BACKGROUND
During last year’s National election season, the Enforcement Department (ED) accused and detained numerous prominent politicians for money laundering under the Prevention of Money Laundering Act, 2002. Amidst this chaos, during a recent hearing on Delhi Chief Minister Arvind Kejriwal’s bail, the Supreme Court of India sent a message to the ED by granting Kejriwal bail. The court said that the bail is applicable until June 1, after which he must surrender to authorities again.
After the Delhi High Court denied him bail last month, the chief minister filed a case in the Supreme Court. The Enforcement Directorate, India’s financial crimes department, vehemently objected to his bail in court. Two days before the Indian general election results are expected, on June 2, Mr. Kejriwal must surrender, according to the bench of Justices Sanjiv Khanna and Dipankar Datta. According to the court, Mr. Kejriwal will be permitted to run for office after his release, but will not be allowed to carry out any official tasks during the bail. period[1].
The ED objected to Mr. Kejriwal’s bail request during the court hearing, saying it would create an unfavorable precedent because he had ignored the agency’s summons nine times. However, Justice Khanna stated: “We consider whether there would be misuse or whether the individual is a hardened offender before granting interim bail. Here, that is not the case.”[2] In light of the disarray above, it is critical to comprehend the PMLA and how the ED operates to address the grave subject of money laundering. This article will assist you in understanding how ED operates and how it applies PMLA.
ABOUT THE ENFORCEMENT DIRECTORATE AND ITS FUNCTIONS
The Enforcement Directorate’s roots are in the Enforcement Unit, established in 1956 by the Department of Economic Affairs to handle infractions of the Foreign Exchange Regulation Act, 1947 (FERA), which governs exchange control laws. With the 1973 revisions to the Foreign Exchange Regulation Act (FERA), there was a greater demand for a distinct organization to oversee its implementation. In 1976, the Enforcement Directorate was established as a particular organisation. ED draws its unique authority to operate from the Fugitive Economic Offenders Act of 2018 (FEOA), the Foreign Exchange Management Act of 1999 (FEMA), and the Prevention of Money Laundering Act of 2002 (PMLA).
“The Directorate’s mandated duties include upholding the following Acts:
- This Directorate may support instances of preventive detention for FEMA violations under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
- Foreign Exchange Management Act, 1999 (FEMA): This civil law was passed to streamline and modify the regulations about facilitating payments and trade with other countries and encourage the orderly growth and upkeep of India’s foreign exchange market. The Enforcement Department (ED) has been tasked with investigating possible violations of foreign exchange laws and regulations, making decisions, and punishing individuals who have broken the law.
- Prevention of Money Laundering Act, 2002 (PMLA): The ED has been tasked with carrying out the PMLA’s provisions by conducting investigations to identify assets obtained through criminal activity, temporarily attaching property, and ensuring that the offenders are prosecuted and that a particular court seizes the property. This blog will focus on the PMLA.
- Fugitive Economic Offenders Act, 2018 (FEOA): The Government of India recently introduced the Fugitive Economic Offenders Act, 2018 (FEOA), and ED is tasked with enforcing it in light of the rise in instances involving economic offenders seeking refuge abroad.”[3]
PMLA AND ITS APPLICATION
The Prevention of Money Laundering Act, 2002 (PMLA) is a law that prohibits money laundering, provides for the seizure of assets obtained via or associated with money laundering, and addresses other related or incidental issues. Its goal is to stop money laundering associated with illicit activities, including financing terrorism and drug trafficking.[4]
The law broadly defines money laundering actions and makes it a crime to launder money. It includes the direct or indirect concealment, acquisition, ownership, or use of criminal proceeds to portray them as pure or lawful. ‘Money laundering is defined in Section 3 of the PMLA as any attempt to present the proceeds of crime as uncontaminated property and any help or involvement in related processes.’[5] The PMLA allows collaboration and coordination with other nations on asset recovery and money laundering issues.
