The virtual currencies can provide greater anonymity than mainstream non-cash payment methods, making them vulnerable to money laundering and use in terrorist financing activities. The report by the FATF[1] acknowledges that while virtual currencies have the potential to spur innovations, they also create new opportunities for criminals to launder their proceeds or finance their illicit activities. To address these challenges, it has called for risk-based supervision.

The Supreme Court has iterated that “…. Enforcement Directorate can step in only when actual money laundering takes place, since the statutory scheme of Prevention of Money Laundering Act deals with a procedure which is quasi-criminal….”[2]

Therefore, the person would only be implicated under PMLA only when the act of money laundering has taken place and Enforcement Directorate would step in and begin the proceedings under the same. But we need to understand how the offense under PMLA is committed.

Money laundering is an additional offense, meaning PMLA is attracted only on commission of a predicate offence i.e. a scheduled offence (https://fiuindia.gov.in/files/AML_Legislation/scheduled_offences.html) as given under the  Prevention of Money Laundering Act. That schedule provides a list of offenses under various laws. If any of those offenses is committed and the money is generated through any of those offenses, and then such ill-gotten money obtained through commission of a scheduled offence is given another colour (laundered), brings PMLA in operation.

For example, a government officer accepts kickbacks, it is an offense under prevention of corruption act. Now, these kickbacks are used to either purchase a house or jewellery, the offense of money laundering is completed as the money has changed it’s form and color.  So, this is how the offense of money laundering could be understood to be additional offense as it requires commission of a predicate (scheduled) offense.

Regarding the query if the purchase of cryptocurrencies would be a criminal offense under PMLA? The answer to this query is that prima facie it is not an offense. Only when one purchases cryptocurrencies from the money gathered from the predicate offense, the offence under PMLA would come into existence. Purchasing cryptocurrencies per-se would not lead to the offense of money laundering.

Accordingly, if cryptocurrencies are purchased through legitimate money, then offense of money laundering under PMLA is not committed.

[1] Supra note 4

[2] Supra note 3