The Supreme Court recently rejected a plea by a political leader, challenging his arrest by the Enforcement Directorate (ED) on Money Laundering charges. The government has passed the Fugitive Economic Offenders Act, 2018 (FEOA) to initiate criminal action and confiscate properties of economic offenders who escape prosecution. Its origin lies in the larger framework to combat money laundering and the contravention of foreign exchange laws in India.
A Deeper Look at Money Laundering
Money laundering is a criminal activity in which ‘dirty money’, earned from illicit activities like drug trafficking, bribery, smuggling, insider trading etc., is made to appear as ‘legitimate’. This process involves three stages: Placement, where money is injected into the formal financial system; Layering, in which the money is spread over various transactions to hide its origin; and Integration, where the money enters the financial system, nullifying any association with its source crime, making it appear clean and legitimate.
The Prevention of Money Laundering Act (PMLA), 2002
The PMLA was enacted in response to India’s commitment to combating money laundering as part of global agreements such as the Vienna Convention. It holds financial institutions, banks (including RBI), mutual funds, insurance companies, and their intermediaries accountable to prevent this criminal activity. Recent amendments further clarified the position of proceeds in crime and redefined money laundering as a stand-alone criminal act under Section 3 of PMLA.
The Role of the Enforcement Directorate
The ED is a multi-disciplinary organization responsible for investigating economic crimes and violations of foreign exchange laws. Formed in 1956, it investigates violations under the Foreign Exchange Regulation Act, 1947 (FERA ’47). With the introduction of the Foreign Exchange Management Act, 1999 (FEMA), the ED now also handles cases related to economic offenders taking refuge in foreign countries.
Functions of the Enforcement Directorate
The ED enforces the provisions of the PMLA by tracing the assets obtained from the proceeds of crime, attaching the property provisionally, and ensuring the prosecution of the offenders. In contravention of foreign exchange laws under FEMA, the ED investigates, adjudicates, and imposes penalties. Under FEOA, it is mandated to attach properties of fugitive economic offenders who have escaped from India. The ED also sponsors cases of preventive detention under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA) with regard to FEMA contraventions.
