When the use of legislation could trigger distrust

India, being a signatory to a number of conventions and declarations of the United Nations and given its obligation to fulfil promises made to the international community to curb the rise of drug trafficking and terrorist activities, implemented the Prevention of Money Laundering Act, 2002 (“PMLA or Act”) .

A bare reading of the Statements of Objects and Reasons enumerated in the Act would demonstrate that the primary reason behind implementing the Act was its obligation to the global community that had already taken initiatives to obviate the threat of money laundering and to attack the sprouting of serious global crime, mainly drug trafficking and terrorism.

EVOLUTION OF PREVENTION OF MONEY LAUNDERING ACT, 2002

With the passing of time, the Act went through various amendments and a large number of offences from statutes such as the Indian Penal Code, the Narcotic Drug and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Antiquities and Arts Treasurers Act, 1972, the Customs Act, 1962, the Bonded Labour System (Abolition) Act, 1976, the Emigration Act, 1983, the Passport Act, 1967, the Foreigners Act, 1946 and so on were included in the schedule of the Act as predicate offences. Inclusion of offences of almost every statute in the PMLA has diverted the attention of the authorities from the real purpose for which the statute was implemented, viz. to combat drug trafficking and terrorism and other related criminal activities. Today, it would not be out of place to say that a reading of the Act demonstrates that it is not a true reflection of the political declaration of the United Nations General Assembly pursuant to which it was implemented.

EFFICACY OF PREVENTION OF MONEY LAUNDERING ACT, 2002

A large number of cases which the ED is investigating relate to the criminal complaints made by banks because corporate borrowers are unable to repay loans taken from banks and other financial institutions.

The PMLA allows the Enforcement Directorate (ED) to attach “any property of any person” if it has reasons to believe that it has been involved in the commission of money laundering or has been acquired from the scheduled activities under the Act. In a number of cases, the ED is seen attaching properties of bona fide purchasers and properties mortgaged to banks.

Assets bought by any person from his declared source of income should not be attached under any circumstances. Why should a person who has paid a valuable consideration suffer attachment of the assets? A true reading of the Act requires the ED to attach the consideration which the purchaser has paid for the asset and not the asset which the buyer has acquired. If this principle is not followed and is certainly not being followed then it creates havoc and innocent persons are harassed for no rhyme or reason.

Secondly, the most bizarre situation arises when the ED, pursuant to a complaint filed by a bank, attaches the properties mortgaged to the bank by the alleged offender. In a number of cases, the ED has attached properties mortgaged with the banks which not only renders the banks helpless but also stalls the entire liquidation process provided for in the Insolvency and Bankruptcy Code. The Bank which has complained of being cheated by the promoters of the borrowers is now worse off in filing the complaint because the assets mortgages with the bank are treated as the proceeds of crime and attached by the ED.

Thirdly, why should a person who is not yet convicted of a scheduled offence and/or is yet to face a trial be thrown out of his house even before he is convicted? Of course, he should be restrained from selling off or creating any encumbrance in the property but why should he be dispossessed? Dispossessing a person of his property without him first being convicted of the offence of money laundering is against the basic notions of justice.

In the UK, to maintain proper checks and balances, the confirmation of the provisionally attached property is carried out by the High Court (in case of a civil recovery) or the Crown Court (in case of the criminal recovery), and that too after the conviction in the criminal matter is confirmed. In India, not only can the confirmation of a provisional attachment order happen even before the trial of the scheduled offender begins, a person is even asked to vacate his property before he is convicted for a scheduled offence under the Act.

In the event that a property attached under Proceeds of Crime Act , 2002 (UK. Act) is found not to be the proceeds of crime and the defendant has suffered losses due to a wrongful attachment, the law empowers a court in the UK to grant compensation to the defendants. The same provision is amiss under the Indian Act, giving wide and discretionary powers to the ED without any accountability.

All these factors play a major role in creating a situation of distrust in the market, particularly in the new investors and banking institutions, proving to be a hindrance to the concept of ease of doing business.