Introduction
The Financial Action Task Force (“FATF”) is known for its rally against terror financing, and money-laundering. In 2021, it published its report on Money-Laundering from Environmental Crime (“EC”) which highlighted that ECs are the fourth most profitable transnational crime. The proceeds of ECs are then incorporated into the formal economy through financial hubs. The FATF thus expanded the traditional understanding of money-laundering to include ECs as well in its ambit.
Although the recommendations of the FATF are soft law, they are followed through by member states through regular mutual evaluation reports outlining measures undertaken by member states, coupled with self-assessments instilling a semblance of accountability. India has been a member state since 2010 and has consistently complied with the self-assessment and mutual evaluation requirements. Thus, considering India’s commitments as part of its membership in the FATF, the purpose of this piece is to examine whether the Indian Anti-Money-Laundering Statute, i.e., the Prevention of Money-Laundering Act, 2002 (“PMLA”) is adequate to counter ECs.
While there exists a debate on the question of using criminal law for the protection of the environment, this article does not deal with that question and operates on the premise that criminal law as the last resort may be effective at preventing the undesired activities of the society and will have a deterring effect. This is premised on Lofton’s argument that “in every society, there are those who will have a hard time complying with the laws unless coercion, or threat of coercion, is involved. Even with a cooperative approach, the ultimate recourse is sanction.”
The article is structured as follows. Firstly, it lays a preliminary groundwork to explain how environmental offences generate financial benefits which are tainted and can qualify as the proceeds of crime. It then reviews existing environmental laws in India and critiques their adequacy as an effective deterrent. The third section provides the foundation for the application of the PMLA to ECs by explaining key relevant concepts of the PMLA. Subsequently, it illustrates the applicability of the PMLA to ECs while identifying problems with the same. It then justifies the applicability of PMLA to combat ECs in India. The paper concludes with a few questions and perhaps an answer to some of them.
Environmental Crimes and Money-Laundering: A Primer
Earning money through ECs takes many forms. While profits from acts like illegal logging and fishing might be tangible as the gains can be assessed, in cases of illegal waste processing or disposal, there is no direct gain. The concerned entity/person instead saves money, which is not easily assessable. This is also a limitation of the FATF’s report which focuses exclusively on proceeds from crimes involving tangible materials like timber, ore, and even wildlife.
Illegal logging and mining often mask the true origin of these activities. The entities involved use shell companies and other mechanisms not only to mask the proceeds generated from such acts, but also the acts themselves. As Oberle notes, the money trail often does not exist because of mechanisms like Havala.
What thus becomes notable here is that, in several cases, the proceeds of crime may not necessarily be in the form of money or cash, because commodities themselves can be traded in the market. Now, the question is, are these commodities that one has gained through unlawful acts considered proceeds of crime, or is the profit earned by trading them considered so?
In contrast to this, there might be financial gain through intangible goods. For instance, consider a law that mandates a specific form of treatment for a certain pollutant and an entity wrongfully releases said pollutant without said treatment. Here the company has not ‘gained’ in the traditional sense as no positive material benefit has accrued to it, however, the company has reduced its costs of complying with the law. Thus, despite no literal profit in the sense of the word is gained, the company’s savings insofar as it has reduced its costs would amount to wrongful gain under the PMLA and should be covered and prosecuted for the scale and impact of the infringements which should not unjustly enrich anyone. This would also be in line with the judgment in Vijay Madanlal Chaudhary v. UOI which includes within the ambit of money laundering any process and activity which deals with the proceeds of crime.
Indian Legal Regime on Environmental Crimes
India’s statutory framework on criminal environmental offences includes the Air (Prevention and Control of Pollution) Act, 1981, the Water (Prevention and Control of Pollution) Act, 1974, the Environment Protection Act, 1986, the Wildlife Protection Act, 1972 and the Indian Forest Act, 1927.
