KATHMANDU, June 8: The Supreme Court (SC) has ruled that merely depositing and withdrawing money repeatedly in a bank account does not constitute money laundering. In a recent verdict, the full bench, comprising Justices Sapana Pradhan Malla, Hari Prasad Phuyal, and Bal Krishna Dhakal, stated that it cannot be presumed that all amounts repeatedly deposited in a bank account are necessarily intended for money laundering purposes.
The SC highlighted that the continuous cycle of depositing, withdrawing, and re-depositing money in a bank can occur as a regular process, raising a complex question about what kind of transactions should be classified as money laundering.
The SC addressed the issue of whether money laundering is an independent crime in itself or whether the assets in question must be proven to have originated from another criminal activity.
In its interpretation, the Court ruled that while determining the loss or illicit gain in such cases, the evaluation should not be limited to individual transactions as separate entries. Instead, it must consider the overall context of financial dealings, including the background of the entire economic activity and the interconnected nature of the transactions.
In its recent ruling, the SC observed that the case lacked sufficient evidence to establish the nature and extent of the defendants’ involvement in the alleged money laundering offense. The apex court noted that it was not evident who had been directly affected by the offense or who the actual victim was. Furthermore, the prosecution failed to demonstrate which specific crime generated the alleged illicit income, how much was earned, and how much of it was laundered.
There was also no clear investigation into the total value of the defendants’ lawfully acquired assets, whether individually or jointly held. The Court emphasized that, under the Asset (Money) Laundering Prevention Act, 2008, it is essential to prove that the laundered assets originated from a criminal activity or were used to finance terrorism. In the absence of such foundational evidence, the charges of money laundering could not be substantiated.
Money laundering is understood as the process of legitimizing assets acquired through criminal or unlawful activities. Offenses recognized by law, such as corruption, tax evasion, human trafficking, and similar crimes, are considered predicate offenses linked to money laundering. The law considers the act of laundering assets obtained through such illegal means to be a punishable offense.
The SC has also addressed the question of whether, while filing charges and determining the amount of compensation, only the existing balance in the bank account should be considered, or if the total amount of transactions carried out, as per the law, should be taken into account.
This issue was central to the SC’s interpretation. The ruling further referred to a legal precedent already established in an earlier case involving Ganesh Aryal versus the Government of Nepal, where the SC had clarified similar concerns regarding the assessment of financial transactions in money laundering cases.
The principle established by the SC stated that, to determine how much property has been acquired, the evaluation should be based on the amount that is currently in the person’s possession or under their control, not on assumptions about how much they may have had or could have had. The judgment also referenced a precedent from the SC of India related to money laundering, reinforcing this interpretation. The verdict stated that "The offense is not considered a one-time act but a continuous crime." It further clarified, "as long as the income or profit earned from criminal activities continues to be used within the financial system, the criminal liability remains intact."
The Money Laundering Prevention Act was enacted in 2064 BS. The SC addressed the question of whether the law could be applied to financial transactions that took place before the Act came into effect. It concluded that since the transactions occurred before the enactment of the law, the value of those bank transactions could not be used to determine the amount of compensation concerning the offense.
"The legal responsibility to prove the charges lies with the prosecution," the SC stated. "Even though the burden of proof may shift to the accused in narcotics-related offenses, this does not mean that in every case the prosecution can rely solely on confessional statements without presenting any evidence. Such an interpretation is not supported by the law." The SC further stated, "Interpreting the law in that way would contradict the principles of criminal justice, established legal doctrines, our constitutional framework, and fundamental rights."
The verdict also stated, “The reason for withdrawing the amount deposited in a bank account, as explained and recorded, cannot be considered otherwise.”
This interpretation by the court came in reference to a case involving Abhishek Giri and his spouse from Biratnagar in 2068 BS. The SC acquitted them, stating that the allegations of income or financial gains derived from criminal activities were not proven with factual and objective evidence. The SC said in its verdict, "We cannot agree that the accused committed the offense of money laundering by acquiring and concealing assets through investment with the intent to hide illegal sources."
The case also involved an issue where the father had financially supported his daughter in purchasing land in Kathmandu due to her weak financial situation, which was also raised as a money laundering allegation. The SC stated, "Providing financial support to one’s daughter and son-in-law according to their capacity is naturally consistent with our values and principles."
The apex court further explained that it would be wrong to reject income from small businesses just because there was no proof of income tax payment. It also held that calculating a lump-sum illicit gain by simply summing up the various amounts repeatedly deposited and withdrawn from the account over time is incorrect.
The money deposited in the bank account came from various individuals, family members, loans, and income earned from small businesses. The same money was lent to friends and relatives and then redeposited into the account or paid to others.
The SC stated, "There is no evidence to prove, under Sections 3 and 42 of the Money Laundering Prevention Act, that the funds were invested elsewhere with the intent to change the nature of the property."
In Giri’s case, there was a balance of only Rs 3,500 in the bank account, while deposits totaling Rs 11.9 million were made on different dates. The case also considered land given to his wife by her parental home as part of the money laundering allegations. The SC had acquitted the defendants in 2075 BS, but the SC received an appeal against that decision. After six years, the SC upheld the acquittal issued by the Special Court.
The SC's verdict stated, “Since the Special Court in Kathmandu acquitted Abhishek and his spouse on May 19, 2018, it is deemed appropriate to uphold that decision.” The full text of the judgment, delivered on October 24, 2024, has been recently made public.