“The PMLA applies to several organizations called “Reporting Entities”. Reporting entities include intermediaries, banks, financial institutions, specialised persons like chartered accountants, company secretaries, and cost and work accountants. Reporting Entities had an obligation to keep records of their transactions, conduct customer due diligence (KYC), and report suspicious activity to the appropriate authorities.”[6] The Act also provides for establishing Special Courts that are limited to examining matters about the contravention of the PMLA. Special Courts can take cognizance of money laundering offences, render decisions, impose penalties, and direct freezing and confiscation of property.[7]
The law empowers the Enforcement Directorate (ED) and other agencies to investigate allegations of money laundering and act on an enforcement basis, using the enforcement powers granted to those agencies.[8] These are the same types of powers that permit agencies to arrest and gather assets acquired by illegal means, pursue claims against individuals accused of violating money laundering laws, and seize and forfeit proceeds of crime.[9]
CONCERNS REGARDING THE USE OF MLA BY ED
The broad definition of “proceeds of crime” gives ED significant freedom and may allow officials to abuse their discretion. PMLA also compares the punishment for a non-violent crime with a substantial economic violation. Furthermore, the primary intent of the Act is undermined by the insertion of other, less severe offenses into the schedule. Over time, the Act’s schedule has been expanded to include relatively minor and non-serious offenses, including trademark and copyright breaches.[10]
The PMLA’s requirement that the accused prove their innocence poses a significant obstacle to a fair and impartial trial. The PMLA’s bail clause also introduces the twin condition system, which can be found in section 45 of the PMLA.[11]. According to this system, a judge can only grant bail if he has reasonable grounds to believe that the accused is not guilty of the offense and is not likely to commit any other crimes while on bail. The strict bail requirements go against the criminal jurisprudence of India, which maintains that an individual is presumed innocent until proven guilty.
An equivalent of a First Information Report (FIR), the PMLA regards the Enforcement Case Information Report (ECIR) as an “internal document” that contains the accusations made against the accused.[12] However, unlike in the case of a FIR, the ED is not required to disclose the details of the ECIR. This goes against the accused’s fundamental right to know the charges and allegations against them, which is a right that is universally acknowledged and is a part of their right to life and liberty under Article 21 of the Constitution[13].
“The ED can compel a person accused to provide self-incriminating statements under Section 50.”[14] Under the PMLA, such statements can be utilized against the accused in a trial. The right of an accused person against self-incrimination is violated when they are compelled to provide statements to the authorities that are prejudicial to themselves. “The ED’s power to summon (any person – including the accused) witness or produce documents to an investigation impinges on Article 20(3) of the Constitution’s right to protection against self-incrimination.”
CONCLUSION
In conclusion, while the Prevention of Money Laundering Act (PMLA) is critical to preventing financial crimes and protecting the integrity of the economic system in India, it is enforced by the ED (Enforcement Directorate), which is problematic in terms of fairness, transparency, and personal rights.
A broad reading of the term “proceeds of crime” and excessive caution on bail can be misused to undermine the presumption of innocence. In addition, the failure to disclose charges and coerced self-incriminating confessions undermine the right to due process. The system has to change, and the PMLA process has to bring to life constitutional principles related to the expectation of a fair trial and the right against self-incrimination. There is a way to increase transparency, accountability, and oversight of the ED and allow for judicial review of their actions in the anti-money laundering realm without compromising society’s desire to combat financial crimes and protect the privacy and liberties of individuals. Amendment of the PMLA will make it a more meaningful legislation while safeguarding the accused’s rights by eliminating ambiguities, streamlining processes, and affording additional protections.
Author(s) Name: Mohit Patnaik (XIM University, Bhubaneswar)
References:
[1] Meryl Sebastian, ‘Arvind Kejriwal: India court grants bail to Delhi leader’ (BBC News, 10 May 2024) < https://www.bbc.com/news/world-asia-india-68767574> accessed 18 May 2024
[2] ibid
[3]‘Directorate of Enforcement (ED)’ (2022) Drishti IAS < https://www.drishtiias.com/important-institutions/drishti-specials-important-institutions-national-institutions/directorate-of-enforcement-ed> accessed 18 May 2024
[4] Prashant shekhar, ‘Prevention of Money Laundering Act (PMLA)- Explained Point wise’ (Forum IAS, 3 April 2024) < https://forumias.com/blog/prevention-of-money-laundering-act-pmla-explained-pointwise/> accessed 18 May 2024
[5] The Prevention of Money-Laundering Act 2002, s 3
[6]Ayushi Singh, ‘Enhanced Measures For The Prevention Of Money Laundering Act, 2002 Notification’ <https://www.juscorpus.com/enhanced-measures-for-the-prevention-of-money-laundering-act-2002-notification/> (Jus Corpus, 1 July 2023) accessed 18 May 2024
[7] ibid
[8] The Prevention of Money-Laundering Act 2002, s 50
[9] ibid
[10] ibid
[11] The Prevention of Money-Laundering Act 2002, s 45
[12] ‘Directorate of Enforcement (ED)’ (2022) Drishti IAS < https://www.drishtiias.com/important-institutions/drishti-specials-important-institutions-national-institutions/directorate-of-enforcement-ed> accessed 18 May 2024
[13] The Constitution of India 1950, art 21
[14] The Prevention of Money-Laundering Act 2002, s 50
