The Hindu Editorial Analysis- 12th August 2024 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Parties, serious crimes and the need for judicial clarity 

Why in News?

Two recent observations from two different Benches of the Supreme Court of India in the bail petitions of Delhi Chief Minister Arvind Kejriwal and former Delhi Deputy Chief Minister Manish Sisodia deserve in-depth analysis. The first was the observation from the Bench headed by Justice Sanjiv Khanna. The judge asked the government lawyer whether in a case under the Prevention of Money Laundering Act (PMLA) involving leaders of the Aam Aadmi Party (AAP), the party too is not involved.

What is Money Laundering?

Money laundering is when a big amount of money is made illegally, often from activities that are criminal but seem legal. 

• Criminal activities like selling drugs, funding terrorists, selling illegal weapons, moving goods illegally, running prostitution rings, doing insider trading, giving bribes, and using computer fraud to make a lot of money.

Global Initiatives against Money Laundering:

• Vienna Convention, 1988: This was a meeting in Vienna in 1988 where countries were told to stop the illegal movement of money made from drug crimes and other bad activities. 
• Financial Action Task Force (FATF): In 1989, a group of powerful countries made the FATF to figure out how to stop money laundering. 
• Political Declaration and Global Programme of Action: Countries were asked in 1990 to make laws to stop drug money laundering. 
• Special Session of the UN: In 1998, the UN talked about stopping the drug problem and said it's important to stop money laundering. 
• Palermo Convention, 2000: In 2000, many countries agreed to fight organized crime together by signing a UN agreement in Palermo, Italy. 

Background of Prevention of Money Laundering Act (PMLA), 2002

• A huge amount of illegal money created from global drug trafficking is a major danger to many countries' economies.
• There was a widespread understanding that the illegal money from drug trafficking, when mixed into the legal economy, could harm the world economy and put countries' independence and stability at risk.
• According to the United Office on Drugs and Crime, drug trafficking, which involves producing, distributing, and selling substances banned by drug laws globally, is estimated to be a $32 billion industry.
• The Prevention of Money Laundering Act (PMLA) of 2002 was put into effect.
• Article 253 of the Indian Constitution allowed for the enactment of the Prevention of Money Laundering Act (PMLA) to follow international agreements and implement the Financial Action Task Force (FATF) recommendations on tackling money laundering issues.
• The law concerning money laundering under Article 253 and Item 13 of the Union list, as referenced in the UN resolution, specifically targets drug money.
• The focus of the PMLA is on the money gained from criminal activities that is then laundered. This law holds accountable not only those directly involved in crimes but also individuals connected to the money laundering process at a later stage, even if they were not part of the original crime.
• Money laundering was seen as a severe economic crime with the potential to disrupt the global economy and threaten nations' independence, leading to a global agreement on the necessity of a strong law to combat this issue.
• The Enforcement Directorate (ED) is tasked with enforcing the rules of the PMLA and investigating cases of money laundering.

Provisions of the Prevention of Money Laundering Act (PMLA), 2002

1. Section 3 of Prevention of Money Laundering Act: This part explains what money laundering is. 

•  To charge someone with money laundering, there must first be a predicate offense. 
•  The Central Bureau of Investigation (CBI) or the State Police handle the investigation and prosecution of the predicate offense. 

2. Section 4 of Prevention of Money Laundering Act: This section focuses on the penalties involved.
3. Section 50 of the Prevention of Money Laundering Act: It grants the Enforcement Directorate (ED) the authority to summon individuals suspected of money laundering and take their statements.
4. Prescribed Obligation: The Prevention of Money Laundering Act mandates that banking companies, financial institutions, and intermediaries verify and maintain records of their clients' identities and transactions. They must also report this information to the Financial Intelligence Unit (FIU-IND).
5. Financial Intelligence Unit: India (FIU-IND) is the national agency responsible for receiving, processing, analyzing, and sharing information on suspicious financial transactions with enforcement agencies and foreign counterparts.
6. Establishment of Authority: The Prevention of Money Laundering Act proposes the creation of an Adjudicating Authority to exercise the powers granted by the act. It also suggests the establishment of an Appellate Tribunal to hear appeals against decisions made by the Adjudicating Authority and other relevant bodies.  
7. Special Courts: Special Courts are designated to handle cases related to the Prevention of Money Laundering Act and other offenses that fall under its purview.
8. Collaboration with Central Government: The act permits the Central Government to collaborate with foreign governments to enforce the provisions of the act, exchange information, and investigate offenses covered by it. 

