“Every lie we tell incurs a debt to the truth. Sooner or later, that debt is paid.”
-
Valery Legasov, Chernobyl (2019)
PMLA continues to evolve as one
of India’s most controversial laws. When accused
of being draconian in its drafting and implementation, successive
governments have deflected blame, claiming the law was crafted by the
other guys. In truth, both major national parties have played
significant roles in its enactment, amendment, and weaponization. While the law
existed in relative obscurity for over a decade, its traction as a tool of
state power surged after the 2018 amendments.
This chapter takes a deep dive into the inception, evolution, and, at times, the institutional misrepresentations and legal distortions that have shaped the rise of PMLA, revealing how a law meant to curb financial crime became a symbol of overreach.
1988 – Vienna Convention
- The UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances
- First major international treaty that called on member countries to criminalize money laundering
- Drug trafficking and human trafficking are the major contributors to terror financing
- In the future, terror financing may take on new
forms (turned out to be true as in the modern era the major sources of
terror financing are cyber-crimes, data piracy, and spyware)
Conclusion: The evil was
money laundering itself – not any specific crime
1989 – FATF
- Financial Action Task Force (FATF) was established by the G7 nations
- Aim: To develop and promote policies to combat money laundering and terror financing
- 1990: The FATF issued 40 Recommendations, which became the global benchmark for anti-money laundering (AML) efforts
- FATF Blacklist: List of jurisdictions that the FATF deems uncooperative
- Blacklisting has often led to sanctions from developed economies and deters foreign investment
Effect on India
- India is not a member of the G7 and did not become a member to the FATF till 2010
- However, India faced various international pressures under the Vienna Convention, FATF, and the Asia Pacific Group on Money Laundering
- This resulted in the Prevention of Money Laundering Bill in 1998.
1998 – The Prevention of
Money Laundering Bill
The 40 Recommendations of FATF
required two core legal actions:
- Criminalization of the act of money laundering
- Power to the state to attach and confiscate properties earned out of proceeds of crime
However, the Indian Money
Laundering Bill included conditions such as:
- Presumption of guilt (guilty until proven innocent)
- Twin bail conditions (proof of innocence before the trial)
Draconian Legislature
- The conditions of presumption of guilt and twin bail conditions were not the requirements of the FATF
- No G7 country provides for twin bail conditions or presumption of guilt in their AML statutes
- These provisions were British-era legal devices to suppress dissent in colonies like India: not to combat financial crime
- They stood in stark contrast to post-independence constitutional values and are not a part of any developed country
- These conditions indicate a failure to decolonize India’s legal psyche, prioritizing state control over individual rights
1999-01 – Standing Committee
Report
The Prevention of Money
Laundering Bill was referred to the Standing Committee on Finance chaired by Shri
Shivraj Patil. The
Committee raised sharp criticisms, reflecting concerns about the Bill’s
overreach and potential for abuse:
- The reverse burden of proof violated the principle of innocence until proven guilty
- The ED’s authority to arrest without warrants, attach property provisionally and indefinitely, conduct raids, and record admissible statements was seen as overly broad, lacking judicial oversight, and risking misuse
- The definition of “proceeds of crime” and “money laundering” was ambiguous
- Too many minor offences were included in the list of scheduled offences like falsification of accounts and imitation of firearms
- Lack of clarity on procedural protections
Effect
- The Committee’s recommendations were largely ignored
- Rather than heeding the warnings, successive governments treated the Committee’s critique as a rulebook for implementation
- Contentious provisions were not only retained but also later amplified
2002-05 – Enactment
- The Bill was reintroduced in the Parliament in 2002 and received Presidential assent in 2003
- The Bill was notified with rules only in 2005
- During this time both the NDA and UPA governments stayed under constant FATF pressure to enact the AML laws.
2005-12 – Amendments
Several amendments were
introduced during 2005-12, most notably:
- Definition of money laundering was expanded
- Introduction of concept of attachment of equivalent value of property
- Chargesheet was no longer required for raids
- The schedule of offences was expanded with each amendment
- PMLA included harsh provisions because it was envisioned as a law to combat international drug trafficking and human trafficking to stop terrorist funding
- Harsh provisions were justified by calling money laundering as a heinous crime
- While the schedule of offences was expanded, there was no dilution in the penal provisions
- Now PMLA could be invoked even for petty crimes (eg. copyright violation) or crimes having nothing to do with money (eg. murder)
2017 – Nikesh Tarachand Shah
In Nikesh
Tarachand Shah vs. Union of India, a two-judge Supreme Court Bench,
led by Justice Rohinton Fali Nariman, struck down the twin conditions for
bail as unconstitutional, citing the following reasons:
- Requiring proof of innocence in the predicate offence was arbitrary, as PMLA focuses on money laundering, and not the predicate offence.
