The Supreme Court of India’s attention is currently directed towards the alleged widespread misuse of the Prevention of Money Laundering Act 2002 (PMLA) by the government and the Enforcement Directorate (ED). The Judiciary is scrutinizing complaints about the Act being used to investigate “ordinary” crimes, a lack of transparency in investigations, and its arguably excessive use across unrelated offenses.
Allegations Against the PMLA
The Prevention of Money Laundering Act was initially put into effect to combat global money laundering, in line with India’s international commitments, including the Vienna Convention. However, critics argue that it has deviated from its original purpose and is now being misused for ordinary crime investigations. The Act, initially a penal statute against threats from money laundering, particularly trade in narcotics, is now reportedly being stretched too far. Critics argue its offenses, as listed in the schedule of the Act, are excessively broad and often unrelated to narcotics or organized crime.
Concerns Over Transparency and Clarity
Another significant worry is the opaque nature of the enforcement procedure. The Enforcement Case Information Report (ECIR), equivalent to an FIR, is treated as an internal document and not disclosed to the accused. This lack of clarity over the ED’s selection of cases for investigation and the initiation process is seen as potentially infringing on personal liberties.
The Prevention of Money Laundering Act Explained
The PMLA forms the backbone of India’s legal structure to fight money laundering. It applies to all financial institutions, banks, mutual funds, insurance companies, and their intermediaries. The PMLA (Amendment) Act, 2012 expanded the definition of ‘reporting entity’ to include banking companies, financial institutions, and intermediaries. It also removed the upper limit on fines imposed by the original PMLA, 2002, and provided for provisional attachment and confiscation of property involved in such activities.
Understanding Money Laundering
Money laundering is the process of disguising the origins of illicitly gained money, like proceeds from drug trafficking or terrorist funding, to make it appear legitimate. The funds generated through illegal activities are known as ‘dirty money’, and money laundering aims to transform this ‘dirty money’ into ‘clean’, untraceable funds. Money laundering usually involves three stages – Placement, Layering, and Integration. Various methods employed in this process include bulk cash smuggling, trade-based laundering, using shell companies and trusts, round-tripping, bank capture, gambling, real estate transactions, black salaries, fictional loans, hawala, and false invoicing.
The Role of the Enforcement Directorate
The Enforcement Directorate (ED) is a specialized financial investigation agency under the Department of Revenue, Ministry of Finance, which was established on May 1, 1956, to handle violations under the Foreign Exchange Regulation Act, 1947. It was renamed as ‘Enforcement Directorate’ in 1957. Currently, ED enforces the Foreign Exchange Management Act,1999 (FEMA) and the Prevention of Money Laundering Act, 2002 (PMLA).