CRIME AND PUNISHMENT
The Supreme Court verdict upholding the PMLA Act may be the turning point in India's battle against money laundering EPISODE #85
Dear Reader,
A very Happy Monday to you.
Last week Parliament was all but paralysed with an angry opposition claiming that the union government’s new found zeal to tackle corruption was nothing but an exercise in political vendetta. To make matters worse, earlier in the week the Supreme Court dismissed the challenge against key provisions of the Prevention of Money Laundering Act (PMLA)—the law to curb tainted money.
It is easy to be distracted by the noise and the drama associated with the recent actions of the Enforcement Directorate, which investigates money laundering crimes. But if you take the recent court indictments of politicians as well as others for white collar crimes you can’t help believe that India is turning a corner in its bid to transition to a rules-based regime.
So this week I explore the cause and effect of Crime and Punishment. The headline is the title of the iconic novel by Fyodor Dostoevsky.
The cover picture is sourced from Unsplash and taken by Parth Vyas. Thank you Parth.
A big shoutout to Atul, Gautam, Premasundaran, Aashish and Vandana for your informed responses, kind appreciation and amplification of last week’s column. Gratitude also to all those who responded on Twitter and Linkedin. Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊.
POINT OF INFLECTION
Last week the Supreme Court delivered a defining judgement on a host of appeals against the nature and limits of the powers of the Directorate of Enforcement (ED) under the Prevention of Money Laundering Act (PMLA).
By dismissing the appeals the apex court retained the powers of the ED to issue summons, record statements, make arrests, and search and seize property, besides making it extremely difficult for the accused to claim bail.
The 200-odd petitions challenging the provisions of PMLA included those submitted by high profile politicians like Karti Chidambaram, Lok Sabha MP and son of former finance minister P Chidambaram, and Mehbooba Mufti, former chief minister of Jammu and Kashmir.
Coincidentally, the judgement came on the heels of the Congress President Sonia Gandhi being summoned to the office of the ED for questioning in the ongoing investigation into alleged financial fraud in the National Herald.
Together they have put an unprecedented spotlight on white collar crimes in India. Not just about exposing them, but how gradually criminals are beginning to get payback with judicial convictions. Especially with the courts strengthening the hands of the investigative agencies through key rulings, thereby providing the institutional ballast for investigation and prosecution.
Indeed this is a potential turning point in India’s tryst with white collar crimes—which in the past was mostly what Macbeth described as “full of sound and fury, signifying nothing.” And hopefully an important step in the larger challenge to transition the country to a rules-based regime.
Yes, there have been some very high profile convictions like in the case of Lalu Yadav, the former chief minister of Bihar, Om Prakash Chautala, the former chief minister of Haryana and Sukh Ram, the former union telecom minister. But mostly these were exceptions that proved the rule.
The most egregious instance is the alleged 2G spectrum allocation scam where the special court found no wrong doing for a transaction which was estimated to have caused a staggering loss of Rs1.76 lakh crore to the exchequer. The point here is not to question the legality of the judgement, but to make the simple point that rarely was anyone found guilty.
However, India has undergone a transformation in the last decade, creating a much more conducive ecosystem for justice. Aspirations are making people realise the opportunity cost of corruption and this message seems to be permeating to the judicial process too.
This convergence of circumstances is what makes me optimistic that white collar crime will beget punishment within the guardrails of existing laws.
Weaponising PMLA
The enforcement of the PMLA is vested with the ED, a financial investigation agency under the aegis of the Department of Revenue in the Ministry of Finance. They are equipped with powers to issue summons, record statements, search and seize property and undertake arrests.
Critics believe that the PMLA has been accorded discretionary powers which have the potential to be misused, especially by vindictive administrations.
Fair point. But there is a larger message on public policy here: They are intended for use and not to police misuse.
In other words misuse is something outside the scope of this Act. Instead it is under the scrutiny of the judicial system—who can rule whether the guardrails, especially those relating to individual liberty, have been breached.
Critics also argue that special privileges granted under the PMLA allow the ED to investigate economic offences without being obliged to follow the Criminal Procedure Code (CrPC).
Accordingly the key challenges to the sections of the PMLA Act mentioned before the Supreme Court included:
Where the onus is on the accused to prove their innocence before becoming eligible for bail;
Power to arrest without being subject to the CrPC;
Discretionary powers granted to ED to attach the property of the accused;
Power to enter and search the property of an accused without prior judicial permission;
Use confessions extracted during interrogation as evidence in a court of law.
