Questionable searches under the Money Laundering Act

• The Prevention of Money Laundering Act, 2002, was passed in the background of India’s commitment to the international community to fight the drug menace and terrorism.
• However, its enforcement has faced scrutiny especially after the Supreme Court’s interpretation in the Vijay Madanlal Choudhary case (2022).

Prevention of Money Laundering Act, 2002 (PMLA)

• Money laundering is defined as the process through which an illegal fund is obtained from illegal activities and disguised as legal money, eventually portrayed as white money.
• PMLA was enacted to fight against the criminal offence of legalizing the income/profits from an illegal source.
• It enables the Government or the public authority to confiscate the property earned from the illegally gained proceeds.

Supreme Court's Ruling

• The Supreme Court emphasized that the PMLA applies only if there exists "proceeds of crime" under Section 2(1)(u) of the 2002 Act.
• And the property is involved in any process or activity related to money laundering.
• The court's ruling raised concerns about the Enforcement Directorate's (ED) conduct in searches, seizures, and arrests outside its powers, leading to criticism.

Criticism of ED's Conduct

• The Supreme Court has criticized the ED's functioning stating that it must act with utmost probity, dispassion, and fairness.
• Damning observations were made about the lack of consistency and uniformity in the ED's practices.
• The court also set aside arrest orders, expressing dissatisfaction with the ED's exercise of powers.

Pavana Dibbur vs The Directorate of Enforcement, 2023

• According to a plain reading of Section 3 of the PMLA, there cannot be any money laundering offence unless the "proceeds of crime" exist.
• To constitute any property as the "proceeds of crime," it must be derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence.
• The existence of “proceeds of crime” is “sine qua non” for the offence under Section 3 of the PMLA.

Issues in Some States

• Concerns are raised about actions in states governed by the opposition.
• The ED is conducting inquiries related to alleged illegal mining of sand, a minor mineral under state control.
  • The Mines and Minerals (Development and Regulation) Act, 1957 is not covered by the Schedule of the PMLA Act and offences in relation thereto are not “Scheduled Offences”.
  • The Mines Act has extensive provision to curb evasion and enables penalty and prosecution for any illegal extraction of minerals.
  • But, that power is with the State government.
• Instances in Jharkhand highlight the ED's investigations based on alleged illegal mining, raising questions about jurisdiction and abuse of authority.

Conclusion

• Federalism is a part of the basic structure of the Constitution of India, but its foundation is being slowly chipped away through such processes.
• There is a need to curb the misuse of investigative agencies and legal processes to protect democracy and uphold federalism in India.