PMLA with particular reference to Arvind Kejriwal and Aam Aadmi Party (AAP)

The Prevention of Money Laundering Act (PMLA) with particular reference to Arvind Kejriwal and Aam Aadmi Party (AAP)

Introduction: The Prevention of Money Laundering Act (PMLA), enacted in 2002, is a cornerstone of India’s efforts to combat the pervasive threat of money laundering. Empowering the Enforcement Directorate (ED), this law targets activities that disguise the origins of illicit funds, thereby protecting the integrity of the country’s financial system. The Act aligns with global standards set by the Financial Action Task Force (FATF), an international body dedicated to combating money laundering and terrorism financing. This article delves into the critical aspects of the PMLA, its perceived severity, and notable Supreme Court rulings shaping its application.

The Prevention of Money Laundering Act (PMLA) in India empowers the Enforcement Directorate (ED) to combat money laundering activities.

1. AML (Anti-Money Laundering): A global organization called FATF sets standards to prevent money laundering and terrorism financing. They help countries make laws and regulations to fight these crimes, affecting more than 200 nations.

2. Prevention of Money Laundering Act, 2002: This law aims to stop money laundering and seize properties involved in it. It’s seen as important because money laundering can harm a country’s financial system and its reputation.

3. PMLA is Considered Draconian some people think PMLA laws are too harsh. It’s hard to get bail, especially because of strict conditions. Punishments under PMLA can be tougher than for the actual crimes.

4. Offense of Money Laundering (Section 3): Anyone involved in hiding, using, or claiming money gained from crimes can be guilty of money laundering. It’s a serious offense even if they didn’t directly commit the crime.

5. Schedule of Offenses: Many different crimes, like fraud or drug trafficking, can lead to money laundering charges. Even offenses under other laws like the Companies Act or SEBI Act can be linked to money laundering.

6. Proceeds of Crime: Money or property obtained from criminal activities is considered “proceeds of crime.” This includes not just the original crime’s gains but also anything indirectly related to it.

7. Punishment for Money Laundering: Those convicted of money laundering can face jail time and fines, with harsher penalties if the crime involves drugs.

8. Institutional Framework Agencies: Government bodies like the Directorate of Enforcement and Financial Intelligence Unit are responsible for enforcing PMLA and related laws.

9. Notifications: The government issues notifications to include certain professionals in the law’s scope, like accountants and company service providers.

10. Obligation of Reporting Entities: Businesses and professionals have to keep records of transactions, report suspicious activities, and follow other rules to prevent money laundering.

11. Action Against Defaulting Entities: If a business doesn’t follow the rules, it can face warnings, fines, or other penalties, but not criminal prosecution.

12. FATF 40 Recommendations: FATF provides recommendations to make anti-money laundering laws stronger and more effective. Recent notifications extend reporting requirements to more professionals and activities.

Main features of PMLA:

1. Predicate Offence:

For the PMLA to be invoked, there must first be a predicate offence, which is an underlying crime like cheating, bribery, or fraud. An FIR (First Information Report) for such a crime is sufficient to start a PMLA investigation. The Supreme Court clarified that any activity involving proceeds of crime (like hiding, using, or possessing them) can trigger PMLA, not just actions that make the money look legitimate.

A predicate offense is a crime that is a component of a more serious crime or serves as a basis for another criminal charge. The offenses of money laundering, require that the proceeds stem from specific predicate offenses, like drug trafficking, fraud, or other illegal activities. Essentially, without the occurrence of the predicate offense, the more serious crime could not have taken place. For someone to be charged with money laundering, they must have attempted to process, conceal, or disguise the proceeds of a predicate offense. For example

1. Predicate Offense: A drug dealer sells illegal drugs.

2. Proceeds: The drug dealer earns money from these illegal sales.

3. Money Laundering: To hide the origin of this money, the drug dealer deposits the money into a legitimate business or uses it to purchase assets that appear legal.

