Section 3 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 3 creates the offence of money-laundering. A person who directly or indirectly attempts to indulge in, or knowingly assists, or knowingly is a party to, or is actually involved in, any process or activity connected with the proceeds of crime, and projects or claims it as untainted property, is guilty of the offence. An Explanation lists six processes and says the activity is a continuing one.
This article reads the section as it stands in the consolidated text of the Act consulted (amendments shown up to 1 August 2019). Later amendments and notifications should be checked; nothing after that date is stated here.
Under section 3, the offence is committed by a person who attempts to indulge, knowingly assists, knowingly is a party, or is actually involved in any process or activity connected with the proceeds of crime, including its concealment, possession, acquisition or use and projecting or claiming it as untainted property. The Explanation says the activity is continuing until the person is directly or indirectly enjoying the proceeds in any of those ways. The punishment is in section 4.
The text of section 3
The main part of section 3 can be broken into its working parts.
| Element | What the section says |
|---|---|
| Who | "Whosoever", that is, any person |
| Conduct | Directly or indirectly attempts to indulge; or knowingly assists; or knowingly is a party; or is actually involved |
| In what | Any process or activity connected with the proceeds of crime |
| Forms of the connection | Its concealment, possession, acquisition or use and projecting or claiming it as untainted property |
| Result | Guilty of the offence of money-laundering |
The words "proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming" were substituted for "proceeds of crime and projecting" by Act 2 of 2013, section 3 (w.e.f. 15-2-2013), as footnote 1 to the section prints. "Proceeds of crime" is defined in section 2(1)(u); see our article on the key definitions of proceeds of crime, property and scheduled offence.
Four kinds of conduct are named. Attempting is covered if it is done directly or indirectly. Assisting and being a party are both qualified by the word "knowingly". Being "actually involved" is also covered. The section does not use the word "knowingly" for an attempt to indulge or for actual involvement; it is printed only before "assists" and "is a party". The text says no more than that. A person who has been called to explain a transaction, or an entity unsure whether a dealing could be said to be connected with proceeds of crime, can get the facts and the text reviewed through legal dispute resolution support.
The Explanation
The Explanation, inserted by Act 23 of 2019, section 193 (w.e.f. 1-8-2019), begins "For the removal of doubts, it is hereby clarified that". It has two clauses.
Clause (i): the six processes
A person is guilty if found to have directly or indirectly attempted to indulge, or knowingly assisted, or knowingly is a party, or is actually involved in one or more of the following processes or activities connected with proceeds of crime, "in any manner whatsoever":
- concealment;
- possession;
- acquisition;
- use;
- projecting as untainted property; or
- claiming as untainted property.
The word "or" between the items means a single process is enough. A person does not have to be involved in all six.
Clause (ii): a continuing activity
The process or activity connected with proceeds of crime "is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever".
Read plainly, the text treats the activity as not complete at the moment the property is first obtained. It continues for as long as the person directly or indirectly enjoys the proceeds by any of the listed means. The Explanation does not speak of dates, limits or any other period, and this article adds none.
How section 3 connects to the rest of the Act
Section 3 is the base of Chapter II. The punishment is in section 4, and the processes that follow an allegation, beginning with provisional attachment under section 5, depend on property being proceeds of crime in relation to a scheduled offence. Our general guides on the PMLA introduction and on definitions of money laundering and proceeds of crime give a wider overview.
Practical illustrations
These examples are invented and do not describe any real person or case.
Illustration 1: knowing assistance. Mr Harsh Vora knows that the money in an account belongs to a person who obtained it through a scheduled offence. He agrees to hold the money in his own account and to describe it to a bank as his business income. On the face of the section, he knowingly assists in a process connected with proceeds of crime, namely projecting it as untainted property.
Illustration 2: no knowledge. A clerk, Ms Nisha Pillai, processes a deposit slip routinely and has no idea of the source of the funds. Section 3 uses "knowingly" for assisting and being a party, so those limbs are not satisfied on facts like these. Whether any other limb applies is a question of fact under the section, not something this article can settle.
Illustration 3: continuing enjoyment. A person holds a flat bought with proceeds of crime and continues to live in it. Clause (ii) of the Explanation treats possession and use as continuing, so the activity is treated as continuing for as long as the person directly or indirectly enjoys the proceeds by those means.
What section 3 does not say
- It does not set the punishment; that is section 4.
- It does not list the scheduled offences; they are in the Schedule, covered in our articles on the Schedule.
- It does not give a limit of time for the continuing activity.
- It does not prescribe any procedure; procedure is in other sections.
Section 3 names no other Act, so there is no reference to another law to check in this section. The reader should still check the current law applicable to any scheduled offence involved.
Need help with a money-laundering allegation?
An allegation under section 3 raises questions about the underlying offence, the source of funds and the person's knowledge. If you or your entity face such a question, our team can work through the documents and the position with you under legal dispute resolution.
Key takeaways
- Section 3 makes a person guilty who directly or indirectly attempts to indulge, knowingly assists, knowingly is a party or is actually involved in a process or activity connected with proceeds of crime.
- The Explanation lists six processes: concealment, possession, acquisition, use, projecting as untainted property and claiming as untainted property.
- One process is enough; the Explanation says "one or more".
- The activity is described as continuing until the person directly or indirectly enjoys the proceeds by any of the listed means.
- The Explanation was inserted by Act 23 of 2019 (w.e.f. 1-8-2019), and the words "including its concealment, possession, acquisition or use and projecting or claiming" by Act 2 of 2013 (w.e.f. 15-2-2013).
- The punishment for the offence is in section 4.
Read next
- Section 4: punishment for money-laundering
- Proceeds of crime, property, scheduled offence and other key terms
- Section 5: provisional attachment of property
- Introduction to PMLA 2002
Disclaimer: Based on the consolidated text of the Prevention of Money-laundering Act, 2002 published by the Enforcement Directorate, showing amendments up to Act 23 of 2019 (1 August 2019), and on the Department of Revenue consolidated copy of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 listing amendments up to 19 July 2024, as consulted on 2 October 2026. Later amendments, notifications, other rules and regulator directions should be checked. This article is general information, not legal advice; check the official text before acting.