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Last year, the Kotak Mahindra bank account of law firm Cyril Amarchand Mangaldas (CAM) was frozen by Central Bureau of Investigation (CBI). This was done to attach the amount of Rs. 2.12 crore, kept in the account, which was received as legal fee from PNB fraud accused Nirav Modi.
On the firm’s appeal, the CBI Special Court allowed de-freezing of the account except to the tune of the legal fee. In the present case, the CAM’s plea was to be permitted to operate its bank account and only the amount pertaining to legal fees be attached.
However, an underlying question worthy of discussion here is, whether money received as legal fees should even be attached in a money laundering proceeding? This article elaborates on how the statutory law in India allows the same, in contravention of constitutional principles.
The Prevention of Money Laundering Act, 2002 does not make any distinction between legal fees and other transactional amounts. The Act has a wide reach as it deems property owned/possessed even by a non accused person as ‘proceed of crime’. Thus, such a property can be attached in a proceeding.
Further, there is no requirement of mens rea during acquisition of such property, meaning that innocent transactions do not secure the transaction (Section 8). Adding to this, even if one transaction in a chain is proved to be of laundered money, then the entire chain is ‘presumed’ to be maligned (Section 23).
Evidently, the Act has been drafted in a way that a single dishonest act by a one person can have a ripple effect on all remotely associated entities. Argued as being arbitrary, vague and disproportionate, the constitutionality of these provisions was challenged in B. Rama Raju v. Union of India.
However, the Court here emphasized that the object and scheme of the Act was to prevent legitimizing of money earned through illegal and criminal activities and thus, provisions have to be read expansively. As the legislative intent was in favour of public interest, the Act was held to be constitutionally valid.
Interpreting ‘proceeds of crime’ under Section 2(u) of the Act, it stated that property owned by a person, other than the person charged for the offence, is equally liable to attachment. Further, as per the Act, attachment is provisional and till before the conviction is actually proved. Therefore, exclusion of the requirement of mens rea for acquisition of the targeted property, is unambiguous. On the third issue of ‘presumption’, the Court’s position was that it is simply based on the rule of evidence, and is rebuttable.
Going by these observations, fees received by a lawyer can easily come under the head of ‘proceeds of crime’ and become prone to attachment. A lawyer’s knowledge of whether his fees comes from laundered money or not, becomes irrelevant due to exclusion of mens rea behind acquisition of such property.
Even where the services have been provided years after the client’s money laundering proceedings began, and possibly for a separate matter altogether, if it can be shown that the fee was part of a chain of transactions having one tainted transaction, then automatically, the fee is also presumed to be tainted and comes under the radar of the authorities.
These obstacles in procuring honest consideration for providing a professional service can eventually result in a trend where lawyers become hesitant to take up cases of money laundering accused or any other case where the fee can even remotely come from any criminal activity. The law as it stands leads to the lawyer being denied his right to freedom of profession. Further, if the restrictions cause legal professionals to deny service, then the accused would effectively be denied his right to be defended by a counsel of choice.
Lawyer’s Right to Freedom of Profession
The attachment of a lawyer’s legal fee is a direct attack on his freedom of profession which is a fundamental right under Article 19(1)(g) of the Constitution. Contrary opinion may hold that looking at the larger public interest of preventing money laundering, the restriction on the lawyer is a reasonable restriction under 19(6). However, arguably, the restriction is rather directly in conflict with public interest.
The risk of fee being attached would see most lawyers being unwilling to take up a case. A willing lawyer who is ready to fight the case, would not only have see his deserved fee being attached, but will also be put in a position where it becomes difficult to uphold professional duties towards the client. To rebut the presumption of the fee being sourced from laundered money, the lawyer may have to furnish confidential documents, which runs the risk of breaching client-attorney privilege.
Further, if a lawyer is unable to prove that his client was not involved in money laundering, then he himself would face the risk of being charged. Once the client is convicted, all transactions in the chain, including the legal fee, conclusively become proceeds of crime. Since the lawyer knowingly acquired these proceeds as fee, he can be charged for laundering as per Section 3 of the Act. In such a situation, the fee will also not be released and would be seized permanently.
Thus, the current system leads to the lawyer directly fighting the case for the client and indirectly fighting it to protect himself from any charges.
Accused’s right to be defended by a counsel of his choice
Article 22(1) of the Constitution reads:
“No person who is arrested shall be denied the right to consult, and to be defended by, a legal practitioner of his choice”.
