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Money laundering heinous crime, spurs terror — why SC junked 241 pleas challenging PMLA clauses

Petitioners who challenged PMLA provisions before Supreme Court included former Union minister P. Chidambaram's son Karti and former Jammu & Kashmir chief minister Mehbooba Mufti.

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New Delhi: The Supreme Court Wednesday said money laundering was a heinous crime that not only affects the social and economic fabric of the nation, “but also tends to promote other heinous offences, such as terrorism, offences related to NDPS Act (anti-drug law) etc”. 

The observation came as it rejected 241 petitions challenging the constitutional validity of certain provisions of the Prevention of Money Laundering Act (PMLA), 2002.

A three-judge bench led by Justice A.M. Khanwilkar upheld the stringent provisions in the law — on bail, the wide powers given to the Enforcement Directorate (ED), the prosecuting agency, on search and seizure, admissibility of confession statement before the ED, reverse burden on the accused to prove innocence, non-supply of Enforcement Case Information Report (ECIR) lodged before prosecution, attachment of properties under the law, and expansive definition of the term “proceeds of crime”.

Among the petitioners who questioned these clauses before the top court was former Union minister P. Chidambaram’s son Karti P. Chidambaram and former Jammu & Kashmir chief minister Mehbooba Mufti, both of whom are facing ED proceedings for alleged money laundering.

The judgment, in many places, quotes Karti’s father Chidambaram’s speeches in Parliament from his days as finance minister under the Congress-led UPA, when he supported his government’s move to amend the law and empower the ED with more authority to probe PMLA cases.

The judgment comes two days before Justice Khanwilkar’s retirement and is seen as a shot in the arm for the ED, the agency entrusted with the task to counter financial crimes in the country.

The PMLA was passed by both houses of Parliament 20 years ago and received the assent of the President on 17 January 2003. It came into force on 1 July 2005. 

The Act was enacted in response to India’s global commitment to fight money laundering.

Under the PMLA, simultaneous proceedings can be initiated by the ED to attach the proceeds of crime linked directly or indirectly to any of the scheduled offences listed in the Act, and criminally prosecute the alleged offender. 

The offences that can lead to the ED’s involvement under the PMLA include the ones committed under the anti-drug law or the Narcotic Drugs and Psychotropic Substances Act (NDPS), 1985, income-tax law, and corruption cases registered by the CBI, among others.

The law has witnessed several amendments since its promulgation. 

The petitioners mainly challenged these modifications that have, over the years, given more powers to the ED, which they argued suffered from the “vice of arbitrariness”.

However, rejecting the petitioners’ contention, the Supreme Court noted that the offence of money laundering has “been regarded as an aggravated form of crime world over”. 

“It is, therefore, a separate class of offence requiring effective and stringent measures to combat the menace of money laundering,” the bench, also comprising justices Dinesh Maheshwari and C.T. Ravikumar, held.

It declared that the provisions enumerated in the special law were not disproportionate to the objectives it intends to achieve. 

In view of the “gravity of the fallout of money laundering”, the court added, it was not unconstitutional to group the offenders involved in an activity connected with the “proceeds of crime as a separate class from ordinary citizens”.

But the bench clarified that upon the accused’s acquittal or discharge in the predicate or scheduled offence, the proceedings under the PMLA would not survive. 

The top court refused to look into the constitutional question of whether the amendments to the law could have been introduced through the Finance Bill. 

It referred this issue to a bench of seven judges that is already examining the same question with regard to the Aadhaar Act and the law governing the functioning of tribunals.

Also Read: ‘Pressure from Vijayan govt, fake cases’— why ED wants SC to shift gold scam case out of Kerala

Concealment or possession or acquisition or use of proceeds of crime will amount to money laundering

Section 3 of the PMLA contains the definition of money laundering. 

It says that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime, including its concealment, possession, acquisition or use, and projecting or claiming it as untainted property, shall be guilty of money laundering.

Before the top court, the petitioners argued that proceedings under the money laundering law should be initiated only if the proceeds of crime are either projected or claimed to be untainted property.

This argument was, however, rejected, with the court noting in its 545-page verdict that its acceptance would “whittle down the sweep of Section 3”. 

The court then went on to hold that any person found to be directly or indirectly involved in any “process or activity” connected with proceeds of crime must face PMLA proceedings.

The process or activity can be in any form — be it one of concealment, possession, acquisition, use of proceeds of crime, as much as projecting it as untainted property or claiming it to be so.

Thus, involvement in any one of such processes or activities connected with the proceeds of crime would constitute an offence of money laundering, the court held.

But such proceeds of crime should have been obtained as a result of criminal activity under the scheduled offences underlined in the PMLA, the court asserted. It further clarified the proceeds of crime can also include properties in foreign jurisdiction.  

Attachment of alleged proceeds of crime can be before FIR is registered for predicate offence

Section 5 of the PMLA deals with attachment, adjudication and confiscation of proceeds of crime. 

