Do Not Make Hasty Arrests; Make Hawala Operators Reporting Entity Under PMLA: ASG Raju To ED

Additional Solicitor General (ASG) S V Raju asked ED officials on Thursday not to make arrests in money-laundering cases "hastily" as this would not yield them good results in courts.

He also suggested that "hawala" dealers or "angadiyas" should be categorised as reporting entities, so that they provide information to the agency about their clients who move huge amounts of cash.

Raju said these measures, apart from others like making a company accused along with its directors to establish their "vicarious liability" in a money-laundering crime, are important for the agency to get better results and convictions.

"You must use your power to arrest not liberally but sparingly and you must do it at a very late stage, not at a nascent stage (of investigation)," Raju said while speaking at an "ED Day" event here.

The Enforcement Directorate (ED) was established on this day in 1956.

Raju, a law officer of the government who represents the ED before various courts, said the provision of arrest is "very crucial" for all agencies that carry out investigations as many times, it is the threat of arrest that makes a person disclose certain things.

After the arrest, the conduct of the person changes and the ED should use this power "sparingly" because under the Prevention of Money Laundering Act (PMLA), the agency must furnish the grounds of arrest before taking someone into custody, he said.

These are two things that are required. So if the ED arrests a person earlier, the court may hold the step "not justifiable", Raju said.

"So if you delay it (arrest) a little bit, you will get a proper appreciation of courts as many a times, courts have said that the grounds of arrest are not proper or the reasons to believe (to arrest the accused) are not proper...," the ASG said.

He said arrest also defeats the purpose of section 50 of the PMLA, under which the ED records the statements of people connected to the case that are admissible as "evidence" in the courts.

Material evidence can be gathered when the ED interrogates a person, but if a person is arrested, the section-50 statement becomes "vulnerable" and it is no longer evidence, the ASG said.

"So you have to obtain a section-50 statement before the arrest ... and therefore, my second suggestion is that do not be hasty in arresting people. Take your time, get the evidence and then arrest," he added.

Raju said if the ED arrests a person early, when the investigation is not over, and due to this, the agency is not able to file a chargesheet within the stipulated 60 days, then the accused, even a worst offender, will get the "default" bail.

The ASG, during his address, also said that "suitable" regulations should be made to categorise "hawala" dealers and "angadiyas" as reporting entities under the PMLA, which essentially means that they can be mandated to share information about their clients and the money being moved by them with the ED or other investigating agencies.

According to the PMLA scheme, reporting entities like banks, casinos and other financial intermediaries report such information to the Financial Intelligence Unit (FIU).

"Angadiyas" are those who transfer huge amounts of cash in the physical form from one place to another, while "hawala" dealers do it by either using cash or bank accounts of shell or dummy companies.

"My suggestion is that they (hawala operators and angadiyas) must be made reporting entities.... There is no civil or criminal liability. Their responsibility is to identify and verify their client who sends money, who receives it and who is the beneficiary.

"Secondly, they must maintain a book of records.... Most of these entities do not maintain such records but as reporting entities, they come within the four corners of the PMLA and it will be easier for the ED not only to detect but also to prevent financial crimes. It will be easier for their investigation," Raju said.

He said "angadiyas" or "hawala" dealers should not be made accused in a money-laundering case unless their involvement is "neck deep".

"Try to amend the law (PMLA) or issue a notification making hawala operators reporting entities. This will solve a lot of problems and reduce the investigation work of ED officers," the ASG said.

It will make the ED's investigation "smoother and faster" and the agency may get information at the earliest as it is seen in some cases that by the time it gets information, the money has already reached a tax haven, Raju said.

He also sought to draw the attention of ED investigators to section 70 of the PMLA that deals with the "vicarious liability" of a person responsible for the affairs of a company.

He said companies under this section can be defined as partnership firms or associations of persons (AoPs).

"We are today facing the issue that if a political party was an AoP and our case is that it is an AoP ... that it is a deemed company under section 70 (of the PMLA) ... and we have referred to the Representation of the People Act. This is pending in court so I will not say much...," Raju said, in an apparent reference to the ED making the Aam Aadmi Party (AAP) an accused in the Delhi excise policy case.

AAP leader and former Delhi chief minister Arvind Kejriwal is facing the said vicarious-liability charge in the ED chargesheet.

Raju gave an example as to how offenders make drivers, peons and clerks directors and authorised signatories in their companies in order to escape the "clutches of law" and such "poor persons" face the risk of arrest by the ED.

Section 70 of the PMLA, he said, deals with vicariously liability as it envisages two things.

First, a person responsible for the affairs of a company, whether a director or not, can be made a direct accused. He told ED officials that there are many "technical" aspects of this provision but they must provide a crisp, clear and specific allegation that the person concerned was responsible for the conduct of the company's business when the alleged contravention took place.

"The Supreme Court has quashed many cases.... Merely saying you are a director is not sufficient. You must specify why he is responsible for the conduct of the business at the time when the contravention took place.

"All ED officers must note that the company must also be made an accused. Otherwise the court will set aside your case," Raju said.

He asked the ED officials to ensure that when they make people accused in a PMLA offence, including those who are not concerned with the predicate or primary offence on which the money-laundering case is based, they should be linked with the proceeds of crime.

This is because such a person cannot then say that as they have been acquitted in the predicate offence or they have nothing to do with the predicate offence, they can be exonerated or given a clean chit as far as the PMLA offence is concerned, the ASG said.

This is important, Raju said, as in the Pavana Dibbur case, the Supreme Court has held that one can still be convicted under the PMLA even though he is not an offender in the predicate offence. 

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)

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