Indeed on the face of it these are extraordinary powers. But then as the Supreme Court argued the nature of white collar crime and tainted money is exceptional too and hence deserves an extraordinary response.
The apex court laid out this context bluntly in its final order:
“Tainted money (through money laundering) breeds discontent in any society and in turn leads to more crime and civil unrest. Thus, the onus on the Government and the people to identify and seize such money is heavy.”
The money laundering process entails:
First, moving the funds associated with the crime;
Second, disguising the tainted money flows by say passing it through shell companies;
Third, routing the money back to the criminal through legitimate sources.
By the time of the third stage it is extremely difficult for the investigating authorities to either unravel the source of tainted money or prove it was obtained through criminal activities.
Which is why in the court’s view there has to be a zero tolerance to such crimes as they can undermine the socio-economic fabric of a country—broken nations like Afghanistan, Pakistan and so on reinforce this fear on how drug money ends up sponsoring global terrorist networks.
In fact the origins of the PMLA can be traced to the growing network of global terror funded through money laundering. It came to a head on 9/11 when al Qaeda terrorists flew a passenger plane into the World Trade Centre in New York.
The attacks expedited global initiatives to counter money laundering. The response, with the blessings of the United Nations, came to be centred around the Financial Action Task Force (FATF), global money laundering and terrorist financing watchdog, set up at the G7 summit hosted in Paris in 1989.
FATF provided the guiding principles for the PMLA, first proposed in 1999 under the tenure of the National Democratic Alliance (NDA) led by Atal Bihari Vajpayee; it became a law under the United Progressive Alliance in 2005; and has been implemented in earnest under the NDA led by Narendra Modi.
Essentially there is bi-partisan consensus driving the PMLA—exactly why the political criticism is baffling, disingenuous and smacks of hypocrisy.
Further, as the Supreme Court argued in its order, the PMLA owes its existence to India’s international commitments to “sternly deal with the menace of money laundering proceeds of crime having transnational consequences and on the financial systems of countries.”
The frequent amendments to the law therefore are to keep the PMLA aligned with the changes in global rules to prevent money laundering. Basically the law is constantly tweaked as the authorities, on the advice of the FATF, play catch-up with money launderers.
Armed with this logic it is unsurprising that the three judge bench of the apex court comprising of Justices A M Khanwilkar, Dinesh Maheshwari and C T Ravikumar dismissed all the challenges and upheld the constitutional validity of the PMLA.
Turbo Mode
Part of the reason for the enhanced chatter about misuse of the PMLA is that the NDA under PM Modi has stepped up action against money laundering as part of its larger assault against corruption ever since it took over in 2014.
Data shared by the union government with Parliament last week brings this out very starkly. It is not just searches and seizures, the NDA has actually managed to pull off 23 convictions under PMLA. The seizures under UPA and NDA are Rs 534.16 crore and Rs 99,356 crore respectively.
It may well be that the enhanced scrutiny is also that the ED is both energised under a different regime and also more familiar with the law, which to be fair is still relatively new.
Regardless it is very likely that scrutiny by the ED of alleged crimes will only grow. The verdict of the Supreme Court has no doubt strengthened their hand. The implicit political signal from the NDA is one about zero tolerance towards corruption. To be fair to the regime this has been central to their governance ideology—the demonetisation of high value currencies is one such example.
The trick is for the investigation process to strike the right balance. As the saying goes: You have to be like Caesar’s wife: above reproach.
Recommended Viewing
Last week Capital Calculus launched on a new platform with a new format.
The StratNews Global debut was a conversation with Vijay Raghavan, AI evangelist and a consultant to the Bhashini project—the platform that will, in the next three years, bring Internet content in local Indian languages. Vijay helped flesh out the scope of this game changing project.
I am sharing the link below in case you missed it:
This weekly show will air every Thursday at 7 pm. You can also catch the recording on YouTube.
Till we meet again next week. Stay safe.
Hi Anil
What we are seeing is unprecedented ! It has undoubtably shaken up the core of people who felt entitled - the brazen street protests under the guise of price rise and unemployment is nothing but a cruel joke on how some of the politicians always took the immunity from anything for granted ! Hope this continues and brings the glasnost in the way of dealing and punishing the white color criminals.
Dear Anil,
A very powerful article on the hot topic these days with ED in the limelight for its daring raids !! The picture of The Gateway of India is the best I have seen so far , with the deep colours.The last line of your article says it all about the need of the hour .