Don’t create atmosphere of fear, Supreme Court cautions ED

Context: The Supreme Court on Tuesday cautioned the Enforcement Directorate (ED) against creating an “atmosphere of fear”, after the Chhattisgarh government alleged that the Central agency was “running amok” in the State to “implicate” Chief Minister Bhupesh Baghel in a money laundering case linked to a ₹2,000crore liquor scam.

The Directorate of Enforcement

• The Directorate of Enforcement is a multi-disciplinary organization mandated with investigation of offence of money laundering and violations of foreign exchange laws. the Directorate is under the administrative control of Department of Revenue, Ministry of Finance, Government of India.

Evolution of directorate 

• The origin of this Directorate goes back to 1st May, 1956, when an ‘Enforcement Unit’ was formed in the Department of Economic Affairs for handling Exchange Control Laws violations under Foreign Exchange Regulation Act, 1947 (FERA ’47). There were 02 branches – at Bombay and Calcutta.
• In the year 1957, this Unit was renamed as ‘Enforcement Directorate’, and another branch was opened at Madras. In 1960, the administrative control of the Directorate was transferred from the Department of Economic Affairs to the Department of Revenue. 
• With the passage of time, FERA’ 47 was repealed and replaced by FERA, 1973. Presently, the Directorate is under the administrative control of Department of Revenue, Ministry of Finance, Government of India.
• With the onset of the process of economic liberalization, FERA, 1973, which was a regulatory law, was repealed and in its place, a new law viz. the Foreign Exchange Management Act, 1999 (FEMA) came into operation w.e.f. 1st June 2000. Further, in tune with the International Anti Money Laundering regime, the Prevention of Money Laundering Act, 2002 (PMLA) was enacted and ED was entrusted with its enforcement w.e.f. 1st July 2005. 
• Recently, with the increase in number of cases relating to economic offenders taking shelter in foreign countries, the Government has passed the Fugitive Economic Offenders Act, 2018 (FEOA) and ED is entrusted with its enforcement with effect from 21st April, 2018.

Statutory Functions

The statutory functions of the Directorate include enforcement of following Acts:

1. The Prevention of Money Laundering Act, 2002 (PMLA): It is a criminal law enacted to prevent money laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. ED has been given the responsibility to enforce the provisions of the PMLA by conducting investigation to trace the assets derived from proceeds of crime, to provisionally attach the property and to ensure prosecution of the offenders and confiscation of the property by the Special court.

2. The Foreign Exchange Management Act, 1999 (FEMA): It is a civil law enacted to consolidate and amend the laws relating to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange market in India. ED has been given the responsibility to conduct investigation into suspected contraventions of foreign exchange laws and regulations, to adjudicate and impose penalties on those adjudged to have contravened the law.

3. The Fugitive Economic Offenders Act, 2018 (FEOA): This law was enacted to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. It is a law whereby Directorate is mandated to attach the properties of the fugitive economic offenders who have escaped from the India warranting arrest and provide for the confiscation of their properties to the Central Government.

4. The Foreign Exchange Regulation Act, 1973 (FERA): The main functions under the repealed FERA are to adjudicate the Show Cause Notices issued under the said Act upto 31.5.2002 for the alleged contraventions of the Act which may result in imposition of penalties and to pursue prosecutions launched under FERA in the concerned courts.

5. Sponsoring agency under COFEPOSA: Under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), this Directorate is empowered to sponsor cases of preventive detention with regard to contraventions of FEMA.

Structure of Directorate of Enforcement

• It is headed by Director of Enforcement and it is headquartered in New Delhi.
• It has five regional offices headed by Special Directors and are located in Mumbai , Chennai , Kolkata, Chandigarh and New Delhi.
• Further it has 10 zonal and 11 sub zonal offices headed by Deputy Directors and Assistant Directors respectively.

Jurisdiction 

• Both FEMA or PMLA applies to the whole India including Jammu and Kashmir. So, the Enforcement Directorate can take action against any person on which this act applies. 
• The agency has jurisdiction over a person or any other legal entity who commits a crime whether he is a politician or a businessman. All the public servants come under the jurisdiction of the agency if they are involved in any offence related to the money laundering.

Reporting Matter to ED 

• A person cannot directly approach Enforcement Directorate. If someone wants to report a matter related to the violation of FEMA or PMLA act, he has to register a complaint with any other agency or Police than ED.
• ED cannot take an action suo motu. One has to complaint to any other agency or Police first and then ED will investigate the matter and will identify the accused.

Functioning of ED under The Prevention of Money Laundering Act, 2002 ( PMLA )

• The PMLA was brought in 2002, but was enacted only in 2005. The objective was to prevent parking of the money outside India and to trace out the layering and the trail of money. 
• So as per the Act, the ED got its power to investigate under Sections 48 (authorities under act) and 49 (appointment and powers of authorities and other officers). 
• If money has been laundered abroad, the PMLA court (constituted as per the Act) has the right to send a letter of rogatory under Section 105 (reciprocal arrangements regarding processes) of the Code of Criminal Procedure. The said government can then share the documents and evidence needed by the agency. 
• Whenever any offence is registered by a local police station, which has generated proceeds of crime over and above ₹1 crore, the investigating police officer forwards the details to the ED. 
• Alternately, if the offence comes under the knowledge of the Central agency, they can then call for the First Information Report (FIR) or the chargesheet if it that has been filed directly by police officials. This will be done to find out if any laundering has taken place. 
• The ED carries out search (property) and seizure (money/documents) after it has decided that the money has been laundered, under Section 16 (power of survey) and Section 17 (search and seizure) of the PMLA. 
• On the basis of that, the authorities will decide if arrest is needed as per Section 19 (power of arrest). Under Section 50 (powers of authorities regarding summons, production of documents and to give evidence etc), the ED can also directly carry out search and seizure without calling the person for questioning. It is not necessary to summon the person first and then start with the search and seizure. 
• If the person is arrested, the ED gets 60 days to file the prosecution complaint (chargesheet) as the punishment under PMLA doesn’t go beyond seven years. If no one is arrested and only the property is attached, then the prosecution complaint along with attachment order is to be submitted before the adjudicating authority within 60 days.