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Context

• The Enforcement Directorate (ED) is in the news now and often for summoning a range of personalities from politicians to celebrities as well as NGOs.
• Many states often accuse the agency of being a tool used by the Centre to coercively engage politicians for vested interests.
• The timing of the ED cases is making politicians see red. Opposition parties usually allege that raids by Central agencies like the ED and the CBI pick up the pace before crucial polls.

Is the ED a tool to investigate financial skulduggery or a stick to browbeat opposition leaders? Let’s check.

What is Enforcement Directorate (ED)?

• ED was formed in 1957 to look into cases of foreign exchange-related violations, a civil provision.
• It goes back to May 1, 1956, when an ‘Enforcement Unit’ was formed in the Department of Economic Affairs.
• Now, the ED falls under the finance ministry’s Department of Revenue.
• But in 2002, after the introduction of the PMLA, it started taking up cases of financial fraud and money laundering, which were of criminal nature.
• It was then tasked for handling Exchange Control Laws violations under the Foreign Exchange Regulation Act (FERA).
• Today, it is a multi-dimensional organisation investigating economic offences under the:

1. Prevention of Money Laundering Act (PMLA)
2. Fugitive Economic Offenders Act
3. Foreign Exchange Management Act
4. Foreign Exchange Regulation Act (FERA)

Its establishment

• When proceeds of crime (property/money) are generated, the best way to save that money is by parking it somewhere, so one is not answerable to anyone in the country.
• Therefore, there was a need to control and prevent the laundering of money.
• The PMLA was brought in for this exact reason 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).

At what stage does the ED step in when a crime is committed?

• 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 has been filed directly by police officials.
• This will be done to find out if any laundering has taken place.

What differentiates the probe between the local police and officers of the ED?

Case study:

• If a theft has been committed in a nationalised bank, the local police station will first investigate the crime.
• If it is learnt that the founder of the bank took all the money and kept it in his house, without being spent or used, then the crime is only theft and the ED won’t interfere because the amount has already been seized.
• But if the amount which has been stolen is used after four years to purchase some properties, then the ill-gotten money is brought back in the market.
• Or if the money is given to someone else to buy properties in different parts of the country, then there is ‘laundering’ of money.
• Hence the ED will need to step in and look into the layering and attachment of properties to recover the money.
• If jewellery costing ₹1 crore is stolen, police officers will investigate the theft. The ED, however, will attach assets of the accused to recover the amount of ₹1 crore.

Roles and functions of the ED

• Summon, Search and seizure: 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.
• Arrest and detentions: On the basis of that, the authorities will decide if an arrest is needed as per Section 19 (power of arrest).
• Attachment of property: Under Section 50, 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.
• Filing of chargesheet: 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.

Centrestage of our debate: Over-reach by Investigation Agencies

Why is ED comes to picture frequently?

Ans. Money laundering

• Money laundering is the process of making significant amounts of money obtained through criminal activities, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
• As a result, it provides an incentive for money launderers to “legitimize” their ill-gotten gains through money laundering.
• The money generated is referred to as ‘dirty money,’ and money laundering is the act of converting ‘dirty money’ into ‘legitimate’ money.

Why ED mostly grips Politicians?

• Exposing rampant corruption: It is not always ironic to say that most politicians are never corrupt. We have a very inglorious past of political corruption.
• Selective witch-hunt: The ED has often been attacked for initiating investigations, raiding and questioning leaders of opposition parties, be it under the current regime or under past governments.

Issues with PMLA

• Misuse of central agencies: PMLA is being pulled into the investigation of even ordinary crimes by the Enforcement Directorate.
• Seizing of assets: Assets of genuine victims have been attached. The ED could just walk into anybody’s house.
• Politically motivated raids: In all this, the fundamental purpose of PMLA to investigate the conversion of “illegitimate money into legitimate money” was lost.
• Opacity of charges: Petitioners pointed out that even the Enforcement Case Information Report (ECIR) – an equivalent of the FIR – is considered an “internal document” and not given to the accused.
• Vagueness over evidence: The accused is called upon to make statements that are treated as admissible in evidence.
• Harassment: The ED begins to summon accused persons and seeks details of all their financial transactions and of their family members.
• Against individual liberty: The initiation of an investigation by the ED has consequences that have the potential of curtailing the liberty of an individual.

Allegations against ED

• Huge discretions: The ED is the only Central agency in the country that does not require permission from the government to summon or prosecute politicians or government functionaries for committing economic offences like money laundering.
• Used for petty crimes: PMLA is pulled into the investigation of even “ordinary” crimes and assets of genuine victims have been attached.
• Actual purpose denigrated: PMLA was a comprehensive penal statute to counter the threat of money laundering, specifically stemming from the trade in narcotics.
• Violations of Rights: PMLA was enacted in response to India’s global commitment to combat the menace of money laundering. Instead, rights have been “cribbed, cabined and confined”.
• Functional opacity: There is also a lack of clarity about ED’s selection of cases to investigate. We often see ED raiding houses of opposition parties suddenly.
• Poor rate of conviction: We have hardly read the conclusion of cases by ED. Meantime media-trial tears off the accused person’s credibility which is the most desired intent.
• Under-trials and slower prosecution: ED has been focusing on keeping the accused in custody rather than actually proving the charges against them.

Challenges to ED

• ED being dragged to court: The petitions against the ED had the effect of slowing down the investigations, as officers have to defend themselves in court.
• Foul crying politicians: There are attempts to cover up unexplained, high-value transactions that fall within the PMLA’s ambit
• Investigation of foreign transactions: Getting information on accounts and money stashed abroad to establish a trail is the biggest challenge they face.

Way forward

• The fight against corruption is intimately linked with the reform of the investigations.
• Therefore the adjudicating authorities must work in cooperation and ensure the highest standards of transparency and fairness.
• ED has been walking a tightrope to safeguard its integrity by speeding up investigations and court procedures.
• The need of the hour could be systemic fixes—and not shrill calls to throw the baby out with the bathwater.
• It is unlikely that corruption can be substantially reduced without modifying the way government agencies operate.

Conclusion

• What the ED is caught in is really an image crisis.
• The trust in premier investigating institutions, and their credibility, is at stake.