In this case, drug trafficking is the predicate offense. The money laundering charge relies on proving that the money involved came from drug trafficking. Without establishing that the money is from the illegal drug trade (the predicate offense), the charge of money laundering cannot stand. The concept of a predicate offense is crucial in legal frameworks because it:

• Helps law enforcement and prosecutors establish the underlying criminal activity that generates illegal proceeds.
• Ensures that more complex criminal enterprises can be tackled effectively by targeting the root activities that fund them.
• Supports the dismantling of organized crime by connecting various illegal activities to more severe offenses.

In summary, a predicate offense is an initial crime that forms the foundation for subsequent charges, often related to the handling of proceeds from that crime.

2. ED’s Powers:

The ED can summon people, search premises, seize assets, freeze bank accounts, and arrest individuals without a warrant. These powers have been controversial, but the Supreme Court upheld their constitutionality, stating there are safeguards in place.

3. Attachment of Properties:

The ED can temporarily seize properties believed to be connected to money laundering. This is called a Provisional Attachment Order (PAO), which lasts for 180 days. Within 30 days, the ED must file a complaint with an Adjudicating Authority (AA) to confirm the PAO. If confirmed, the attachment can last up to 365 days while the ED investigates. If a prosecution complaint is filed before 365 days expire, the attachment continues until the court gives its verdict.

4. Money Trail: One of the very important point under the Act is that ED must fully establish the Money Trail, from its origin to its consumption. In case of Arvind Kejriwal of the Aam Aadmi Party (AAP) it is vociferously contested that without the discovery of actual illicit funds, the ED’s actions are unwarranted. The ED must not be allowed to seize property without locating specific tainted money.

However, as per ED even if specific illegal funds aren’t located, the ED can take action against suspects by seizing equivalent assets or property, termed as “proceeds of crime.” This temporary property attachment, allowed under Section 5 of the PMLA, aims to prevent suspects from using or concealing their assets during investigations. The ED’s stance  is to seize properties as a substitute for the suspected laundered money.

4. Some very important Supreme Court Rulings:

• Existence of Proceeds of Crime: The Supreme Court emphasized that for PMLA to apply, there must be clear evidence of proceeds of crime linked to the predicate offence. The ED cannot act on mere assumptions.
• Standalone Offence: If the original crime (predicate offence) is closed or the accused is acquitted, the PMLA case cannot continue. This overturns the previous practice where PMLA cases could proceed even if the predicate offence was dismissed.
• Possession of Attached Properties: The ED should not take possession of attached properties immediately after a PAO is confirmed. This should be an exception, not the rule, and individuals can continue to use their property unless there’s a strong reason to take it away.

5. Bail to accused of money laundering: Bail under Section 45 of the Prevention of Money Laundering Act (PMLA) is particularly difficult due to the stringent conditions imposed by the law. The PMLA was enacted to prevent money laundering and to provide for the confiscation of property derived from or involved in money laundering. Section 45 deals specifically with the conditions for granting bail to those accused of money laundering.

WHY Bail is Difficult under PMLA:

Bail under Section 45 of the PMLA is difficult due to the rigorous conditions designed to prevent misuse of bail provisions by those accused of serious financial crimes. The law reflects the gravity of money laundering and aims to ensure that those accused do not continue to pose a threat to public order and economic stability while awaiting trial.

1. Stringent Conditions for Bail: Twin Conditions

Section 45(1) of the PMLA imposes two specific conditions that must be satisfied before an accused can be granted bail:

1. The public prosecutor must be given an opportunity to oppose the bail application.

2. If the public prosecutor opposes the bail application, the court must be satisfied that there are reasonable grounds for believing that the accused is not guilty of the offense and that they are not likely to commit any offense while on bail.

2. High Bar for “Not Guilty:

The requirement that the court must be satisfied that the accused is “not guilty” sets a very high bar for the accused to meet at the bail stage, which is generally meant for preliminary assessment and not for detailed examination of evidence. The onus is on the accused to  prove his  innocence to get bail.

3. Severity of Offense:

Money laundering is considered a grave offense with significant implications for the economy and society. The stringent bail conditions reflect the seriousness with which the law views money laundering offenses.

