Recently
the Enforcement Directorate, India's law enforcement and economic intelligence
agency in charge of implementing economic laws and countering economic crime, attached
over 1.77 crore to The Washington Post Columnist Rana Ayyub in
connection with a money laundering probe, due to alleged irregularities in
charitable contributions raised from public fundraisers.
The
ED served her with a summons under the Prevention
of Money Laundering Act, 2002 in last December. She discovered
during her interrogation in Delhi that the PMLA probe was founded on a
complaint lodged in Ghaziabad, Uttar Pradesh, in August 2021.
PMLA
2002, the Act enforced in this incident, came into force on July 1, 2005.
Background
and Capabilities
During the 90’s, a certain form of
Malpractice began and it picked up pace notoriously. Popularly known as Hawala
Transactions, it involved trading using illegal means and after
receiving the Payday, and disguise it as Legal “White” Money.
Money laundering is the unlawful
process of making substantial amounts of money obtained from criminal
enterprises, such as narcotics trafficking or financing of terrorism, and later
make it appear to have arisen from a legitimate source. The spoils of illicit
activities are deemed "dirty," thus the procedure
"launders" them to make them appear pure and "legally
white".
Another important reason for the
existence of this Act is that; even though a lot of legislations penalizing
economic offences were already in-effect in the 90’s but none of them addressed
the problem of Money Laundering at its core.
To combat and arrest this
malpractice, this act was brought up and put into action in 2005. Its primary objectives were to stop
money-laundering activities and to confiscate property of the offenders and
arrest them.
The act had a slew of provisions and
far-reaching powers to reach its objectives.
It
prescribed severe punishment for money-laundering activities, which included
imprisonment of at least three years, to a maximum of seven years.
However,
the Act also provided for a maximum incarceration for a decade, if the matter
included infractions warranting NDPS
Act. It had assorted powers of
attachment of tainted property, which allowed the Authorities to seize the
property-in-hand for 180 Days and in cases, where two or more parties are
involved in inter-connected transactions, it was presumed that the remaining
transactions form a part of such inter-connected transactions.
This power of Presumption of Connections was given a legal sanction through this Act. Moreover, the burden of proof lies not on the prosecution but on the Accused as he/she has to prove that the assets-at-hand are, in fact, lawfully obtained.
For effective prosecution in a
timely fashion, the Appellate Tribunal and Special Courts were also
established.
As per Section 43 of the act, the
Central Government, in consultation with the Chief Justice of the High Court,
shall, by notification, appoint one or more Courts of Session as Special Court
or Special Courts for such area or areas, or for such case or class or group of
cases as may be specified in the notification, for the trial of offence
punishable under Section 4.
Legal Flukes and Lawsuits
The major setback for this
legislation was the fact that it was constitutionally challenged several times
at Indian Judiciary. Its constitutionality was challenged a lot as it was
alleged that the Section 45(1) and its two prior conditions, overlooked the
principles of Natural Justice and were grossly arbitrary in nature.
Section 45 of the PMLA departs from
the rule of presumption of innocence in that it specifies two additional
pre-conditions that must be fulfilled before an accused can be granted bail.
The two conditions for release of an
accused on bail was held to be unconstitutional as it violated Article 14
and 21 of the Constitution in a landmark judgment of Supreme Court in Nikesh
Tarachand Shah v. Union of India.
Apart from Section 45, the validity
of Sections 17 and 18 (search and seizure), 5 (attachment of property involved
in money laundering), 8 (adjudication) and 45 (bail) have been a matter of
long-standing litigation.
One of the powers mentioned above
(Burden of Proof) was also deemed to be contrary to what Law says and the basic
legal principle of Proof also withered away. As Senior Advocate Dr. Abhishek
Manu Singhvi attacked this provision contending “the entire burden of
disproving the case as set out in the complaint would rest with the accused
person, after the framing of charges. This amounts to a complete inversion of
the burden of proof”, during a hearing on a petition involving the Supreme
Court's interpretation of provisions of this Act.
The landmark case struck down its
provisions, and later in 2018, this Act was amended and the most crucial change
is the deletion of provisions in sub-sections (1) of Section 17 (Search and
Seizure) and Section 18 (Search of Persons). However, it was still deemed as
New Bottle, Old Wine.
Conclusion
The intent of THE PREVENTION OF
MONEY LAUNDERING ACT was to counter the threat of money laundering resulting
from the “laundering” of ill-gotten riches through illegitimate means. The
act's provisions are equally harsh both on the perpetrator and the person in
whose name is layered.
However, a number of legal disputes
to the constitutional integrity of the Prevention of Money Laundering Act
(PMLA) of 2002 have already found their way to the courts. There have been
multiple flaws and discrepancies in the Act's provisions since its origin, and
as a consequence, it has always been in the limelight. Without a doubt,
amendments were made to close loopholes that appeared, but they missed to
accomplish the objective for which they were made and instead prompted a
variety of problems.
About the Author: This post is prepared by Harsh Dabas, Law student at University School of Law & Legal Studies, Guru Gobind Singh Indraprastha University. He can be reached at harshdabasvbps@gmail.com
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