More bite to ED Teeth

Of late we have been seeing the Enforcement Directorate grabbing headlines due to its actions against high profile economic offenders. While it has been in existence since 1956, it has acquired more teeth due to the recent amendments to the Prevention of Money Laundering Act which makes it a more potent force

Headlines on a regular basis about raids being conducted by the ED (Enforcement Directorate) and arrests being made of top politicians and leading businessmen have become common. Earlier, it was only the CBI (Central Bureau of Investigation) conducting such raids. But now many a time, both ED and CBI work in unison, as teams of both these agencies reach the premises of the accused, as in the case of the former finance minister. Both these agencies seek custodial interrogation of the person who is alleged to have violated economic laws or indulged in frauds leading to swindling of public money. Most know about the CBI, the central police investigating agency but we may not know much about the recent active player, i.e. ED. This column is a modest effort at knowing about the ED.

The ED is a law enforcement and economic intelligence agency responsible for enforcing economic laws and fighting economic crimes. This directorate is a part of the Department of Revenue, Ministry of Finance, Government of India. It is composed of officers from IRS, IPS, IAS and such other cadres and also many other officials from various departments who are on deputation. The ED also makes recruitment of officials on its own as well.

ED mandate

The ED was originally formed on 1st May 1956 for handling exchange control law violations under FERA (Foreign Exchange Regulations Act, 1947). During the 1980s, the ED was very active, as some important business people were arrested for foreign exchange violations. Today, the ED has the mandate to enforce the Foreign Exchange Management Act 1999 (FEMA) and the Prevention of Money Laundering Act 2002 (PMLA). FEMA has replaced FERA and it is a civil law as against the harsher FERA. The ED today is more in the news for its searches and arrests because of PMLA, which has acquired more teeth due to several amendments over the years. The latest amendment of PMLA by the Finance Act 2019 has made it even more potent and fiery for economic offenders. We require to know about PMLA to understand the power and functions of the ED.

The PMLA 2002 is an Act passed by the Parliament. It was enacted on 17th January 2003 and commenced on 1st July 2005. This Act was enacted in pursuance signatory to the UN Convention on anti-money laundering to counter financial terrorism. PMLA accounts for all those processes which include disguising the proceeds of crime and integrating it into the financial system. There are three stages of money laundering: placement, layering and integration. While placement refers to the movement of cash from its source of origin and getting it into circulation, layering happens when the offenders try to cover the tracks thus making it difficult for the authorities to track the transactions done. The process of integration is supposed to have taken place when the laundered money becomes a part of the formal economy through the banking system. PMLA provides for enquiry, arrest, adjudication and confiscation of property derived from money laundering and other scheduled crimes.

Catch them all

The offence of money laundering has been defined in PMLA under section 3 of the Act, which reads thus: “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party to or is actually involved in any process or activity connected to the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.” This definition is of wide amplitude and it covers even accomplices who are directly or indirectly involved in the process of crime.

Section 4 of the Act deals with punishment, which will be rigorous imprisonment of three to seven years along with a fine. The upper limit of imprisonment can go up to ten years in some specific cases of scheduled crimes. Section 5 of the Act deals with the attachment of property involved in money-laundering and under section 16, the PMLA authorities can summon a person and the statement recorded will be a valid evidence, as against the statements recorded by the police. The mandate for conducting searches is provided by section 17 and 18 of this Act. The ED can arrest a person on the basis of recorded objective reasons under section 19. An arrest warrant need not be separately taken from a magistrate. However, within 24 hours of the arrest, the arrested person has to be produced before a magistrate. The PMLA has stipulated under section 24 of the Act that the initial burden of proof will be on the person charged. The Act also proposes action outside India and for this, the central government may enter into an agreement with foreign countries as prescribed under section 55 to 61. Properties of the accused located outside India can also be attached under the prescribed circumstances.

