Day 4 Oral Hearing: Prevention of Money Laundering Act

Challenges to the Prevention of Money Laundering Act

Justices Khanwilkar, Maheshwari and Ravikumar began final hearings in the challenges to provisions of the Prevention of Money Laundering Act, 2002 (PMLA) on January 25th 2020. The Bench appeared in agreement with both of Senior Advocate Kapil Sibal’s main arguments against the PMLA—that it was essential to protect the fundamental rights of the accused during PMLA investigations and that the the Enforcement Directorate’s powers must only be used if the accused has attempted to project tainted money to be untainted.

Mr. Sibal advanced arguments consolidated from over 200 petitions challenging different provisions of the PMLA. He submitted that the scope of the Act had been enlarged past its original aim of preventing the laundering of drug money through various amendments.

The Enforcement Directorate (ED), responsible for investigating money laundering cases, has been given wide powers akin to police powers by the PMLA, but it is not bound by the Code of Criminal Procedure, 1973 in the use of these powers. Mr. Sibal argued that this allows the ED to violate the rights of those accused of money laundering. It is most concerning that the ED summons many accused persons for hearings without informing them what offences they are accused of or what evidence has been collected against them in the Enforcement Case Information Report (ECIR). The procedure established by law for criminal investigations is hence violated by the ED. 

Justice Khanwilkar agreed that the accused had a right to be informed of the accusations against them. He also stated that the CrPC will be assumed to apply to the ED unless the PMLA expressly rejects its application. 

Mr. Sibal argued that the ED’s use of its powers violated the very objective of the PMLA. The offence of money laundering is committed when an individual attempts to project that illegally obtained money is ‘untainted’. The act of illegally obtaining money is a predicate offence. The PMLA aims to prevent and punish attempts to project illegally obtained money as legal. Therefore, the ED cannot step in until it has proof of some attempt of laundering.  

Explaining the danger of the ED’s premature involvement in criminal investigations, Mr. Sibal stated that often the ED overtakes the investigation of a complaint from the police right after a complaint is filed. The police, hence, do not conduct any investigation. The ED, who has powers similar to the police, investigates the offence without observing any procedural rules that apply to the police. The ED is also not bound to provide the findings of this investigation to the accused. The unchecked powers of the ED, Mr. Sibal argued, violated Article 21 of the Constitution. 

Khanwilkar J agreed that some guidelines must be established for the ED to determine when it can intervene. He stated that the ED must be able to intervene even when there is anticipation of money laundering—expressing disagreement with Mr. Sibal’s argument that the ED should only intervene when the crime of laundering has been committed. 

Mr. Sibal argued as well that the scope of the PMLA has been extended past its original aim through many amendments that were procedurally irregular. He argued that many of these amendments had been brought about through Money Bills even though the content of the amendments were not financial in nature. The procedure to pass Money Bills in Parliament is less onerous than regular bills and there is less scope for debate. Mr. Sibal contended that the PMLA amendments were ‘still-born’. 

The Bench will continue to hear Mr. Sibal on January 27th 2022.