Money Laundering is one of the most common offenses that people tend to commit for wealth. It has become a cause of concern worldwide as the offense has given rise to many financial crimes which not only affect the social and economic fabric of the country but also promote other serious offenses like drug trafficking and terror financing which pose a serious threat to the financial ecosystem. Drug trafficking and Terror financing are the most severe crimes affiliated with money laundering which India has been witnessing over the past few years. It is a growing problem that needs to be addressed. Prevention of Money Laundering Act (PMLA) was enacted to prevent such crimes and has undergone a great deal of change over the years to make itself more apt in dealing with the offense. The Act has been in news because of its recent amendments which seek to make the regulation of offense a bit more stringent thereby ignoring the rights of the accused. In this article, we will come across the recent amendments that have been introduced in PMLA and their implications. Various concerns which have been raised about recent amendments have also been dealt with in this article.
Though this article primarily encapsulates the recent amendments and the concerns raised with it but the offense of Money Laundering and the PMLA, the act which was enacted to prevent the widespread menace of money laundering, has also been explained in brief. After dealing with all the concerns that have been raised, I have given my suggestion as per my legal research and knowledge that I gained by reading various provisions of law and have concluded it on a simpler note in a democratic country Rule of law must be given due importance as it is the foundation of our Constitutional law and therefore, legislation should be such which tends to avoid arbitrariness on the part of the authorities. Only then can a democratic country flourish and prosper.
Money Laundering and PMLA
Cash and Corruption often go hand in hand. People do tend to commit crimes for money and use the existing legal system to legitimize the money earned. This whole process of legitimizing illegally earned money is called money laundering. It is the misrepresentation of money illegally earned to avoid prosecution. Under Section 3 of PMLA, the person shall be accused of the offense of money laundering if in any manner he is directly or indirectly involved with the concealment, possession, acquisition, or use of the proceeds of crime and trying to project it as untainted property. Money laundering is a grave offense as it not only affects the social and economic fabric of the country but also retards its development. The reputation of a country gets severely affected in the international sphere because of such activities and it acts as an impediment to foreign investments which are required for the economic development of the country. Not only this, money laundering has many other ramifications. It leads to Drug trafficking and Terror financing which has become a cause of concern worldwide. Hence, to curb such financial crimes associated with money laundering the Prevention of Money Laundering Act (PMLA) was enacted in the year 2002. The act was the result of India’s International commitment at The Vienna Convention to prevent the widespread menace of money laundering. The aforesaid legislation is a product of a unified global effort to ensure that all Nations who are members of the United Nations adopt similar domestic money laundering legislations or programs to counter the menace of widespread money laundering arising out of organized transborder crimes, like terrorism, drug trafficking, corporate fraud and other grave offenses which cause serious threat not only to the financial systems of the countries but also endanger their integrity and sovereignty. The evolved and effective way ‘proceeds of crime’ are placed, layered, and integrated into the financial systems of the country through e-commerce and international trade necessitates a specialized agency with ample powers to investigate such crimes through vigilant surveillance, supervision, tracking and identification of suspicious transactions, restraint of suspicious accounts and ultimate seizure, retention, attachment and confiscation of assets.
It is an act to prevent the offense of money laundering and provide for the confiscation of properties obtained from or derived by indulging in any criminal activity relatable to or like the proceeds of crime and for matters connected therewith and incidental thereto. The act prescribes a procedure for probing cases of money laundering and it has provisions for Adjudicating Authority, Appellate Tribunal, Special Courts, and all other mechanisms required to deal with such offenses. The provisions of the Act empower the authorities prescribed in Chapter VIII of the Act to carry on an investigation in respect of the offense of money laundering as defined in section 3 of the Act. As per Section 3 of the Act, whosoever directly or indirectly attempts to indulge or knowingly assists or is a party or is involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of the offense of money laundering. Chapter III, IV & V of the Act enumerates various powers of the investigation agency. Sections 16,17,18,20 and 21 of the Act provide for powers to survey, search, seizure, and retention of proceeds of crime or any record or property relating thereto upon recording reasonable belief as required under the said provisions. Section 19 of the Act provides for the power to arrest. Section 12 and 12-A of the Act casts a duty upon reporting entities, that its banks and financial institutions to maintain records of transactions, identities of persons entering such transactions and report the same to the authorities under the Act. Sections 5, 8, and 9 of the Act provide for attachment of proceeds of crime or records/properties related thereto upon recording reasonable belief thereto and eventual confiscation of such attached or retained properties under section 8 of the Act.
