Central order on sharing information with ED widely criticised

The government’s decision is seen as another effort to weaponise the PMLA to target opposition and dissenters.

JMM workers protest against the ED’s summoning of Jharkhand Chief Minister Hemant Soren in a money laundering case, in Ranchi on November 18, 2022. | Photo Credit: PTI

In late November 2022, the Central government amended a 2006 notification relating to the implementation of the Prevention of Money Laundering Act (PMLA) enacted in 2002. The amendment listed 15 additional organisations that would be mandatorily required to share information with the Enforcement Directorate (ED), which is primarily responsible for investigations into presumed violations punishable under the Foreign Exchange Management Act (FEMA) and the PMLA.

Prior to this, the ED was permitted to obtain from and provide data to only 10 agencies, including the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, and the Financial Intelligence Unit (FIU), besides investigation agencies such as the Intelligence Bureau and the Central Bureau of Investigation. The objective was to obtain information from agencies that could access information on the crimes that the PMLA and FEMA sought to prevent.

Over time, in moves presented as “rationalisation” efforts aimed at doing away with duplication of information gathering by different arms of government, more agencies were included in the information-sharing net used to implement these legal instruments. But such expansion also implied changes in the “crimes” that were punishable under these Acts. It is for that reason that the recent move to add another 15 agencies to the list is proving to be controversial. It is being seen as one more effort of the National Democratic Alliance (NDA) government to weaponise the PMLA by using it to accuse dissenters and the political opposition of involvement in economic crime and arraign them even before proof of criminal activity is provided.

This perception partly stems from recent evidence of the implementation of the PMLA. It has been used to raid, question, and even arrest members of the opposition belonging to the Congress, the Trinamool Congress, the Shiv Sena, and the Aam Aadmi Party, among others. But there seems to be less interest in using the law against functionaries or activists of the ruling party and its allies. This differential use of the law does give rise to legitimate suspicions of misuse.

PMLA origins

To recall, when the PMLA was first introduced, it was presented as targeting those directly or indirectly involved in dealing with the “proceeds of crime” and whitewashing it as untainted property. Money laundering was defined as involving direct or indirect attempts to engage in or knowingly assist any process or activity connected with the proceeds of crime, including its acquisition, possession, concealment, or use and projection as untainted property not linked to an offence scheduled under the PMLA.

The applicability of the law was restricted to money laundering of receipts from identified “serious” or “heinous” offences scheduled in the Act. The PMLA could not be invoked in instances that did not involve such a predicate offence identified by the legislature. It was when instances of actual “money laundering” are discovered that the property derived from or involved in the process can be confiscated. The original PMLA permitted search-and-seizure operations only when a complaint or charge sheet was filed on a predicate offence.

This obviously put checks on the ways in which the PMLA could be deployed: the proceeds had to be linked to identified serious crimes; and the activities and assets investigated and confiscated had to be shown to be aimed at whitewashing those proceeds as legitimate.

Initially, starting with an amended Bill passed through Parliament under the United Progressive Alliance (UPA) government led by Manmohan Singh in February 2009, the scheduled offences were substantially increased and the list of agencies that were empowered to call for search, seizure, and attachment of property was enhanced on the grounds that non-attachment would mar the investigation.

Many of these changes were justified by the then government on the grounds that it would enable India’s entry into the Financial Action Task Force (FATF), an international body mandated to combat money laundering and terrorist financing.

But the amendment did mean that the checks and balances that the executive included initially with respect to the use of the law and its implementation were diluted. Moreover, it substantially enlarged the set of “criminal activities” to which the PMLA would apply—a change that is now adversely affecting the opposition and the Congress.

But it was in 2019, under the Bharatiya Janata Party (BJP)-led NDA, that major amendments of the law to make it more intrusive and harsher were introduced. These amendments were especially controversial because they were passed as money Bills, or Bills such as the Finance Acts incorporating the annual Union Budget.

Venugopal Dhoot, former CEO of the Videocon Group, outside the ED office, in New Delhi on November 2. | Photo Credit: PTI

Money Bills

Money Bills are those relating primarily to fiscal matters such as taxation and the appropriation of money. These Bills have a special status, when compared with “ordinary Bills” and “financial Bills”, which have to be approved by both Houses of Parliament before being sent to the President to be signed into law. If such Bills are rejected in the Rajya Sabha after they are passed in the Lok Sabha, they will have to be considered by a specially summoned joint session of Parliament.

