On March 21st, 2024, Indian politics erupted in controversy when the Directorate of Enforcement served Arvind Kejriwal, Chief Minister of Delhi, with a notice of arrest. He was charged with the allegation of money laundering connected to the Delhi Excise Policy 2021-2022. This incident reignited debates about the Prevention of Money Laundering Act (PMLA) and its controversies in India. This article will delve into what PMLA is and explore the complexities surrounding this act.

The Prevention of Money Laundering Act (PMLA)

The Prevention of Money Laundering Act (PMLA), enacted in 2002 and coming into force on July 1, 2005, is a legislative instrument designed to combat financial crime in India.

• Definition of Money Laundering: Section 3 of the PMLA defines money laundering as the act of engaging in, assisting with, or being involved in any process or activity connected with "proceeds of crime" to disguise its illicit origin and portray it as legitimate.
• Penalties: The Act prescribes a punishment of imprisonment for a term not less than three years and extending to seven years, along with a fine that may reach up to fifteen lakhs for those convicted of money laundering offenses.
• Objectives: The PMLA has a two-pronged approach:
  • Prevention: To deter and disrupt the practice of money laundering within India.
  • Confiscation & Seizure: To empower authorities to seize and confiscate property acquired through money laundering activities.

Features Of Prevention Of Money Laundering

• Comprehensive Definition of Money Laundering: Section 3 of the PMLA clearly defines the offense. It encompasses any act of engaging in, assisting with, or being involved in activities related to "proceeds of crime" with the intent to conceal their illicit origin and portray them as legitimate.
   
• Categorized Offenses: The Act recognizes various degrees of money laundering offenses. Schedule A of the PMLA lists predicate offenses (crimes generating the illegal proceeds) such as those under the Indian Penal Code, the Narcotics Drugs and Psychotropic Substances Act, and others. Part B categorizes offenses exceeding a specific value threshold (currently Rs. 1 crore) from Part A. Finally, Part C deals with trans-border money laundering crimes.
   
• Obligations on Financial Institutions: The PMLA mandates banks and other financial institutions to implement robust Know Your Customer (KYC) norms. This includes verifying customer identities, maintaining detailed transaction records, and reporting suspicious activity to the Financial Intelligence Unit-India (FIU-IND).
   
• Specialized Investigative & Judicial Framework: The Act establishes a dedicated investigative agency - the Enforcement Directorate (ED) – empowered to probe money laundering offenses. Additionally, special courts and appellate tribunals are constituted to handle PMLA cases, ensuring swift and specialized adjudication.
   
• Broad Investigative Powers: The ED is vested with powers akin to a civil court under Section 50 of the PMLA. This allows them to summon individuals, demand statements and property details, and treat false statements as perjury. This facilitates thorough investigations and strengthens evidence gathering.
   
• Collaboration Among Agencies: The PMLA fosters inter-agency cooperation between the ED, FIU-IND, Central Bureau of Investigation (CBI), Securities and Exchange Board of India (SEBI), and Customs departments. This collaborative approach enhances the effectiveness of investigations and asset recovery efforts.

What is ECIR?

ECIR stands for Enforcement Case Information Report which is equivalent to the first information report but this manual is not made public unlike FIR

Criticisms of the Prevention of Money Laundering Act (PMLA)
The PMLA equips the Enforcement Directorate (ED) with extensive powers that have drawn criticism for potentially infringing upon individual rights.