Flaws and Inadequacies in the Provisions and Working of the Prevention of Money Laundering Act, 2002

Against the Fundamental Rights:

• Prevention of Money Laundering Act (PMLA) Restrictions: When the Enforcement Directorate (ED) arrests someone, they must only provide reasons for the arrest, not the specific allegations in the ECIR (similar to an FIR). This goes against the accused person's right to know the charges under Article 21 of the Constitution. 
• Section 50 of the PMLA: Allows summons to be issued to anyone, including the accused, violating the right against self-incrimination under Article 20(3) of the Constitution. 

Incorporation of Various Unrelated Subjects:

• Expansion of PMLA: Originally focused on money laundering from drug activities, but now covers minor offenses like copyright infringement, broadening its scope. 
• On Punishment:
  • Evolution of Offenses: Initially targeting serious economic crimes, it now includes common offenses from the IPC and other laws. 

Against the Anglo-Saxon Jurisprudence:

• Reversal of Presumption of Innocence: The accused is considered guilty until proven innocent, contrary to the Anglo-Saxon principle of innocence until proven guilty. 

Uncontrolled Discretion of Authorities:

• Prosecution Under PMLA: Allows authorities to initiate prosecution based on an FIR related to a scheduled offense, granting wide discretion. 
• Investigative Power of ED: The ED can investigate without state consent, unlike other central police organizations. 

Against the Basic Structure of the Constitution:

• Blurring of Offenses: Post-amendments, the line between money laundering and scheduled offenses is blurred, impacting federalism values. 

Tough on Bail:

• Bail Provisions: Denies bail unless the judge is convinced of the accused's innocence, making securing bail difficult. 

The Bail Provision of the Prevention of Money Laundering Act (Section 45)

• In a legal case from 2018 involving Nikesh Tarachand Shah and the Indian government, it was found that a certain bail provision in the PMLA Act was considered against the Constitution.
• The Parliament later revised and reinstated this provision after making some changes to it.
• In a case from 2022, Vijay Madanlal Choudhary versus the Indian government, the Supreme Court supported the view that this provision aligns well with the goals of the PMLA Act.
• The judges emphasized that deciding which offenses to include in the schedule is a matter of legislative policy.

 Supreme Court on Prevention of Money Laundering Act

• The constitutionality of different parts of the PMLA was questioned in the Supreme Court due to: 
  • The strict conditions for getting bail.
  • The broad powers given to the ED for issuing summons, recording statements, making arrests, and conducting searches and seizures, which could be misused.
  • The absence of proper procedural safeguards.
• The Supreme Court dismissed the challenge in the case of Vijay Madanlal Choudhury vs Union of India (July 2022).
• Reason: The court believes that India's promise to the global community to combat money laundering is crucial, even above fundamental rights.
• A request to reconsider the judgment has been submitted and is awaiting the court's decision.

Conclusion

While the Prevention of Money Laundering Act (PMLA) might have had good intentions, adding minor, less serious crimes to its list without considering personal freedom raises concerns about its alignment with basic rights and fair legal procedures. The PMLA needs changes to ensure it follows constitutional principles and beliefs.

Prelims PYQ (2021):

Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India? 

(a) Diversion of resources to the purchase of real estate and investment in luxury housing
(b) Investment in unproductive activities and purchase of previous stones, jewellery, gold, etc.
(c) Large donations to political parties and growth of regionalism
(d) Loss of revenue to the State Exchequer due to tax evasion
Ans: (d)