Typically, environmental offences do not fit the traditional criteria of crime and are instead regulatory offences. Therefore, the requirement of mens rea is absent for liability for a number of environmental offences, indicating that prohibition is absolute, and liability is strict. This can be illustrated by the fact that while the Water Act in Section 24, uses the word knowingly while defining the contours of the offence, such terminology is absent in the other acts. The Supreme Court explains the idea of regulatory offences and the absence of the requirement of mens rea very succinctly in Hemant Madhusudan Nerurkar, which held that the omission or commission of the statutory breach is itself the offence, without the requirement of mens rea.
However, these laws are currently ineffective and need to be revamped. Firstly, as argued by Pattnaik, Das, and Pradhan, environmental statutes apply uniform penalties without distinguishing the nature of offences and their severity weakening deterrence. For instance, offences involving the illegal discharge of pollutants get treated at par with the offence of failure to report. Section 15 of the Environmental Protection Act, for instance has a uniform penalty clause for all contraventions of the Act.
Secondly, Section 24(2) of the Environment Protection Act benefits offenders as it provides liability to be assessed under other Acts, which are often weaker in nature than its more stringent provisions. For instance, the Air Act provides a penalty of imprisonment for a term which may extend to three months or with a fine which may extend to ten thousand rupees for certain acts, which is lesser than the penalty under the Environment Protection Act’s general provision. Thus, Section 24(2) allows offenders to escape the rigours of the EPA in certain cases.
Finally, questions of environmental law are often scientific, making it difficult for judges to engage with, gather evidence of, and enforce these laws. This concern can perhaps be alleviated through the application of the PMLA as it circumvents the requirement of complex scientific evidence in trials by focussing on financial trails and proceeds of crime. This changes the burden of proof from proving damage scientifically in a few cases to showing the unlawful origin of the proceeds of crime. The idea of using the PMLA is not to overhaul the prosecution of environmental offences in terms of the PMLA alone, in fact, it is the author’s argument that the PMLA can act as an additional layer, wherein, by tracking financial flows, it can help freeze assets and disrupt economic benefits to reduce further harm while the prosecution in the predicate offence may be pending. The article thus argues that AML laws can act as an effective deterrent to ECs, and the PMLA should be more accommodating to include ECs within its ambit.
The PMLA: The law following the money?
The PMLA is India’s AML law meant to “prevent money-laundering and provide for confiscation of property derived from, or involved in, money-laundering”. Thus, its intent is not just to prevent but also ensure that ‘proceeds of crime’ or wrongful gains are confiscated.
To trigger the PMLA, a ‘predicate offence’ is a necessary requirement. This rests on the idea that wrongful gain comes from engaging in unlawful acts. However, only those offences mentioned in Schedule I PMLA are predicate offences that trigger an offence of money-laundering. Notably, the offence of money-laundering does not refer to concealing any wrongful gain or legitimising the black, but only to wrongful gain which has occurred because of an unlawful act.
Section 3 which defines money-laundering refers to the term ‘proceeds of crime’ which is defined in Section 2(u) and means “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”. “Proceeds of crime” thus has three limbs – property obtained from the criminal activity, the value of said property, and property of equivalent value if the property is outside India.
As clarified by the Delhi HC in Axis Bank and Prakash Industries, the first limb is straightforward, it refers to the wrongful gain itself. The third limb is also clear, it refers to cases wherein the wrongful gain is taken outside India, and for the purpose of the Act, property equal to the value of the wrongful gain held in India is considered to be the proceeds of crime. The second limb is the trickiest. While one view is that it would refer to the unlawful gain earned by dealing in the property derived establishing a link between the first and second limb, the other view holds that the second limb could cover any property that was of equivalent value to the property derived from wrongful gain. While this debate is beyond the scope of this article it is submitted that, in either case, the definition of ‘proceeds of crime’ is sufficient to address environmental offences.
The next part of the blog continues this exploration whereby the piece looks at how the PMLA can be made applicable to environmental offences. It examines the basis for treating profits from ECs as tainted “proceeds of crime”. It offers a critique of the scope of predicate offences and discusses the potential advantages of using the AML laws to tackle ECs.
Jyotpreet Kaur is a fourth year student at NLU, Delhi.
[Ed Note: This piece was reviewed by Hamza Khan and published by Baibhav Mishra from the Student Team.]
