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The Prevention of Money Laundering Act, 2002 (PMLA) was enacted to ward off money laundering, provide for the attachment and confiscation of properties derived therefrom or involved therein, prosecute persons indulging in processes and activities connected with the proceeds of crime, and deal with other related issues.
It was enacted by the Parliament in pursuance of India’s obligations and commitments to prevent money laundering under various international pacts, such as Vienna (1988) and Palermo (2000) Conventions, and to give effect to the 40 Recommendations of the Financial Action Task Force (FATF) on, inter alia, addressing the problem of money laundering. The PMLA has been amended from time to time to strengthen the mechanisms under it.
Since its enactment in 2002, the PMLA has been acclaimed as a significant step in India’s efforts to combat financial crimes and related activities. However, a closer examination reveals glaring flaws and inadequacies in the provisions and working of the PMLA.
The constitutionality of various provisions of the PMLA were challenged before the Supreme Court on the grounds that the conditions for bail were disproportionately stringent, the power conferred on the ED to issue summons, record statements, make arrests, and search and seize property was wide and open to misuse, and that there was a total lack of procedural safeguards.
The challenge was rejected by the apex court in its judgment on July 27, 2022, in Vijay Madanlal Choudhury vs Union of India. Underpinning the decision is the belief that India’s commitment to the international community to deal sternly with the offence of money laundering is sacrosanct, and even trumps considerations of fundamental rights.
By giving expansive meaning to the provisions of the PMLA, the Supreme Court has considerably enlarged the scope of the statute, restricted the rights of the accused persons and made the law even more draconian. A review petition has been filed against the judgment, and is pending before the court.
Under the PMLA, the ED starts investigation by registering an ECIR, which is akin to an FIR. As has been held in Vijay Madanlal Choudhary, supplying a copy of ECIR to the accused person is not mandatory. Under Section 19 of the PMLA, the ED, while arresting a person, is merely required to furnish the grounds of arrest, and there is no requirement to disclose the contents of the 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 against him/her at the initial stage itself, which is a universally recognised right, and is a part of the right to life and liberty under Article 21 of the Constitution.
Further, Section 50 of the PMLA, which empowers 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.
Section 45 of the PMLA, which sets out the conditions for bail pending trial, reverses the presumption of innocence until proven guilty and shifts the burden on the accused person to demonstrate that he is not guilty of the alleged offence. Notably, presumption of innocence has been acknowledged by the FATF as one of the “fundamental principles of domestic law”, and the FATF has admitted that misapplication of FATF Standards may have affected due processes and procedural rights, including the presumption of innocence.
Pertinently, the only prerequisite for the invocation of the PMLA is the alleged commission of a scheduled offence, i.e., an offence listed in the schedule to the PMLA. That is to say that prosecution under the PMLA can be initiated as long as an FIR in relation to a scheduled offence has been registered with the jurisdictional police, or the same is pending enquiry or trial. The lack of guidelines in this regard gives unbridled discretion to the authorities to invoke the provisions of the PMLA selectively and arbitrarily. Further, the schedule has been expanded over the years, including even minor and non-serious offences such as copyright and trademark infringements, thereby considerably expanding the scope of the PMLA.
Under the PMLA, the ED, unlike other central police organisations which are required to obtain the consent of the state before carrying out any policing/investigating activity within the territory of that state, can carry out investigation without the prior consent of the concerned State.
Further, post the 2019-amendments to the PMLA, the distinction between the offence of money laundering and scheduled offence has been blurred to a great extent. This has resulted in the ED investigating into the commission of the scheduled offence itself, or carrying out investigation to find out whether a scheduled offence has been committed or not. Since there is no requirement to obtain the consent of the state, the exercise of policing power by the ED, a Central agency, within the territory of a state without its consent squarely falls foul of federalism, which is a part of the basic structure of the Constitution.
In conclusion, while the PMLA may have been well-intentioned, the inclusion of minor, non-serious offences in the schedule to its disregard for personal liberty, the PMLA raises questions about its compliance with fundamental rights and due process of law. The PMLA requires amendment to bring it in conformity with constitutional principles and ethos.
(The author is senior advocate, Supreme Court and Additional Advocate General of Tamil Nadu)