Questionable searches under the Money Laundering Act 

Supreme Court's Narrow Interpretation of "Proceeds of Crime"

• The Supreme Court's landmark judgment in Vijay Madanlal Choudhary and Ors vs Union of India and Ors. (2022) significantly narrowed the scope of the Prevention of Money Laundering Act, 2002 (PMLA).
• The Court ruled that the PMLA only applies to "the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence."
• This means that mere possession of undisclosed income, regardless of its amount, does not qualify as "proceeds of crime" under the Act.
• The Court further clarified that the Enforcement Directorate (ED) can only initiate prosecution under the PMLA if there is evidence of "proceeds of crime" within the specific definition of Section 2(1)(u) of the Act.

ED's Actions Under Scrutiny

• Media reports have revealed numerous instances where the ED has conducted searches, seizures, and arrests beyond its legal powers as defined by the Supreme Court.
• This has led to severe criticism from the Court, as seen in the recent case of Pankaj Bansal vs Union of India.
• The Court expressed concern about the ED's "poorly" and "negatively" perceived style of functioning, urging it to act with "utmost probity, dispassion, and fairness."
• The Court also highlighted inconsistencies in the ED's practices, such as the lack of uniform procedures for providing grounds of arrest to detainees across different regions.

Recent Reiterations of PMLA's Core Principles

• In November 2023, the Supreme Court further emphasized the key aspects of the PMLA in Pavana Dibbur vs The Directorate of Enforcement.
• The Court reiterated that "unless proceeds of crime exist, there cannot be any money laundering offence."
• This reinforces the critical requirement for the existence of "proceeds of crime" derived from criminal activity as a prerequisite for any PMLA offence under Section 3.

Implications and Concerns

• The Supreme Court's rulings and subsequent observations have raised significant concerns about the ED's overreach and potential misuse of its powers.
• The narrow definition of "proceeds of crime" and the emphasis on strict adherence to legal procedures may potentially hinder the ED's ability to effectively combat money laundering.
• However, these developments also aim to ensure greater legal safeguards and prevent the abuse of power by the ED.

The Prevention of Money Laundering Act, 2002 (PMLA) is a crucial piece of legislation in India's fight against financial crime. 

Objectives

• Prevent the generation of "proceeds of crime" through illegal activities.
• Combat the laundering of such proceeds through various financial transactions.
• Confiscate assets derived from or involved in money laundering.
• Cooperate with other countries in international efforts against money laundering.

Key Features

• Defines "proceeds of crime" as property obtained from scheduled offences listed in the Act, such as drug trafficking, terrorism, corruption, and human trafficking.
• Empower the Enforcement Directorate (ED) to investigate suspected money laundering cases, conduct searches and seizures, and initiate prosecution.
• Requires certain "reporting entities" (banks, financial institutions, etc.) to report suspicious transactions or activities to the Financial Intelligence Unit (FIU).
• Provides for confiscation of property derived from, involved in, or representing proceeds of crime.

ED Inquiries in Jharkhand Exceeding its Jurisdiction

• The Enforcement Directorate (ED) has been conducting inquiries into alleged illegal sand mining in Jharkhand, a minor mineral under state control.
• This is potentially beyond the ED's jurisdiction, as the Mines and Minerals (Development and Regulation) Act, 1957, is not a "Scheduled Offence" under the PMLA Act.
• The Mines Act already empowers the state government to deal with illegal mining through penalties and prosecutions.

Questionable Investigation and Court Proceedings

• The ED initiated an investigation based on FIRs filed by private individuals, despite ongoing state police investigations.
• A writ petition filed by an alleged petitioner in jail (later retracted) became the basis for transferring the case to the CBI, with the ED appearing as a party.
• The High Court's decision to transfer the case, despite no scheduled offence or evidence of "proceeds of crime," raises concerns about procedural irregularities.

Supreme Court's Intervention and Subsequent Concerns: The Supreme Court initially granted leave to appeal the High Court's decision, prompting further legal proceedings. Subsequent procedural violations within the Supreme Court, including changes in the issuing Bench and denial of interim relief, raise questions about due process.

Implications for Federalism: These actions by the ED and the court potentially undermine federalism by encroaching on states' authority over minor minerals like sand. The selective targeting of states governed by the opposition raises concerns about political motivation and misuse of investigative powers.

• The Enforcement Directorate (ED) and Central Bureau of Investigation (CBI) appear to be acting beyond their legal authority, as defined by Supreme Court judgments.
• This is concerning because their investigations in Jharkhand, focusing on alleged illegal sand mining, fall outside the scope of "Scheduled Offences" under the PMLA Act.
• The judicial system appears complicit in this process, allowing investigations to proceed despite the Supreme Court's rulings and the lack of "proceeds of crime."
• This raises disturbing questions about the impartiality and accountability of the judiciary.

In the face of these machinations, there is a collective hope and prayer that corrective measures are implemented promptly. Preserving the integrity of constitutional values and curbing any further erosion of democratic principles becomes imperative for the sustained health of the Indian democracy.