Money Laundering Prevention vs. Free and Fair Trial Principles – Money Laundering

To print this article, all you need to do is be registered or log in to Mondaq.com.

Proceedings that have serious implications for the accused must be accompanied by a modicum of transparency; critics claim that PMLA lacks such minimum thresholds

The main law regulating, preventing and penalizing money laundering in India is the Prevention of Money Laundering Act 2002 (PMLA). The PMLA originated in international efforts to report and prevent money laundering threats leading to the rise of global drug trafficking and terrorism.

The Statement of Purposes and Reasons for the Prevention of Money Laundering Bill 1999 stated that legislation was “urgently needed” to deal with threats of money laundering. Over the years, the PMLA has undergone multiple amendments which have broadened the scope and powers of the relevant authorities.

Initially, the PMLA targets the proceeds of crime and empowers authorities to confiscate them. The purpose of confiscating the proceeds of crime is to ensure that links to organized criminal activity are severed and the financial incentive to commit crimes is removed. Additionally, in highly organized crime syndicates, it is common for criminals higher up in the hierarchy to be involved only in exchange for the proceeds of crime. Thus, as the investigating authorities move away from the actual commission of a crime, only the “paper trail” comes to their aid in catching the criminals.

Most importantly, the PMLA is enacted to ensure that white collar criminal activities do not unbalance the socio-economic stability of a developing country like India. For example, it was reported that prompt intervention by authorities led to seizure of assets worth ₹19,111.20 crore out of committed total fraud of ₹22,585.83 crore in cases involving Vijay Mallya, Nirav Modi and Mehul Choksi. Of the seized assets, ₹15,113.91 crore has already been returned to public sector banks by the Enforcement Directorate (ED).

Legal challenges for PMLA

The PMLA stands out among the many criminal laws of India due to the circumstances under which it was enacted. The unconventional powers and procedures under the PMLA, or lack thereof, have been a topic of discussion among critics of the law. There is a deep fear that arbitrariness is creeping into the procedures followed by officials of the authorities concerned, including the ED. This has led the PMLA to attract numerous legal challenges and constitutional tests.

At present, the Supreme Court is hearing a batch of motions in Vijay Madanlal Choudhary & Ors Vs Union of India which seek to define the scope and applicability, as well as test the constitutional powers of the PMLA provisions.

Call for transparency

Several issues still need to be resolved under the PMLA. It is a standard in criminal jurisprudence that investigations and proceedings which have serious implications for the accused must be accompanied by a minimum degree of transparency in accordance with the fundamental freedoms granted by the Constitution. However, critics argue that the PMLA lacks such minimum thresholds. For example, the common practice of prosecuting an accused by the ED involves the creation of an internal document called the Enforcement Case Information Report (ECIR).

Rights of the accused

The ECIR essentially defines the basis on which the accused is investigated. In Youth Bar Association Vs Union of India, the Supreme Court ordered that a defendant be entitled to have a copy of the FIR. In the same decision, instructions were also adopted that FIRs should be made available on the relevant authority’s websites, except in critical and confidential matters involving allegations such as sexual offenses and terrorism. An ECIR may appear as an FIR-like document filed by law enforcement personnel on a cursory reading. However, there have been cases where despite the registration of an ECIR, a copy of it was not provided to the accused on the grounds that the ECIR is an “internal document”. Interestingly, there have also been instances where the ED provided a copy of the CIRT to the accused when filing writs or in proceedings under sections 5 and 8 of the PMLA.

Another matter which has been flagged for consideration by the Supreme Court is that many procedural safeguards under the Code of Criminal Procedure 1973 (CrPC), such as those provided for in Sections 41A and 161, are not granted to a defendant in court. under the PMLA.

In the Supreme Court decision in the case of Tofan Singh v State of Tamil Nadu, it was held that investigators under special statutes should be regarded by law as police officers. According to Section 25 of India’s Evidence Act, no confession made to police officers can be proven against a person charged with an offence. On the other hand, the PMLA confers on officials of the relevant authority the powers of a civil court under the Code of Civil Procedure 1908. Thus, as such, ED investigations and proceedings would be regarded as court proceedings and statements made to the ED being admissible as evidence. This aspect has been pointed out in several decisions as infringing the rights of the accused, but the courts have decided otherwise.

Abysmally few convictions

Critics also point to the extremely low number of convictions against ED raids. Between 2011 and 2020, the ED conducted over 1,700 raids with 1,569 specific investigations; however, there were only 9 convictions. However, to give the full picture, the number of cases investigated by the DE is much lower than in other jurisdictions. To date, some 4,700 cases are being investigated by ED.

The number of cases investigated in each fiscal year has increased over time from 111 (in 2015-2016) to 981 (in 2020-2021). The number of money laundering cases recorded in other jurisdictions is significantly higher relative to the population of those countries, the figures being 7,900 in the UK, 1,532 in the US, 4,691 in China, 1,036 in Australia, 1,823 in Hong Kong, 1,862 in Belgium. and 2,764 in Russia.

Sophisticated means of fraud

Over the years, money laundering has become more prevalent and sophisticated with the advent of internet banking and hidden online means of payment making inroads into Indian crimes resulting in an increase in the amount of money involved in such cases. This highlighted the importance of proactively taking adequate preventive measures. However, at the same time, the authorities must be aware of the constitutional rights and freedoms afforded to all persons, including the accused.

The law itself needs to be overhauled as we have come a long way from international anti-money laundering efforts to tackle drug trafficking and terrorism related issues. It is necessary to establish appropriate procedures and standards from which the authorities concerned and the investigative bodies cannot deviate. Carrying out such a balancing exercise would ensure that the PMLA aligns with its objectives.

Originally posted by BusinessLine

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.