THE CONTEXT: The enforcement directorate (ED)is the premier financial crimes investigative agency of the Union Government. Recently, its functioning has been under a cloud of suspicion as they are alleged to be used against the opposition leaders, the media, and the critics of the Central Government. The state governments also allege that the agency violates the federal principles enshrined in the Constitution. This write-up examines these issues in detail.
MANDATE OF THE ENFORCEMENT DIRECTORATE(ED): AN OVERVIEW
- ED is a Multi-Disciplinary Organization under the Department of Revenue, Min of Finance mandated with the task of enforcing the Foreign Exchange Management Act, 1999 (FEMA) and Prevention of Money Laundering Act, 2002 (PMLA)
- The ED headquartered in New Delhi is headed by the Director of Enforcement. There are five Regional offices and other such zonal and subzonal offices in various parts of the country.
- It was formed in 1956 in the Department of Economic Affairs, to investigate cases of foreign exchange-related violations, a civil provision. But in 2002, after the introduction of the PMLA, it started taking up cases of financial fraud and money laundering, which were of criminal nature.
- FEMA 1999 regulates the transactions in currency, import and export of commodities, securities, purchase and sale of any kind etc.
- The main objective of FEMA is to facilitate external trade and payments. In addition to this, FEMA was also formulated to assist the orderly development and maintenance of the Indian forex market.
- Contraventions of FEMA are dealt with by way of adjudication by designated authorities of ED and penalties up to three times the sum involved can be imposed.
- The PMLA provides authority to the ED to investigate offences of money laundering and to take actions of attachment and confiscation of property
- PMLA provides for the prosecution of the persons involved in the offence of money laundering. There are 156 offences under 28 statutes which are Scheduled Offences under PMLA.
- ED also processes cases of fugitive/s from India under the Fugitive Economic Offenders Act, 2018.
- The powers of a survey, search and seizure, a search of persons, retention of property or of records, to issue summons to enforce the attendance of any person and compel him to give evidence or produce records, discovery or inspection, and the power to arrest, etc are conferred by various provisions of PMLA. Render cooperation to foreign countries in matters relating to money laundering etc.
CRITICISM OF THE FUNCTIONING OF THE ENFORCEMENT DIRECTORATE
POLITICISATION: The EDisalleged to be targeting those political leaders who do not belong to the ruling party/parties at the Centre. Even the past cases of these leaders have been reopened in order to pressurize them either to change parties or to curb dissent.
This has happened with a former Home Minister of India, Former CMs of Uttar Pradesh, etc. Recently, the ED has been criticised for putting pressure on an accused in Kerala Gold Smuggling Case for implicating the CM in the case.
One sitting MP from the ruling party at the Centre
TARGETING DISSIDENTS: The PMLA has been misused for targeting dissident voices and thereby preventing free speech and expression. This has become a routine affair especially in the case of NGOs. For instance, all bank accounts of Amnesty International India were completely frozen by the Enforcement Directorate in September 2020 on the charge of an alleged violation of PMLA. The human rights advocacy group had to shut down all its offices and operations and is alleged the action is taken due to Amnesty’s reports on the deteriorating human rights record of India in recent times.
VIOLATING FEDERAL PRINCIPLES: The division of power under the Schedule 7 of the Constitution places the responsibility for police and public order in the State List. But the power of ED to investigate cases without states consent especially in ordinary crimes is against federal principles.
POLICING WITHOUT BEING A POLICE FORCE: ED has been given the power to take the custody/ remand of the offender considering the gravity of the offence in the garb of effective investigation, ignoring completely the fact that ED is not covered under the definition of ‘Police Officer’ under the Police Act, 1861. Thus, it exercises the function of police despite it is not covered under the definition of police.
SELECTIVE APPLICATION OF LAWS: The ED has been accused of selective application of the PMLA provisions and the major money laundering scams are either not investigated or not followed up by ED. For instance, The Rose Valley Chit Fund Scam in Odisha, the NARADA scam in West Bengal etc seem to have missed ED radar. One MP was seen in a video taking bribes, ED summoned him, but nothing was heard after he switched party. For example, Mukul Roy and HimantaBiswaSarma, both accused in the NARADA chit fund scam, are yet to be questioned.
NO, FOLLOW UP ON INVESTIGATION: The status of high-profile cases remains unknown, as neither the media nor the investigative agencies appear to have followed them up. Moreover, in none of these cases, the agencies have charge-sheeted the leaders of crimes. The fate of these cases hangs in limbo. Though the action against opposition leaders has garnered a lot of attention, one does not know whether the agencies have been able to gather enough evidence against the accused.
POOR PROFESSIONALISM: Until 2017, the ED had just managed two convictions, while as in 2019, the number of convictions stands at nine so far. The overall number is still bleak, with more than 2,400 cases pending trial. Also, the 2G scam case was dismissed by the courts owing to lack of evidence. All these show the poor professionalism of the ED.
