Enforcement Directorate: Significance and Criticisms – Explained, pointwise

Introduction

The Enforcement Directorate (ED) has been criticized for taking on roles similar to a policing agency and has faced accusations of targeting political opponents of the government. Recently, the Supreme Court has invalidated the third extension of tenure given by the government to the Director of Enforcement Directorate. The judgement has brought back the issue of ED’s functioning into public debate. 

Read more: Supreme Court asks ED chief to quit; but upholds amendments

About the Enforcement Directorate 

ED is a multi-disciplinary organization mandated with investigation of offences of money laundering and violations of foreign exchange laws. It is a non-statutory body under the Department of Revenue, Ministry of Finance. 

The statutory functions of the agency include enforcement of following Acts: 

1. The Prevention of Money Laundering Act, 2002 (PMLA):ED has been given the responsibility to enforce the provisions of the PMLA. It conducts investigation to trace the assets derived from proceeds of crime and ensures prosecution of the offenders and confiscation of the property by the Special court. 
2. The Foreign Exchange Management Act, 1999 (FEMA):The ED has been entrusted with the responsibility of investigating suspected violations of foreign exchange laws and regulations. Additionally, it has the authority to adjudicate cases and impose penalties on those found to have contravened these laws.
3. The Fugitive Economic Offenders Act, 2018 (FEOA): Under this law, the agency is mandated to seize the properties of fugitive economic offenders who have fled from India to evade arrest.
4. Sponsoring agency under COFEPOSA: Under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), the ED is empowered to sponsor cases of preventive detention regarding contraventions of FEMA. 

How has the ED evolved with time? 

The ED was founded as “Enforcement Unit” within the Department of Economic Affairs of Ministry of Finance in 1956. It was renamed as “Enforcement Directorate” in 1957. 

It originally handled Exchange Control Laws violations under the Foreign Exchange Regulation Act, 1947 (FERA ’47). Under this act, the ED had the power to arrest for FERA violations, but the scope of powers was limited as the ED’s domain was largely limited to the corporate world. 

The administrative control of the ED was transferred from the Department of Economic Affairs to the Department of Revenue in 1960. 

The nature of ED changed as India changed. In the pre-liberalisation era, the laws driving ED were “regulation” laws whereas post-liberalisation, those became “management” laws. For example, FERA 1973 [which replaced FERA 1947 became the Foreign Exchange Management Act, 1999 (FEMA). 

Under FEMA, 1999, ED lost its power to arrest people or take them into custody as forex violations amounted to civil offenses, compoundable after payment of a fine. 

ED’s powers increased significantly after the enactment of PMLA, 2002 because the act re-empowered ED with the powers of criminal prosecution. The 2009 and 2013 amendments widened the scope of PMLA and provided further powers to the ED. 

Recent expansion of powers 

In 2022, the Centre has amended a 2006 notification to list 16 entities which will have to mandatorily share information with the Enforcement Directorate (ED) under Section 66 of the PMLA. Among these are the National Investigation Agency (NIA), the Competition Commission of India (CCI), the Serious Fraud Investigation Office (SFIO), and State Police Divisions. This has further widened ED’s powers. 

Again, in 2022, the Supreme Court upheld the amendments made to the PMLA through Finance Acts. It gives the ED virtually unchecked powers of summons, arrest, and raids, and makes bail nearly impossible while shifting the burden of proof of innocence on to the accused rather than the prosecution. 

How ED is different from other policing agencies? 

Predicate offence: A predicate offence (a crime that is a component of a more serious crime) is essential to charge someone of money laundering. The investigation and prosecution of the predicate offence is done typically by the Central Bureau of Investigation (CBI) or the State Police while the ED investigates the money laundering aspects. 

Inquiry is not investigation: Section 50 of the PMLA provides powers of a civil court to the ED authorities for summoning persons suspected of money laundering and recording statements. However, the Supreme Court held in Vijay Madanlal Choudhary v. Union of India (2022) that ED authorities are not police officers and an inquiry under the Section 50 of the PMLA is not ‘investigation’ in strict sense of the term for initiating prosecution. 

Other differences: In court, any statement given by an accused to the police is not admissible as evidence, but a statement made to an ED authority is considered admissible. While the accused can access a copy of the First Information Report (FIR), the Enforcement Case Information Report (ECIR) is rarely made available to them. 

What is the significance of ED?  

Economic crimes are far more serious than crimes against individuals as they injure the economic and social fabric of society. Therefore, these crimes should be dealt with differently and the consequences for the offender should be severe. The role of ED becomes important in this context. The agency is tasked with enforcing economic laws and combating economic crimes in India, like money laundering, foreign exchange violations and financial fraud.  

Corruption, especially in the higher echelons, increases inequality, decreases popular accountability and political responsiveness. It damages the health of the economy and makes foreign businesses and investors shy away. The ED contributes to the fight against corruption by investigating the money laundering aspects. 

What are the criticisms of ED? 

Wide powers: The ED has a set of powers that even CBI or state police forces don’t have. Some of these powers are: 1) Statement before ED is admissible in court as evidence. 2) All offences under PMLA are non-bailable. 3) The burden of proof is on the accused. Critics argue that these wide powers are liable to be misused. 

Transparency: There is a lack of transparency in the way the ED functions. It is not known how the ED chooses its cases and what is the basis of picking a particular case. Also, ECIR, the equivalent of FIR, is considered an internal document and not given to the accused. 

Use of PMLA for ordinary crimes: There have been allegations that the PMLA has been invoked in the investigation of ordinary crimes, leading to the attachment of assets of innocent individuals by the authorities. 

Low conviction rates: Since 2005, the ED has registered 5,906 cases but disposed only of 25 cases, a mere 0.42% of the total cases.  

Political bias: Critics often allege that the government is weaponising the ED by silence its critics, especially against the opposition leaders. A report published in The Indian Express in 2022 found that close to 85% of the cases involving politicians were registered against those from the opposition.   

Way forward 

While the ED possesses substantial powers under PMLA, it is essential to ensure they are not misused against political opponents. Investigations should not be employed as a means of punishment, and efforts should be made to expedite case resolutions to achieve swift trials and convictions. 

The ED must demonstrate fairness and impartiality by putting more facts in the public domain to show that its actions are justified and command credibility among the public. 

The agency can be made an autonomous body to enhance its independence and improve the ED’s image as a reputed agency against economic offenses in our country. 

Sources:  The Hindu (Article 1 and Article 2)