Prevention of Money Laundering: Powers of the Enforcement Directorate

Guest Post by Pallavi Mohan

Recently, the Supreme Court upheld the validity of some provisions of the Prevention of Money Laundering Act, 2002 (PMLA) which grant extensive powers to the Enforcement Directorate (ED) to conduct investigations, make arrests, search and seize property, etc.

What is the Enforcement Directorate?

The ED, created in 1956, is a multi-disciplinary organisation, which investigates economic crimes and violations of foreign exchange laws. Presently, it is under the administrative control of the Department of Revenue. With effect from 01.07.2005, it is the investigation agency entrusted with the powers to enforce various provisions of the PMLA. It has exclusive powers under Section 5 (attachment of property), Section 8 (adjudication), Section 16 (survey), Section 17 (search and seizure), Section 18 (search), Section 19 (arrest), Section 20 (retention of property), section 21 (retention of records), etc..

What was the issue before the Supreme Court about the powers of the ED?

One of the main grounds of challenge was that even though the ED was not a “police agency” to whom the Code of Criminal Procedure 1973 (CrPC) applied, it could exercise wide-ranging “police powers” such as arrest, search and seizure, etc. This means that the safeguards against misuse of police powers given under the CrPC are not available to those affected by the ED’s powers under the PMLA. For example, the ED can issue summons for the production of documents or the recording of evidence (Section 50). Section 63 imposes a fine or prosecutes any person who refuses to answer questions about the offence they are accused of, refuses to sign a statement made during the proceeding, or who does not produce documents they are summoned to produce. This makes it mandatory for that person to make a statement to ED officers, but the statement is admissible in court proceedings against such a person since ED officers are not considered police officers. This is a violation of Article 20(3) of the Constitution, which protects a person from self-incrimination.

The Supreme Court rejected this challenge by holding that the PMLA is a self-contained code. This is clear from the fact that Sections 65 and 71 of PMLA exclude the application of the CrPC, especially if the provisions are contrary to those in the PMLA. The Court also observed that ED officers cannot be considered police officers, as summons issued by them under Section 50 are only for the collection of information and evidence, and not necessarily for the initiation of  prosecution against that person. That person could just be a witness and, at that stage, the protection under Article 20(3) of the Constitution cannot be invoked.

What was the challenge in the Supreme Court about the grant of bail under the PMLA?

Under Section 24 of the PMLA, there are two conditions that have to be met for the grant of bail – the arrested person (a) has to prove they are not guilty of money laundering, and (b) assure the court they are not likely to commit any offence while on bail. The petitions contended that it is very difficult to meet this reverse burden of proof. Here the Court presumes that the arrested person is guilty of the offence of money laundering unless proved otherwise. Since the ED is not required to provide an Enforcement Case Information Report (ECIR) to the arrested person in the same way the police provide an FIR under the CrPC, proving one’s innocence to get bail becomes even more difficult.

The Supreme Court held that the ECIR is an internal document, unlike the FIR. It is not mandatory for the ED to supply a copy of the ECIR to the arrested person, as long as it discloses the grounds of arrest at the time of the arrest. It also upheld the validity of the two conditions by observing that a presumption of innocence is not a constitutional guarantee. The Court noted that there is a reasonable nexus between the stringent bail conditions under Section 24 and the objects of the PMLA, which was to comply with recommendations of the Financial Action Task Force (FATF) on fighting corruption.