Relevance: GS-3: Money-Laundering and its prevention;

Key Phrases: Vijay Madanlal Choudhary & Ors Vs Union of India; ED; PMLA 2002; Vienna Convention on Money Laundering; Tofan Singh Vs State of Tamil Nadu; Youth Bar Association Vs Union of India; Indian Evidence Act 1872; Civil Procedure Code 1908.

Context:

• The Supreme Court is looking into allegations of rampant and unjust application of the PML Act.
  • It is also hearing a batch of petitions in Vijay Madanlal Choudhary & Ors Vs Union of India about the constitutionality of PMLA.

Key Highlights

• Prevention of Money Laundering Act, 2002 (PMLA)
  • It is the principal law for regulation, prevention and penalisation of money laundering in India.
  • It’s origin lies in International efforts undertaken to flag and prevent the threats of money laundering which had links from global drug trafficking and terrorism.

Aims and Benefits of PMLA

• To obviate threats of money laundering.
  • The 1999 Bill has witnessed multiple amendments which have broadened the scope of applicability and powers of the authorities concerned.
• Targets the proceeds of crime and empowers authorities to confiscate the same.
  • Confiscation of proceeds of crime ensures breaking of links in organised criminal activities.
• Targets the criminals higher up in the hierarchy.
  • In highly organised crime syndicates, the upper management is only involved in exchange of the proceeds of crime.
  • Only the ‘paper trail’ comes to the aid of investigating agencies in catching hold of the criminals.
• To ensure that white-collar criminal activities do not disbalance the socio-economic stability of a developing country like India.
  • Timely intervention of the authorities led to the attachment of assets worth ₹19K crore out of a total fraud committed of ₹22K crore in the cases involving Vijay Mallya, Nirav Modi and Mehul Choksi.
  • Of the attached assets, ₹15K crore have already been returned to public sector banks by the ED.

Legal Challenges for PMLA

• Profound fear of arbitrariness
  • The freedom to attach properties, even in ordinary cases, could easily be mis-utilised.
  • This has led the PMLA to attract many legal challenges and constitutional tests.
• Call for transparency
  • ECIR (Enforcement Case Information Report) is treated as an internal document.
  • This is against the norm in criminal jurisprudence. Investigations and proceedings with severe implications on the accused should be transparent as per the fundamental freedoms granted by the Constitution.
• Rights of the Accused
  • Youth Bar Association Vs Union of India: The Supreme Court mandated an accused person to be entitled to a copy of an FIR. The same was to be published on the website with exception in cases of sexual offences and terrorism.
  • There have been cases where a copy of the ECIR was not provided to the accused on grounds that it is an “internal document”.
• Procedural safeguards are transgressed
  • Many procedural safeguards under the Code of Criminal Procedure, 1973 (CrPC), such as those under Sections 41A and 161 are not afforded to an accused under the PMLA.
• Flouting of norms
  • Tofan Singh Vs State of Tamil Nadu: SC held that investigating officers under special statutes shall be deemed in law to be police officers.
  • PMLA has empowered officials with the powers of a civil court under the Civil Procedure Code, 1908, as such ED investigations and proceedings would be deemed to be judicial proceedings and statements made to ED being admissible as evidence.
  • This aspect was flagged in several decisions as violative of the rights of the accused, however, the courts have opined otherwise.

Other Challenges

• Abysmally few convictions
  • Critics also point to the abysmally low number of convictions made against raids conducted by the ED.
    • Between 2011 and 2020, the ED conducted over 1,700 raids with only 9 convictions.
  • However, to give a complete picture, the number of cases being investigated by the ED is much less when compared with other jurisdictions.
    • Despite an increase in number of cases being investigated every financial year to 981 (in 2020-2021), it is low in comparison to other jurisdictions, with the figures being 7,900 in the UK, 1,532 in the USA, 4,691 in China, 1,036 in Australia, 1,823 in Hongkong.
• Sophisticated means of fraud
  • ML has become more frequent and sophisticated with the advent of internet-based banking and means of masked online payments.
  • This has highlighted the importance of proactively taking adequate preventive measures.
  • However, the authorities must be mindful of the constitutional freedoms and rights afforded to all persons, including the accused.

Conclusion

• The law needs rethinking to suit the current needs.
• There is a need to set out proper procedures and standards that the concerned authorities and the investigating agencies may not derogate.
• Performing such a balancing act would ensure that the PMLA aligns with its objectives.

Source: The Hindu BL

Mains Question

Q) What are the benefits of enacting Prevention of Money Laundering Act, 2002 (PMLA)? Also highlight the challenges of this act and suggest a suitable way forward.