Today's Editorial

The PMLA - a law that has lost its way

Relevance: GS Paper II

Why in News?

The Prevention of Money Laundering Act has been found to include offences unrelated to its original purpose of combating drug money laundering, indicating a deviation from its original scheme, as evidenced by a close examination of the act.

Background to the law:

• The global drug trade had led to a significant amount of black money, which posed a significant threat to the economy of many countries.
• The United Nations recognized this and held the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in 1988.
• The convention urged countries to take urgent steps to prevent laundering the proceeds of drug crimes and related activities.
• In 1989, seven major industrial nations held a summit in Paris and established the Financial Action Task Force (FATF) to examine money laundering and recommend measures.
• In 1990, the UN General Assembly adopted the Political Declaration and Global Programme of Action, calling for legislation to prevent drug money laundering.
• Following the resolution, India used the FATF recommendations to formulate legislation to prevent drug money laundering.
• In 1998, the UN held a special session on "Countering World Drug Problem Together" and declared the urgent need to combat money laundering.
• Accordingly, the Indian Parliament enacted the Prevention of Money Laundering Act in 2002, which came into force in 2005.

About PMLA:

• The Prevention of Money Laundering Act (PMLA) 2002 primarily focuses on combating drug money laundering, with offences listed in the Indian Penal Code (IPC) and the Narcotic Drugs and Psychotropic Substances Act 1985.
• The Act was influenced by UN resolutions and FATF recommendations but acquired a different character through amendments from time to time.

Issues with the Prevention of Money Laundering Act (PMLA):

1. Holding all parties accountable: The law on money laundering focuses on the proceeds of crime that are laundered.

• This means that not only the individuals directly involved in the crime and generating the proceeds but also those involved later in the laundering process are guilty under this law, even if they are not connected to the original crime.

2. Expansion of scheduled offences: It includes a large number of offences in its schedule that have nothing to do with the original purpose of the law, which was to combat the laundering of drug money.

• The UN resolution that led to the enactment of the law in India only mentioned the offence of laundering drug money. The PMLA, enacted by India's Parliament under Article 253, allows it to make laws implementing international conventions.
• This means that laws made to implement decisions of international bodies will be limited to their subject matter.
• Item 13 in the Union list of the Seventh Schedule of the Constitution specifies this.
• Therefore, the law on money laundering enacted under Article 253 and Item 13 can only be applied to drug money.
• The Act has undergone amendments that have expanded the schedule to include ordinary offences listed in the IPC or for which special laws are in force.
• Since money laundering is linked to one of the scheduled offences, the offences contained in the schedule become the starting point of the whole process of operationalizing the PMLA.

3. Rigorous provisions and application: The provisions contained in it are harsh and were meant to deal with the dangerous men involved in drug trafficking and the money chain.

• These provisions are also being used in other scheduled offences without mitigating their rigour.
• Offences that do not generate crime proceeds of a scale that can destabilise the economy and endanger the sovereignty of the nation are being tried under this law.
• One such example is the Prevention of Corruption Act 1988, which aims to curb corruption among public servants. This Act was added to the schedule of offences in 2009.
• The PMLA now applies with all its rigour to public servants. Thus, a public servant charged with corruption and a hardcore drug trafficker are treated alike.

4. Presumption of guilt: A concerning aspect of the PMLA is that an accused person is presumed guilty until proven innocent.

• A fundamental principle of Anglo-Saxon jurisprudence is that a person is presumed innocent until proven guilty. The PMLA turns this principle upside down.

5. Bail provision: An accused will be denied bail by the entire hierarchy of courts because the bail provision contained in section 45 of the PMLA says that a judge can give bail only when they are satisfied that the accused is innocent.

• • So, the person will be in jail for years without trial.
• A two-judge Bench of the Supreme Court of India held Section 45 unconstitutional in Nikesh Tarachand Shah vs Union of India (2018) for violating Articles 14 and 21.
  • However, Parliament restored this provision with certain amendments, which was upheld by a three-judge Bench headed by Justice A.M. Khanwilkar in Vijay Madanlal Choudhary vs Union of India (2022).
    • The top court held that this provision is reasonable and directly relates to the purposes and objects of the PMLA Act. The judges argue that including less serious offences in the schedule falls within legislative policy.
• Justice V.R. Krishna Iyer laid out the judicial perspective on bail in 1978 in Gudikanti Narasimhulu And Ors vs Public Prosecutor, High Court Of Andhra: “Personal liberty, deprived when bail is refused, is too precious a value of our constitutional system recognised under Article 21 that the curial power to negate it is a great trust exercisable, not casually but judicially, with a lively concern for the cost to the individual and the community”.

Conclusion:

While the PMLA may have been well-intentioned, its inclusion of minor, non-serious offences in the schedule demonstrates its disregard for personal liberty. This raises questions about its compliance with fundamental rights and due process of law. The PMLA requires an amendment to conform to constitutional principles and ethos.