Solicitor-General Defends PMLA in Supreme Court, Cites Global Standards

Solicitor-General Defends PMLA in Supreme Court, Cites Global Standards

The Solicitor-General for India, Tushar Mehta, informed the Supreme Court that the provisions of the Prevention of Money Laundering Act, 2002 are in compliance with the global standard set by the Financial Action Task Force (FATF) and are a part of the intergovernmental response to organised crime.

The Supreme Court bench of Justices Krishna Murari and V Ramasubramanian was hearing a batch of appeals against an order of the Madras High Court regarding the cash-for-jobs scam, which allegedly involved Tamil Nadu Minister V Senthil Balaji and others.

Mehta explained that India is a signatory to an international convention on money laundering and is a member of the FATF, which periodically assesses progress in complying with its recommendations.

“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 its 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,” the Solicitor General told the Apex Court.

Senior advocate and Member of Parliament Kapil Sibal previously suggested to the top court that the Supreme Court's July 2022 decision in Vijay Madanlal Choudhary required a 'relook'. On a different day, senior counsel C Aryama Sundaram stated that he would interpret the judgement "as it stood" to support his interpretation of the act, but this did not support the Enforcement Directorate's (ED) modus operandi, which involved conducting 'fishing' inquiries to implicate individuals in money laundering cases. According to Sibal, the ED's practices were not only against the 'canons of justice', but also violated the principles of federalism.

Recently, senior advocate Sidharth Luthra criticised the haste and manner in which the directorate began operating, claiming that it made the agency appear as 'cowboys' in the 'Wild West' rather than an agency following statutory principles.

In response, the solicitor-general not only highlighted the significance of the Prevention of Money Laundering Act as a global measure against cross-border crimes but also addressed several objections raised by the opposing party. One of these objections was that the Enforcement Directorate had no authority to investigate an accused once they had been discharged of a predicate offence. Additionally, the solicitor-general reiterated that engaging in any of the processes associated with the proceeds of crime, such as concealment or acquisition, would be considered money laundering under the Act.

Solicitor General Tushar Mehta explained by saying that suppose a person is accused of corruption, and the ED files an enforcement case information report based on that case. The agency's jurisdiction is to trace the path of the proceeds of the crime. Even if the accused is merely in possession of the money obtained from the illegal activity, they can be held accountable for money laundering. It is not required for them to launder the money in the conventional sense.

The opposing side's central argument was that the directorate could only begin an investigation if an offence had been committed and the proceeds of crime were generated from that offence. Sundaram argued that the presence of identified property or illicit gains in the accused's possession was necessary for an offence of money laundering. Luthra shared a similar concern. Sibal took it a step further, stating that an interpretation that blurred the distinction between the proceeds of crime and money laundering raised constitutional concerns, and only when any ill-gotten property was integrated into the formal economy could charges of money laundering be applied.

Mehta responded to these contentions by explaining that once a predicate agency such as a state agency or the Central Bureau of Investigation registers an FIR that falls under the predicate offence list in the schedule annexed, the jurisdiction of the Enforcement Directorate begins. The ED's jurisdiction is not stayed simply because the predicate offence is stayed. Mehta also pointed out that the court has only set one condition for the ED's investigation to stop, which is 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,” Tushar Mehta further informed the Supreme Court bench.