PMLA and the ED: A Need for Recalibration

The Act allows the ED to circumvent otherwise applicable safeguards to basic civil liberties.

The PMLA was brought into force in 2005, in line with the recommendations of the Financial Action Task Force.

(Photo: Namita Chauhan/The Quint)

The Prevention of Money Laundering Act (or the PMLA, a more widely recognised and feared acronym) was enacted in 2002, pursuant to the emergent need to combat rising money-laundering activities in the world; and in compliance with India’s international obligation to target that phenomenon arising out of the Political Declaration and Global Programme of Action adopted by the General Assembly of the United Nations in 1990 and 1998.

While the primary objective of the declarations was to counter widespread illegal trafficking of drugs and drug abuse (arising out of the United States and later the global “War on Drugs”), one of their specific resolutions pertained to enacting anti-money laundering legislation.

India, the PMLA was finally brought into force in 2005, in line with the recommendations of the Financial Action Task Force (an international body leading global action to tackle money laundering, terrorist, and proliferation financing), which finally led us to become a member of the FATF in 2010.

While the object of the Act in its initial version was more aligned with the problem it sought to address, several amendments (the major ones being the amendments in 2012 and 2019) over time made the provisions of the PMLA exceedingly harsh, oppressive, and prone to misuse at the hands of the agency tasked with its implementation and enforcement, aptly named the Directorate of Enforcement (or the ED). The scheme of the Act is such that it allows the ED to circumvent otherwise applicable safeguards to basic civil liberties, and also tends to cripple the functioning of genuine businesses and institutions.

A Wide Net

Simply put, the meaning of the term ‘money laundering’ is to make illegitimate money or money derived from illegal/illegitimate sources, appear to be legitimate and to integrate or assimilate such money into the legitimate financial system, to try and remove the taint.

The definition of the offence under PMLA, however, has been made extremely wide and seeks to cast a wide net thereby enabling the prosecution of any ‘person’ (an all-encompassing term defined in the Act covering individuals and companies alike) connected in any manner or even remotely with the concealment, possession, acquisition, or use of tainted money, and projecting or claiming of tainted money as untainted money.

Now, money laundering cannot independently occur without the existence of and the alleged commission of an offence as laid out in the schedule to the PMLA, which is called the “scheduled offence”, the illegal gains from which are the subject matter of the act. Several offences have been notified under the schedule, including some offences which have a direct or reasonable nexus with the object of enacting the PMLA.

The schedule, however, also contains many offences that are irrelevant to the original purpose of the Act and the object sought to be achieved, such as offences under several environmental laws including legislations for the prevention and control of pollution of air and water, the Wildlife Protection Act, the Biological Diversity Act, etc. which hardly have any connection with the menace it sought to address.

In addition to be above, the ED tends to exercise limitless powers, which have been bestowed upon it by the Act. From the very inception of a case of money laundering that can be triggered by the mere allegation with respect to the commission of a scheduled offence, the ED can attach, freeze, and seize immovable and moveable properties, bank accounts, etc. of any accused (an individual or financial entity such as companies, LLPs, etc.) or a person related to the accused, or even a mere witness.

The 'Reasonable Belief' Requirement

The only requirement for exercising this power is the existence of the ‘reasonable belief’ of an officer of the department, that the property sought to be attached comes under ‘proceeds of crime’ or the value of ‘proceeds of crime’, but not yet proven to be so through a trial.

The term ‘reasonable belief’ is based completely on the subjective satisfaction and the ipse dixit of the ED, and is supported by material, whose authenticity and/or admissibility, is sometimes highly questionable, and is yet to face the test of a trial before a competent court of law.

The attachment powers are subject only to the validation of a quasi-judicial authority called the ‘Adjudicating Authority’ which is presided over by retired public servants appointed by the central government, who often act as a rubber stamp to affirm decisions of the directorate.

The attachment continues to operate till the end of the trial, which can take an indefinite number of years to conclude. The aggrieved does have a right to appeal. However, owing to the sheer volume of such attachments and ancillary orders, it ends up being a long, arduous and expensive process.

Further, there is a legal bar on the granting of bail to an accused arrested under the PMLA. While as per the general bail jurisprudence in India – bail is the rule and its rejection is the exception (because of the cardinal principle that an accused is presumed innocent until his guilt is proven), a PMLA arrestee can be released on bail only if he satisfies that he is prima-facie not guilty of the offence, which is an extremely onerous burden and reverses the presumption of innocence at the stage of bail.

Why Section 50 is Controversial

Another potent weapon in the ED’s arsenal is the power to summon and interrogate any person, without specifying whether they are an accused or a witness at that time, under Section 50 of the PMLA, and making them bound to answer truthfully under the threat of penalty.

Adding to this, statements recorded by ED officers through this process are stated to be admissible in evidence, contrary to the Indian Evidence Act which states that statements recorded by police officers (especially confessions) cannot be used in evidence. An ED officer seeks to circumvent this safeguard, by claiming to not be acting as a police officer in the strict sense of the term, albeit with the same powers.

The Honourable Supreme Court seems to agree with the ED and has held that they are not police officers and, therefore, statements made to them would not be affected by the bar contained in the Evidence Act.

The author respectfully disagrees with this argument as ED officers are no different from police officers, especially since they exercise the same powers of investigation, arrest, remand, the search of property and person, seizure, etc. as police officers, and since their main objective is to prosecute and punish offenders of money laundering.

That apart, such statements ought to be given limited weightage by the courts especially while deciding bail applications, at which stage it is close to impossible for an accused to procure and produce material that exonerates him. The use of such statements to deny bail and curtail liberty exacerbates the problem and renders the efforts of an accused to secure bail otiose.

The Way Things Stand

It is, unfortunately, becoming a widely held belief that the Act is being used to settle political scores, silence the opposition, and unfairly target legitimate businesses and institutions, and with the way things stand, the process has itself become the punishment, allowing the ED to exercise these powers without suitable checks and balances. It is imperative to stress that the ED has done some exemplary work in genuine money laundering cases, and it would be unfair and extreme to assume political vendetta in all cases where politicians from the opposition are prosecuted.

However, the trend of prosecuting largely those who are opposed to a particular party also cannot be ignored.

An institution like the ED, tasked with such an important function, is prone to be ridiculed when they are perceived to have become tools, albeit unwillingly, to exact political vendetta. It tends to erode the sanctity of the institution, muddying the good work done by its extremely competent officers in genuine cases.

Hence, it is in the interest of the department, to be more circumspect and conscientious in investigating offences under the Act and while exercising the power to arrest, attach, seize, freeze, etc., so that it is perceived to be acting fairly and in the interest of justice. Judicial intervention must be swift and decisive in stemming any abuse of power and due process, as is required in a society governed by the rule of law.

Reasonable belief as a term used in the act must be strictly construed to be based on precise and actionable material and not allow it to be capricious, fanciful or containing leaps of imagination, and be further subject to the strict scrutiny of the courts, immediately upon the deprivation of an individual’s liberty or initiation of any coercive action. Further, it is expected that decisions of the courts; particularly higher courts, are unequivocal and consistent, especially those which deal with an individual’s life and liberty.

(Abhir Datt is a criminal lawyer practising in delhi and has extensive experience in handling cases under the PMLA. This is an opinion article and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)