Proceeds of crime
Also written Proceeds of criminal activity
Under section 2(1)(u) of the PMLA, any property derived or obtained, directly or indirectly, from criminal activity relating to a scheduled offence — or its value, or equivalent property where it is held abroad.
In plain language
Money laundering is always laundering of something. That something is the proceeds of crime, and without it the PMLA has nothing to act on.
The definition is written to be wide. It is not limited to the cash a crime produced: it is any property, obtained directly or indirectly, by any person, as a result of criminal activity relating to a scheduled offence. And because criminals move money out of reach, it reaches further still — to the value of that property, and where the property has been taken or held outside the country, to property of equivalent value held in India or abroad.
Two words in it do most of the work in exam questions: indirectly, and relatable.
How it works
The definition — section 2(1)(u). "Proceeds of crime" 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, or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad.
The Explanation. For the removal of doubts, proceeds of crime include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.
What counts as property — section 2(1)(v). Property or assets of every description — corporeal or incorporeal, movable or immovable, tangible or intangible — including deeds and instruments evidencing title, wherever located, and including property used in the commission of an offence under the Act or any scheduled offence.
Why it is the hinge of the Act.
| Provision | What it does with proceeds of crime |
|---|---|
| Section 3 | The offence is any process or activity connected with proceeds of crime — concealment, possession, acquisition, use, projecting or claiming as untainted |
| Section 4 | Rigorous imprisonment of 3 to 7 years and fine; up to 10 years where the proceeds relate to paragraph 2 of Part A |
| Section 5 | Provisional attachment for not more than 180 days where a person is in possession of proceeds of crime likely to be concealed or transferred |
| Rule 2 definition of suspicious transaction | Reasonable ground of suspicion that a transaction may involve proceeds of crime |
The pre-condition. Chapter 4 is explicit: to proceed under the PMLA a scheduled offence must have been committed and proceeds of crime generated. A scheduled offence is a Part A or Part C offence, or a Part B offence where the total value involved is one crore rupees or more.
A worked example
The Paytm Payments Bank facts are from the workbook; the IFSC scenario after them is illustrative.
The case. FIRs lodged by the Cyber Crime Station of Hyderabad, under the Indian Penal Code and the Telangana State Gambling Act, described businesses organising and assisting online gambling and offering fraudulent dating and streaming services. The money from those operations — proceeds of such criminal activities — was routed through accounts with Paytm Payments Bank and later remitted abroad. FIU-IND found failures in suspicious transaction reporting and ongoing due diligence, including for 34 beneficiary accounts that received money from payout accounts, and by order dated 15 March 2024 imposed a total fine of Rs 5,49,00,000.
Reading the definition onto it.
| Property | Proceeds of crime? | Why |
|---|---|---|
| Stakes collected from gamblers | Yes | Derived directly from the criminal activity |
| Balances in the 34 beneficiary accounts | Yes | Derived indirectly — one step removed, through payout accounts |
| Money remitted abroad | Yes, and so is equivalent-value property in India or abroad | The property was taken outside the country |
In the IFSC. Suppose a GIFT IFSC fund management entity receives a USD 1.2 million subscription from a company later shown to be funded by the same syndicate. The subscription units are proceeds of crime even though the FME's own transaction was a lawful investment — derived indirectly from criminal activity relatable to the scheduled offence. Whether the FME itself committed an offence would turn on section 3's requirement that a person act knowingly; its reporting duty is separate — if it had reasonable grounds to suspect the source and did not report, that is its own failure under Chapter IV of the PMLA.
Why NISM asks about it
Chapter 2 (Prevention of Money Laundering Act, 2002) carries the definition in section 2(1)(u), the property definition, and sections 3, 4 and 5; Chapter 4 (Scheduled Offences) opens by making proceeds of crime one of the two pre-conditions for any PMLA proceeding; Chapter 7 applies it in the Paytm Payments Bank order. Expect a definition question testing "directly or indirectly" and "relatable to", and the chapter's own sample question on the mandatory pre-condition for PMLA proceedings.
Common exam traps
- Indirect proceeds count. Property one or more steps removed from the crime is still proceeds of crime.
- "Relatable to the scheduled offence" widens it beyond property obtained from the offence itself.
- Value and equivalent property are included. Moving the money abroad does not take it outside the definition — equivalent property in India can be reached.
- No scheduled offence, no proceeds of crime. Suspicious-looking money is not proceeds of crime unless it relates to a scheduled offence.
- Part B needs Rs 1 crore or more; Parts A and C have no threshold.
- Property includes intangible and incorporeal assets — securities, units and digital holdings, wherever located.
- Possession alone can be the section 3 offence. The money need not have moved.
Where this is taught
- Series IFSCA-01 · Chapter 2: Prevention of Money Laundering Act, 2002introduced here
- Series XXIII · Chapter 11: Key Regulationsintroduced here
Related terms
- Adjudicating AuthorityThe quasi-judicial body constituted by the Central Government under Section 6 of the PMLA that issues notices, adjudicates attachments of property and confirms confiscations.
- Directorate of EnforcementThe multi-disciplinary agency that investigates the offence of money laundering and foreign exchange violations, enforcing the PMLA, FEMA, the Fugitive Economic Offenders Act and sponsoring COFEPOSA cases.
- Money launderingTurning the proceeds of a crime into money that looks legitimate — classically in three stages, placement, layering and integration — and a standalone offence under section 3 of the PMLA.
- Offence of cross border implicationsUnder section 2(1)(ra) of the PMLA, conduct abroad that would be a scheduled offence in India with proceeds reaching India, or a scheduled offence in India whose proceeds are sent or attempted to be sent abroad.
- Scheduled offenceAn offence listed in Part A, Part B or Part C of the Schedule to the PMLA — the crime that must have been committed before there can be proceeds of crime, and so before money laundering exists.
- Suspicious transactionAny transaction or attempt, cash or not, that to a person acting in good faith suggests proceeds of crime or terrorist financing, or looks unjustifiably complex or without economic rationale.
- Reporting entityUnder Section 2(1)(wa) of the PMLA, a banking company, financial institution, intermediary or person carrying on a designated business or profession — the entity that must keep records and report to FIU-IND.
- Trade-based money launderingDisguising the proceeds of crime and moving value through trade transactions to legitimise their illicit origin — by misrepresenting the price, quantity or quality of imports or exports.
- Over- and under-invoicingMisstating the price of goods or services on an invoice to move value between importer and exporter — under-invoicing moves value to the importer, over-invoicing to the exporter.
- Predicate offenceThe underlying crime that generates the proceeds a launderer then has to hide — the critical element without which there is no money laundering offence at all.
- Capital flightCompanies and individuals shifting money from one country to another to diversify risk and protect wealth against financial or political crises — usually with legitimately earned funds, unlike money laundering.
- Black market peso exchangeThe complex trade-based laundering arrangement the workbook names: it combines drug smuggling, laundering through the financial system and trade laundering, and needs no collusion between importer and exporter.