• Expansive Investigative Powers: The ED can conduct raids and arrests without a warrant, raising concerns about potential misuse and the lack of judicial oversight during the initial stages of the investigation.
• Property Seizure: The ability to seize assets of the accused, even before trial, can have a significant impact on their livelihood and ability to defend themselves.
• Self-Incrimination Risk: Statements made by the accused during investigation are admissible as evidence, potentially creating a situation where individuals are compelled to incriminate themselves.
• Lack of Transparency: The ED is not obligated to provide the Enforcement Case Information Report (ECIR) to the courts or the accused. This document, similar to a First Information Report (FIR) in regular criminal cases, outlines the charges and evidence. Critics argue this lack of transparency hinders a fair defence.
• Burden of Proof: Section 24 of the PMLA places the burden of proof on the accused to demonstrate their innocence, a significant departure from the standard principle where the prosecution must prove guilt. This reversal is seen as potentially unfair and difficult for the accused to overcome.
• Bail Restrictions: Section 45 makes money laundering a cognizable and non-bailable offense. However, the granting of bail is subject to stringent conditions, requiring the accused to convince the court of their innocence and pose no future threat. Critics argue these conditions are excessively difficult to meet, potentially leading to extended pre-trial detention.

These criticisms highlight the tension between the PMLA's objective of combating financial crime and upholding fundamental legal principles.

Supreme Court's Response to PMLA Criticisms: A Breakdown
The Supreme Court of India addressed 241 petitions challenging various aspects of the Prevention of Money Laundering Act (PMLA).

1. ECIR Not Mandatory: The Court distinguished the ECIR (Enforcement Case Information Report) from a First Information Report (FIR) used in regular criminal cases. They ruled that the ED is not obligated to provide the ECIR to the accused during arrest, as it's considered an internal document. Additionally, public disclosure of the ECIR was deemed unnecessary.
2. Untainted Property Defence: The Court rejected the interpretation that the offence under Section 3 (concealing or possessing illicit income) hinges solely on the accused claiming the property to be legitimate. The focus remains on proving the illegal origin of the assets.
3. "And" vs. "Or" in Section 3: The Court interpreted the conjunction "and" in Section 3 ("knowingly or has reason to believe" regarding the illicit origin of the property) as disjunctive ("or"). This broadens the scope of the provision to encompass a wider range of activities related to money laundering.
4. Section 24 Upheld: The Court upheld the constitutionality of Section 24, which shifts the burden of proof to the accused in PMLA cases. They reasoned that this reversal has a "reasonable nexus" with the PMLA's anti-money laundering objectives.
5. Statements to ED Admissible: The Court ruled that statements made to ED officials during investigations are admissible as evidence despite challenges based on Article 20(3) of the Constitution (protection against self-incrimination). The rationale lies in ED officials not being classified as "police officers" under the relevant legal definition.
6. Self-Incrimination at Summons Stage: The Court clarified that the protection against self-incrimination under Article 20(3) does not apply at the stage of receiving a summons from the ED. This implies that individuals must respond to the allegations upon being summoned, even if it potentially involves revealing incriminating information.

These pronouncements by the Supreme Court offer some clarity on the contested aspects of the PMLA. However, the debate surrounding the Act's balance between effective law enforcement and individual rights is likely to continue.

Conclusion
In conclusion, the Prevention of Money Laundering Act (PMLA) remains a contentious piece of legislation in India. While the Supreme Court's recent decision in Vijay Madanlal Chaudhary v UOI upheld its constitutionality, concerns persist. The lack of access to the Enforcement Case Information Report (ECIR) hinders an accused person's ability to mount a proper defence and seek bail. Additionally, the Enforcement Directorate's low conviction rate raises questions about the effectiveness of the broad powers granted under PMLA. Moving forward, striking a balance between combating financial crime and ensuring due process will be crucial.

References:

• Prevention Of Money Laundering Act. 2002: https://www.indiacode.nic.in/bitstream/123456789/15402/1/moneylaunderingact2002.pdf
• Landmark Judgments on Prevention of Money Laundering Act by the SC and HC's in 2022 Part II | SCC Times (scconline.com)
• Vijay Madanlal Chaudhary v UOI, 2022 SCC OnLine SC 929

Written By: Lucky Singh is a first-year B.A.-L.L.B student from the Army Institute of Law, Mohali. He is currently in his second semester. He is interested in taxation and intellectual property law and remains open-minded to other experiences.