Chasing silver bullets
The Fugitive Economic Offenders Bill makes little policy sense and if passed into law will definitely be challenged as unconstitutional
Drafted last year in the aftermath of Vijay Mallya refusing to return to India to face criminal charges, the Cabinet has finally decided to table the Fugitive Economic Offenders Bill in the upcoming session of Parliament to show that history won't repeat itself with the present case of Nirav Modi and his associates. February was littered with news reports of the Enforcement Directorate (ED) raiding and seizing several thousand crores' worth of assets based on the fraud allegations. But, as the Finance Minister, Arun Jaitley, rightly pointed out last week, the Prevention of Money Laundering Act does not allow these assets to be sold before a court convicts the accused. That, to put it mildly, takes a long time in India. The government is convinced the Fugitive Economic Offenders Bill is the answer — so much so, that the government plans to push it through as an Ordinance if Parliament does not pass the law. As the title suggests, I disagree. It makes little policy sense, is left distressingly open to possible abuse, and if passed into law will definitely be challenged as unconstitutional.
Let's talk about the policy aspects first. The Bill seeks to achieve two key goals: (i) deter people from fleeing the country and stalling the legal process, and (ii) where they do flee, have a system that allows quick sale of assets for any creditors to recover losses. But what happens if either of these situations is realised? This is where the Bill suffers because it treats these as alternate objectives, when the reality is that India needs both. Take the first goal: in thousands of fraud cases where persons don't flee (easily outnumbering the few where they do), trials proceed at a snails' pace, and seized assets cannot be sold without convictions. The same will happen with the supposed fugitives who are deterred and will halt sales of their assets. Of course, this assumes that there is a market for them, which brings me to the second goal. The protracted efforts to sell Vijay Mallya's property gave us a recent reminder that the assumption of such a market existing is flawed, and sales usually get back a fraction of the value.
Moving on to the legal problems. There are technical issues in the Bill - the definition of 'Fugitive Economic Offender' is vague; a strangely ambivalent attitude exists towards the right of suspects and others with an interest in the property to be heard before confiscation; the time limit on completing service of warrants internationally is unrealistic. But for brevity's sake, I only flag these and focus on the consequences, dealing first with the confiscation of property and then moving on to the disentitlement provisions. The Bill allows for confiscating the tainted proceeds of crime and any other property of the suspect in India. Worryingly, it does not require that the government first go for the allegedly criminal assets before targeting the clean property. These arguably punitive measures are coupled with 'disentitlement' measures. According to these, a 'Fugitive Economic Offender' and any company of which she is a majority shareholder or holds a key managerial position in are completely barred from either filing, or contesting, any claims in civil courts. The scope of this prohibition is huge and, especially in case of public companies, causes persons completely unconnected with alleged crimes to suffer the weighty consequences. Although it is obvious that one cannot be a 'fugitive' after being arrested and brought to court, there isn't anything specifically in the Bill that suggests the disentitlement provisions would stop operating in that event.
All of these consequences flow from untested, unproven allegations that a government agency brings to court, which it only has to establish claims on the lighter standard of proof used under civil law. We don't need to think hard to imagine situations where mistakes will be made, and the Bill accounts for this possibility by providing an appeal mechanism. But this is woefully inadequate. For instance, it does not tell us what happens if a person wins an appeal against the government, but after a sale of assets. Where does the litigant go then?
Before concluding, I wish to be clear that I am not suggesting that there are no problems. In fact, the minister has correctly identified a problem that Indian laws do not allow for quick confiscation of property that is the proceeds of crime — but the present Bill does not offer the correct solution. What is needed is an amendment to the Prevention of Money Laundering Act which brings us in line with the global position allowing for confiscation of assets without conviction. An amendment would also prevent a lot of the unnecessary duplication that this Bill contains and make the law neater at the seams. While the Supreme Court has historically been reticent while dealing with legislation that confiscates property based on allegations of economic offences, the Fugitive Economic Offenders Bill is a step even beyond the Emergency-era Smugglers and Foreign Exchange Manipulators Act (SAFEMA) and Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA), and it is likely that a constitutional challenge will be mounted against the law / ordinance whenever it does come into force.