds of Environmental Crimes

A person (natural or juridical) is said to commit the offence of money laundering under section 3 of PMLA if it attempts to indulge, or knowingly assists or knowingly is a party in a ‘process or activity’ connected with the ‘proceeds of crime’. These processes or activities can be in any form, such as, concealment, possession, acquisition, use of proceeds of crime or portraying proceeds of crime as untainted property. Thus, a person who, attempts to/assists in/partakes in, concealment, possession, acquisition, use of proceeds of crime would be guilty of money laundering.

The term ‘proceeds of crime’ is further defined by section 2(u) of the PMLA as any property derived (directly or indirectly) as a result of criminal activity relating to a ‘scheduled offence’.

The PMLA will not be triggered with commission of every environmental offence but only those that form part of the schedule to PMLA and are thus considered ‘scheduled offences’. These include offences under the Biological Diversity Act, 2002, Environment Protection Act, 1986, Water (Prevention and Control of Pollution) Act, 1974, Air (Prevention and Control of Pollution) Act, 1981, etc. and thus actions under PMLA may be initiated for commission of the said environmental offences (“Scheduled Environmental Offences”). 

Thus, by way of an example, if a person commits a Scheduled Environmental Offence, and as a result, obtains commercial gains, the person is said to have committed money laundering as he is in possession of proceeds of crimes. Accordingly, the person can be prosecuted for money laundering under section 3 of the PMLA once a complaint of the underlying environmental offence has been registered or is pending inquiry before a competent forum. However, it may be noted that provisional attachment or search and seizure of properties may be initiated against the said person under PMLA, even in absence of a registered complaint of underlying environmental offence. Further, if the person is acquitted/absolved/discharged of the said Scheduled Environmental Offence, there can be no action for money laundering on the person.

Since the wide definition of money laundering includes property derived indirectly as well, it will not only affect corporations but also their customers. Thus, for instance, if a customer buys a product, which is manufactured when the manufacturing unit was discharging environmental pollutants in excess of prescribed standards, the customer may also be within the scope of the PMLA and may be called upon to justify its bona fides to the investigating authorities.

Initiation of an investigation under the PMLA may also follow loss of reputation, goodwill and investor confidence. The impact on share prices and supply chains cannot be eliminated. In order to keep out of this wide net cast by the PMLA, businesses should adopt sustainable supply chain practices, including, proper due diligence of source of revenue of their business affiliates.

NGT’s Observations: Viewing Environmental Damage from a Wider Lens

The NGT, through its recent verdicts, has not only emphasized on the seriousness of environmental wrongs as civil and criminal offences originating from the core environment statute(s) but also criminal wrongs under the PMLA. In addition to levy of environmental compensation (which in itself is quite onerous) and institution of proceedings under the relevant environment statute, the NGT has been instructing authorities to invoke provisions of criminal law in India, codified under the Indian Penal Code, 1860, to take action against persons causing environmental harm. For instance, the NGT has held that illegal abstraction of ground water is not only a violation of environmental laws but may also amount to an offence of ‘theft’ of property of state.

Pursuant to the same reasoning of viewing environmental wrongs as serious crimes, the NGT has also nudged the Enforcement Directorate (relevant authority under PMLA) (“ED”) to likewise activate PMLA for environmental offences. While in some judgements rendered earlier this year, the NGT had given positive directions to ED to investigate the matter from a money laundering perspective; the more recent judgements reveal that NGT has been forwarding a copy of its judgement to the ED, and leaving it open for them to take necessary actions. Some of these decisions have been appealed before the Supreme Court of India and are pending adjudication

These rulings where NGT has nudged the ED to prosecute for money laundering, indicate a common thread where the violators have commercially benefitted by illegal abstraction of ground water, illegal mining, release of polluted industrial effluents into water bodies, release of untreated sewage in irrigation canals owing to non-functional/non-compliant sewage treatment plants, thereby profiting at the cost of the nature and environment.

Impact of this Trend

The PMLA is a controversial piece of legislation which provides extensive powers to the ED regarding search, seizure and attachment of a business’ properties. The PMLA also exposes the key managerial personnel to arrest if the offence of money laundering is established. The importance of safeguarding environment cannot be over-emphasized, and the legislature cannot be faulted for inclusion of certain grave environmental offences as Scheduled Environmental Offences under the PMLA. However, it remains to be seen how NGT’s recent remarks to trigger PMLA for environmental offences will be interpreted and implemented by enforcement authorities, notably the ED. The authors contend that the possibility of misuse by the ED cannot be ruled out, especially considering the wide powers of search, seizure and provisional attachment even in the absence of a formally registered complaint of the underlying environmental offence. Nonetheless, these remarks by the NGT, at least, initiate a dialogue on money laundering aspects of environmental wrongs and underscore the significant statutory risks to businesses in the event of non-compliance with environmental laws.

Rajat Jariwal & Saniya Mirani

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