Last Thursday, the Supreme Court struck down a stringent provision of the Prevention of Money Laundering Act (PMLA), 2002 that denied bail to an accused unless the court was convinced that he was not guilty. The apex court also ordered a fresh trial in all cases where bail under such provisions had been denied to the accused. The ruling could have widespread ramifications for those accused under the Act — and for cases under investigation by the Enforcement Directorate (ED), the agency responsible for probing money laundering offences. The ruling, opposed by Attorney General K.K. Venugopal in court, is also being seen by the government as a setback in the fight against black money.
In many ways, the PMLA was a result of the opening of the Indian economy in the early 1990s, overseen by the P.V. Narasimha Rao government. As the economy opened to foreign investment and forex reserves began to rise, the government felt a need for an easing of forex regulations in the country. A Bill was thus brought to remove the draconian provisions of the Foreign Exchange Regulation Act (FERA), which made even spending freely abroad difficult for an Indian.
Thus, the Foreign Exchange Management Act (FEMA) was born in 2002. The most important change was that a forex violation was turned into a civil offence from a criminal one, allowing for compounding of the offence by way of a fine. This did not require the arrest of an offender.
But, as FEMA was being drafted, agencies enforcing forex regulations pressed for a new law, FEMA turning the anti-money laundering apparatus in the country almost toothless. This was also when internationally, there was a thrust on choking terror financing and the free 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 — as a member, India was under pressure to do its bit. The PMLA was also created as a response to the political declaration adopted by the special session of the United Nations General Assembly (UNGA) held on June 8 and 10, 1998, calling on member states to adopt anti-money laundering legislations.
But, since its origin, the Act has been a matter of debate because of its provisions — at times, it has also been called “draconian”. When in 2002, then-Finance Minister Yashwant Sinha introduced the twin bills of FEMA and PMLA in Parliament for passage, he faced no difficulty with the former. But the PMLA posed a challenge. 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, and the Congress backed the demand to refer the Bill to a Select Committee of Parliament. The panel recommended many changes, to which Sinha, constrained by the need to carry members along, agreed. The Prevention of Money Laundering Act was finally passed in 2002. It, however, came into force only on July 1, 2005. The Act was further amended in 2009 and 2013, increasing its ambit. Over the years, there have been debates over its provisions dealing with bail. The issue has also been debated in courts while arguing for accused parties.
The PMLA’s Section 45 (1) required 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.
Originally, the Section applied to those charged for money laundering as well as scheduled offences under part A of the Act which covered cases involving waging war against the Government of India and offences under the Narcotic Drugs and Psychotropic Substances (NDPS) Act. Through the 2013 amendment to the Act, the government brought Part B of the Act also under the Section’s ambit. This further enhanced the section’s scope, making bail difficult for those accused under comparatively minor offences. The tough bail condition now applied to offences under the Wildlife (Protection) Act, the Immoral Traffic (Prevention) Act, the Prevention of Corruption Act, 1988, the Antiquities and Arts Treasures Act, the Transplantation of Human Organs Act 1994, the Passports Act, the, Information Technology Act and other laws.
The result was that those accused under the PMLA rarely got bail before an incarceration that could last anywhere between two to three years. Given that money laundering offences attract between three to seven years of punishment in jail, this was considered practically like serving the sentence. Almost no one got bail until a chargesheet in the case was filed. Of the over 120 persons accused by the ED and arrested under the PMLA since 2005, no more than two to three people have secured bail in a matter of months.
The Kashmiri separatist Shabbir Shah, facing a money laundering probe by the ED in connection with an alleged terror funding case, was recently denied bail. This, despite the key accused in the case, Aslam Wani, who allegedly delivered the money to Shah, being acquitted in the primary offence of terror funding. The NCP leader Chhagan Bhujbal, arrested in March 2016 in a money laundering case, has also not been able to secure bail, even on medical grounds. The ED has already filed a chargesheet in the case.
Notably, the ED has had painfully slow progress in its cases and has, till date, been able to secure conviction in only two of the over 2,300 cases it has registered. The ED Director Karnal Singh has said this has largely been due to the ED prosecuting influential people with connections that can delay trials.
However, the Supreme Court has now said that the Section stood in violation of Article 21 (the right to life, liberty and security of a person) and Article 14 (the right to equality). Yet, the PMLA in totality is a very stringent Act. Apart from bail, the Act has very tough provisions on the attachment of property, the recording of statements and arrest and prosecution. The PMLA is among very few Acts in the country wherein a statement recorded by an authorised agency officer is admissible as evidence in court. Such powers are not available to the police under the Criminal Procedure Code (CrPC).
The Director, ED, can pass orders to provisionally attach a property belonging to an accused if she/he is convinced that this has been purchased with the proceeds of a crime under a scheduled offence. The PMLA also puts the burden of proof on the accused as it presumes intent. Section 24 states: “a) in the case of a person charged with the offence of money laundering under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money laundering; and b) in the case of any other person the Authority or Court may presume that such proceeds of crime are involved in money laundering”. So, if a person possesses a property that the agency can prove has been bought with the proceeds of crime, it is not bound by law to prove that the person had an intention to launder money. Similarly, Section 22 states that where any property or records are seized from any person under this Act, it shall be presumed that such a person is the owner of such property or records.
Interestingly though, despite the SC’s decision, ED sources say the order would not directly impact on its cases as these are largely based on documentary evidence where financial trails have been established. As far as bail is concerned, the agency will invoke existing provisions. “We can always argue in court that the accused is likely to influence witnesses and he would still be denied bail where necessary,” an ED official said.