Context: The Supreme Court sought a response from the Enforcement Directorate (ED) to a plea by T.N. Minister Senthilbalaji challenging a Madras High Court order upholding his arrest by ED in a money-laundering case.
Senthilbalaji Case
In this case, according to ED, Senthilbalaji and his close aides fraudulently manipulated the candidates' marks and approved their appointment orders in exchange for money from candidates. Most candidates who had paid the money neither got appointment orders nor their money back.
(Source: The Hindu)
Enforcement Directorate (ED)
The Directorate of Enforcement or the ED is a multi-disciplinary organization mandated with investigation of economic crimes and violations of foreign exchange laws.
History of ED
- The origin of this Directorate goes back to 1st May, 1956, when an ‘Enforcement Unit’ was formed in the Department of Economic Affairs.
- Under the Foreign Exchange Regulation Act, 1947 (FERA ’47) the unit was created to deal with the violation of exchange control laws.
- This unit, which had Delhi as its base of operations, was led by a Legal Service Officer serving as Director of Enforcement, with assistance from three Special Police Establishment Inspectors and an Officer on deputation from the Reserve Bank of India (RBI).
- Initially it had two branches at Bombay and Calcutta.
| 1957 | Enforcement Unit was renamed as ‘Enforcement Directorate’A new branch was opened in Madras. |
| 1960 | The administrative control of the Directorate was transferred from the Department of Economic Affairs to the Department of Revenue. |
| 1973 | FERA’ 47 was repealed and replaced by FERA, 1973 |
| 1973-1977 | The Directorate was under the administrative jurisdiction of the Department of Personnel & Administrative Reforms. |
| 1999 | FERA, 1973, which was a regulatory law, was repealed and in its place, a new law viz.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. |
| 2002 | To comply 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. |
| 2018 | Due to the rising number of cases relating to economic offenders taking shelter in foreign countries, the Government passed the Fugitive Economic Offenders Act, 2018 (FEOA) and ED is entrusted with its enforcement with effect from 21st April, 2018. |
Mandate of ED
The Prevention of Money Laundering Act, 2002 (PMLA):
It is a criminal law to prevent money laundering and to provide for confiscation of property involved in money laundering.
The Foreign Exchange Management Act, 1999 (FEMA):
It is a civil law dealing with 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," as per its website.
The Fugitive Economic Offenders Act, 2018 (FEOA):
This law deals with Indian offenders who leave India to escape laws. This allows ED to attach properties of fugitive offenders who have escaped India.
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA)
The ED is the sponsoring agency under COFEPOSA. Under this law, the ED is empowered to sponsor cases of preventive detention with regard to contraventions of FEMA, according to its website.
Functions of ED
- To collect, develop and disseminate intelligence relating to violations of FEMA, 1999.
- To investigate suspected violations of the provisions of the FEMA, 1999 relating to activities such as “hawala” foreign exchange racketeering, non-realization of export proceeds, non-repatriation of foreign exchange etc.
- To adjudicate cases of violations of the erstwhile FERA, 1973 and FEMA, 1999.
- To realize penalties imposed on conclusion of adjudication proceedings.
- To handle adjudication, appeals and prosecution cases under the erstwhile FERA, 1973
- To process and recommend cases for preventive detention under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA)
- To undertake survey, search, seizure, arrest, prosecution action etc. against offender of PMLA offence.
- To provide and seek mutual legal assistance to/from contracting states in respect of attachment/confiscation of proceeds of crime as well as in respect of transfer of accused persons under PMLA.
Investigation by ED
- 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.
- 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 has been filed directly by police officials. This will be done to find out if any laundering has taken place.
Difference between Police investigation and ED investigations
| ED | Police |
| Under PMLA which ED deals with, a statement recorded before an investigation officer (IO) is admissible in court as evidence. | Statements to police are otherwise not admissible in court. Only statements recorded before a magistrate are admissible. |
| All offences under PMLA which ED deals are non-bailable. | The Police deal with both bailable and non-bailable offences. |
| The burden of proof is on the accused. | In regular criminal law the principle of innocent until proven guilty is followed and the burden of proof is on the prosecutor. |
Power of ED
- The ED carries out search and seizure 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).
- For ED it is not necessary to summon the person first and then start with the search and seizure.
- 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.
- If the person is arrested, the ED gets 60 days to file the prosecution complaint (chargesheet).
- 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.
(Source: The Hindu)
Court cases related to ED
Vijay Madanlal Choudhary v. Union of India
- The court opined that all the provisions under PMLA have a reasonable nexus with the objects sought to be achieved by the Act to prevent money-laundering effectively.
- Section 19 of the PMLA postulates the manner of arrest of a person involved in money laundering. The court ruled that the provision has been structured with inbuilt safeguards that prevent the possibility of abuse of power by ED officials.
- While upholding Section 50 of the PMLA, the court said that the process envisaged by it is of inquiry nature against the proceeds of crime and is not an ‘investigation’ in the strict sense of the term for initiating prosecution, and therefore ED officials under the PMLA are not police officers.
Central Bureau of Investigation v. Anupam J. Kulkarni (1992)
- The Supreme Court laid down the law that no police custody can be allowed beyond the first 15 days from the date of arrest; any further remand during investigation can only be in judicial custody.
Dr. Manik Bhattacharya v. Ramesh Malik
- In this case the court observed that interim protection granted against CBI action cannot operate against the ED even if the underlying allegations are similar.
P. Chidambaram v. Directorate of Enforcement (2019)
In this case the Supreme Court rejected a prayer for anticipatory bail with respect to an offence of money laundering and proceeded to grant custody to the ED.
- The court reasoned that in a case of money laundering which involves many stages of placement and layering of funds, a ‘systematic and analysed’ investigation is required which would be frustrating if pre-arrest bail is granted.
Challenges faced by enforcement directorate
- The Complexity of financial crimes, such as money laundering, hawala transactions, and fraud, have become increasingly sophisticated and challenging to investigate.
- Technology advancement like Cryptocurrencies, Dark web etc. also aggravated this challenge.
- Challenge of Lack of international cooperation in certain cases are leading to the incomplete investigation and disposal.
- As the cases of financial crimes are increasing day-by-day there is challenge of lack of Capacity and resources for effective investigation.
- In certain high-profile cases involving influential individual ED faces political pressure.
- ED faces the challenge of lack of technology to address movement of funds across multiple jurisdictions and recording of many accounts on real time basis.
- Lack of organisational capacity due to lack of skilled manpower, fund, infrastructure etc.
- Challenge of overlapping jurisdiction with other agencies like Centre Bureau of investigations (CBI) etc.
Suggestions
- Strengthening investigation capabilities using the advance technology may make identification, investigation and disposal of the cases more effective.
- Collaboration and information sharing with domestic agencies and international agencies with threat identification markers for speedy identification of cases can be used.
- Special Fast track courts can be established for the economic frauds for faster disposal of the cases.
- Risk based approach can be adopted for the earlier disposal of cases with high severity and high potential to harm the economy of India.
- Providing protection to whistle-blower in case of providing insider information may increase the identification and reporting of the cases.