INTRODUCTION

• Aim: The Prevention of Money Laundering Act, 2002 (PMLA) is a legislation passed by the Indian Parliament with the objective of preventing money laundering and facilitating the seizure of assets obtained through money laundering activities. 

• Enactment: It came into force in 2005 and important amendments were done in 2009 and 2012

• Purpose: Its purpose is to address money laundering associated with unlawful activities like drug trafficking, smuggling, and funding terrorism. 

Authority: Under this act the Enforcement Directorate is empowered to conduct the inquiry.

Short Takes

Money Laundering: Money laundering is the process of disguising the origin of illegally acquired money to make it appear legitimate, thus avoiding detection and legal consequences. It's a serious financial crime that aims to convert illicit funds into legal ones. 

Modus Operandi

Placement: Money launderers initially inject illegal funds into the financial system, often by depositing them into bank accounts held by anonymous entities or intermediaries.

Layering: The injected funds are then moved through various transactions across different accounts, both domestically and internationally, making it challenging to trace their origin. This may involve purchasing tradable assets like luxury cars, artwork, and real estate.

Integration: After being well-placed and layered, the laundered money re-enters the financial system, appearing as if it came from legitimate sources. The criminal may further integrate the funds by investing them in legal businesses or setting up fake charities, disguising the illicit origin of the funds.

Predicate offences: They are criminal activities that are considered prerequisites for the offence of money laundering. These offences provide the black money (illicit money) that will be made white (shown to have legal source). These scheduled offences are categorised and listed in schedules A to C of the PMLA, outlining a range of criminal activities that can lead to money laundering charges. It includes - terrorism, drug trafficking, organised crime, kidnapping, extortion, counterfeiting currency, and counterfeiting and piracy of products etc.

Proceeds of Crime: Proceeds of crime refer to the property or assets obtained through predicate offences. These proceeds are generated as a result of engaging in criminal activities listed in the schedules of the PMLA or similar legislation. The term encompasses any financial gains or benefits obtained from illegal activities, including but not limited to drug trafficking, terrorism financing, fraud, corruption, and human trafficking. 

Directorate of Enforcement: The Directorate of Enforcement or Enforcement Directorate (ED) is a multi-disciplinary organisation mandated with investigation of the offence of money laundering and violations of foreign exchange laws. It was setup in 1956 as Enforcement unit and renamed as Enforcement Directorate, under Ministry of Finance.The statutory functions of the Directorate include enforcement of following Acts:

• The Prevention of Money Laundering Act, 2002 (PMLA):

• The Foreign Exchange Management Act, 1999 (FEMA)

• The Fugitive Economic Offenders Act, 2018 (FEOA)

• The Foreign Exchange Regulation Act, 1973 (FERA) 

• Sponsoring agency under COFEPOSA

Needs and features of PMLA

Need

• Illicit funds: The significant amount of illicit funds generated from international drug trafficking posed a serious threat to global economies.

• Stabilise economy: There was widespread recognition that the funds from drug trade could destabilise the world economy and compromise the sovereignty of nations.

• UN Convention: In response, the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) was convened in 1988 to address this issue. 

• FATF: Following this, seven major industrial nations convened a summit in Paris in July 1989 and established the Financial Action Task Force (FATF) to address the problem of money laundering and propose countermeasures. India joined FATF in 2010 as its 34th member. 

• UN members enact laws: In 1990, the United Nations General Assembly adopted the Political Declaration and Global Programme of Action, urging member countries to enact appropriate legislation to effectively combat money laundering associated with drug trafficking.

• India's response: India is a signatory to Vienna Convention 1988, Convention on Narcotic Drugs 1961, as amended by the 1972 Protocol and also the Convention on Psychotropic Substances, 1971. The PMLA was enacted by India’s Parliament under Article 253 which empowers it to make laws for implementing the international conventions.

Features

• Applicability: The Prevention of Money Laundering Act (PMLA) extends its jurisdiction to encompass all financial entities, including banks (including the Reserve Bank of India), mutual funds, insurance firms, and their associated financial intermediaries.

• Predicate Offence: It acts as the initial illegal activity that generates profits or resources for further unlawful actions. In the absence of a predicate offence, the charges under PMLA fail.  

• Punishment: The Act prescribes that any person found guilty of money-laundering shall be punishable with rigorous imprisonment from three years to seven years. 

• Powers of Enforcement Directorate (ED): Section 50 of the PMLA, grants ED officials the authority to record statements on oath from individuals. Unlike statements made to the police which is called the FIR, these statements are admissible in court since ED is not considered as a police. Additionally, the ED is not required to provide a copy of the Enforcement Case Information Report (ECIR) to arrested individuals, thereby empowering the ED with penal powers.

Allegations of misuse

• Deviation from original purpose: The most serious concern with the Prevention of Money Laundering Act (PMLA) is that it encompasses a wide range of offences in its schedule that are unrelated to its original purpose of combating money laundering from drug trafficking. 

• The United Nations resolution that inspired the enactment of this law in India specifically addressed the crime of laundering drug money, which was considered a significant threat to the global economy and national sovereignty. 

• Addition of Non related offences: Amendments over time have expanded the schedule of the Act, now including offences that are either covered under the Indian Penal Code (IPC) or subject to existing special laws.

• ‘Criminal conspiracy’ under Section 120B of the Indian Penal Code was added to the PMLA’s schedule in 2009. This has, over the years, allowed the ED to enter any case where a conspiracy is alleged, even if the principal offence is not part of the PMLA’s schedule. 

• For example, ED investigation on land grabbing case against Hemant Soren, ex-CM of Jharkhand.

