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15th February 2022 (5 Topics)

Supreme Court Examines Allegations of Rampant Misuse of PMLA

Context

The Supreme Court (SC) is examining allegations of rampant misuse of Prevention of Money Laundering Act 2002 (PMLA) by the government and the Enforcement Directorate (ED).

About

About Prevention of Money Laundering Act 2002 (PMLA):

  • The Prevention of Money Laundering Act (PMLA) was enacted by the Indian Parliament in 2002 to prevent money laundering in India.
  • PMLA Objectives:
  • Preventing money laundering.
  • Combating the channelising of money into illegal activities and economic crimes.
  • Providing for the confiscation of property derived from or involved in money laundering.
  • Providing for any other matters connected with or incidental to the act of money laundering.
  • Investigative agencies under PMLA: The Enforcement Directorate (ED) is responsible for investigating offences under the PMLA.
    • Also, the Financial Intelligence Unit-India (FIU-IND) is the national agency that receives, processes, analyses and disseminates information related to suspect financial transactions.

Why was the Prevention of Money Laundering Act (PMLA) enacted?

Prevention of Money Laundering Act (PMLA) was enacted in response to India’s global commitment under the Vienna Convention.

THE VIENNA CONVENTION on Money Laundering:

  • It was the first major initiative in the prevention of money laundering held in December 1988.
  • This convention laid down the groundwork for efforts to combat money laundering by obliging the member states to criminalize the laundering of money from drug trafficking.
  • It promotes international cooperation in investigations and makes extradition between member states applicable to money laundering.
  • The convention also establishes the principle that domestic bank secrecy provisions should not interfere with international criminal investigations.

Major Allegations:

  • The offences in the schedule of the Act are extremely broad and in several cases have absolutely no relation to either narcotics or organised crime.
  • The Enforcement Case Information Report (ECIR) an equivalent of the FIR is considered an internal document and not given to the accused.
    • The ED treats itself as an exception to these principles and chooses to register an ECIR on its own whims and fancies.
  • After the registration of the ECIR, the ED begins to summon accused persons and seeks details of all their financial transactions and of their family members.
  • Throughout this procedure, the accused does not even know the allegation against him. 
  • The PMLA does not distinguish between an accused and a witness while summoning them. 
  • There is a lack of clarity about ED’s selection of cases to investigate.
    • The investigation under the PMLA can arise only if the commission of the alleged predicate offence has resulted in the generation of proceeds of crime and such proceeds are projected or claimed as untainted property.
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