VIOLATION OF RULE OF LAW: ED can carry out the pre-trial attachment of property and funds just on basis of reasons to believe of the investigative authority and not concrete facts. So even without an investigation being complete, a persona can be charged, and the property can be attached just because a complaint/investigation exists against him. It effectively means that though a citizen is presumed not guilty, he is deprived of control over his property, when the prosecution believes that it comes from tainted money, effectively destroying lives, families, and businesses, just on the basis of investigators’ reason to believe and not on evidence.
VIOLATES ORIGINAL INTENT: The Act gave expression to India’s commitment to the United Nations to enact domestic legislation to curb the laundering of money linked to drug trafficking. However, a series of subsequent amendments have sought to systematically dilute the cardinal intent of the Act, reducing it to an instrument of arbitrary power in the hands of the ED.
GREY AREAS IN PMLA: A RECIPE FOR ARBITRARINESS BY ED?
Absence of a procedure: Unlike the CrPC which provides for a proper procedure to commence an investigation, in the PMLA there is no procedure prescribed. For instance, Section 154 and 155 of CrPC deal with cognisable and non-cognisable offences but in PMLA no such procedures are prescribed and there is no registration of FIR under the Act. This violates Art 21 of the Constitution.
Enforcement Case Information Report (ECIR): The PMLA has an internal manual where the ED officers record an ECIR- Enforcement Case Information Report. That is something that is kept by the ED to themselves and is not revealed to anybody even to the magistrate. This means an individual can be prosecuted without knowing why he has been proceeded against.
Automatic registration of a case by ED: There are 156 Scheduled Offences and whenever a predicate offence is registered, the ED starts investigation under PMLA. This provides wide latitude and discretion to ED which is often misused. There must be something beyond the FIR under the predicate offence which needs to be established for the ED to commence the investigation.
Article 20(3): Section 50 of the PMLA vests the ED officers with the power of a Civil Court. But while exercising the power of summons to a person by ED, usually no reason is provided for such summons. Neither the person is informed whether s/he is summoned as a witness or an accused nor any information is given on what predicate offence s/he is charged under. Secondly, the person must compulsorily answer the questions put forward by the officers and must sign the disclosure statement which is used as evidence against him in the court.
Ordinary crimes included in scheduled offences: Section 120 B dealing with criminal conspiracy is part of PMLA. The section can be applied to any offence and requires only a mere allegation. There is no threshold for initiating a PMLA case based on 120B. Similarly, murder is also part of PMLA, and it is doubtful why such an isolated act can be a part of PMLA. It is another matter if there is an organised crime activity but on its own, these offences should not be part of PMLA.
2019 amendments: The 2019 amendments have increased the powers of the ED. The offences under the PMLA became standalone crimes, and the offences have been made cognisable and non-bailable. It has expanded the definition of proceeds of crime which means assets not directly related to the proceeds of crime can also be attached.
AN OPTIMISTIC ANALYSIS OF THE FUNCTIONING OF THE ED
Of late, the ED has not just taken up high-profile cases, but has also actively started investigating them, filed charge sheets in many long-pending cases, attached properties in a series of cases worth Rs 58,000 crore, moved applications, and even secured extraditions. In the last 10 years, the ED has attached assets worth Rs 58,333 crore. The highest number of attachments has been made in the Sterling Biotech case, amounting to Rs 14,000 crore. Between 2005 and March 2018, the agency attached assets worth Rs 27,000 crore, of which Rs 14,000 crore, a little over 50 per cent, pertained to cases of bank fraud. Since the PMLA was enacted, more than 2,500 ECIRs have been filed in the ED, and the investigation is pending in over 1,000 cases. The agency sends letters rogatory to different countries to obtain information about individuals and entities offshore. A letter rogatory is a formal communication from a competent court to a foreign court and is processed by the Ministry of External Affairs on behalf of investigative agencies. But most of these letters go unanswered, severely affecting the investigation. In some cases, this can lead to a court dismissing a case due to a lack of evidence. In 90 per cent of cases, the money is laundered and stashed in tax havens abroad, and when ED do not get information from there, the investigation suffers.”
WHAT SHOULD BE THE WAY FORWARD?
Checks and balances on ED’s power: As the guiding principle of our courts “Let a hundred guilty be acquitted, but one innocent should not be convicted” goes, the powers of ED if are not constrained, must at least not be used arbitrarily, else it can easily turn into harassment of innocent citizens. The parliament did not confer upon the ED any powers to attach or freeze assets on mere suspicion. The authorities cannot bypass the legislative intent using the tool of arbitrary discretion but should abide by the legal provisions.
Following Section 65 in letter and spirit: The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply, insofar as they are not inconsistent with the provisions of this Act, to arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings under this Act.
