India’s foremost legislative weapon against money laundering is the Prevention of Money Laundering Act, 2002 (PMLA), put into action by the Enforcement Directorate (ED).
Though a domestic legislation, its contours are distinctly international, emerged as it did from a Special Session of the United Nations General Assembly held in 1998, requiring Member States to adopt an internal money-laundering legislation within a common international framework.
The timing was appropriate too. Crime had evolved into a high-stakes multinational reality, and inward-looking local laws had only worked to its advantage.
Closer to home, cricket’s surging popularity gave rise to a massive underground betting industry, controlled by criminal dons who had ensconced themselves in the safe havens of the Middle-East. At the peak of their influence, they pumped their ill-gotten wealth from criminal activities like extortion, drugs, betting etc. into legitimate businesses ranging from movie production to construction. Seemingly unaffected by law enforcement agencies and safe from the jurisdiction of our courts, these dons carried out their transactions using well established ‘hawala’ networks, capable of transmitting hundreds of crores of rupees overseas without relying on formal banking channels.
Not to be left behind, corrupt public servants and shady businessmen were active aids in these transactions. Defence deals like the multi-million-dollar Bofors gun purchase acquainted the Indian public with fixers and commission agents who scoured the corridors of power to strike lucrative deals. More recently, in cases like the AgustaWestland chopper scam, foreign investigating agencies have claimed that millions of euros of bribe money travelled into dummy companies incorporated in overseas tax-havens and were then routed back to India against fraudulent invoices via conduits owned by the relatives of top politicians, bureaucrats and military officials.
In high-stakes cases where corporate entities are involved, it has emerged that those looking to conceal their wealth from the eyes of investigating agencies and the tax-man in their home country, utilize offshore banks and trusts that offer multiple layers of confidentiality to keep the underlying asset nearly anonymous.
Thus, when viewed in this context, it becomes immediately clear that Indian law enforcement agencies did need modern tools to combat multi-national white-collar crimes. The Criminal and Penal Codes, though relatively effective tools to deal with investigation and prosecution of domestic offences, simply lacked the modern mechanisms needed to tackle complex multinational financial crimes.
It was in this context that the PMLA, enacted in 2002, came not a moment too soon, packed as it was with provisions that would enable the Indian government to seek the assistance of its foreign counterparts to investigate crimes and, in appropriate cases, even obtain orders of seizure over foreign assets suspected to be from criminal proceeds.
Laudably, the intent behind the law was to create a common international framework between India and other reciprocating nations to facilitate robust domestic prosecutions against offenders and to bring back assets bought from criminal proceeds.
But while drafting the new law, Parliament was mindful that the principles of natural justice would be assiduously adhered to and no innocent person should suffer motivated prosecution.
Procedure and Practice under Chapter IX: An Imbalance
Of late, there are growing murmurs that the ED treats the statute of its creation as a suggestion book rather than a binding rulebook. Even its conviction figures are dismal. In 2018-19, more than 200 investigations were concluded by the agency, however conviction was secured in merely four cases. Notably, since the Act came into effect back in 2005, merely thirteen persons have been convicted.
The trend shows that more often than not, the accused ends up being acquitted by our courts, which deserve wholehearted credit for preserving and upholding the rule of law. Former Chief Justice of India JS Khehar in the case of State of Gujarat v. Kishanbhai & Ors. rightly observed,
“Every acquittal should be considered as a failure of the justice delivery system, in serving the cause of justice. Likewise, every acquittal should ordinarily lead to the inference, that an innocent person was wrongfully prosecuted.”
However, the most recent and egregious instances of high-handedness by the agency pertain to the manner in which it has been seizing its victims’ assets, in some cases by misleading Indian courts and by misinterpreting key provisions of the PMLA to its foreign counterparts. These are provisions which are in fact meant as safeguards against exactly such underhanded and illegal action. And the scope for mischief is indeed wide, since the PMLA vests enormous discretionary powers in the officers of the agency to carry out asset attachments, searches and seizures – including freezing and attaching foreign bank accounts and immovable properties.
