Misuse of PMLA- Time for a Wakeup Call?

Top Stories Misuse of PMLA- Time for a Wakeup Call? “Is he a witness? Is he an accused? He doesn’t know. You just send him a notice. Enforcement Directorate (ED) sends him a notice saying please come appear on such and such day. It’s at such a time. What kind of procedure is that? Is somebody not supposed to tell me before the arrest what is the reason why he wants to call me to arrest me,”- Senior Advocate and Rajya Sabha MP Kapil Sibal By Kalyani B. Nair – On April 22, 2024 5:00 pm – 6 mins read Money laundering is defined as the process by which an illegal fund, perhaps, black money, obtained from illegal activities is disguised as legal money, which is eventually portrayed to be white money. This is done by passing the funds through several channels.

The Prevention of Money Laundering Act, 2002 ( PMLA ) forms the core of the legal framework put in place by India to combat money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005. The main intention of the legislature to enact such a legislation was to combat the crime of legalising the economic gains obtained from illegal sources. This Act authorises the Indian Government and the police officials to seize any property that they have investigated to have been earned from illegal sources or by conducting any illegal activities.

The list of offences under PMLA are: Part A enlists offences under various acts such as: Indian Penal Code, Narcotics Drugs and Psychotropic Substances Act, Prevention of Corruption Act, Antiquities and Art Treasures Act, Copyright Act, Trademark Act, Wildlife Protection Act, and Information Technology Act. Part B specifies offences that are Part A offences, but the value involved in such offences is Rs 1 crore or more. Part C deals with trans-border crimes and reflects the dedication to tackle money laundering across global boundaries. Authority and Power to Arrest under the PMLASection 19 of the PMLA empowers authorized officials of the Directorate of Enforcement ( ED ) to arrest persons based on the material in their possession, providing a reasonable basis to suspect that an individual has committed an offence punishable under the law. The Act the recording of reasons for such belief in writing, with the grounds of arrest to be communicated to the accused “as soon as may be”.Section 50 of the PMLA entails the powers of authorities in issuing summons, producing documents, and giving evidence. It equates the Director’s powers to those of a civil court under the Code of Civil Procedure, 1908, for matters like discovery and inspection, enforcing attendance, compelling production of documents, and issuing commissions. Section 50(2) of the PMLA empowers the Director and other officers to summon any person during any investigation or proceedings under the PMLA.

Rule 2(p) and Rule 11 of PML Rules, 2005 further specify these powers. Section 50(3) of the PMLA specifies that all summoned persons must attend in person or through authorised agents, state the truth upon examination, and produce required documents. Is it the era of misuse?”The fundamental issue is if the system has no integrity, you can twist any law in the manner that you like. We’ve reached a stage in this country where systems have no integrity.

Police have no integrity, institutions have no integrity. When I mean integrity, it does not mean individual persons. There will be individual persons in any system, who are phenomenal human beings, who will try and protect you. I mean as an institutional structure this nation is losing its embrace to integrity,” Kapil Sibal added.Supreme Court Judge Justice Ujjal Bhuyan recently spoke on the need to judiciously use the powers under the Prevention of Money Laundering Act (PMLA) and cautioned that if the law is misused, negative perceptions may rise against the Enforcement Directorate. The nation will suffer if the law is misused, Justice Ujjal Bhuyan highlighted.By invoking the provisions of PMLA, the ED can start investigation by registering an ECIR, which is akin to an FIR. As of the Supreme Court judgment supplying a copy of ECIR to the accused person is not mandatory.

The prosecution under the PMLA can be initiated if an FIR in relation to a scheduled offence has been registered with the jurisdictional police, or the same is pending enquiry or trial. There is no adequate guidelines which in turn grants unfettered powers to the authorities to arrest a person arbitrarily.