The article was proposed in the Constituent Assembly by Dr. Ambedkar who stated that the use of the words “of his choice” is deliberate and important. The intention was to not let the government of the day to force upon an accused a legal practitioner. Rather, the accused was to be given the right to engage a counsel in which he rests his confidence.
In State of Madhya Pradesh v. Shobharam, a Constitution Bench of the Supreme Court found that the rights conferred by Article 22(1) are absolute and guaranteed and do not depend on other laws. The Apex Court’s ruling makes it sufficiently clear that the accused’s right to counsel of his choice is concrete and begins from the moment of arrest, continuing till the end of the trial.
Moreover, the revised Code of Criminal Procedure, 1973 expressly states:
“Any person accused of an offence before a Criminal Court, or against whom proceedings are instituted under this Code, may of right be defended by a pleader of his choice”.
Lessons from Foreign Laws
It is interesting to study the money laundering statutes across the world. The Proceeds of Crime Act of the United Kingdom provides for the defence of ‘adequate consideration’ in this regard. Section 329(2)(c) states that a person is not guilty of the offence of acquisition/use/possession of criminal property if this is done so for an ‘adequate consideration’. Relying on this, a lawyer can argue that the fees obtained was an adequate consideration for the professional services provided.
However, what consideration is adequate, can be in itself debatable and become even more tedious to calculate when measuring money against a professional service. Incidentally, this defence is present under Section 3 of India's Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, but not under the PMLA.
The Republic of China adopts a different approach. Article 5(3) of the Money Laundering Control Act, specifically lists activities of lawyers which would be associated with money laundering. These include operations such as buying or selling real estate, managing securities, creation and management of legal persons etc, but excludes fees received for arguing a client’s case.
In the United States the relevant statute is the Money Laundering Control Act, 1986. Similar to Section 3 of the PMLA, Section 1957(a) of the MLCA provides that a person will be guilty of a crime if he “knowingly engages (or attempts to) in a monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified unlawful activity”.
Sub-clause (f)(1) of the Section defines ‘monetary transaction’ as “the deposit, withdrawal, transfer, or exchange … of funds or a monetary instrument … by, through, or to a financial institution". Evidently, the statute allows for a wider range of activities to come under the scope of “money transactions” similar to the broad scope of the term “proceeds of crime” in India.
Soon after the enactment of this Act, the concern raised was that the provision will have a chilling effect on the attorney-client relationship and curtail the accused’s Sixth Amendment ‘right to a lawyer’. To meet these concerns, the Congress in 1988 inserted a ‘safe harbour’ provision in the article, to protect this right and to allow for a fear-free practice for the lawyer. The provision excluded "any transaction necessary to preserve a person's right to representation as guaranteed by the Sixth Amendment to the Constitution" from the definition of ‘monetary transaction’.
It is worthy to compare the Sixth Amendment right and the right under Article 22(1) of the Indian Constitution. Both rights differ in two ways. Firstly, in the US, the right that exists is the ‘right to lawyer’, whereas India recognises the fundamental right to be ‘defended by a legal practitioner of choice’.
Secondly, US provides its right to a ‘criminal defendant’, which means that the right arises after indictment. Contrarily, in India, the Shobharam judgment makes it clear that the right commences at the moment of arrest and stands till the effect of this arrest continues. Essentially, it remains throughout the criminal proceeding.
Clearly, the text of Article 22(1) provides the accused with stronger rights. Whereas the US has protected guaranteed rights through a safe harbour provision, India, which has even more powerful rights, has left them unsecured.
Evidently, there is a logical fallacy in the PMLA which needs to be remedied. Following the UK, we can have an ‘adequate consideration’ defence. However, as discussed, the confusion would remain regarding the ‘adequacy’ of consideration. Further, any third party might try to take refuge under this defence.
China's example would be a better one to follow since it provides an express list of activities which come under laundering. Then again, express inclusion of some activities might leave certain other type of transactions which are not thought of while drafting.
The best suit to follow, therefore, would be of the US. Instead of express inclusion of some activities, it is more prudent to exclude the singular activity that we deem to protect i.e. legal representation. A safe harbour should be inserted in the PMLA which excludes from laundered transactions, any consideration taken for legal representation. This is necessary to protect the accused’s Article 22(1) right and the lawyer’s freedom of profession under Article 19(1)(g).
The author is a student at West Bengal National University of Juridical Sciences (WBNUJS), Kolkata.