SC’s ruling on PMLA ACT and its implication

The Supreme Court of India upheld the constitutional validity of the Prevention of Money Laundering Act's (PMLA) controversial “twin conditions for bail” i.e., the trial court needs to give bail only if the accused proves he is not guilty of money laundering. If the accused gets bail, he also has to prove that he is not likely to commit any offence while on bail.

By upholding the reverse burden of proof condition for bail, the court also overruled its own rule in 2017 in Nikesh Tarachand Shah vs Union of India, where the court declared the twin test as unconstitutional.

More about the case

• More than 240 petitions were filed against the amendments in which the challengers claimed to violate personal liberty and procedures of law and even the constitutional mandate.
• The verdict came on an extensive challenge raised against the amendments introduced to the 2002 Act by way of the Finance Acts.

What has the Supreme Court said in the Ruling?

• The ruling upholds the stringent conditions of bail as legal and not arbitrary.
• It is not mandatory for ED officers to disclose the grounds of arrest at the time of detention of the accused under this act.
• It is enough if ED, at the time of arrest, discloses grounds for such arrest.

• Supplying an ECIR (Enforcement Case Information Report) in every case to the person concerned is not mandatory and only disclosure of reasons during the arrest is enough.
• The ECIR is an internal document of the ED and the Enforcement Case Information Report (ECIR) cannot be equated with an FIR.
• The Court relied on Article 39 of the DPSP which mandates the State to prevent the concentration of wealth and to uphold the stringent bail condition under PMLA.
• Further, it was argued that it fulfils India’s international commitment to strengthening the domestic legal framework for combating money laundering.
• The judgement said that PMLA conditions are well suited to combat the menace of money laundering which is an “aggravated form of crime world over”.

Criticism of the Ruling

Around 4,700 cases are being investigated by the ED under the Prevention of Money Laundering Act (PMLA). Also, ED raids jumped 27 times during 2014-2022 as per the figures provided in the Rajya Sabha.

• Non-reporting the grounds of arrest, arrest of a person without ECIR copy, and strict bail conditions are against the fundamental right of personal liberty guaranteed under Article 21 of the Constitution.
• The restrictive conditions of bail will increase the number of undertrials as the ruling deprives them of bail as an “absolute right”. Already of the 6.10 lakh prisoners across the country, 80% are undertrials.
• It upholds the blanket power of arrest, search and seizure prescribed to ED under the Act. Also, search and seizure provisions lack judicial oversight.
• It is likely to affect the huge number of opposition leaders who are currently under the Central Investigating agency’s scanner.

Dirty Money & Money Laundering

Dirty Money: Criminal activities like illegal arms sales, smuggling, drug trafficking and prostitution rings, insider trading, bribery and computer fraud schemes produce large profits and the money which is generated by this activity is known as dirty money.

Money laundering:

• It is the process of conversion of 'dirty money, to make it appear as 'legitimate' money.
• Money laundering is a serious financial crime that is employed by white-collar and street-level criminals alike.

Steps of Money laundering:

• Placement surreptitiously injects the “dirty money” into the legitimate financial system.
• Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
• In the final step, integration, the now-laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals have in mind for it.

About Prevention of Money Laundering Act (PMLA) 2002

• It was enacted in January the year 2003 and the Act along with the Rules framed thereunder has come into force with effect from 1st July 2005.

• The Parliament enacted the PMLA as a result of international commitment to sternly deal with the menace of money laundering of proceeds of a crime having transnational consequences and on the financial systems of the countries.

Objectives:

• The PML Act seeks to combat money laundering in India and has three main objectives:

• To prevent and control the money laundering
• To confiscate and seize the property obtained from the laundered money; and
• To deal with any other issue connected with money laundering in India.

• The Act also proposes punishment under section 4.

Provisions:

Definition of money laundering

Sec. 3 of PMLA defines the offence of money laundering as whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of the offence of money-laundering.

Prescribes obligation:

PMLA prescribes the obligation of banking companies, financial institutions and intermediaries for verification and maintenance of records of the identity of all its clients and also of all transactions and for furnishing information of such transactions in a prescribed form to the Financial Intelligence Unit-India (FIU-IND).

Empowerment of officers:

• PMLA empowers certain officers of the Directorate of Enforcement to carry out investigations in cases involving offences of money laundering and also to attach the property involved in money laundering.
• It empowers the Director of FIU-IND to impose fines on banking companies, financial institutions or intermediaries if they or any of its officers fail to comply with the provisions of the Act as indicated above.

Setting up of Authority:

• PMLA envisages the setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties.
• It also envisages setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority and the authorities like Director FIU-IND.

Special Courts:

It envisages the designation of one or more courts of sessions as Special Courts or Special Courts to try the offences punishable under PMLA and offences with which the accused may, under the Code of Criminal Procedure 1973, be charged at the same trial.

Agreement for Central Government:

It allows the Central Government to enter into an agreement with the Government of any country outside India for enforcing the provisions of the PMLA, exchange of information for the prevention of any offence under PMLA or under the corresponding law in force in that country or investigation of cases relating to any offence under PMLA

Enforcement Directorate

• The Directorate of Enforcement (ED) is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
• It is part of the Department of Revenue under the Ministry of Finance.
• The origin of this Directorate goes back to 1 May 1956, when an ‘Enforcement Unit’ was formed, in the Department of Economic Affairs, for handling Exchange Control Laws violations under the Foreign Exchange Regulation Act, 1947.
• The prime objective of the Enforcement Directorate is the enforcement of two key Acts of the Government of India namely, the Foreign Exchange Management Act 1999 (FEMA) and the Prevention of Money Laundering Act 2002 (PMLA).