Policy | Attempts to decriminalise PMLA bad for India

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Arjun Raghavendra M

The Prevention of Money Laundering Act (PMLA) that came into force in July 2005 was enacted to implement our commitment to the Vienna (UN convention against illicit traffic in narcotic drugs, 1988) and Palermo (UN convention against transnational organized crime, 2001) conventions. These conventions required India to establish a criminal offence for intentional acts including conversion, transfer, concealment, disguise, acquisition, possession or use of proceeds of crime.

Around 80 predicate offences mentioned in the schedule to the PMLA, ranging from terrorism to corruption, corporate fraud to wildlife or narcotic crimes, constitute the epicentre of this legislation.

The investigation of money laundering generally commences after the registration of a case under the respective predicate offence legislation. The PMLA was amended in 2009, 2012 and 2015 to better meet relevant international standards and allow proceeds of crime to be confiscated regardless of whose possession they are in. These amendments led to the addition of predicate offences and inclusion of the cross-border money laundering implications, enabling the attachment and subsequent confiscation of equivalent assets in India or abroad.

The Financial Action Task Force (FATF), an inter-governmental body, prescribes 40 (plus nine) recommendations, for setting global standards on anti-money laundering and combating the financing of terrorism, covering the entire gamut involving criminal justice, law enforcement, financial systems and international co-operation. India joined the FATF as an observer in 2006 and after indulging in serious efforts to bring money laundering offences into the domain of criminalisation, was admitted as a permanent member in 2010.

The Government of India entered into 40 reciprocal arrangements for the prevention of money laundering or any other scheduled offence, for exchange of information, known as the Mutual Legal Assistance Treaties (MLAT).

As per the Criminal Procedure Code (CrPC), the investigating officer requests the court to issue a letters rogatory — a formal communication to a foreign court requesting the testimony of a witness or transmission of evidence for use in a pending legal contest. The primary condition for such a request is the existence of the ‘principle of criminality’ in the offences (the PMLA or predicate offence) under investigation.

Further, for extradition requests, the principle of dual criminality (in both the countries) need to be satisfied. It is necessary to underscore that law enforcement agencies — the income tax, the enforcement directorate (ED), the directorate of revenue intelligence — have been able to make requests under the existing arrangements only because of the criminal nature of the offences (money laundering and predicate) under investigation.

The Egmont Group — a body of 164 Financial Intelligence Units (FIUs) — provides a platform for the secure exchange of financial information for anti-money laundering/combating the financing of terrorism offences, in order to support national and international efforts and requires the offences for which information is being sought, to be ‘criminal’ in nature.

The FIU-India, the national nodal agency for processing and disseminating information relating to suspicious financial transactions, became a member of the Egmont Group in 2007. The FIU-India has entered into more than 25 agreements with the FIUs in foreign jurisdictions. India is also a member of Asia Pacific Group (APG) on money laundering, a voluntary and autonomous body, to facilitate adoption, implementation and enforcement of anti-money laundering and combating the financing of terrorism recommendations of the FATF.

The FATF Mutual Evaluation Report (MER), conducted in 2010, measured India’s level of compliance with respect to the 40 (plus nine) recommendations and recorded the shortcomings and the way forward. It is strange that India is yet to break away from the shackles that glue the linkage between the money laundering and predicate criminal offences, and the concept of stand-alone money laundering offence.

A money laundering investigation is neither autonomous nor can precede the investigation of the predicate offence, owing to a lack of legislative clarity in this matter. This has created confusion on the status of the money laundering investigation in cases involving closure of the predicate offences. Sharing of evidences (particularly information obtained from foreign jurisdictions) between the ED and agencies administering the predicate laws is neither seamless nor governed by any legal or other formal arrangement.

Inter-agency turf wars and rabid corruption at multiple levels threaten to derail the entire fight against money laundering.

India will be subject to mutual evaluation later in 2020. With abysmally low conviction rates under the PMLA and non-compliance of many of the FATF recommendations, including failure to standardise reporting entities in gems and jewellery/real estate sectors, it shall be a very rough ride for India. A positive outcome for India is very crucial in its quest to become a major player internationally, particularly in securing a more transparent and stable financial system.

Any attempt at decriminalising the anti-money laundering laws shall cause a serious negation of our international commitments and set us back in time by at least 50 years.

Arjun Raghavendra M is a Delhi-based advocate who previously worked for the Government of India. Views are personal.