By: Anushka Satya
THE SCOURGE OF MONEY LAUNDERING AND THE URGENCY TO COMBAT
Post the interdependence of economies across the globe, with the seamless exchange of resources between sovereign borders, the menace of money laundering has become more pressing than ever. Statistics say that 2-5% of the global GDP, or US$ 800 billion – US$ 2 trillion is the estimated amount of money laundered globally in one year. To tackle this menace, the United Nations General Assembly in its Political Declaration in 1998 urged member nations to adopt legislation to mitigate money laundering.
India, which is no exception to this threat, had no legislation to address money laundering before the Prevention of Money Laundering Act 1992 (herein after ‘PMLA’) came into effect. The act defines the crime of money laundering under section 3.
As per the section, PMLA, being a special legislation, prosecutes and punishes offenders for deriving money by the commission of some crime. For money laundering to happen, it is indispensable to have a separate offense, which is independent of PMLA, called the predicate offense, after the commission of which money was procured (proceeds of crime).
PMLA: A BLACK SHEEP?
PMLA has been subject to multiple amendments over the years in an effort to strengthen the legislation and make it less vague. The latest amendment to the Act was brought by the Finance Act, 2019. The amendment altered several provisions of the legislation, which among other things, made the sanctity of legislation constitutionally contentious so much so that the Supreme Court (herein after ‘SC’) was resorted to, in order to evaluate the validity of the changes. In the Vijay Madanlal Chaudhary v Union of India case, the apex court examined the constitutionality of the 2019 amendment to PMLA, which was questioned on a multitude of grounds. The SC dashed the hopes as it upheld the amendments made.
The primary ground for making reservations about the amendment is the blatant disregard of an array of fundamental rights of those accused under the Act. For one, the Act reverses the doctrine of presumption of innocence, which is a human right applicable to the Indian criminal system. The doctrine stipulates that an accused should be deemed to be innocent until proven guilty and the thrust to prove guilt lies on the accused. Section 24 of the Act overhauls this idea as it shifts the burden of proof on the accused. The Indian criminal system sets forth that the prosecution is obligated to establish its case against the accused beyond all reasonable doubt. A deviation from this practice is violative of Article 21 read with Article 14 of the Constitution. Many scholars have floated the caveat that this revamped provision leaves doors open for misuse of power by corrupt officers and unfair proceedings. Mr. Fali S. Nariman argued that “Merely because you accuse somebody, he has to prove it. Please understand that this presumption is totally unreasonable, and irrational, and will create lots of problems. It will not stand the test of constitutional validity at all.”
Section 50 of the PMLA, which empowers the Enforcement Directorate (herein after ‘ED’) to summon and compel anyone to give evidence, refuting which section 63 can penalize that person, exemplifies classic escape from the right against self-incrimination enshrined in Article 20( 3) of the Constitution. The right protects an accused from revealing anything from his knowledge that would be to detriment of his own. By citing precedents of MP Sharma v Satish Chandra and State of Bombay v Kathi Kalu Oghad, the Additional Solicitor General defended Section 50 before the SC by claiming that the protection is available only to those who are ‘accused’ of an offence. Hence, so long as a person is not legally accused, he cannot avail the protection. Disappointedly, by arguing this, the Center overlooked the golden rule laid down by the SC in Nandini Satpathy v PL Dani. The court held that to rebuff the constitutional shield meant to protect a suspect only because the inquiry is preliminary is to erode the substance of the protection and to make it hallow.
The Kafkaesque tint of the PMLA refuses to end here. The amendment constraints protections against arrest and detention are embodied in article 22 of the Constitution. One of the safeguards under this article ensures that the arrestee shall be immediately intimated reasons for arrest. However, the amendment states that merely share grounds of arrest suffices. Mandatory disclosure of the Enforcement Case Information Report (hereinafter ‘ECIR’) no longer exists. The SC added that ECIR cannot be equated with an FIR. This provision proves to be arbitrary for many arrestees who will not be apprised whether they are summoned as witnesses or accused or informed of the reason for their arrest.