The ED can carry out investigations within the territory of the State without the prior consent of the concerned State. Since there is no requirement to obtain the consent of the state, the exercise of policing power by the ED within the territory of a state without seeking the consent is against the concept of federalism. Further the schedule of offences includes minor and non-serious offences thereby expanding the scope of the PMLA.Under Section 19 of the PMLA, the ED, is merely required to furnish the grounds of arrest, and there is no requirement to disclose the contents of the ECIR, which contains the allegations against the accused person which is the violation of the fundamental right of a person to be informed of the charges and allegations against at the initial stage itself.An accused will be denied bail by the entire hierarchy of courts because the bail provision contained in section 45 of the PMLA says that a judge can give bail only when he is satisfied that the accused is innocent.Section 50 of the PMLA, empowers the authorities under the PMLA to issue summons to “any person”, including the accused, to give evidence or produce records during an investigation which is also a clear violation of the right against self-incrimination.There is a lack of transparency in the ED under the PML Act.

Even the Enforcement Case Information Report, commonly known as the ECIR, which is an equivalent of the FIR, is said to be an ‘internal document’ and not provided to the accused. The ECIR can be filed on the whims and fancies of the ED as opposed to the principles and practices set under the criminal procedure law.The Legal OutlookThe Supreme Court in Vijay Madanlal Choudhary v. Union of India upheld the validity of various contested provisions of the PMLA, on the ground that all the provisions have a reasonable nexus with the objects sought to be achieved by the legislation in preventing money-laundering effectively. In Pankaj Bansal v. Union of India, the Supreme Court concluded that, in all instances of ED arrests, the grounds must be provided in a written format to ensure transparency and facilitate the accused’s understanding of the case, aligning with the principles of justice. The Court noted “it would be necessary, henceforth, that a copy of such written grounds of arrest is furnished to the arrested person as a matter of course and without exception”.In Ram Kishor case, the Supreme Court clarified the ED’s obligation to provide written grounds of arrest to the accused under section 19 of the PMLA at the time of arrest.

The issue before the Supreme Court was whether the ED’s action, involving the handover of the document, subsequent retrieval after endorsement, and failure to furnish a copy to the accused at the time of arrest, would render the arrest illegal under section 19 of the PMLA.The Way forwardThe Financial Action Task Force (FATF) has made certain recommendations for combating the issue of money laundering; some of the suggestions are as follows: Risks should be identified and policies and schemes can be developed to alleviate the threat of money laundering and terrorist financing.  The offence of money laundering should be considered as a crime in accordance with the Vienna Convention and the Palermo Convention. Apply preventive measures for the economic sector and other designated sectors. The countries must have policies against money laundering and must have a separate designated authority that is responsible for implementing and carrying out such policies.  Providing legal help mutually in matters relating to money laundering and effectively conducting extradition requests on matters of money laundering and terrorist financing. A more precise definition of “Proceeds of Crime” in the PMLA to mitigate potential ambiguity that could disrupt financial operations.

A reasonable burden of proof that balances the need for a fair trial while safeguarding fundamental rights guaranteed by the Constitution can be implemented for ensuring more fairness. Additional checks and balances to prevent potential overreach by officers, particularly in cases involving political opponents. Establishment of clear guidelines and protocols for investigative methods to protect individual rights and privacy, ensuring legally justified asset seizures and adherence to due process is the need of the hour.Introduction of measures to enhance transparency in the functioning of the ED, including regular reporting and disclosure of cases handled, convictions secured, and actions taken. A review on the stringent bail conditions is essential to uphold the Constitutional principles. Adopt a consultative and inclusive approach in the policymaking process, seeking input from legal experts, civil society organisations, financial institutions, and the public.Conclusion“Ek minute, ek minute. Shaant raho, tumhare ghar na ED aa jaaye (One minute. Keep quiet, or else the ED may arrive at your home)” This statement was made by a Member of the Parliament and is these words are reverberating in the walls of the Parliament of the largest democracy in the world ‘Our India’. The voices of the people of India should be heard and we cannot live in a threat that the ED will come to arrest us. “Everyone is in favor of free speech. Hardly a day passes without its being extolled, but some people’s idea of it is that they are free to say what they like, but if anyone says anything back, that is an outrage.” ― Winston Churchill, British politician

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