Money Laundering A Heinous Crime But PMLA Not A ‘Criminal’ Law In India?

The Supreme Court has somehow slotted a square peg in a round hole, writes Abhinav Sekhri.

Abhinav Sekhri @abhinavsekhri10

01 Aug 2022, 05:58 PM IST

(Image: ANI/Twitter)

When Edwin Sutherland popularised the notion of white-collar crime in the United States in the 1940s, he was at pains to note how many species of economic crime tended to be treated rather leniently in that setup. In India, this has never been the case. As a country which inherited a tenuous post-war economy and a severe shortage of essential goods, one of the strategies was to endorse vociferous condemnation of sharp business practices. The tax evader, smuggler, profiteer, hoarder, foreign exchange manipulator, the list goes on; all of these persons were painted as black as tar, their activities not only criminalised but regulated by extraordinary criminal procedures.

The Prevention of Money Laundering Act 2002 continues this storied tradition. The PMLA, following in the footsteps of the Customs Act 1962 and erstwhile Foreign Exchange Regulation Act 1973 amongst others, embodied clauses making bail tougher and rendering confessions made by an accused theoretically admissible, and coupled these with machinery for attachment and forfeiture of property. All of these procedural tools were put in place to combat the crime of money laundering, which essentially consisted of handling any property derived or obtained by engaging in one of the many kinds of crimes specified in a schedule to the PMLA and projecting it as untainted. Over time, the law underwent multiple amendments, carrying out critical changes to the structure of the act.

Firstly, the definition of the money laundering offence had been broadened, suggesting it had retrospective effect, with a 2019 amendment rendering the additional requirement of ‘projecting’ property as untainted as not being integral to the crime.
Secondly, the links between the underlying scheduled offence and the processes under the PMLA were sought to be made more tenuous with time, with most recent amendments allowing the Enforcement Directorate to kickstart the process even before another agency had registered a case alleging the commission of a scheduled offence.
Thirdly, restrictions on bail which had been struck down by the Supreme Court in 2018 for arbitrarily classifying between cases, had been revived by abandoning any classification and extending restrictive bail clauses to all cases of money laundering.

By and large, constitutional courts during independent India’s history, have blessed these initiatives, expressing a shared disgust for persons who engage in making criminal profits, no matter how big or small. As a result, the extraordinariness of the procedures adopted to deal with all persons embroiled under these laws—tougher bail clauses, diminished guarantees of self-incrimination, and possible retrospective forfeitures of property—have all been held valid.

Despite attaining self-sufficiency for food grains and the current chest-thumping rhetoric of India being a world-besting, soon-to-be five trillion dollar economy, both Parliament and the courts have remained surprisingly faithful to the idea of the economy being so robust yet simultaneously so vulnerable as to be brought to its knees by tax evaders, smugglers, and money-launderers of all varieties.

Is The PMLA Not A Penal Statute?

It is unsurprising, then, that a similar fate met the petitions challenging various clauses of the PMLA, in the judgment delivered on July 27 by a three-judge Bench of the Supreme Court of India. To analyse the 545 pages of Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. over an opinion piece is next to impossible. Instead, this piece explores what I would argue is the most critical finding of the Court — is the PMLA a penal statute? This logic is what had been central to previous judicial encounters with socio-economic crimes under various laws, with the Supreme Court ruling that such laws were not penal statutes, and therefore the procedural guarantees normally associated with criminal law need not be applied in full force in these contexts. Vijay Madanlal Choudhary followed this approach. Even as it tells us that money laundering, no matter how big or small, is as heinous a crime as terrorism, the Supreme Court has held that the PMLA was not a penal statute but a ‘sui generis’ law. By viewing the law through this prism it justified, both directly and indirectly, the dilution of ordinary procedural safeguards applicable in criminal law for the investigative process.

First of all, let us be very clear that this logic of differentiation itself merits serious questioning. The only ways in which the Supreme Court has justified lower procedural safeguards for the investigative and inquiry process under these laws is to try and find out the purpose of the law, and to look at how the process concludes. Take the Customs Act, it is a law concerned with fixing customs duty, providing a scheme for its enforcement, and penalising evasion; it uses penal sanctions only for one aspect and so is not a penal law. Further, since it is possible under the Customs Act for an inquiry to end with only imposing a fine and not a prosecution, the process leading up to that point cannot be seen as being akin to a criminal law. The problem inherent in this consequentialist approach is that it very vividly places the cart before the horse: the guarantees matter only while an inquiry is ongoing, and pegging their application to the outcome renders them nugatory.

Nevertheless, since this misconceived logic is the law as things stand, we must ask whether the PMLA meets this threshold. The PMLA does not impose taxes or duties. Yes, the PMLA allows for attachment and confiscations of property, and places duties of disclosure upon persons, but contrary to the Customs Act and other laws in the context of which the issues have been considered by courts in the past, all these civil processes of the PMLA do not operate independently of the criminal prosecution. The offence is the heart of the Act. Further, no matter how big or small the alleged indiscretion, the option which exists with a Directorate of Revenue Intelligence officer to end the customs matter with a fine does not exist for officers of the Enforcement Directorate acting under the PMLA. An attachment may begin before the prosecution, but the action cannot be brought to fruition through the confiscation of the property until and unless a person is convicted of the money laundering offence.

So how can we conclude that the searches, seizures, arrests, and interrogations of persons under the PMLA can be viewed as anything other than in pursuit of the crime, and therefore part of the penal process?

Remove this prism, and the picture changes: the PMLA becomes a penal statute, and then rather than the accused having to justify why coercive action under this law should be at par with any penal statute, it falls upon the government to justify every derogation from the norm.

It is quixotic really; from time immemorial, economic crimes like the PMLA have been considered some of the worst kinds of crimes. But when it comes to the process, we are told that these odious crimes are governed by something other than the criminal process. Even in a case where the usual rules did not apply, the Supreme Court has somehow slotted a square peg in a round hole. Money laundering is a crime worse than terrorism, but the PMLA is not a criminal law.

Abhinav Sekhri is a lawyer practising in Delhi who focuses on criminal law and procedure.

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.