Sansad TV Perspective: Prevention of Money Laundering Act, 2002

In the series Sansad TV Perspective, we bring you an analysis of the discussion featured on the insightful programme ‘Perspective’ on Sansad TV, on various important topics affecting India and also the world. This analysis will help you immensely for the IAS exam, especially the mains exam, where a well-rounded understanding of topics is a prerequisite for writing answers that fetch good marks.

In this article, we feature the discussion on the topic: Prevention of Money Laundering Act, 2002.

Anchor: Teena Jha

Guests:

1. Karnal Singh, Former Chief, Enforcement Directorate
2. Dr. Justice Satish Chandra, Former Judge, Allahabad High Court
3. A. K. Bhattacharya, Editorial Director, Business Standard

Context: Recently, the Supreme Court of India overrode its own ruling to justify the PMLA provision for bail and upheld the constitutional validity of amendments to the PMLA.

Highlights of the discussion:

• Recent judgment upholding the provisions regarding the power of arrest, attachment and search and seizure is a shot in the arm for the Enforcement Directorate(ED).
• Upholding the “twin conditions” of bail under the PMLA will avoid delay in judgments and lead to a better conviction rate which stands at less than 0.5%. 
• PMLA is different from general criminal laws in various aspects.
• The increase in the number of cases registered by ED is mainly because of an increase in its manpower over the years and is not politically motivated.
• With respect to the final decided cases – the conviction rate stands around 90% whereas it stands at a mere 0.5% against the total number of registered cases.
• ‘Satisfactory notes’ provided by ED in writing to the court and can act as checks and balances to the powers of ED. 
• ED should use these enhanced powers with greater responsibility and commitment to expeditiously clear the cases.

PMLA (Amendment) Act, 2012:

• The Amendment adds the concept of ‘reporting entity’ which would include a financial institution, banking company, intermediary and others.
• Amendment removed the fine ceiling of rupees 5 lakh.
• It also provided for provisional attachment and confiscation of property of any person involved in money laundering activities.
• Amendment gives the ED and government virtually unchecked powers of summons, raid, arrest with strict bail policy while shifting the burden of proof of innocence onto the accused instead of prosecution.

Image Source: Economic times

Supreme Court Ruling:

• The ruling came on a challenge raised against the amendments introduced to the 2002 Act by way of the Finance Acts.
• The 3-judge Bench said the method of introduction of the amendments through Money Bills would be separately examined by a larger Bench of the Supreme Court.
• The apex court gave an extensive meaning to the offense of “money laundering” to add “every process and activity”, direct or indirect, dealing with the proceeds of the crime.
• The three-judge bench opined that money laundering is an offense against the sovereignty and integrity of the country.
• The two-judge bench in the Nikesh Tarachand Shah vs Union of India, 2017 case had declared the ‘twin test’ of bail under PMLA as unconstitutional since it was manifestly arbitrary.
  • The bench relied on Article 39 of the Constitution, which mandates the State to prevent the concentration of wealth, to uphold the stringent bail conditions under PMLA.
  • The Supreme overruled this 2017 order and upheld the reverse burden of proof condition for the grant of bail.
  • However, on a case-to-case basis, undertrials could seek bail under Section 436A of CrPC if they had already spent 50%  of the term of punishment in jail for the offense prescribed in law. 
• The court said the summons could be issued even to witnesses in the inquiry conducted by the authorized officials and a person cannot claim protection under Article 20(3) of the Indian Constitution.
• Enforcement Case Information Report (ECIR) cannot be equated with a First Information report as it is an internal document of ED.
  • The Court observed that as long as the person has been informed about the grounds of his arrest, Article 22(1) of the Indian Constitution is not violated.
• The Court also upheld the ED’s power under Section 5 of the Act (order provisional attachment of any proceeds of crime).

Shortcomings of the Judgment:

• The method of introduction of the amendments through Money Bills itself is contested. 
• Money laundering has transnational consequences negatively affecting the financial systems and sovereignty of the countries.
• Concentrating completely on India’s commitment to the international community on strengthening the domestic legal framework for combating money laundering might lead to the violation of fundamental rights.
• However, experience suggests that money laundering in the Indian context is linked to offenses that are attached to the Act as a schedule. 
  • These scheduled offences ought to be ideally limited to grave offences such as narcotics, terrorism, corruption, smuggling and serious forms of tax evasions. However, in practice, the list contains offenses such as forgery, fraud, kidnapping, cheating and even copyright and trademark infringements. 
• The provision of disclosing and submitting documents, and then signing them under pain of prosecution can be seen as a violation of fundamental rights under Article 20(3).
• Misuse of ED’s power by the executive to target opponents in future might be seen as the judiciary’s failure to protect personal liberty from executive excess.

Conclusion: 

Money laundering affects the social and economic fabric of the country and tends to promote other serious offenses like terrorism and drug trafficking. The recent judgment by the Supreme Court upholding the validity of the PMLA addresses the urgent need for comprehensive legislation to prevent money laundering and prosecute those indulging in activities related to the proceeds of crime.

Read all the previous Sansad TV Perspective articles in the link.

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