Section 65[3] of PMLA has been under scrutiny for a long, it being one of the means of exploitation by the authorities. It gives them the opportunity to pick and choose the provisions they want to apply as convenient to them either under CrPC or PMLA. The ED must follow the CrPC in terms of arrest, search etc as no express provisions are provided in PMLA which are contrary to CrPC in these areas.
INTRA ORGANISATIONAL SUPERVISION: The 2019 PMLA Amendment Act empowers the ED to enter any property for purpose of conducting search and seizure. An arrest can be made for an offence under the PMLA even in the absence of a First Information Report (FIR). This calls for necessary supervision over the exploitation by the hands of the enforcement authority.
Transparency in Closing the case: A proviso was inserted to Section 44(1)(b) of the PMLA by the 2019 Amendment Act which talks about submitting a ‘Closure Report’ upon conclusion of investigation before the Special Court if no offence of money laundering can be determined after investigation. It is the duty of the legislature to ensure adequate transparency while submitting this closure report to restrict any kind of misuse of the powers of ED.
CLARIFYING THE INTERPLAY BETWEEN CrPC and PMLA: While section 41 of CrPC the ED can arrest a person on ‘mere suspicion’ however the arrest provisions u/s 14 of PMLA have preliminary requirements that need to be complied with. U/s 14 of the PMLA sufficient evidence to form a “reason to believe” that the person is guilty of the offence of money laundering is required. This requirement is not required to be fulfilled in case an arrest is made u/s 41 of the CrPC. The ED must stringently follow the provisions of PMLA and not selectively pick and choose provisions as per convenience.
PMLA APPELLATE TRIBUNALS: The PMLA Act provides for the establishment of a tribunal but the functioning of the tribunals has been handicapped due to the long-pending vacancies of chairman and members. Proper working of the Tribunal would put pressure on ED to follow rules of law which will increase the efficiency of the ED.
FOCUSING ON ORIGINAL MANDATE: Genesis of PMLA was to check illicit drug trafficking the proceeds of which funded terrorism. But now what has happened is that we have started applying it to ordinary crimes. Thus, necessary changes need to be made so that the ED can focus on the original mandate.
Judicial determination of Finance Act 2019: All these later amendments of 2019 were moved under the Finance Act. The FA 2019 has been challenged and the SC needs to fast address the same. There are around 200 petitions challenging various provisions of the PMLA and the SC need to decide the same in priority.
Clarity between Section 25 of the Evidence Act and Section 50: The statement made by the accused in Infront of the police is protected under section 25 of the evidence act. But under section 50 of PMLA, the statement is admissible evidence. This anomaly must be corrected.
Appointment of ED Director: The Central government should appoint a Director of ED in a transparent manner and strictly in accordance with the mandate of Section 25 of the Central Vigilance Commission (CVC) Act, 2003.
Extension of tenure of officers who have attained the age of superannuation should be done in rare and exceptional cases only after recording reasons by the committee constituted under section 25 of the Central Vigilance Commission Act.
Manpower and infrastructure: While the sanctioned staff strength of the ED is 2,300, it has only 1,000 personnel, including investigators, record-keepers and administrators. These human infra requirements must be addressed on priority.
Reformulating the entries in the Schedule: Under section 3 of the PMLA, it is money laundering which is an offence. Legitimizing of the proceeds of crime is the offence and not the proceeds of crime. There is no rationale as to when money laundering will apply and when it will not apply. That is the discretion of the officer. Entries in the Act need to be reformulated in a manner so that they cover the offences which were envisaged to be covered.
PUTTING THE ED MANUAL IN THE PUBLIC DOMAIN: Unlike the crime manual proudly unveiled by the Central Bureau of Investigation, ED’s manual remains an enigma. In the absence of any published manual, ED’s self-proclaimed procedural autonomy may become an alibi for arbitrariness and may threaten the fundamental right to fairness. The ED’s refusal to furnish a copy of the ECIR to the accused by touting it to be an internal document distinct from an FIR continues to jeopardize the legal recourse ordinarily available to an accused.
CONCLUSION: The enforcement directorate has a significant role to perform in maintaining the economic security of the nation for which it had been given wide-ranging powers. But as the current controversies point out, the time has come to reform the functioning of the ED to bring necessary professionalism. In this regard, political, legal, administrative and judicial interventions must be undertaken so as to protect the rights of citizens and also equip the ED to effectively counter money laundering.
Questions:
- “The history of liberty is a history of the limitation of governmental power, not the increase of it”. Examine the statement in the light of the working of the Enforcement Directorate.
- “Unless the legal ambiguities in the Prevention of Money Laundering Act is addressed, the functioning of the Enforcement Directorate will always remain sub-optimal and ineffective” Discuss.
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