4. Public Prosecutor’s Role:

The provision that the public prosecutor must be given an opportunity to oppose the bail application ensures that the prosecution has a say in the process, often leading to detailed arguments against granting bail.

5. Objective to Prevent Further Crimes:

The law aims to ensure that individuals accused of money laundering do not continue to engage in such activities while on bail. This protective measure seeks to prevent further offenses and ensure the integrity of the legal process.

6. Supreme Court Rulings:

The Supreme Court of India has upheld the constitutionality of Section 45, acknowledging the need for stringent conditions to effectively combat money laundering. However, in some judgments, the Court has also interpreted these provisions in a way that balances the need to prevent abuse of the law with the rights of the accused.

7. Amendments and Changes:

Over time, there have been discussions and legal challenges regarding the harshness of Section 45. For instance, a 2017 Supreme Court ruling in the case of *Nikesh Tarachand Shah vs Union of India* temporarily struck down the twin conditions as unconstitutional, but subsequent legislative amendments have sought to reintroduce these conditions with certain modifications.

Some of the Important judgements of the Supreme Court

1) Vijay Madanlal Choudhary case: The Supreme Court clarified that just because someone has unaccounted property acquired through legal means, it doesn’t automatically make it proceeds of crime unless the tax legislation treats it as such. Also, not all properties attached by investigating agencies in connection with criminal activity are considered proceeds of crime. The property must be directly or indirectly derived from criminal activity related to a scheduled offence to be considered proceeds of crime.

2) Directorate of Enforcement v. Padmanabhan Kishore: The Supreme Court ruled that giving money as a bribe requires a specific intent. If the money is handed over without the intent of bribing, it’s not considered a bribe but may be misappropriation. This judgment emphasizes the importance of intent in defining proceeds of crime under money laundering laws.

3) Murali Krishna Chakrala case: Chartered Accountants and Panel Advocates can’t be prosecuted for providing certificates or opinions based on documents provided by clients, as long as they aren’t required to verify the authenticity of those documents. However, if they are required to certify authenticity but fail to do so, it could lead to prosecution.

4) Rajiv Chakraborty Resolution Professional of EIEL case: The court clarified that an order of attachment by the Enforcement Directorate doesn’t mean the corporate debtor or the Resolution Professional are helpless. They have avenues for legal redressal, and the provisional attachment order doesn’t give the Enforcement Directorate superior rights over the property.

5) V. Senthil Balaji case: This judgment emphasized the importance of strictly following the procedures laid out in the Prevention of Money Laundering Act (PMLA) when effecting an arrest under the Act. Any non-compliance with these procedures could render the arrest invalid.

6) Pankaj Bansal case: The Supreme Court held the Enforcement Directorate accountable for procedural mandates, emphasizing the need for transparency, fairness, and adherence to constitutional and statutory provisions when effecting arrests or conducting investigations.

7) Ram Kishor Arora case: This case clarified that the requirement to furnish grounds of arrest in writing, as mandated in the Pankaj Bansal judgment, applies only from the date of pronouncement of that judgment and not retrospectively

8) Saumya Chaurasia case: The Supreme Court clarified that the provision granting bail to certain categories of persons under the Prevention of Money Laundering Act (PMLA) is discretionary and not mandatory. Courts should exercise discretion based on the facts and circumstances of each case.

9) Pavana Dibbur case: The Supreme Court clarified that a person accused under the PMLA doesn’t have to be accused in the scheduled offence. They can benefit from acquittal or discharge of all accused in the scheduled offence. The connection between the alleged crime and the property in question is essential and should be determined during trial.

10) PMLA vs. IBC: The courts clarified that Section 32A of the Insolvency and Bankruptcy Code (IBC) provides immunity to corporate debtors and their properties from prosecution or liabilities arising from offences committed before the commencement of Corporate Insolvency Resolution Process (CIRP). This immunity ensures value maximization and encourages genuine resolution applicants. The courts emphasized that Section 32A of the IBC prevails over the Prevention of Money Laundering Act (PMLA) regarding proceedings initiated under the IBC. The courts interpreted Section 32A as the last expression of legislative intent and stated that it determines the extent to which the PMLA provisions give way to IBC proceedings

11) Jharkhand High Court Ruling

Observation: Individuals implicated in a money laundering case under the Prevention of Money Laundering Act (PMLA) can still face prosecution even if they were not involved in the original offense, as long as the original offense remains valid. The ruling came from a case where a person was accused of assisting in the transfer of funds obtained through bribery.