Though the act is not bound by the Code of Civil or Criminal Procedure it mentions that every proceeding under this act is deemed to be a judicial proceeding and therefore should abide by the principles of natural justice. Principles of Natural Justice require that the proceeding must be just, fair and reasonable. The aforesaid sections relating to the proceeds of crime and its seizures mention reasonable belief as the condition precedent for suspecting any property as the proceeds of crime and providing for attaching of such assets. Therefore, every act under this legislation must align with the principles of natural justice. However, the Act has been in news because of its recent amendments which seem to violate the Principles of Natural Justice.
Recent Amendments in PMLA
The Act which was enacted in the year 2002 has undergone various amendments to make itself more apt in dealing with money laundering and its associated activities but the recent amendments which were introduced through Money Bill are more concerning as it seeks to treat money laundering as a standalone offense and confers wide powers on ED in making arrests, seizures, and raids without providing any guidelines for the same. The amendments introduced have also expanded the scope of proceeds of crime which now includes not only the property derived from the scheduled offense but would also include any other property derived or obtained by indulging in any criminal activity related to or like the scheduled offense. This amendment further mentioned that the offense is continuing and the person will be involved in the offense till the time he is getting the fruits of activities related to money laundering. Not only this, the ED under the act has powers to investigate people and attach assets suspected of money laundering. Mere suspicion of the offense can lead to confiscation of the property and the onus will be on the accused to prove that the property is not tainted and is obtained by legitimate means. The burden of proof has been shifted to the accused who is not even made aware of the contents of ECIR which contains the fact of allegations against him. The disclosure of ECIR has been made directory and not mandatory. This seems to be against the principles of natural justice. The process of investigation has been made more stringent through this amendment which makes it necessary for the person being interrogated to convey information as giving no information or providing false information will make it another offense. Hence a person is compelled to give evidence against himself which is a violation of the Right against Self Incrimination guaranteed by Article 20(3) of our Constitution. The process itself has become a punishment.
Concerns Raised with The Recent Amendments
Introduced as a Money Bill
A bill is deemed to be a money bill only if it relates to all or any of the matters mentioned in clauses (a) to (g) of Article 110(1) of the Constitution largely including the appropriation of money from the Consolidated Fund of India and taxation. In other words, it is restricted only to specified matters and cannot include within its ambit any other matter. Hence, the concerned amendments in PMLA which were introduced via Money Bill/Finance Route do not deal with any of such matters and thus cannot be called a Money Bill. Moreover, introducing it as a money bill restricts the power of the Rajya Sabha in making recommendations on such an important aspect. Every bill seeking to make an amendment requires due deliberation in both the houses of Parliament which were ignored in this case. Hence, it is difficult to accept these amendments which should have gone through proper deliberation.
The Court has left it open for the Seven- Judge bench to decide whether these amendments could have been made to PMLA via money bill.
Non- Disclosure of ECIR
The Act which has conferred wide powers on the ED makes a provision for recording reasons in writing but does not make it a mandate to disclose ECIR, containing facts of allegations, to the accused. This leaves the registration of ECIR at the whims and fancies of ED officers. Not only this, non-disclosure of ECIR makes an accused unaware of the allegations against himself and hence deprives him of his right to defence. This seems to be against the Principles of Natural Justice which demands that the accused be informed of the grounds of allegations so that he can defend himself. Right to Enquiry Report and Right to Reasoned Decision has been held to be part of the Principles of Natural Justice in cases where there is the likelihood of prejudice being caused to an affected person. Moreover, non-disclosure of ECIR will not only deprive an individual of his right to defend himself but would also lead to arbitrariness on the part of the authorities which may act according to their whims and fancies.