- The twin conditions inverted the fundamental principle of innocence until proven guilty, clashing with Article 21 of the constitution
- The penalties applied uniformly to all offenses, regardless of their severity, hence being disproportionate
- Making bail nearly impossible, the accused was punished by the procedure rather than the conviction
Effect: The ruling was a
landmark victory for liberty, emphasizing that economic offenses, while
serious, cannot override constitutional protections.
2018 – Finance Act (Bill?)
- In 2017 and 2018, the Finance Act was passed as a Money Bill, i.e. without the assent of the Rajya Sabha
- The PMLA was amended via this Finance Act (Bill?) and the twin conditions for bail were restored with minor changes
- The presumption of guilt and stringent bail criteria remained, failing to fully resolve the constitutional concerns of the Supreme Court.
- PMLA saw a sudden increase in activity post enactment of the 2018 Finance Act (Bill?)
This move drew widespread criticism:
- The government made an intentional evasion by bypassing the Rajya Sabha where the government lacked a majority
- The amendment merely sidestepped judicial concerns rather than addressing them
Challenge
- This move by the government has been challenged before the Supreme Court in Roger Mathews vs. Union of India
- The Supreme Court has criticized the government for passing the Finance Act as a Money Bill in an interim order
- However, the Supreme Court is yet to rule on the changes already enacted by the Finance Act (Bill?). The matter has been pending for 7 years.
2019 Amendments
- Money laundering was now a continuing offence, i.e. even if the scheduled offence had occurred in 1947, the ED could attach properties and prosecute persons under the Act passed in 2002.
- Explanation added to the definition of Money Laundering: “and” was effectively changed to “or”. Now any of the activities in the sequence of money laundering such as concealment, possession, acquisition or use, and projecting or claiming are money laundering offences independently.
- Non-Conviction Based Confiscation: The Government now has the right to confiscate the attached properties before the trial was concluded, i.e. before any conclusion of conviction or acquittal was reached.
- Once again, the law was made more stringent without dilution of the penal provisions
2022 – Vijay Madanlal
Choudhary
The Supreme Court upheld the
PMLA regime including the twin conditions, reverse burden, ECIR secrecy, and
property attachment. The reasons given by the Supreme Court are as such:
- The Parliament, as the people’s representative, had the wisdom and authority to enact stringent laws like PMLA to combat money laundering, a global scourge.
- India’s international obligations under FATF
Analysis
- The Court’s deference to parliamentary wisdom raises a troubling precedent: if legislative intent is sacrosanct, no law – however draconian – can be challenged
- This undermined the Supreme Court’s role as a guardian of the constitution
- The 2018 amendments, passed via a disputed Money Bill, question whether they truly reflect Parliament’s will, as the Rajya Sabha’s input was curtailed.
Future – Roger Mathews vs.
Union of India
- This case challenges the passing of the Finance Act 2017 and 2018 as Money Bills
- The 5-judge bench has declared that certain provisions regarding tribunal appointments were unconstitutional
- The core issue was referred to a larger 7-judge bench, which is still pending
Conclusion
- The PMLA was introduced under global pressures, but was enacted by both major national parties
- The FATF has often been blamed for the draconian provisions of PMLA, but those provisions are inherently Indian in nature
- Judicial intervention was overruled by unconstitutional, unparliamentary, and undemocratic amendments
- The Supreme Court failed to uphold its role as a guardian of the constitution
What began as an international
obligation to combat drug trafficking has, in India, evolved into a powerful
domestic statute marked by opacity, overreach, and constitutional strain. The
Prevention of Money Laundering Act has not merely expanded in scope – it has
shed the checks and balances that typically anchor criminal law in democratic
societies.
From the early warnings of the Standing Committee to the surgical critiques of Justice Nariman, every opportunity to refine the Act has been met with procedural shortcuts or legislative indifference. And while the Supreme Court has now upheld the law’s architecture, key questions remain unresolved – including the manner in which the law was amended, the bypassing of Parliament’s upper house, and the fundamental inversion of due process. The history of PMLA, then, is not only a story of legislative evolution, but also one of democratic evasion. And that history is still being written.