12) Bombay High Court Ruling

The Bombay High Court criticized the Enforcement Directorate (ED) for recording statements of summoned persons late at night, stating that it violates their right to sleep, which is a basic human requirement. The court directed the ED to issue guidelines for recording statements under the PMLA, ensuring respect for individuals’ basic human rights.

13) Supreme Court Hearing on Hemant Soren’s Arrest

Context: Hemant Soren, former Chief Minister of Jharkhand, challenged his arrest by the Enforcement Directorate (ED) in connection with alleged money laundering and land scam cases.  Soren’s lawyer argued that his arrest was unlawful because the offense he was accused of (illegal possession of land) was not a scheduled offense under the PMLA. The ED argued that Soren’s case was different from others and that he was arrested long before the elections, with the court already taking cognizance of the complaint and rejecting his bail application.

Supreme Court’s Question: The Supreme Court questioned whether the legality of Soren’s arrest could be examined after the trial court had taken cognizance of the complaint and rejected his bail application.

Court’s Observation

The SC stated that Section 45 of the Prevention of Money Laundering Act (PMLA) doesn’t stop a court from granting bail if there’s been a long time spent in jail awaiting trial.  Section 45 of the PMLA outlines conditions for granting bail in money laundering cases. However, the court emphasized that even if these conditions aren’t met, a court can still grant bail if there’s been a significant delay in the trial.

14) Supreme Court’s Observation on Surrendering Accused

The Supreme Court ruled that an accused who voluntarily surrenders before the court cannot be taken into custody if the court hasn’t issued a summoning order after taking cognizance of the case. If someone surrenders voluntarily before the court in a case where the court hasn’t officially summoned them, they cannot be arrested.

15) Supreme Court’s View on PMLA Accused and Arrest Powers Tarsem Lal Case

• Accused Cannot Be Arrested After Court Takes Cognizance: The Supreme Court has expressed that once a Special Court acknowledges (takes cognizance of) a complaint under the Prevention of Money Laundering Act (PMLA) and issues summons to the accused, the authorities (like the Enforcement Directorate or ED) cannot arrest the accused anymore.
• 2. Summons vs. Arrest: If the accused appears in court after receiving a summons, they do not need to apply for bail under the stringent conditions of the PMLA.
• 3. Cognizance by Special Court: When a Special Court takes cognizance, it means the court formally acknowledges the complaint and starts judicial proceedings. Section 44 of PMLA: This section involves the procedure for how complaints are taken up by the court. Section 19 of PMLA gives the ED the power to arrest. However, once the court takes cognizance and summons the accused, this power cannot be exercised.
• 4. Specific Questions Addressed:

1. Is Bail Required If Accused Appears Voluntarily?: The court questioned if an accused who appears after a summons needs to apply for bail. The initial view suggests they do not need to apply for bail under Section 437 of the Code of Criminal Procedure (CrPC).

2. Application of Twin Conditions: If they do apply for bail, do the twin conditions of Section 45 of the PMLA apply? These conditions require proving innocence and ensuring no future offenses. The court initially indicated that these stringent conditions might not apply in such cases.

Thus, the Supreme Court’s initial view is that once a court takes cognizance of a PMLA complaint and issues summons, the ED cannot arrest the accused. This protects the accused from arrest after formal judicial proceedings have started

Arvind Kejriwal’s Arrest: Key Points and Supreme Court Discussion

1. Legality of Arrest: The primary issue was whether the Enforcement Directorate’s (ED) arrest of Arvind Kejriwal was lawful and whether the investigating officer ignored materials that favored Kejriwal and considered only those which implicate him.

