The pathology of money laundering

The pathology of money laundering

The Enforcement Directorate, the spearhead of the PMLA, sends shivers down the spines of crooks and even ordinary mortals

S MurlidharanUpdated: Friday, October 13, 2023, 05:32 PM IST
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Representative Image | Pixabay

The epithet and prefix ‘draconian’ are invariably appended to the Prevention of Money Laundering Act (PMLA) by human rights activists and other opponents, because at its core is what is known as reverse jurisprudence. Under normal laws, an accused is presumed to be innocent until proven guilty by the prosecution. Under the PMLA however this axiom is turned on its head — it is for the accused to prove his innocence. In the event, the other legal axiom bail first is also cast aside under the peremptory PMLA. Once in custody for money laundering offences, the accused has no hope in the hell of being released any day soon. This apparently disquieting aspect of the law too has got the Supreme Court imprimatur in July 2022 when the entire PMLA was challenged unsuccessfully.

To be sure, extraordinary situations call for extraordinary remedies and laws. On this touchstone perhaps the draconian PMLA passes muster. Let us first understand the pathology of money laundering. As the name implies, it is something sinister. It consists in converting the proceeds of crime into proceeds from benign activities as it were. A couple of examples would demystify the obtuse concept. The Pakistani military establishment has often been accused of promoting and actively conducting narco-terrorism. It allegedly exports narcotics through the netherworld and converts the proceeds of crime into proceeds of (non-existent) export of goods and services. Closer home, Indian company promoters have been accused of round-tripping through the Foreign Portfolio Investments (FPI) route. What they allegedly do is indulge in over-invoicing of imports especially of capital goods like state-of-the-art machinery and asking the obsequious and willing foreign supplier to deposit the extra amount into numbered accounts in Swiss banks and the like, notorious for their banking secrecy. Indian promoters, it is alleged, then dip into such secret accounts and bring them to India under the FPI scheme to prop up the shares of their own companies in the bourses. The stigma of black money is gone and idle funds deployed productively.

Often money laundering involves multi-layering in a manner of wheel within a wheel so much so that the trail is not only frustratingly difficult to trace but often disappears into distant offshore havens where the writ of the Indian state doesn’t run. It is not as if the trail invariably disappears into a distant foreign bank account, as the liquor scam shows as per the prosecution version. It is alleged that the liquor mafia played footsie with the AAP. Commission was enhanced from 5% to 12% in return for the sizeable sliver of the munificence being made available for AAP to bankroll its election expenses including on campaigning.

Money laundering is thus indeed a heinous financial crime getting a leg up from offshore financial centres to the detriment of democracies all over the world. That is why it requires the world order to bestir and tame this monster. Which is why too the Indian government is constrained to persist with the reverse jurisprudence principles even at the stage of bail.

Indeed, the Enforcement Directorate, the spearhead of the PMLA, sends shivers down the spines of crooks and even ordinary mortals. It is alleged the government has been invoking PMLA to settle political scores. While money laundering is indeed a menace, the government and the Supreme Court should work together to speed up proceedings and prescribe a time-frame for completion of investigations failing which bail must be granted subject to safeguards like surrender of passport. To be sure, tracing the money trail is not easy when it is obfuscated through clever and frustrating multi-layering with hostile foreign governments and investigative agencies choosing to look the other way. The Bofors scam which rattled the Rajiv Gandhi government and proved to be its nemesis never could be unearthed conclusively thanks to the intransigence of foreign governments and banks. At the same time, an accused cannot be incarcerated indefinitely especially in the absence of a mechanism to compensate him should he turn out to be innocent.

Moreover, when a person is incarcerated endlessly it affects the morale and finances of the family. A time frame of six months may be drawn at the end of which an accused under PMLA must be made eligible for bail when the prosecution apprehends trail to be disappearing into foreign bank accounts and three months if it is a case of local money laundering.

BTW, the AAP leaders are either naïve or disingenuous when they say not a rupee was recovered from their leaders on raids. Recovery of mountains of Rs 2000 notes from the premises the West Bengal TMC minister Partha Chatterjee was allegedly linked to was an exception in these modern times. Crooks do not leave tell-tale marks nor are caught with a smoking gun. Proceeds of crime quickly disappear into thin air with a few clicks of the mouse. Likewise, if the kickbacks from the liquor dealers were used for election campaign, the money would have already disappeared but it doesn't mean no money laundering was attempted.

Auditors too are stymied when confronted with money laundering. It is all fine to exhort them to hone their skills by acquiring forensic audit techniques but it is easier said than done. Their writ too doesn’t run in foreign jurisdictions and therefore at best they should be cast in the role of whistleblowers and no more. At the end of the day, it is the government’s responsibility to prove money laundering.

S Murlidharan is a freelance columnist and writes on economics, business, legal and taxation issues

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