The Prevention of Money Laundering Act (PMLA), 2002 vested a cadre of officers under the Directorate of Enforcement (ED) with powers to prevent money laundering, attach proceeds of crime, and confiscate assets. However, over the last few years, the ED has assumed powers akin to that of a policing agency and has often been accused of turning its gaze against political opponents of the Union government. These concerns were bolstered when the Union government granted ED Director Sanjay Kumar Mishra a third extension, which the Supreme Court struck down.
The ED is not the police
It has been repeatedly held that the PMLA is a sui generis legislation, enacted to tackle money laundering through white collar crimes. According to Section 3 of the PMLA, the act of projecting or claiming proceeds of crime to be untainted property constitutes the offence of money laundering. Under the Schedule to the PMLA, a number of offences under the Indian Penal Code and other special statutes have been included, which serve as the basis for the offence of money laundering. In other words, the existence of predicate offence is sine qua non to charge someone of money laundering. It is crucial to note that the investigation and prosecution of the predicate offence is done typically by the Central Bureau of Investigation (CBI) or the State Police.
Section 50 of the PMLA provides powers of a civil court to the ED authorities for summoning persons suspected of money laundering and recording statements. However, the Supreme Court held that ED authorities are not police officers. It observed in Vijay Madanlal Choudhary v. Union of India (2022) that “the process envisaged by Section 50 of the PMLA is in the nature of an inquiry against the proceeds of crime and is not ‘investigation’ in strict sense of the term for initiating prosecution.”
There are other dissimilarities between ED authorities and the police. While the police are required to register a First Information Report (FIR) for a cognisable offence before conducting an investigation, ED authorities begin with search procedures and undertake their investigation for the purpose of gathering materials and tracing the ‘proceeds of crime’ by issuing summons. Any statement made by an accused to the police is inadmissible as evidence in court, whereas a statement made to an ED authority is admissible. A copy of the FIR is accessible to the accused, whereas the Enforcement Case Information Report is seldom available.
During the discussion on the PMLA Bill in the Rajya Sabha in 2022, the erstwhile Union Minister of Finance, Jaswant Singh, said that he was “not entrusted with the responsibility of acting as a policeman of the country or acting as a policeman on the economic morals of the country.” He added, “It is not... the intention of the Government to have a piece of legislation which can be used as a... disguise for political vendetta or political revenge-taking.”
These words were likely in reference to the powers of arrest under Section 19 of the PMLA, which permits superior ED authorities to arrest any person whom they have “reason to believe” is guilty of money laundering based on the material in their possession. Combined with the stringent conditions for grant of bail under Section 45 of the PMLA, the spectre of arrest by the ED is always real and present. However, the use of the phrase “reason to believe” indicates that the ED authorities must satisfy themselves of the need for arrest and that such belief must pass the reasonableness test. As such, this should be the test that courts assessing the necessity of remand must apply, but seldom do.
Over the last year or so, the ED has arrested Ministers of the Delhi government, Satyender Jain and Manish Sisodia; former Minister from the Shiv Sena, Nawab Malik; former Principal Secretary to Kerala Chief Minister Pinarayi Vijayan, M. Sivasankar; Deputy Secretary to Chhattisgarh Chief Minister Bhupesh Baghel, Saumya Chaurasia; YSRCP MP Srinivasulu Reddy’s son, Magunta Raghava Reddy; and Tamil Nadu Minister, V. Senthil Balaji. In spite of such high-profile arrests, the ED has only filed charge-sheets after concluding investigation in only 1,142 cases out of the 5,906 cases registered since 2005. It is apparent that the majority of the focus is unduly spent on effecting pre-trial arrests and not thereafter. It is reported that 85% of cases registered against politicians involve those belonging to the Opposition parties.
Role and purpose
Political malice aside, this raises another fundamental question about the role and purpose of the ED. While the police investigating the predicate offence are empowered to arrest and seek custody of the accused, the ED is meant to focus on recovering the proceeds of crime in order to redistribute the same to victims. It is not clear whether the ED has managed to do this. Per contra, the Proceeds of Crime Act, 2002, the analogous legislation in the U.K., almost entirely concentrates on confiscation of assets through dedicated civil proceedings.
Unfortunately, of late, much of the ED’s powers have been discharged in effecting pre-trial arrests, which used to be the prerogative of the police investigating the predicate offence. In the past, the CBI was used to impart fear among political opponents. In the process, the agency received the condemnation of various courts and earned the nickname “caged parrot”. Whether the ED will go down the same path or reorient its approach will entirely depend on the intervention of the country’s constitutional courts.
