Day 18 Oral Hearing: Prevention of Money Laundering Act

Challenges to the Prevention of Money Laundering Act

Solicitor General Tushar Mehta, on behalf of the Union government, continued to argue in defence of the Prevention of Money Laundering Act, 2002 (PMLA) on March 2nd, 2022. Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar appeared agreeable to Mr. Mehta’s contention that the legislature intended to give the Enforcement Directorate (ED) much wider investigative powers to punish and prevent financial crimes than the police, including the power to arrest without warrant. 

The Bench heard multiple lawyers challenge several provisions of the PMLA over February 2022. Most of the petitioners in this case are accused of money laundering themselves. They argue that the wide investigative powers of the ED under PMLA, such as the unchecked power to arrest, violate the accused person’s right to liberty and a fair trial. 

Mr. Mehta focused on three arguments today. First he argued that money laundering must be defined in wide terms to include the concealment, use or possession of laundered money, opposing the petitioners’ narrow view that projecting tainted money as untainted is a necessary element of the crime. Second he argued that ED is not required to follow the ordinary rules for criminal Investigation as in the Code of Criminal Procedure (1973). Finally Mr. Mehta argued that all money laundering offences are cognisable—the Enforcement Directorate does not require judicial permission in the form of a warrant to make an arrest. 

Legislature Did Not Intend A Narrow Definition of Money Laundering 

Senior Advocate Kapil Sibal, appearing for money laundering accused Karti Chidambaram, previously argued that the legislature did not intend to criminalise the mere possession, use, concealment or acquisition of proceeds of crime under PMLA. The act of projecting the proceeds to be untainted money is what differentiated the money laundering offence from the predicate offence that generates the proceeds. Mr. Mehta argued today that projection is not necessary to prove that money laundering had taken place. 

The Financial Action Task Force (FATF) is an intergovernmental organisation that oversees various countries’ ability to combat money laundering. Section 3 states that any person involved in acquiring, concealing, using or possessing and projecting proceeds of crime to be untainted money is guilty of money laundering. FATF read the and in the provision like the petitioners to mean that projection is an essential ingredient of the crime. In 2013, FATF reported that this was too narrow a definition. To meet its international obligations to prevent money laundering under the Vienna and Palermo conventions, India must criminalise mere possession, use and concealment of tainted money, without any projection. 

Mr. Mehta argued that the Union government’s response to the FATF in 2013 is telling of the legislative intent to criminalise mere possession, use and concealment. In the case of Section 3, the Union argued before FATF that Courts had interpreted ‘and’ as ‘or’. The offence of money laundering was hence not limited to projection as untainted money. This response, Mr. Mehta stated today, shows that legislative intent was always to define money laundering broadly. The 2019 Amendment to Section 3 which inserts an Explanation to this effect was only meant to clarify this long held interpretation—it did not establish a new legal position. 

Mr. Mehta argued that the Court must allow the Union government to fulfil its international obligations unless it leads to patent unconstitutionality. In an earlier hearing, he emphasised that a strong compliance report from the FATF is crucial for India to gain credibility in the foreing finance market. 

Ordinary Rules of Criminal Investigation Do Not Apply to ED

Dr. Abhishek Manu Singhvi, appearing for petitioner Karti Chidambaram, previously argued that PMLA fails to establish procedure for the ED to follow in its investigations. When the special law was silent on procedure, he argued that the ED must be governed by the rules of investigation in the CrPC. According to the petitioners, the CrPC guarantees for the rights of the accused while the ED acting without any statutory limits does not. 

Mr. Mehta refuted this argument today. He submitted that a money laundering investigation is different from an ordinary criminal investigation. There are greater transnational risks involved. An accused person can also destroy evidence far more quickly in a money laundering offence. Mr. Mehta argued that the legislature had devised a customised investigation procedure to address the peculiar nature of the money laundering offence. As long as PMLA meets constitutional muster, Imposing CrPC rules on the ED would defeat the purpose of PMLA. 

ED Does Not Need Warrant to Arrest PMLA Accused

A cognisable offence is one in which the police do not require a warrant from the judicial magistrate to make an arrest. In 2005, Section 45(1) of PMLA was amended to remove the phrase ‘every offence under this Act will be cognisable’. The petitioners previously argued that this Amendment revealed the legislative intent to ensure that the ED makes no arrests without a warrant. 

Mr. Mehta submitted that this interpretation of the 2005 Amendment was incorrect. He argued that the unamended Section 45(1) had caused confusion. The police understood ‘cognisable offence’ to mean that it could investigate and arrest money laundering offences after obtaining a warrant. The Amendment sought to clarify that the ED has exclusive power to investigate and arrest in money laundering cases. All money laundering offences were always meant to be cognisable. 

Mr. Mehta also argued that the extra safeguard of a warrant is necessary while dealing with the police in some cases. The PMLA creates various onerous requirements for the ED to fulfil before arresting suspects. These safeguards include the requirement that only a Director or equally ranking officer makes an arrest after noting reasons for the arrest and submitting all evidence which forms the basis for the reasons to a neutral adjudicating authority. There is, hence, no additional requirement for a warrant to safeguard the rights of the accused, Mr. Mehta suggested. 

 

Mr. Mehta will continue to argue on March 3rd, 2022.

 

To access court documents, and to read more of SCO’s incisive journalism on past hearings of the PMLA case, click here.