It empowers the director — or an officer not below the rank of deputy director, authorised by the director — for the purposes of attachment of property believed to be involved in money laundering.

This provision was amended in 2015, and was challenged by the petitioners on the premise that it allowed the authority to order provisional attachment of proceeds of crime even before an FIR is registered with regard to the scheduled offence.

Disregarding this challenge, the SC said the amendment was made to overcome the “impediment” and to “empower” ED officers to proceed to issue a provisional attachment order, without wasting time and letting the accused manipulate the proceeds of crime. 

The amended provision would “strengthen the mechanism” to “prevent and regulate” the process or activity resulting in money laundering, the SC said.  

Section 5 in its present form “provides for a balancing arrangement to secure the interest of the person as well as to ensure that the proceeds of crime remain available for being dealt with under the law”.

Search-and-seizure power upheld

The PMLA empowers the ED director — or an officer not below the rank of deputy director — to initiate searches, if the officer has reason to believe on the basis of material or information in his/her possession that money laundering has been committed.

The petitioners had essentially questioned a 2019 amendment. 

The amendment did away with a provision that barred the ED from conducting a search-and-seizure operation until a report was forwarded before the magistrate by an officer probing the scheduled offence, or a similar report is submitted by the officer to an officer not below the rank of additional secretary of the Government of India.

The amendment, it was argued, took away procedural safeguards and allowed the ED to exercise its “drastic power” against citizens. Dismissing this assertion, the SC held the law provided sufficient inbuilt safeguards as it mandated a high-ranking officer to record their reasons before initiating the process of search and seizure.

“They are not only high-ranking officials, but have to be fully satisfied that there is reason to believe on the basis of information in their possession about commission of offence of money laundering or possession of proceeds of crime involved in money laundering,” the judgment noted.

“It is certainly not an arbitrary power at all,” held the bench, further approving the procedure in the law that allows the ED to search the offender.

Also Read: All you want to know about ED — the dreaded nightmare of Indian politicians & businessmen

Arrest can be on the basis of material in the possession of ED director or deputy director or assistant director, providing copy of ECIR is not necessary, confession before ED admissible

The court struck down the challenge to Section 19 of the Act that lays down the manner in which a person charged with money laundering can be arrested. 

The petitioners had claimed that, in the absence of any formal complaint being filed, arrest cannot be made.

However, the court held that the law has adequate safeguards to ensure fairness, objectivity and accountability of authorised officers in forming an opinion to arrest a person. Moreover, the arrested person is also produced before a special court within 24 hours, it said.

Those safeguards ensure that the authorised officers do not act arbitrarily, but make them accountable for their judgement about the necessity to arrest any person, the bench held.

It further said there is no need to formally register an ECIR before initiating penal action, and the same cannot be equated with an FIR, which is mandatorily required to be supplied to the accused under the Criminal Procedure Code.

On the issue of admissibility of a confession to the ED, the SC ruled that since an ED officer is not a “police officer”, the statement of an accused to him/her is not covered by Article 20(3) of the Constitution, which is a right against self-incrimination.

It said the accused cannot claim protection under this Article when they are summoned. But if their statement is recorded after arrest, then the accused may request that the same being in the nature of confession shall not be proved against him. This protection can be considered by the special court on case-to-case basis.

Twin conditions for bail upheld, burden to prove innocence on the accused

Describing money laundering as a heinous crime, the court validated the twin conditions for bail under the amended Section 45 of the law. 

The two conditions considered as prerequisites for bail in PMLA cases are — prosecutor is given an opportunity to oppose the bail application, and reasonable grounds to believe that the accused is not guilty of the offence and is not likely to commit any offence while on bail.

These conditions are a departure from the ones in the CrPC that are followed to grant bail for Indian Penal Code (IPC) offences.

Although the two conditions were declared unconstitutional in 2017 by a bench led by Justice R.F. Nariman, the government reintroduced them, albeit with a tweak, through an amendment in 2018.

Upholding the amendment, the SC rejected the petitioners’ argument that the 2017 verdict obliterated Section 45. Moreover, the 2017 judgment declared Section 45 unconstitutional because it restricted the conditions to only a particular class of offences under the PMLA.  

The SC held that the amendment cured the defect and further said stringent conditions similar to the ones in Section 45 of the PMLA been upheld by the apex court in the case related to TADA — erstwhile the anti-terrorist law.

The bench disagreed with the 2017 verdict in the context of its observation over the nature of money-laundering cases. It did not conform with the view that money-laundering offences were not as heinous as terrorism cases that were dealt with under TADA.

These twin conditions need to be satisfied for grant of anticipatory bail as well, the court held.

It also found no merit in the petitioners’ argument that the burden to prove that the proceeds of crime are untainted property — before the adjudicating authority — should not be on the accused.

The court said that the special provision in the PMLA regarding burden of proof in any proceedings relating to proceeds of crime would apply to proceedings before the adjudicating authority and not be limited to the proceedings before the special court.

(Edited by Sunanda Ranjan)

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