PMLA in Consonance with Global Standards Set by Financial Action Task Force: Solicitor-General Tells Supreme Court

“The Prevention of Money Laundering Act is a product of an international convention on money laundering, to which India is a signatory. It is also a member of the FATF, which periodically assesses our progress in complying with its recommendations by means of a peer review. Five people from different countries come and examine whether our law is in conformity with the FATF’s guidelines and our performance in terms of implementation. Based on this, every country gets a ranking, which determines how entitled we are to receiving financing from the World Bank, Asian Development Bank and other such organisations. For instance, Pakistan, which has now been removed from the grey list, had to tighten up their laws to come out of it. We have been performing well. All the provisions are in compliance with the global standard and all countries which are part of the global network under the FATF have these laws.”

A bench of Justices Krishna Murari and V Ramasubramanian was hearing a batch of appeals against an order of the Madras High Court ordering a fresh enquiry into the cash-for-jobs scam, in which Tamil Nadu minister, V Senthil Balaji, among others, has been accused of accepting bribes from job aspirants in exchange of appointments to the state transport corporation between 2011 and 2015.

On a previous day, Senior advocate and Member of Parliament Kapil Sibal told the top court that the Supreme Court’s July 2022 decision in Vijay Madanlal Choudhary needed a ‘relook’. On another day, senior counsel C Aryama Sundaram argued that he would read the judgement “as it stood” to support his interpretation of the act, but such an interpretive scheme did not support the modus operandi of the ED which routinely conducted ‘fishing’ enquiries to implicate people in money laundering cases. The central agency’s modus operandi, Sibal said, was not only against all ‘canons of justice’, but also violative of the principles of federalism. Today, senior advocate Sidharth Luthra also weighed in, saying the haste with which and the manner in which the directorate had started working made it seem like they were ‘cowboys’ in the ‘Wild West’, and not an agency following statutory principles.

Besides emphasising the importance of the Prevention of Money Laundering Act as a part of the global response to transnational organised crime and other insidious activities taking place across geopolitical borders, in rejoinder, the solicitor-general addressed a number of contentions raised by the other side, including the argument that once an accused is discharged for a predicate offence, the Enforcement Directorate had no jurisdiction to investigate. The top law officer also reiterated that the involvement in any one or more of the following activities or processes connected with the proceeds of crime, namely, concealment, possession, acquisition, use, projecting it as untainted property, or claiming it as untainted property, would be an offence of money laundering under the Prevention of Money Laundering Act. He explained:

“Imagine a person has been accused in a corruption case. Now, based on that corruption case, the ED lodges an enforcement case information report. Its jurisdiction is to figure out where the money, which is the proceeds of the crime, goes. Even if such a person is in possession, he would be guilty of money laundering. It is not necessary for him to ‘launder’ the money in the conventional sense.”

One of the central planks of the argument by the other side was that the jurisdictional facts necessary for the directorate to begin an investigation was the commission of an offence, together with the generation of the proceeds of crime with respect to that offence. Sundaram submitted that the existence of identified property or ill-gotten gains in the hands of the accused was the sine qua non of an offence of money laundering. Luthra also raised a similar concern. Sibal went one step further and said that an interpretation which removed the difference between the proceeds of crime and money laundering was constitutionally suspect, and only when any tainted property was integrated into the formal economy, should charges of money laundering be attracted. Mehta responded to these contentions by saying:

“The moment a predicate agency, be it a state agency or the Central Bureau of Investigation, registers an FIR which falls within the predicate offence list in the schedule annexed, the jurisdiction of the Enforcement Directorate starts. There is no stay in its jurisdiction merely because the predicate offence is stayed. This court has read only one condition which is that the ED’s investigation will stop only if the accused is acquitted in the scheduled offence. The act has also provided for the director of the agency to share information relating to any proceeds of crime recovered during a raid from an accused, with another agency, where the predicate offence is gone. The Prevention of Money Laundering Act is a complete code taking into account all scenarios.”

Case Title

Y. Balaji v. Karthik Desari & Anr. | Special Leave Petition (Criminal) No. 12779-12781 of 2022 and other connected matters