• Unnecessary expansion: Offences that do not inherently involve large-scale proceeds or pose a threat to the economy and national sovereignty are being prosecuted under this law. 

• Example, the inclusion of the Prevention of Corruption Act, 1988, targeting corruption within the public sector, in the PMLA's schedule of offences in 2009. Consequently, public servants are now subject to the full force of the PMLA. Therefore, both a public servant accused of corruption and a serious drug trafficker face similar treatment. 

• Disregarding Article 253 and Item 13 of Union List: PMLA was passed by India's Parliament under Article 253, which allows it to create laws to implement international conventions. Item 13 in the Union list allows the Union Government to participate in international conventions and implement the decisions made at the convention. 

• The Vienna convention being about drug and other illicit money should not have been extended by the Government under this Act to other areas that were not part of the agreement.

• Burden of proof on the accused: A concerning aspect of the PMLA is that individuals accused under this law are presumed guilty until proven innocent. PMLA allows  ED to summon a person without an ECIR telling them what they are being summoned for. 

• The individual is not even informed if they are being summoned as an accused or as a witness. This may violate the right to an individual’s personal liberty under Article 21.

• Proceeds of crime: PMLA defines proceeds of crime property derived or obtained, directly or indirectly, as a result of criminal activity relating to the scheduled offence.

•  Now, if an individual deposited tainted money in the account of a relative or a family member, or bought a property in their name, they would be culpable even without being aware that the funds were tainted.

• Harsh Bail Conditions: The bail provision outlined in section 45 of the PMLA poses a significant challenge, as it stipulates that bail can only be granted if the judge is convinced of the accused's innocence. This strict requirement often deters judges from granting bail, causing individuals to remain in jail for extended periods without trial. 

• Critics argue that lengthy pretrial incarcerations for money laundering offences, which can range from 3 to 7 years, essentially equate to serving a punishment prior to being convicted.

• Weaponization: It refers to its misuse of PMLA for political vendettas or targeting individuals and entities perceived as adversaries. This selective enforcement bypasses due process, undermining the law's purpose and eroding trust in the justice system.

• Clandestine action: Many of the amendments that added more teeth to PMLA, especially of 2019 were passed through the Finance Acts as money bills.

• The validity of using money bills in this manner will be now decided by a seven-member bench.

Supreme court judgement: Case law

• The above and other alleged misuses of PMLA were questioned in the Supreme court by more than 240 petitioners.

• A 3-judge SC bench gave its verdict in the Vijay Madanlal Choudhary & Ors v Union of India, 2022 upholding the amendments to PMLA and the extended powers to ED.

• However, the SC has started to hear a review petition on its 2022 verdict and has posted the matter to July, 2024.

Should it be removed or amended?

While there may be calls for significant changes to the Prevention of Money Laundering Act (PMLA), the necessity for its complete removal is not warranted because

• Significance: The law deals with a serious and widespread crime that has significant effects on national security and the economy.  It is undeniable that amendments are necessary, mainly to restore the law's original intent and make its implementation more transparent.

• Revamping: By focusing on fighting money laundering linked to drug trafficking and other serious crimes, and by improving transparency through measures like providing written reasons for arrest, the PMLA can better achieve its goals while protecting the rights of those involved in legal proceedings.

• Successful implementation: Additionally, it's worth noting that through this law, the Enforcement Directorate (ED) has successfully recovered more than 20,000 crore by auctioning off confiscated assets of fugitive economic offenders.

  
  

  Way forward

  • Judicial interpretation: The Supreme Court needs to swiftly provide its interpretations of the provisions and address the oppositions raised against the Act due to the rising number of ED cases, leading to prolonged detention of the accused.

  • Clarity on issues of presumption of guilt, reversal of burden of proof and the stringent twin conditions for bail - one among them being the near impossibility that the Court should be satisfied that the accused will not commit any offence in the future

  • Ensuring fair trial: Consider amendments for a fairer distribution of this burden between the prosecution and the accused. Ensure that the burden of proof maintains a reasonable balance, upholding the principles of a fair trial and safeguarding constitutional rights.

  • Precise definition of Proceeds of Crime: This mitigates potential ambiguity that could disrupt financial operations and ensure alignment with international standards.

  • Sensitising the society: Educating society about the dangers of money laundering and its role in funding criminal activities like drug trafficking and terrorism, which can harm economies and national security. This awareness helps people recognize suspicious financial activities and work with authorities to combat money laundering, preserving the integrity of financial systems.

  • Periodic amendments and discussions: It is crucial to address evolving financial crimes and adapt to changing money laundering techniques. These updates help close loopholes, strengthen provisions, and align the Act with international standards. 

  • Example: Addressing emerging threats such as cryptocurrency, which can be exploited for money laundering due to its anonymity and decentralised nature.

  • Increase transparency: Transparency in the PMLA is essential for accountability and promoting cooperation among stakeholders. Businesses can better address operational vulnerabilities and prevent financial crimes by knowing the grounds for arrest. This promotes compliance with anti-money laundering laws and mitigates the risk of illegal activities.

  • Example: In Pankaj Bansal v. Union of India, the Supreme Court of India ruled on December 15, 2023 that the Directorate of Enforcement (ED) must provide the accused with written grounds of arrest.

CONCLUSION

Conclusion In conclusion, the current bail provisions are overly technical. The recent changes in PMLA has expanded its reach beyond drug money laundering, raising concerns about its original purpose. This evolution highlights the challenge of tackling m

Keywords:
Prevention of Money Laundering Act Enforcement Directorate PMLA