I am particularly referring to the provisions relating to attachment of foreign assets, contained in Chapter IX of the PMLA. This Chapter explains the basis of the Central government’s power to enter into agreements with foreign nations to (1) aid ongoing investigations and enforce provisions of the Act, and (2) to exchange intelligence and information to prevent the commission of offences under the Act.
These two objectives, laudable in their intent, are operationalized under Sections 56 to 61 of the PMLA. An even more granular analysis brings us specifically to Sections 57 and 60, of which the former permits the Indian government to issue ‘Letters of Request’ to contracting States in the course of an ongoing investigation, if the investigating officer feels that certain evidence is required and might be available in a foreign jurisdiction. In such a situation, the ED is required to move an application before a Special Court (a specially designated Sessions Court), which is required to consider such a request squarely within the parameters of sub-section 1, and if satisfied, accedes and issues the letter to the foreign contracting State.
Notably, nowhere in the provision is there a power even remotely or indirectly contemplated, permitting the agency to seek a ‘hold’ or ‘seizure’ of a foreign asset via such a Letter of Request.
This is for three carefully considered reasons, which the draftsman of the law was acutely aware of. First, a request for information under Section 57 is intended only as an evidence-building exercise to be carried out in the ‘course’ of an investigation and not as a punitive measure. Second, such evidence discovered and recorded overseas is meant to aid and be a precursor to, an attachment order by the agency under Sections 5 or 17, both containing power to seize, as such evidence would enable the Director to strengthen his/her ‘reasons to believe’ which is mandated by law to be recorded in writing prior to issuing an order for asset seizure.
Third, the power to seize or confiscate a foreign asset or bank account is expressly provided under Section 60 of the PMLA. This provision compels both the ED and the Special Court to first verify the existence of an underlying attachment or confiscation order with written ‘reasons to believe’ on the basis of available material that the asset in question is derived from proceeds of crime and that its custodian is likely to frustrate confiscation efforts, and only then is a request for seizure to a foreign state permissible. Essentially, what this clearly implies is that the threshold to get a ‘letter of request’ issued by a Special Court is much lower in the case of Section 57 as compared to Section 60.
Is the Indian Enforcement Directorate misleading Special Courts and Foreign Agencies?
But what if officials of the agency were sneakily getting foreign letters of request issued under Section 57, much beyond the scope of what was allowed, from unsuspecting Special Court judges? To make matters worse and indeed embarrassing for the Indian government, what if these officials were to submit these letters to their foreign counterparts and obtain seizures on foreign assets?
Financial crimes, due to their very nature are categorized as ‘grave offences’, which makes it even more pertinent for the investigating agencies to function within the contours of the legislation under which it is created and to remember that it owes a high degree of ‘duty of care’ to not only the court, but even to an accused person. As observed aptly by Justice Indira Banerjee, when a statute has drastic penal provisions, the authorities investigating the crime under such law, have a greater duty of care, and the investigation must not only be thorough, but also of a very high standard.
It is equally important that the investigating agency discharges its functions fairly, as was also observed by the Supreme Court in the case of Sidhartha Vashisht v. The State (NCT of Delhi).
“In our jurisprudence an accused is presumed to be innocent till proved guilty, the alleged accused is entitled to fairness and true investigation and fair trial and the prosecution is expected to play balanced role in the trial of a crime. The investigation should be judicious, fair, transparent and expeditious to ensure compliance to the basic rule of law. These are the fundamental canons of our criminal jurisprudence and they are quite in conformity with the constitutional mandate contained in Articles 20 and 21 of the Constitution of India.”
Thus, if the allegations of jugglery against the Enforcement Directorate were to be indeed true - and from first-hand experience I can tell you that it is - in my humble opinion, it must attract attention and reprimand from the Office of the Prime Minister himself, and the head of the ED must explain the misdeeds of his Department, in what would amount to committing fraud on foreign states who have placed their trust in the integrity of India’s investigative agencies and its practices.
The author is a Delhi-based Advocate.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Bar & Bench.