How anti-money laundering law came to have a vast scope, granting police powers to ED

The CPI(M), the Congress’s ally in the INDIA alliance, had said in its manifesto released on Thursday that it stood for “the scrapping of all draconian laws like UAPA (Unlawful Activities (Prevention) Act) and PMLA”.

However, some of the most stringent provisions of the PMLA, which have now angered Opposition leaders because they have been used to ensure the prolonged incarceration of politicians without trial, were inserted in the statute during the Congress-led UPA regime. Since 2014, the BJP-led government too has made incremental but significant changes in the PMLA.

The law — including on bail, the retrospective application of the law, the wide police powers it grants to the ED — and the way its provisions are invoked were wholly upheld by the Supreme Court in 2021.

Backed by Supreme Court

On July 27, 2022, a three-judge Bench headed by Justice A M Khanwilkar (now retired) upheld the constitutional validity of PMLA, which was under challenge in a batch of more than 200 individual petitions.

The first challenge was against the alternate criminal law system that the PMLA creates since the ED is kept outside the purview of the Code of Criminal Procedure (CrPC). The ED is not considered ‘police’, and hence does not follow the provisions of CrPC for searches, seizures, arrests, and attachment of properties. This is significant — since the ED is not a police agency, statements made by an accused to the ED are admissible in court. The judgment in Vijay Madanlal Choudhary & Ors vs Union of India upheld these sweeping powers of the ED.

The PMLA, like the UAPA, lays down a stringent standard for granting bail. Section 45 of the PMLA is a ‘negative’ provision — which bars courts from granting bail unless the accused can prove that there is no “prima facie” case against them, and that they will not commit any offence in the future.

In November 2017, in Nikesh Tarachand Shah v Union of India, the Supreme Court struck down these provisions as unconstitutional. However, Parliament put them back in by amending the PMLA through the Finance Act, 2018. This was upheld by the 2021 ruling.

While some parts of the 2021 ruling — e.g., the ED is not obligated to disclose the ECIR (akin to an FIR in a criminal case) to the accused — are under review, the ruling is now the law of the land, since there is no stay operating on the judgment itself.

A short history of the PMLA

BACKGROUND: With the advent of global terrorism in the 1990s, there was a focus internationally on choking terror financing and the movement of illicit money across borders. The Financial Action Task Force (FATF) was created in 1989 to coordinate anti-money laundering efforts across the world — and as a member, it was incumbent upon India to do its bit.

The PMLA was also enacted in response to the political declaration adopted by the special session of the United Nations General Assembly held on June 8 and 10, 1998, calling on member states to put in place national anti-money laundering legislation.

ENACTMENT: The Prevention of Money-Laundering Bill, 1998 was introduced in Lok Sabha on August 4, 1998, by the Atal Bihari Vajpayee government. The proposed law was focused on preventing money laundering and connected activities, confiscation of the proceeds of crime, setting up of agencies and mechanisms to coordinate measures to combat money laundering, etc.

As Finance Minister Yashwant Sinha introduced the Bill, parties across the political spectrum opposed what they said were “draconian” provisions. Mulayam Singh Yadav warned that governments could not be trusted with not misusing these provisions. The Congress backed the demand to refer the Bill to a Select Committee of Parliament.

The Bill was referred to the Department-related Standing Committee on Finance, which presented its 12th Report on March 4, 1999, to Lok Sabha. On October 29, 1999, the government introduced The Prevention of Money-Laundering Bill, 1999 in Lok Sabha. The Bill was passed by Lok Sabha on February 12, 1999, and by Rajya Sabha on July 25, 2002.

However, the law came into force only in 2005, after Rules were framed by the UPA government.

Two key amendments

Although the law has been changed multiple times over the years, it was through amendments made in the PMLA in 2009 and 2012 that the ED acquired the powers to take coercive action against politicians.

In 2009: ‘Criminal conspiracy’ under Section 120B of the Indian Penal Code was added to the PMLA’s schedule among various other offences. This has, over the years, allowed the ED to enter any case where a conspiracy is alleged, even if the principal offence is not part of the PMLA’s schedule.

For example, the ED was able to take over some FIRs related to alleged land-grabbing in Jharkhand because Section 120B IPC had been invoked. This helped ED to build its land-grabbing case against former Jharkhand Chief Minister Hemant Soren. Soren is currently in jail in Ranchi.

In 2009, the ED also got international jurisdiction as far as tracking laundered money was concerned.

In 2012: The PMLA was amended to move the Prevention of Corruption Act, 1988 (PC Act) to Part A of the statute’s schedule from Part B. This was a significant move as it applied stringent bail conditions on those accused of corruption.

Section 45(1) of the PMLA requires that the public prosecutor must be given an opportunity to oppose any application for release on bail. Where the public prosecutor opposes bail, the court must be satisfied that there were reasonable grounds to believe that the accused was not guilty and was unlikely to commit an offence if granted bail.

This section, however, is applicable only to Part A of the statute’s schedule. When Parliament passed PMLA in 2002, Part A only covered offences such as waging war against the nation and trafficking of drugs. But the 2012 amendment expanded Part A to include the PC Act, the Wildlife (Protection) Act, the Immoral Traffic (Prevention) Act, the Antiquities and Arts Treasures Act, the Transplantation of Human Organs Act 1994, the Passports Act, the IT Act, and other laws.

It is because of this amendment that NCP leader Chhagan Bhujbal, who was arrested by the ED in 2016, could not get bail for more than two years. Also, Satyender Jain of AAP has been in jail for almost two years, and former Delhi Deputy Chief Minister Manish Sisodia completed a year in jail in February.

Given that money laundering offences attract 3-7 years in prison, such long incarcerations before trial are seen by critics as akin to serving a sentence even before conviction.

The amendments also enlarged the definition of the offence of money laundering to include activities such concealment, acquisition, possession and use of proceeds of crime as criminal activities, and provided that unless there is proof to the contrary, it shall be presumed that any proceeds of crime detected is involved in money laundering.

This effectively meant that if an individual deposited tainted money in the account of a relative or a family member, or bought a property in their name, they would be culpable even without being aware that the funds were tainted.