PMLA Challenges: Need Unified Trials & Stronger Measures To Curb Money Laundering
· Free Press Journal
The Prevention of Money Laundering Act 2002 (PMLA), like the Benami Act, was brought into the statute lest the law be caught in a time warp and instead be geared to take sophisticated financial crimes head-on. ‘Not 25 paisa was found’ is the triumphant and smirking refrain of those whose premises were raided by law enforcement agencies, which drew a blank. The PMLA was designed to strengthen the hands of the law enforcement agencies. Money laundering consists in vesting ill-gotten money, often parked in banks, with all the accoutrements of legit money consummated through back-to-back banking transactions that could befuddle the minds of the sleuths.
Money is laundered through a three-stage process to disguise its illegal origins and make it appear as legitimate funds. The initial stage is placement, where "dirty" money from criminal activities (such as drug trafficking, fraud, organised crime or bribe-taking) is introduced into the legitimate financial system. This is the most vulnerable stage for criminals, who often use camouflages and artifices to avoid detection by authorities by breaking large amounts of cash into smaller, less conspicuous transactions, or deposits, across multiple accounts to avoid triggering anti-money laundering (AML) reporting requirements.
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Blending illegal funds with the legitimate revenue of a business that naturally receives a lot of cash, such as restaurants, car washes, or casinos, hospitals and educational institutions, which are exempt from income tax in any case in India, is an equally tempting option. Physically moving large amounts of cash to jurisdictions with weaker anti-money laundering controls or stronger bank secrecy laws.
There are stories galore that lend credence to the practice of Swiss banks, amongst others, who airlift sacks of cash for credit into the numbered accounts of crooks in the Alpine nation for a laundering fee. The grateful account holders do not mind the hefty fees nor the blatantly and unilaterally fixed unfair exchange rates, as the bank offers a bewildering array of deposit and investment opportunities with omerta (the Sicilian practice of silence) thrown in.
The second step is layering. Once in the system, the money is moved through a complex web of financial transactions to obscure its source and create a confusing audit trail. Methods used during this stage include multiple transfers shifting funds rapidly between numerous bank accounts, often across different countries and jurisdictions. Foreign destinations often leave the Indian sleuths at their wit’s end with the trail evaporating into jurisdictions where their writ doesn’t run. Shell companies and trusts that exist only on paper to conduct transactions or hold assets within India without revealing the true owner's identity are what the doctor had ordered. Investing in bonds, art, etc. is also an option, just as cryptocurrencies are.
Integration is the third and final stage under which money is returned to the criminal from what appear to be legitimate sources. Round-tripping under the Foreign Portfolio Investment (FPI) scheme of the SEBI, consisting of Indian black money returning to India duly laundered, is suspected to be the most fecund form of integration. The funds, now appearing "clean", can be used freely for various purposes without raising suspicion. Hope the readers would excuse the author for the long tutorial on money laundering. The point is PMLA was brought in to frustrate all three steps involved in money laundering.
The Supreme Court in Vijay Madanlal Choudhary v. Union of India affirmed in 2022 that the existence of a scheduled offence or predicate offence like corruption in high places is necessary for the Enforcement Directorate (ED) to initiate an investigation. This has emboldened launderers to smirk and say that if the predicate offence, like receipt of a bribe, is not proved in a criminal trial, the money laundering trial under PMLA too fails ipso facto. That is not correct.
The evidence emerging under the PMLA trial can nail the accused, which is why there is a crying need for making the criminal and PMLA trials concomitant without dividing them into watertight compartments when the truth of the matter is they are overlapping, warranting a unified, wholesome trial. Section 24 of the PMLA, which is the cornerstone of the law, swears by what is known as reverse jurisprudence—it is for the accused to protest and prove his innocence as against the norm that one is innocent until proven guilty.
In Vijay Mandal (supra) this reversal was held necessary in view of the wiles and guiles of the crooks and the bewildering maze of red herrings thrown in by them to frustrate investigations. The Prevention of Corruption Act targeting public servants, too, swears by reverse jurisprudence and overlaps with the criminal proceedings and the PMLA proceedings, but the Supreme Court of India, in the Constitution Bench judgement of Neeraj Dutta v. State (NCT of Delhi) (2022), held that the proof of demand and acceptance of illegal gratification is a sine qua non (essential requirement) to establish charges under Sections 7 and 13(1)(d) of the Prevention of Corruption Act, 1988.
The Court ruled that the presumption under Section 20 of the PCA cannot be raised unless the prosecution first proves that the public servant demanded the bribe.
The haze surrounding corruption in high places needs clearing of cobwebs. The following express and categorical amendments are called for:
That the PMLA is not subservient to the Indian Penal Code (IPC) or its successor, the Bharatiya Nyaya Sanhita, 2023. To the contrary, it overrides the Criminal Code in keeping with the legal dictums that subsequent laws override the previous ones and special laws, too, override the general ones. Without the PMLA it is impossible, in this day and age, to find assets acquired through contrived and dubious means.
That reverse jurisprudence of the PMLA and the PCA are sacrosanct and essential in this day and age. However, in fairness to the accused, he should be granted bail after one year of incarceration even though he hasn’t proved his innocence.
That the Parliament resiles from the Apex Court in Neeraj Dutta (supra) to the extent the prosecution should prove demand and receipt of bribes by a public servant, which is well-nigh impossible. Both the PMLA and the PCA need latitude to nail white-collar crimes.
S Murlidharan is a freelance columnist and writes on economics, business, legal and taxation issues.