On the other hand, in the case of money Bills dealing with fiscal matters, Rajya Sabha approval is not required; only the Lok Sabha needs to approve them in a majority vote. Since the BJP does not have a majority in the Rajya Sabha, the use of the money Bill route for amendments to the PMLA, which were clearly not fiscal matters, was seen an effort to push through amendments that the opposition would have sought to stall or reject in the Rajya Sabha.

There seemed to be reason to adopt this illegitimate route. The 2019 amendments were aimed at substantially enhancing the powers of the executive when deploying the PMLA. They expanded the scope of the Act to include in the notion of the “proceeds of crime” properties and assets created, derived, or obtained through any criminal activity relating to the scheduled offence, even if the activity does not fall specifically under the notion of money laundering per se. The amendments also dropped the interpretation of money laundering as a one-time, instantaneous offence involving the concealment or possession or acquisition or use or projection of the proceeds of crime as untainted property. A person is now held guilty of the offence of money laundering as long as he is enjoying the “proceeds of crime”, which makes it a continuous offence.

Above all, the amendments made arrest under the Act easy and bail for the accused difficult to obtain. In particular, as per the amended Act, the ED was not required to share the Enforcement Case Information Report (ECIR) with the accused, making it difficult to make a strong case for bail. To find justification to use these enhanced powers, the 2019 amendments also significantly extended and rendered more granular the information to be shared by designated reporting entities with the government under the PMLA, ostensibly in transactions where the probability of money laundering and/or terror financing was high.

Besides these changes to the scope of the law and the crimes it relates to, the evidence shows that cases under the PMLA have increased sharply under the NDA.

Raids on the rise

In response to a question posed by Priyanka Chaturvedi of the Shiv Sena in the Rajya Sabha, Union Minister of State for Finance Pankaj Chaudhary reported that in the eight financial years ending March 2022 that the the NDA was in power, PMLA raids carried out by the ED rose by around 27 times to 3,010, compared with the 112 carried out during the 2004-2014 period under UPA rule.

But the raids under the NDA were followed up with filing of charge sheets only in 992 cases, and in just 23 there have been convictions until March 2022. This suggests that it was the process rather than the outcome of actual conviction that was the punishment. Moreover, evidence suggests that raids and investigations under the PMLA were disproportionately and mainly directed at opposition politicians and dissenting voices.

More recently, the ED’s enhanced powers have been strengthened by a Supreme Court judgment. In a case heard by a special bench, Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar chose to separate petitions challenging the passage of the 2019 amendments as money Bills, which is being examined by a seven-judge bench, from petitions challenging the provisions of the amended Bill.

Following such separation, the bench upheld the core amendments made to the PMLA, which gave the ED near-unrestricted powers to raid and arrest, and rendered bail extremely difficult with proof of innocence required to be provided by the accused, with clear evidence of the accused having committed a crime not required to launch proceedings.

In response to the judgment, representatives of 17 opposition parties issued a joint statement expressing concern about its long-term implications. They held that the judgment would strengthen the hands of a government that “indulges in political vendetta” to target its opponents in a “mischievous and malicious manner”.

It is indeed true that over time the ambit of offences to which the PMLA can be applied has been enlarged, evidence suggesting misuse of the law as an instrument for political vendetta has increased, and the meting out of forms of punishment without right of quick recourse has become more common. It is against this background that the decision to include 15 more agencies that must share information with the ED has to assessed.

Clearly, this would make easier the collation of material that supports the “presumption” of criminal activity and its use for purposes that further the political objectives of the ruling party. Moreover, this time around, the government appears to have extended the ambit of the law beyond political opponents to big business as well, as evidenced by the inclusion of the Competition Commission of India among the authorities for information sharing. Whether that will influence the direction of flow of political donations from corporate groups is yet to be seen.

C.P. Chandrasekhar taught for more than three decades at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He is currently Senior Research Fellow at the Political Economy Research Institute, University of Massachusetts, Amherst, US.

The Crux

• Centre amends PMLA, requires 15 more organisations to share information with ED.
• PMLA already being used to raid members of the opposition.
• Original law was restricted to laundering of money from identified “serious” or “heinous” offences.
• In 2019, BJP-led NDA government amends law, making it more intrusive and harsher.
• Amendments make arrest under the Act easy and bail difficult to obtain.
• In 2014-2022 period, PMLA raids rose by around 27 times to 3,010, compared with 112 in the 2004-2014 period.