Prevention of Money Laundering Act (PMLA)- Explained Pointwise

The Supreme Court has recently endorsed the sweeping powers of the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA). Recently, a SC bench headed by Justice Bela M. Trivedi, castigated four Tamil Nadu District Collectors for failing to appear in person in response to a summons issued to them under PMLA, by the anti-money laundering body. The SC bench reaffirmed ED’s powers to call “anybody for any information” under the PMLA.

However, Prevention of Money Laundering Act 2002 (PMLA) has been under scrutiny for inclusion of certain offences which are not directly aimed at combating money laundering. Recently, the Delhi Court slammed the Enforcement Directorate (ED) for a faulty Prevention of Money Laundering Act (PMLA) probe and said the ED must introspect steps to ensure expeditious and fair investigations. Opposition parties in India have alleged the misuse of PMLA provisions by the ED to stifle democracy in India. It is in this context, a detailed introspection of PMLA becomes necessary.

What is Prevention of Money Laundering Act (PMLA)? What is the Historical Background of its enaction?

PMLA- The Prevention of Money Laundering Act, 2002 (PMLA) is an Act of the Parliament of India enacted to prevent money laundering and provide for the confiscation of property derived from money laundering. It aims to combat money laundering related to illegal activities such as drug trafficking, smuggling, and terrorism financing.

Objectives of PMLA

1. Prevention- To prevent money laundering by implementing stringent measures and monitoring financial transactions.

2. Detection- To detect and investigate instances of money laundering through proper enforcement and regulatory mechanisms.

3. Confiscation- To confiscate properties derived from money laundering activities to deter offenders and disrupt illicit financial flows.

4. International Cooperation- To facilitate international cooperation in combating money laundering and terrorist financing activities.

Historical background of enacting PMLA

The enaction of PMLA finds its genesis in the various conventions to combat money laundering.

PMLA was enacted under Art 253 of the Indian constitution to fulfil India’s obligation under these treaties and conventions.

What are the Salient Features of Prevention of Money Laundering Act?

1. Section 3 (Defines money laundering)- Section 3 of the PMLA defines money laundering as any attempt, assistance, or involvement in processes connected to the proceeds of crime to project it as untainted property.

2. Offences under PMLA- Offences mentioned under Part A, B and C of the Schedule of the Act.

3. Section 4 (Punishment for Money Laundering)- The offence of money-laundering shall be punishable with rigorous imprisonment for a term not be less than three years extending to seven years and shall also be liable to fine.

4. Agencies powers under the Act
a. The Enforcement Directorate (ED) in the Department of Revenue, Ministry of Finance, is responsible for investigating the offences of money laundering and attachment of properties.
b. The Financial Intelligence Unit-India (FIU-IND), under the Department of Revenue, is the central national agency responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions.
c. The scheduled offences are separately investigated by the agencies mentioned under respective acts. For ex- The local police, CBI, customs departments, SEBI, or any other investigative agency, as the case may be.

5. Obligations under the Act
a. Imposes obligations on banking companies, financial institutions, and intermediaries to verify and maintain client identity records.
b. These financial firms are required to report their financial transactions to the Financial Intelligence Unit-India (FIU-IND).

6. Setting up of Authority
a. PMLA envisages the setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it.
b. It also envisages the setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority and the authorities like Director FIU-IND.

7. Special Courts under PMLA- One or more courts of sessions are designated as Special Courts to try offences under PMLA and other related offences.

What are the concerns regarding the PMLA Act?

1. Inclusion of minor and less serious offences- Inclusion of other less serious offences in the schedule dilutes the original intent of the law. The schedule of the Act has been expanded over the years, to include even minor and non-serious offences such as copyright and trademark infringements.

2. Equates punishment for ordinary crimes with serious crimes- PMLA equates the punishment under an ordinary crime with a serious economic offence. For ex- With the addition of The Prevention of Corruption Act, 1988 to the schedule of offences, PMLA applies with all its rigour to public servants. Thus, a public servant charged with corruption and a hard-core drug trafficker are treated alike.

3. Broad Definition of ‘Proceeds of Crime’- The broad definition of ‘proceeds of crime, provides considerable discretion to the authorities. Critics fear that this discretion, in determination of ‘proceeds of crime’, can be misused by the investigating authorities.

4. Stringent Bail Conditions- An accused is denied bail by the entire hierarchy of courts because the bail provision under PMLA state that a judge can give bail only when he is satisfied that the accused is innocent. This is against the Anglo-Saxon jurisprudence, which presumes a person innocent until proven guilty.

5. Burden of Proof of innocence on the accused- The burden of proof of innocence, on the accused, presents a prominent challenge in ensuring a free and fair trial.

6. Against the Federal principles and Basic structure Doctrine- Under the PMLA, the ED, can carry out investigation without the prior consent of the concerned State. This is unlike other central police organisations, (like CBI), which are required to obtain the consent of the state before carrying out any policing/investigating activity. This impinges the principle of federalism, which is part of the Basic Structure of the Constitution.

7. Violation of the Fundamental Rights of Accused
a. Violation of Article 21- Under PMLA, the ED does not require disclosing the details of Enforcement Case Information Report (ECIR), which contains the allegations against the accused person. This is against the fundamental right of the accused to be informed of the charges and allegations, which is a universally recognised right, and is part of the right to life and liberty under Article 21 of the Constitution.
b. Violation of Article 14- Equating the punishment of accused of minor crimes and serious economic offence, is violation of the fundamental right to equality under Article 14 of the constitution.
c. Violation of Article 20(3)- The power of the authorities to issue summons to ‘any person’ (including the accused), to give evidence or produce records during the course of an investigation is in violation of the right against self-incrimination, which is a fundamental right under Article 20(3) of the Constitution.

8. Extensive powers to the authorities- The Act grants the Enforcement Directorate (ED) extensive powers of summons, arrest, and raids. This excessive power to the authorities, can potentially lead to its misuse and overreach.

What have been the observations of the SC?

What Should be the Way Forward?

1. Precise Definition of ‘Proceeds of Crime’- A precise definition of ‘Proceeds of Crime’ under PMLA must be incorporated to mitigate the potential abuse of its definition by the authorities.

2. Reassessment of Burden of Proof- An amendment to PMLA which provides a more equitable distribution of the burden of proof between the prosecution and the accused, can be brought.

3. Safeguards Against Overreach by Officers- An independent oversight mechanism to review and monitor the actions of law enforcement officers must be established at the earliest.

4. Review of the Stringent Bail Conditions- The stringent bail conditions for minor and non serious economic offence must be done away with.

5. Enhanced Independence and Transparency of ED- Measures like regular reporting and disclosure of cases handled, convictions secured, and actions taken, must be incorporated to enhance the trasparency in ED’s functioning. These measures will ensure confidence among the public that ED is not a politicised institution.