The principal law for regulation, prevention and penalisation of money laundering in India is the Prevention of Money Laundering Act, 2002 (PMLA). The PMLA owes its origin to the international efforts undertaken to flag and prevent the threats of money laundering leading to the rise of global drug trafficking and terrorism.  

The statement of objects and reasons of the 1999 bill for preventing money laundering stated that a law was “urgently needed” to obviate threats of money laundering. Over the years, the PMLA has witnessed multiple amendments which have broadened the scope of applicability and powers of the authorities concerned.  

At the outset, PMLA targets the proceeds of crime and empowers authorities to confiscate the same. The object of confiscation of proceeds of crime is to ensure that links in organised criminal activities are broken and the financial incentive to commit crimes is taken away. Further, in highly organised crime syndicates, it is common that criminals higher up in the hierarchy are only involved in exchange of the proceeds of crime. Thus, as investigating authorities move further from the actual commission of a crime, only the ‘paper trail’ comes to their aid in catching hold of the criminals. 

Most importantly, PMLA is enacted to ensure that white-collar criminal activities do not disbalance the socio-economy stability of a developing country like India. For instance, it has been reported that timely intervention of the authorities led to the attachment of assets worth ₹19,111.20 crore out of a total fraud committed of ₹22,585.83 crore in the cases involving Vijay Mallya, Nirav Modi and Mehul Choksi. Of the attached assets, ₹15,113.91 crore have already been returned to public sector banks by Directorate of Enforcement (ED).  

Legal challenges for PMLA

The PMLA stands out amongst the many criminal laws of India due to the circumstances in which it was enacted. The unconventional powers and procedures under PMLA, or lack thereof, has been a talking point amongst critics of the law. There is a profound fear of arbitrariness creeping into procedures followed by officials of the concerned authorities, including the ED. This has led the PMLA to attract many legal challenges and constitutional tests. 

At present, the Supreme Court is hearing a batch of petitions in Vijay Madanlal Choudhary & Ors Vs Union of India that are aimed at setting out the scope and applicability, as well as test the constitutional vires of provisions under PMLA. 

Calling for transparency

Several issues are yet to be addressed under the PMLA. It is a norm in criminal jurisprudence that investigations and proceedings that have severe implications for the accused should come with a minimum degree of transparency in line with the fundamental freedoms granted by the Constitution. However, critics argue that PMLA misses such minimum thresholds. For instance, the standard practice of proceeding against an accused by the ED involves the creation of an internal document called Enforcement Case Information Report (ECIR). 

Rights of the accused

The ECIR essentially sets out the basis on which the accused is being investigated. In Youth Bar Association Vs Union of India, the Supreme Court mandated that an accused person was entitled to having a copy of the FIR. In the same decision, directions were also passed that FIRs should be made available on websites of the authority concerned except in critical and confidential matters involving allegations such as sexual offences and terrorism. An ECIR may appear to be a document comparable to an FIR lodged by the police personnel at a cursory reading. However, there have been cases where despite registering an ECIR, a copy of the same was not provided to the accused on grounds that the ECIR is an “internal document”. Interestingly, there have also been cases where the ED handed over a copy of the ECIR to the accused upon filing writ petitions or in proceedings under Sections 5 and 8 of the PMLA.  

Another issue that has been flagged for consideration by the Supreme Court is that many procedural safeguards under the Code of Criminal Procedure, 1973 (CrPC), such as those under Sections 41A and 161 are not afforded to an accused under the PMLA. 

In the Supreme Court decision in Tofan Singh Vs State of Tamil Nadu, it was held that investigating officers under special statutes shall be deemed in law to be police officers. As per Section 25 of the Indian Evidence Act, no confession made to police officers shall be proved against a person who is accused of an offence. On the other hand, the PMLA empowers the officials of the authority concerned with the powers of a civil court under the Civil Procedure Code, 1908. Thus, as such ED investigations and proceedings would be deemed to be judicial proceedings and the statements made to ED being admissible as evidence. This aspect was flagged in several decisions as violative of the rights of the accused, however, the courts have opined otherwise.  

Abysmally few convictions

Critics also point to the abysmally low number of convictions made against raids conducted by the ED. Between 2011 and 2020, the ED conducted over 1,700 raids with 1,569 specific investigations; however, there were only 9 convictions. However, to give a complete picture, the number of cases being investigated by the ED is much less when compared with other jurisdictions. As of date, some 4,700 cases are under investigation by ED. 

The number of cases being investigated every financial year has increased over time from 111 (in 2015-2016) to 981 (in 2020-2021). The number of money laundering cases registered in other jurisdictions is significantly higher relative to the population of those countries, with the figures being 7,900 in the UK, 1,532 in the USA, 4,691 in China, 1,036 in Australia, 1,823 in Hongkong, 1,862 in Belgium and 2,764 in Russia. 

Sophisticated means of fraud

Over the years, money laundering has become more frequent and sophisticated with the advent of internet-based banking and means of masked online payments making inroads into the Indian crimes leading to an increase in the quantum of money involved in such cases. This has highlighted the importance of proactively taking adequate preventive measures. However, at the same time, the authorities should be mindful of the constitutional freedoms and rights afforded to all persons, including the accused.  

The law itself needs rethinking as we have come a long way from the international efforts of curbing money laundering for tackling drug trafficking and terrorism-related issues. There is a need to set out proper procedures and standards that the concerned authorities and the investigating agencies may not derogate. Performing such a balancing act would ensure that the PMLA aligns with its objectives. 

(The authors are advocates at Phoenix Legal, a law firm)