Challenges to the Prevention of Money Laundering Act #5: Sr. Adv. Kabil Sibal Argues PMLA Amendments Are Arbitrary

Challenges to the Prevention of Money Laundering Act

On January 27th 2022, the Supreme Court observed that the dispute over the extent of the Enforcement Directorate’s (ED) powers will have to be settled soon so that over 200 pending prosecutions under the PMLA, 2002 can be completed. Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar heard Senior Advocate Kapil Sibal’s arguments against the ED’s use of its wide police powers without any procedural safeguards protecting the rights of those accused of money laundering. 

Mr. Sibal focused on two arguments in today’s hearing—that the amendments to the PMLA through the Finance Act 2019 violate the legislative intent behind the PMLA and that the Enforcement Directors must abide by the same rules of procedure as police officers. 

2019 Amendments Violate the Objective of the PMLA

Mr. Sibal submitted that the legislative intent behind the PMLA was always to prevent and punish a very narrow set of offences—the conversion of proceeds of crimes into ‘untainted’ money. Obtaining money from criminal activities must be investigated and punished under the penal code. The ED’s power is attracted only when one projects that tainted money is untainted. Mr. Sibal argued that the Finance Act 2019 made the act of obtaining or holding proceeds from criminal activities an offence, hence violating the objective of the PMLA. 

The Finance Act 2019, according to Mr. Sibal amended the PMLA to arbitrarily bring offences unrelated to money laundering under the purview of the ED. Even though the legislature has the power to extend the of the Act, Mr. Sibal argued that the amendments must bear some relation to organised crime. 

The Finance Act 2019 empowers the ED to summon and arrest people for money laundering without proof of a predicate offence. A predicate offence refers to the act of illegally obtaining money. Mr. Sibal argued that money laundering was not contemplated to be a standalone offence by the legislature. To make it a predicate offence would lead to contradictory decisions on the same set of facts in many cases—one may be acquitted for illegally obtaining money but subsequently convicted for laundering the same money. Treating money laundering as a standalone offence also enables the ED to take over investigations from the police without a chargesheet being filed. This is dangerous as the ED is not bound by any criminal procedure in its investigations. 

PMLA Is a Penal Statute, ED Should Be Bound by Criminal Procedure

Mr. Sibal argued that the officers of the ED exercise police powers. He submitted that some statutes, such as the Customs Act and the Railway Protection Force Act, are merely regulatory in nature. The officers under these Acts are only empowered to regulate and hence can only file complaints after their investigations. 

The PMLA, however, is a purely  penal statute. Mr. Sibal argued that ED officers under the PMLA are tasked with preventing and punishing money laundering. Their powers and functions are similar to officers under the NDPS Act 1985, which was held to be a penal statute by the SC. Accordingly, he emphasized that ED officers must be made to follow criminal procedure. 

The Bench will continue hearing Mr. Sibal on February 1st, 2022.