Why is the Prevention of Money Laundering Act under challenge in the Supreme Court?

On Monday, Nawab Malik, minister of minority development in Maharashtra and senior leader of the Nationalist Congress Party, was sent to judicial custody till March 21. Malik was arrested on February 23 in connection with a money laundry case involving gangster Dawood Ibrahim and his associates. He had been in the custody of the Enforcement Directorate since then.

Malik’s arrest is part of a pattern where opposition leaders in the states are targetted under an excessively harsh law: the Prevention of Money Laundering Act 2002. At present, the constitutionality of many provisions of the law is under challenge before a Supreme Court bench.

Malik’s arrest

Nawab Malik was arrested for allegedly sponsoring terrorist activities in connection with gangster Dawood Ibrahim under the Prevention of Money Laundering Act 2002.

The Enforcement Directorate filed a first information report against Dawood Ibrahim in the first week of February. Malik is alleged to have bought a property from a close aide of Ibrahim’s for a few lakhs when its actual market price was worth crores. The Enforcement Directorate has also submitted before the court that the actual owner of the property had not given the authorisation to sell the property and has not received any money after its sale. An aide of Ibrahim, who had the power of attorney over the property, sold it to Malik, the Enforcement Directorate has claimed.

Problems with the law

The Supreme Court has been hearing a clutch of more than 80 petitions challenging the constitutionality of multiple sections of the Prevention of Money Laundering Act 2002. These relate to arrest, bail, search and seizure, amongst other sections.

The Prevention of Money Laundering Act 2002 was enacted to prevent money laundering mainly resulting from the international narcotics and drugs trade. However, over the years a number of crimes have been brought under the ambit of this law through amendments. It started with offences from six legislations but now it has offences from 30 legislations. Thus, the scope for Enforcement Directorate to start proceedings under this law has increased. Some lawyers have also argued that now the list of offences also include less serious such as infringement of copyright and application of false trademarks.

Additionally, many of these amendments have been brought through money bills, which only need to be passed through the Lok Sabha. Petitioners challenging the law have argued that these changes were improper since the law was outside the scope of money bills, which are meant to deal with subjects dealing with government revenue and expenditure.

The Prevention of Money Laundering Act has specific provisions on aspects such as how the investigation has to be conducted, arrests have to be made and bail is to be given. These provisions go beyond general criminal statutes like the Code of Criminal Procedure. They are much more stringent compared to how criminal trials usually take place.

Further, where there is no specific provision in the Prevention of Money Laundering Act, the Enforcement Directorate does not follow the Code of Criminal Procedure but follows the Enforcement Directorate manual, an internal document prepared by the Enforcement Directorate. The petitioners have argued that money laundering investigations should be brought within the Code of Criminal Procedure as the Enforcement Directorate manual is an internal document prepared by the executive arm and should not govern investigations.

In many instances, the accused may not even be informed what the crimes they are being charged with are. As opposed to first information reports, the Prevention of Money Laundering Act has an enforcement case information report, which is an internal document that the Enforcement Directorate may not even share with the accused.

Petitioners in the Supreme Court have argued that earlier the Enforcement Directorate could only start an investigation for money laundering after a charge sheet was filed. However, now the Enforcement Directorate can start proceedings against a person on the basis of an enforcement case information report, where the accused may not even know the crimes they are accused of since the report is not shared with them. Additionally, the petitioners have argued that while the Enforcement Directorate has powers like the police, it is not regulated by the same rules as the police.

The petitioners have also argued that the powers given to the Enforcement Directorate to attach an accused’s property and take its possession are very wide and continue till the accused is acquitted.

Stringent bail conditions

Bail is very difficult under the Prevention of Money Laundering Act. There are two conditions which have to be satisfied. First, the public prosecutor has to be given an opportunity to oppose the release. Second, the court has to be satisfied that there are reasonable grounds to believe that the accused is not guilty of the alleged offence and that she is not likely to commit any offence when she is on bail.

These conditions are even more stringent than the terror law, Unlawful Activities (Prevention) Act 1967. Under the Unlawful Activities (Prevention) Act 1967, the public prosecutor has to be given a hearing and if the court thinks that there are reasonable grounds to believe that the accusations against a person are prima facie true then bail cannot be given. The condition that the court must be satisfied that the accused would not commit any offence while on bail does not exist.

Bail conditions under the Prevention of Money Laundering Act are the same as Narcotics Drugs and Psychotropic Substances Act 1985.

Due to these conditions, bail hearings work like full-fledged trials, since the judge has to make an assessment about whether the accused committed the crime. The petitioners challenging the Prevention of Money Laundering Act have argued that this reverses the idea of presumption of the innocence of an accused. And with the growing list of offences under this law, these bail conditions were too harsh.

The constitutionality of these bail conditions is also under challenge. These bail conditions had been struck down by the Supreme Court in 2017 for being unconstitutional. However, the Centre brought an amendment through the Finance Act 2018, a money bill, to bring these conditions back again. Earlier, they were only applicable for specific crimes punishable with more than three years of imprisonment. But this condition was removed after the amendment. The government has claimed that this amendment makes the provisions constitutional since the unconstitutionality existed due to the offences it applied to.

The abuse of the law

Some of the petitions challenging the constitutionality of the law have been filed by opposition politicians charged under the PMLA. These include Congress Member of Parliament Karti Chidambaram, former Punjab Member of Parliament Sarwan Singh Phillaur and former Jammu and Kashmir Chief Minister Mehbooba Mufti. Many opposition parties have said that the law is being used in a politically motivated manner.

Even Nawab Malik has claimed that he is being targeted because he has been a “vocal critic of the misuse of central agencies” by the BJP government.

Apart from Malik, a number of other opposition politicians are also being investigated under the Prevention of Money Laundering Act. Presently, around twelve politicians from the Maha Vikas Aghadi, the coalition government formed in Maharashtra. The most high profile target so far has been Anil Deshmukh, former Maharashtra home minister, who was arrested on November 1 for alleged money laundering. His bail plea is still pending. Activists, politicians, and even businessmen are being investigated under this law.

Often in statutes like these, the process becomes the punishment. This is evident from the convictions under the Prevention of Money Laundering Act, one of the petitioners have claimed. They have submitted that out of a total of 1,700 raids and more than 1,500 investigations since 2011 only 13 people have been convicted in 9 cases. However, the Union government has submitted to the court that it has only made 313 arrests under this law till date, thus it is not being misused.