Furthermore, the SC has repeated several times the principle laid down in State of Rajasthan v Balchand alias Baliay that ‘Bail is rule, Jail is exception’. Section 435 of the Code of Criminal Procedure stipulates certain grounds that should be accounted for by the Magistrate before granting bail to any accused. These grounds range from the possibility of whether the accused has the ability to fly out of the country to whether he has the ability to intimidate or influence witnesses. The amendment to the PMLA severely limits the approval of bails due to the twin principle enshrined in section 45 which sets forth a two-layered check. Firstly, the prosecution shall be allowed to oppose the bail prayer. Secondly, on the face of this opposition, the court shall be given enough reasons to believe that the accused is not guilty and that he will not initiate any additional offense while on bail. This restriction seems unreasonable, excessive and arbitrary prima facie only as the standard of proof for the grant of bail is set similar to the standard for convicting the accused. This provision defeats the objective of bail and the same was considered by the Apex Court in Nikesh Tarachand Shah v Union of India. By upholding the section in the Vijay Madanlal case, the Court is countering its own reasoning.
The secondary ground for the objection to the validity of the amendment is the question of its credibility. The PMLA Amendment, 2019 was brought by the Finance Act, 2019. The scope of the Finance Act, which is a financial legislation, is income tax, customs, GST-related matters and other issues related to finance. PMLA, which prohibits a crime, does not fall under the ambit of the Finance Act. This brings skepticism to the validity of the changes.
SC PLEA TO REVIEW: LAST RAY OF HOPE
The SC has accepted a plea to review its judgment upholding the validity of these provisions that violate fundamental rights and liberties, while the credibility of the way these changes were made is itself under serious apprehension. The SC has agreed to revise its judgment only as to two questions: one regarding the requirement to disclose ECIR and the other about the burden of proof on the accused. As the court reviews the second issue, it should be mindful that this exception to the general rule of innocence might be a precedent for coming times.
While it is appreciable that the apex court is scrutinizing its stance on these two questions, the same does not suffice to any extent. Other provisions, including the twin principles for bail, search and seizure powers accorded to the ED, and contradictions of section 50 of the PMLA with the golden rule of the Nandini Satpathy case, also need to be reviewed.
If despondently, Section 50 is to stay the way it is, some additional checks should be attached to avert the blatant arbitrariness and disregard of the fundamental rights of the accused. This could include a provision to question the accused in front of a magistrate, and not in solitude. This would ward off any instance of violence against the arrestees.
Considering that the charge of money laundering against an individual puts at stake a series of fundamental rights, and severely attacks his liberty, a caveat should be incorporated against the ED declaring that only after a concrete evidential report as to a possibility of a case is made available, should any charge be brought. Further, an independent body consisting of experts can be constituted to oversee the functioning of the ED as per the new amendments and ensure that it is not exceeding its powers or exercising them arbitrarily. The need for such an independent body seems valid, especially because, in many instances, the scope of powers of the ED is such gargantuan, that it seeks to impinge on the individual’s liberties.
Even as the menace of money laundering is real and initial, any preventive measure should not be such that it stifles rights and liberties of the people. The Indian criminal system accords value to the due process model, which ensures that every functionary in the system follows the precepts of equity, justice and due diligence. The PMLA Amendment and SC’s approval of the same is a total deviation from this rule. Hope clings to the SC as it has the opportunity to rectify the procedure through a review petition. It shall take into account rights enshrined in Indian codes and precedents set by courts until now to come to a judgment that balances individual liberty and the repression of money-laundering.
(Anushka Satya is a law undergraduate from the National Law University, Delhi. She may be contacted via mail at [email protected])
Cite as: Anushka Satya, ‘PMLA: Turning safeguards on their Heads’ (The RMLNLU Law Review Blog06 July 2022)