Why is it in the News?

In its manifesto for the Lok Sabha election, the primary opposition party pledged to cease the weaponization of the Prevention of Money Laundering Act (PMLA) if entrusted with power.

About the Prevention of Money Laundering Act:

• The Prevention of Money Laundering Act (PMLA) constitutes the cornerstone of India's legal framework aimed at combating money laundering, with its enactment and enforcement starting from July 1, 2005.
• Enacted by India's Parliament under Article 253, which authorizes legislation for implementing international conventions, the Act has three primary objectives:
  • Prevention and control of money laundering
  • Confiscation of proceeds derived from laundering, and
  • Addressing related issues within India.
• The Act empowers the Director of the Financial Intelligence Unit-India (FIU-IND) and the Director (Enforcement) with exclusive and concurrent powers to enforce its provisions.
• Subsequent amendments were made in 2009 and 2012 through the Prevention of Money Laundering (Amendment) Acts.

What is Money Laundering?

• Money laundering is defined as the process through which an illegal fund, such as black money, is obtained from illegal activities and disguised as legal money, eventually portrayed as white money.
• The money laundered is passed on through various channels or phases of conversions and transfers to make it legal and eventually reach a legally acceptable institution, like a bank.

Brief History of the PMLA:

• In response to the emergence of global terrorism in the 1990s and the subsequent imperative to curb illicit financial flows, international efforts intensified, culminating in the establishment of the Financial Action Task Force (FATF) in 1989 to coordinate anti-money laundering endeavors worldwide.

Legislative Response:

• Against this backdrop, India, as a member of FATF, was prompted to enact domestic legislation to combat money laundering following the United Nations General Assembly's political declaration in 1998 urging member states to implement national anti-money laundering measures.

Enactment Process:

• The initial iteration of the Prevention of Money-Laundering Bill in 1998 was introduced by the NDA government, aiming to address various aspects such as the prevention of money laundering, confiscation of illicit proceeds, and establishment of coordinating agencies.
• However, concerns regarding potential misuse of the proposed law led to bipartisan opposition, prompting referral to the Department-related Standing Committee on Finance.
  • Despite deliberations and amendments, the bill was eventually passed by Parliament in 2002, with enforcement commencing in 2005 following the formulation of accompanying rules under the subsequent UPA government.

Significant Amendments in the PMLA:

• Over the years, the Prevention of Money Laundering Act (PMLA) has undergone various revisions, but it was the amendments introduced in 2009 and 2012 that notably empowered the Enforcement Directorate (ED) to take coercive measures against politicians.
• In 2009, amendments expanded the PMLA's scope to include 'Criminal conspiracy' under Section 120B of the Indian Penal Code (IPC), enabling the ED to intervene in cases alleging conspiracy, even if the primary offense isn't listed in the PMLA.
  • For instance, this broadening facilitated the ED's pursuit of cases like the land-grabbing accusations against a former Jharkhand CM, currently incarcerated in Ranchi.
• Furthermore, the 2009 amendments granted the ED international jurisdiction for tracking laundered money, enhancing its global reach.
• In 2012, the PMLA was amended to elevate the Prevention of Corruption Act, 1988 (PC Act) to Part A of the statute's schedule from Part B.
  • This move imposed stricter bail conditions on corruption suspects, requiring courts to ascertain substantial evidence of guilt if bail opposition arises from the public prosecutor.
  • Part A of the schedule encompassed various serious offenses, including acts like waging war against the nation, drug trafficking, and violations of the PC Act, among others.

Supreme Court's Verdicts on the Constitutionality of PMLA:

• In the case of Vijay Madanlal Choudhary & Ors vs Union of India (2022), a three-judge Bench of the Supreme Court upheld the constitutional validity of the Prevention of Money Laundering Act (PMLA), which faced challenges in over 200 individual petitions.
• One of the primary challenges was regarding the creation of an alternative criminal law system by the PMLA, as the Enforcement Directorate (ED) operates outside the ambit of the Code of Criminal Procedure (CrPC).
  • Not being classified as 'police', the ED is not bound by CrPC provisions for searches, seizures, arrests, and property attachments.
  • The judgment affirmed the ED's expansive powers, including the admissibility of statements made to it in court.
• In Nikesh Tarachand Shah v Union of India (2017), the PMLA, akin to the Unlawful Activities (Prevention) Act (UAPA), imposed stringent bail conditions, requiring accused individuals to prove the absence of a "prima facie" case against them and their commitment to refraining from future offenses.
  • The Supreme Court initially struck down these provisions as unconstitutional.
  • However, Parliament reintroduced them through an amendment to the PMLA via the Finance Act, of 2018, which the Supreme Court upheld in 2021.
• While certain aspects of the 2021 ruling, such as the ED's non-obligation to disclose the ECIR (similar to an FIR in criminal cases), are currently under review, the ruling stands as the prevailing law of the land.