Conferment of Wide Powers on ED is a Violation of Rule of Law
The act has conferred wide powers on ED in respect of making arrests, searches, and seizures without prescribing any procedure for commencing investigation and summoning. The recent amendments have tried to further the powers of ED by allowing them to attach any assets arising out of the proceeds of crime irrespective of the efforts to project it as untainted property. Conferment of such a wide power on the authorities concerned may give rise to arbitrariness and can also be misused by the executive against their rivals. Rule of law which is the foundation of our Constitution excludes the existence of arbitrariness, prerogative, or even of wide discretion on the part of authorities. It recognizes the liberty of the individual which in this act is imperilled to a great extent. Unfettered discretion with no procedural safeguards violates the protection envisaged under Article 21 of the Indian Constitution. The Act also supersedes other stipulations of law that recognize the rights of the accused and this is a sheer violation of Rule of law which means the absolute supremacy or predominance of law as opposed to the influence of arbitrary power. Hence, there must be some check on the powers of ED to prevent it from being misused.
Twin Conditions of bail lack Proportionality Test
The court has upheld Section 45 PMLA which imposes twin conditions for bail to an accused who has been suspected of the offense of money laundering. The twin conditions for bail inverse the burden of proof where the person accused must demonstrate that he is not guilty of the offense of money laundering and will not commit such an offense if his liberty is restored. Even where no arrest has been made following the procedure under article 19 PMLA the accused has to satisfy the twin test. This seems to be against the Principle of Proportionality and is also incongruous with recent pronouncements of the Court reiterating the non-punitive nature of bail and propounding that ‘Bail is a rule and not a Jail.’ Moreover, it also interferes with the liberty of individuals which is guaranteed under Article 21 of the Constitution.
Violation of Right against Self Incrimination
The recent amendments have made it compulsory for the accused to convey information as giving no or false information will make it another offense. Thus, an accused is compelled to give evidence against himself which violates the right against Self Incrimination guaranteed under Article 20(3) of the Constitution. The ED uses its power under Section 50 PMLA to record statements that are admissible before the court in violation of the provisions of the Indian Evidence Act, where statements recorded before police officials are not considered admissible. Therefore, these provisions do interfere with the rights and liberty of the accused who is compelled to incriminate himself during the investigation.
Hence, these were some of the major concerns raised about PMLA and its recent amendments. Although in a major verdict delivered on 27th July 2022 the apex court had upheld the provisions conferring wide powers on ED yet the two aspects relating to the non-disclosure of ECIR to the accused and the reversal of the presumption of innocence need a reconsideration as our Constitution envisions adequate safeguards for the accused.
It is true that with rising cases of financial crimes associated with money laundering and its implications on the economy it has become imperative to regulate such offenses through the provisions of PMLA but at the same time rights of the accused should also be taken care of. The act must strike a balance between administrative efficiency and fairness to the individual. It should not give rise to the excess overreach of the executive. The process of investigation must be fair and transparent. Transparency is essential and the accused must be given a fair opportunity to address the allegations made.
There can be internal checks and balances over the powers of ED to prevent it from being misused by political executives. It is a well-known fact that filling in the details of the act and ensuring its implantation is a part of the delegated legislation which envisions that adequate guidelines must be given in the Parent Act for the proper execution of the power by the executive. Therefore, PMLA should also lay down guidelines and procedures for carrying out investigations, searches, and raids to prevent the abuse of power and interference with the rights and liberties of the individual. Adequate guidelines will ensure that process itself does not become the punishment.
Therefore, I would conclude by emphasizing the fact that the purpose of any law or legislation is to regulate the behaviour of society for its betterment and not for the infringement of the rights which have been guaranteed by our Constitution. India is a democratic country where Rule of law plays an important role and it excludes the existence of arbitrariness or wide discretion on the part of authorities. Discretion is important but wide discretionary power which gives rise to arbitrariness must be avoided because only then can the rights of individuals be secured.
 Principles of Natural Justice are those rules which grant minimum protection to the rights of the individual against the arbitrary procedure that may be adopted by a judicial, quasi-judicial and administrative authority while making an order affecting those rights. These demand that a person be informed of the grounds based on which decision has been taken against him so that he can defend himself.
 Previously money laundering was dependent on another crime known as scheduled offense or predicate offense
 ECIR is an Enforcement Case Information Report which contains facts of allegations against the accused
 Right against Self Incrimination is a fundamental right guaranteed by our Constitution and it protects the accused from giving statements against himself.
 In Youth Bar Association v. Union of India, the Apex Court had ruled that the accused is entitled to a copy of FIR, which is also a document containing allegations. Hence, keeping in view the principles of natural justice and the previous pronouncement of the Apex Court concerning FIR which appears to be like ECIR, its content should be shared with the accused so that he can defend himself.
Author: Rajshree Sinha