The Finance Act 2019 has provided more teeth to PMLA by adding explanations to its existing section 3. Now, a person directly or indirectly connected with the process or proceeds of crime under acts of a) concealment b) possession, c) acquisition, d) use, e) projecting a property as untainted, can also get hit by the extended definition of money-laundering. It has also been proposed in the inserted explanation that the process or activity connected with the proceeds of the crime will be considered as a continuing activity until such time as the enjoyment of the asset.

"Section 4 of the Act deals with punishment, which will be rigorous imprisonment of three to seven years along with a fine. The upper limit of imprisonment can go up to ten years in some specific cases of scheduled crimes"

Additional ammo

PMLA gets additional force from a recently enacted Fugitive Economic Offenders Act 2018 (FEO). This Act applies against any individual who faces a warrant for arrest in relation to a scheduled offence, issued by any court in India. The Act mandates attachment of properties of the offender located in or out of India under the permission given by the court in India. Even property in benami name can be the subject of attachment if it is linked to the offender. Section 5 of PMLA is on a similar line to section 5 of the FEO, which means that the two legislations can move in tandem.

The ED has been in the news due to PMLA and there have been arrests and attachment of properties of some bigwigs of the society. They have added assistance from FEO, particularly in the recent scam cases. Newspapers these days are full of such stories. Today, a prominent politician is in jail and now ED under PMLA is waiting at his door for an additional process of custodial interrogation. The Supreme Court has already dismissed his petition seeking anticipatory bail. One leading politician from Karnataka is already in the custody of the ED as it is alleged that he failed to explain the source of huge cash seized in the course of Income Tax search actions.

The ED is seen as gathering clues from the CBI and the income tax department while also initiating its own independent enquiry against economic offenders. The end objective for all these agencies is to nail economic offenders.

Even bigger fish

The case of Deepak Talwar is one such illustration. It was alleged that he illegally secured favourable traffic rights for private and foreign airlines at the cost of Air India. An investigation by ED under PMLA was initiated on the basis of FIR registered by the CBI against officials of the Ministry of Civil Aviation, Air India and some unknown people. The ED has provisionally attached the property, Holiday Inn located in Aerocity, New Delhi.

ED investigations revealed that Talwar illegally engaged in liasoning and lobbying with politicians and public servants for the benefit of airlines such as Emirates, Air Arabia and Qatar Airways. Talwar allegedly got payment of Rs.27 crores for his services from the airlines which harmed the interest of Air India. Talwar allegedly created a web of entities owned by him and his family members in India and in international offshore havens to launder the proceeds of the crime. The money was layered through a series of international transfers and finally integrated into a hotel company in India, which went into constructing Hotel Holiday Inn. Talwar had fled from the country in 2017 to avoid investigation. However, he was deported from the country by the concerned authorities in Dubai.

Another illustration is the case of Sandesara brothers, which apparently is much bigger than the Nirav Modi fraud on PNB. The amount allegedly cheated by the Sandesara brothers is to the tune of Rs.14,500 crores and the victim is a consortium of public sector bank. The ED registered a case after the CBI lodged an FIR of cheating of Rs.5383 crores and its investigation indicated that the cheated amount was much bigger than initially believed. The funds obtained as a loan by the Group were diverted for non-mandated purposes, layered and laundered through a web of domestic as well as offshore entities. The ED has attached properties worth 9778 crores, which include four oil rigs and oil fields in Nigeria and ships registered in Panama. The Sandesara brothers are not in the country though their parent company Sterling Biotech is in Vadodara. There are many such illustrations about actions by the ED.

PMLA is a potent legislation with a good objective. In an ideal situation, such legislations would never have been required. This legislation becomes active when people wilfully create an architecture to flout economic laws and try to clean dirty money earned through crimes. Of late, we are seeing the creation of a number of shell companies and deposits in tax havens. The Panama papers gave us some such examples of big names from the society.

However, the ED should take due care that innocent people are not harassed. Also, the due process of law should be followed so that the case stands the test of judicial scrutiny and the accused get convicted.