2. ED’s Argument: The Solicitor General (SG) contended that instead of filing a petition challenging his arrest, Kejriwal should have sought bail under Section 45 of the Prevention of Money Laundering Act (PMLA). He argued that any violations of arrest conditions should be examined by the trial court, not constitutional courts.

3. Court’s Response: The bench expressed reservations about the SG’s argument, suggesting that constitutional courts could indeed intervene if there were violations of arrest conditions. They questioned whether the accused could argue the legality of the arrest when applying for bail.

4. Fairness of Investigation: The bench questioned whether the investigating officer could ignore evidence that favored Kejriwal when deciding to arrest him. They emphasized the need for fairness and consideration of all evidence. The ED did not disclose statements of those which were in his favour.

5. Scope of Proceedings: The court discussed whether the arrest was based on sufficient evidence and if the court could intervene if relevant materials were ignored.

6. Post-Arrest Materials: The court clarified that only evidence available before the arrest should be considered when justifying the arrest, not evidence found after the arrest.

7. Confiscation and Conviction: The court discussed whether confiscation of proceeds of crime is necessary for prosecution and conviction under the PMLA.

8. Background: This hearing stemmed from Kejriwal’s arrest by the ED in connection with the Delhi liquor policy case and his subsequent release on interim bail. The court also considered whether the bail granted for election campaigning amounted to special treatment.

9. ED’s Arguments: The ED claimed they had sufficient evidence, including direct evidence of Kejriwal demanding money for election expenses.

10. Court’s Stand: The court emphasized that an arrest should be based on sufficient evidence prior to the arrest and not on evidence found after. They questioned the timing of Kejriwal’s arrest and whether it was politically motivated.

11. Case Status: The hearing was adjourned for further arguments, and Kejriwal was granted interim bail for campaigning in elections with liberty to approach Trial Court for seeking Regular Bail.

12. Extension of Bail Application: Kejriwal filed an application for extension of Bail by 7 days to enable him to undergo health checkup for various ailments. The Registry refused to list his application because the judgement in his case was already reserved.

13. Application for Regular Bail: Now not finding any way out, Kejriwal finally applied for regular Bail on 30-05-24 before the Trial Court which he was avoiding uptill now because he considered his arrest as illegal and seeking bail under PMLA will question his stand.

14. Whether he will be able to meet the Twin Conditions: Let us see now how he can avoid twin conditions of Bail u/s 45 which are very Stringent Conditions for Bail: Twin Conditions are

1. The public prosecutor must be given an opportunity to oppose the bail application.

2. If the public prosecutor opposes the bail application, the court must be satisfied that there are reasonable grounds for believing that the accused is not guilty of the offense and that they are not likely to commit any offense while on bail.

Sanjay Singh of AAP party was given bail because the ED gave concession on condition no. 1 by not opposing his Bail.

15. Finally and most importantly: Will Kejriwal get Bail by Trial Court on 4^th June 24 ?

• Kejriwal is insisting that since the ED has not been able to find the money trail of the proceed of the crime and has not recovered any amount, the charges under PMLA can’t be fixed on him.
• The ED has found a way out for it by making the Aam Aadmi Party (AAP) itself an accused in this case and filed charge sheet against the Party also. If the court takes cognizance of this charge sheet then Kejriwal would also be held fully responsible in the case vicariously in his capacity as the Chief Convener of the Party. In such a case it would be very difficult to him to prove his innocence.
• Secondly, the ED countered the argument that if the money trail has not been established that does not mean that no offence under PMLA has been made. It cited an example that if, in case of the murder of a person, if the body is not recovered then the charge of murder does not affix. The charge can be proved from the circumstantial evidence.
• The ED got support for its counter today when  in the Kirti Vyas murder case, a Mumbai court sentenced two salon employees to life imprisonment even when by extensive searches, her dead body was never found.
• The court relied on the “last seen” theory, noting that Vyas was last seen alive with the accused who failed to explain the events that occurred in the car. CCTV footage, phone records, and the discovery of Vyas’s blood in the car provided crucial circumstantial evidence. The court emphasized that the burden of explaining these circumstances rested with the accused, not the prosecution, and concluded that they murdered Vyas by strangulation inside the car.

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