By Samarth Pathak
Money laundering is the process of disguising funds obtained via illegal procedures or activities as funds obtained from legitimate sources. It is a method that conceals the origins of dirty funds obtained from unlawful sources such as drug trafficking, illegal arms supply, and allows people to benefit from them by laundering the funds to make them appear clean so that they can be disguised as legal currency.
According to the United Nations Office on Drugs and Crime (UNODC), the estimated amount of money laundered each year amounts to 2-5 percent of worldwide GDP, or $800 billion to $2 trillion in today’s US dollars. To combat and control money laundering in India, the Prevention of Money Laundering Act, 2002 (PMLA) was implemented.
Money laundering is also known in India as Hawala transactions, which became popular in the early 1990s. Hawala is an Arabic phrase for the transmission of money or information between two people with the assistance of a third party. Hawala is a type of alternate or parallel remittance mechanism that allows black money to be converted into white money. Money laundering, according to Section 3 of the PMLA, 2002, is the processing of criminal proceeds (illicit gains obtained from criminal acts) in order to conceal their illegal origin.
The Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering Act, 2002 came into effect on July 1, 2005, with the primary goal of preventing money laundering, providing for the confiscation of property derived from or involved in money laundering, and punishing those who commit money laundering offences, as stated in the Act’s Preamble. Before the introduction of PMLA, 2002 in the Indian legal regime, several enactments were used to address the menace of money laundering in India like the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,1974 (COFEPOSA), the Benami Transactions (Prohibition) Act,1988, the Indian Penal Code,1860 (IPC) and Code of Criminal Procedure,1973 (CrPC), the Narcotic Drugs and Psychotropic Substances Act (NDPS), 1985, the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988 and also included demonetization of currency.
Prevention of Money Laundering: Challenges
The provisions of the Act have been classified as difficult and contentious from its start. They have been in the spotlight due to their competing interests with several Acts, and the constitutionality of certain provisions of the PMLA, 2002 has been questioned in the courts on numerous occasions in various case laws.
The bail terms were dealt with in Section 45(1) of the PMLA, 2002. In the landmark case of Nikesh Tarachand Shah v. Union of India, this draconian clause was found to be illegal because it violated Articles 14 and 21 of the Indian Constitution (2017), as there were twin conditions in Section 45(1) that were to be fulfilled in addition to the provisions of CrPC, 1973 in order to get the bail in cases related to an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule.
So this section was held to be unconstitutional and was struck down as being violative of Articles 14 and 21 as the principle guiding the criminal justice system is ‘Bail, not jail ’based on Article 21 of the Constitution. As a result of this decision, Section 45(1) of the Act was set down, and it was then revised by the 2018 Amendment, which was enacted through the Finance Amendment Act 2018. The amendment, on the other hand, can be compared to an old wine in a new bottle. In the section, the wording “punishable for a term of imprisonment of more than three years under Part A of the Schedule” was replaced with “under this Act.” This was done in order for the bail requirements outlined in this section to apply to all offences under this Act rather than only Section 45. (1), this question is still to be finally decided by the court. The crucial reason for striking down the section was to shift the burden to negate his guilt on the accused and the amendment only made changes regarding the applicability of Section and not regarding this presumption. So, this matter needs to be decided by the Court.
In the case of B Rama Raju v. Union of India and Ors (2019) the constitutional validity of Sections 2(1) (u), 8 and 23 were challenged. The contentions were made on the points that, the property that is under the control of a person other than the person charged under the Act can also be confiscated and attached to the case. The court can even attach the property that was made before the enactment of the Act if found to be acquired from illicit means. The presumption under Section 23 is against the presumption of innocence in the favour of the accused. After evaluating these provisions as well as the Act’s purpose, the Court reached a decision. Because Parliament has the right to apply any Act retrospectively, and the presumption under Section 23 is a rebuttable presumption, the accused has the opportunity to disprove his guilt. As a result, the Court found that these provisions do not violate any of the Constitution’s fundamental rights and confirmed their legality.
The provisions of Sections 17(1) and 18(1) were repealed as a result of the 2019 Amendment, and the scope of powers of the Enforcement Directorate (ED) officers was extended. Under Section 157 of the CrPC, 1973, the ED can now conduct searches on the accused or search the premises without having to file a report with the magistrate. This power will almost certainly worsen the suffering of the accused at the officer’s whims. The court will assess whether or not these provisions are constitutional.
Karti Chidambaram, the son of former Union Minister P Chidambaram and a Congress MP, has challenged the constitutional legitimacy of the PMLA as revised in 2019, claiming that it is void, super vires, and unconstitutional. He claimed that the PMLA procedure is arbitrary and irrational, and consequently violates Articles 14, 19, 20, and 21 of the Indian Constitution. The arguments used to prove that this Act is unconstitutional center on the ED’s use of excessive and arbitrary power in determining whether an offence is a predicate offence or not, as well as the procedure for attachment, adjudication, and possession of property by the ED, which, according to the petition, can be done based on the ED’s belief even if the investigation into the predicate offence is still ongoing. Also, Section 3 of the Act was challenged as being in violation of Article 20(2) since the petitioner in the INX Media case claims that he is being penalized for an offence that did not exist at the time he committed it. The former Chief Minister of Jammu and Kashmir and People’s Democratic Chief Mehbooba Mufti has challenged the constitutional validity of Section 50 of the PMLA, 2002 as it violates the provisions of Article 20(3) of the Constitution and sought to declare it as void and inoperative. Section 50 confers powers to the authorities i.e. ED regarding summons, to produce documents or to give evidence. And the persons summoned by the ED are bound to answer all the questions posed and even produce all the documents that are being asked for thus it is being challenged in the plea to contravene the privilege of self-incrimination given by the Constitution.
Vast powers with authorities
A number of legal challenges to the constitutional legality of the Prevention of Money Laundering Act (PMLA) of 2002 are now proceeding in the courts. There have been various flaws and discrepancies in the Act’s provisions since its creation, and as a result, it has always been in the spotlight. Without a doubt, revisions were made to close loopholes that existed, but they failed to achieve the goal for which they were enacted and instead raised a number of problems. The Act, in some situations, takes harsh actions and gives authorities vast powers in order to battle the issue of black money in the country, but natural justice must be considered, and the provisions should be made in the public’s interest rather than to exploit them. Furthermore, because this Act is relatively young, the courts will have to make several interpretations throughout time. And the Court’s decision to take up the lawsuit and resolve all of the existing controversies, which will provide a clear picture of the provisions, is undoubtedly awaited. The Court will act judiciously, keeping all the principles of natural justice and the principles enunciated in the Constitution and thus will interpret the Act in a way so that there is no arbitrary exercise of the power and the Act remains constitutionally compatible.
-Samarth Pathak is a fourth year student of the United World School of Law