In simple terms, money laundering is the conversion of proceeds of crime into assets which appear to have a legitimate origin. The processes include concealment, removal, disguising, transfer, possession, etc. The focus of money laundering is on dealing with the proceeds of crime.
The Prevention of Money Laundering Act has been in force for over 17 years with interesting results. According to data from Parliament 14,143 cases were registered under inter alia PMLA between 2019-20 and 2021-22 as against 4,913 cases in 2014-15 to 2016-171. Equally, only 23 persons have been convicted till date2. Since PMLA has been in effect, 242 petitions have been filed before the Supreme Court challenging the stipulations of the PMLA – largely those introduced by amendments in 2015 and 2018.
The Court's decision, pronounced on 27 July, is, in our view, commensurate with the spirit of the statute and India's commitments to the Financial Action Task Force but equally egregious in effectively overriding the safeguards on executive over-reach.
Much has been made of the Court upholding the expanded scope of money laundering (which now includes any asset arising from the proceeds of crime irrespective of any effort to project the asset as unrelated to the proceeds of crime). The Court is correct in upholding the expanded scope given the stipulations in the Palermo and Vienna Conventions; and the concerns raised by the petitioners before the Court are equally valid and contextual in terms of the ground realities of the over-reach by investigating agencies. In effect, black letter Indian law now accords with the global standard used to determine money laundering.
The Court also upheld the Government's position with respect to retrospective application of the Act to the proceeds of crime acquired before the Act came into effect, the accused not receiving a copy of the Enforcement Case Information Report (ECIR), and the admissibility of statements provided during inquiry. Per the Court, money laundering is a continuing offence and in effect, continues till the proceeds of crime are attached and confiscated. The Court upholding the twin conditions for bail to a person accused under the PMLA is shocking! The twin conditions inverse the burden of proof where an accused must demonstrate that he is not guilty of money laundering and would not commit any offence if his liberty is restored. This position is incongruous with recent pronouncements of the Court reiterating the non-punitive nature of bail and propounding that bail is rule and jail, an exception. In the Court's reasoning the PMLA includes sufficient safeguards to prevent misuse of these powers by the executive. To us, this raises two concerns: The first being the PMLA superseding other stipulations of law which safeguard the rights of a person accused and the second being the manner in which investigations and trials progress in our country.
With respect to the first, we are of the opinion that the rights of the individual must always be secure. Of course, investigating agencies must be appropriately empowered but the law has historically balanced that power against the rights of the accused and there is no call to carve the PMLA out of this paradigm.
We have consistently highlighted our second concern over the past few years: In India, the process is the punishment. Investigators increasingly make accusations and inflict hardship, curtail liberty, impede the quality of life, injure reputation, and fail to secure conviction. The abysmal statistics of conviction under the PMLA are the norm in India. The Prime Minister has correctly said that ease of justice is as important as ease of doing business3 and the Chief Justice of India has been calling out the indiscriminate invocation of the provisions of the PMLA and its use as a weapon against individuals4. In our view the Court's ruling in Vijay Madanlal Choudhary will not redress the concerns and will worsen the situation.
Thankfully though, default bail and the maximum period for which an undertrial can de detained continue to be available to a person accused of laundering proceeds of crime. That is some sort of saving grace.
In summary, what is the verdict's effect? The PMLA as amended in 2015 and 2018 is valid and remains as is. If you acquire, use, or possess proceeds of crime you are ipso facto assumed guilty of money laundering. Money laundering is a continuing offence – regardless of when the crime was committed you are liable if you continued to possess or use proceeds of crime after 1 July 2005. During inquiry, you are not entitled to see the ECIR (an internal document of ED), but you must truthfully answer all questions asked or face liability for perjury. Your statement to the ED officer is evidence against you during trial. Once arrested, you are only entitled to know the grounds of arrest but not the evidence that ED has against you. You get bail only if you successfully demonstrate that you have not committed money laundering and that you are unlikely to commit any offence if released on bail. In parallel, all assets qualifying as proceeds of crime, once identified, are attached. ED has emergency powers and may attach, search, and seize before registration of the FIR for the original crime. ED also has the power to write to the police to register FIR for the original crime and if the police does not, ED can agitate before court against the non-registration of FIR. The proceeds of crime will be confiscated if the trial for money laundering results in a conviction. Acquittal for original crime puts an end to the money laundering saga since there cannot be any proceeds of crime without the crime.
The safeguards of the PMLA on which the Court has so heavily relied are a high-ranking ED officer's reasons to believe, reduced to writing, that money has been laundered and that emergency powers of arrest, attachment, search, or seizure must be invoked only to preserve the proceeds of crime. With no guidelines available (at least in the public domain), these reasons to believe remain a subjective and opaque construct transparent only in application and heinous in consequence.
To us, the situation clearly calls for redress: Transparency is essential, and the accused must be given every fair opportunity to address the allegations made. No investigation and curtailment of rights can proceed on the basis of principles and ostensible safeguards which are not in the public domain – such curtailment can only be infringement. Since the PMLA lists several offences as 'scheduled offences', there must also be a defined clawback period as we have in terms of the Income Tax Act and Insolvency and Bankruptcy Code. That is, of course, only our opinion.
So, for good or bad, the tone is set, and arbitrariness will continue with impunity and the process is punishment. Rarely have the merits of the rule of law and the limitations of rule according to the law been better demonstrated.
Footnotes
1. Govt data: FEMA, PMLA cases triple in first 3 yrs of NDA-II versus NDA-I | India News, The Indian Express as at 0635 hrs IST on 31 July 2022.
2. With Low Conviction Rate, ED Is Nothing More Than a Caged Parrot That Can't Get Anyone to Sing (thewire.in) 0635 hrs IST on 31 July 2022.
3. Ease of justice as vital as ease of doing business: PM pushes for undertrials' speedy release | India News - Times of India (indiatimes.com) as at 0726 hrs IST on 31 July 2022.
4. Supreme Court raps ED for indiscriminate use of Prevention of Money Laundering Act | India News – Times of India (Indiatimes.com) as at 1607 hrs IST on 31 July 2022.
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