Attachment of Property, Freezing Orders, and PMLA Investigations: The Need for Reasonable Exclusions

In almost any prosecution, the property used to commit a crime becomes case property (a murder weapon). In some kinds of prosecutions, this extends to locking down the site of criminal acts (a brothel or a gaming house). There are also other prosecutions, such as those for money laundering, where a major focus is on identifying the property generated from criminal acts (flat bought by public servant from bribe money). 

Countries across the world take the view that for effective deterrence of crime, law enforcement must also have powers to take away the proceeds of crime besides prosecuting the criminal act itself. In India, this translates into empowering law enforcement agencies with ability to pass orders for attachment / freezing of assets, to restrain anyone from altering / transferring property that is identified as part of the proceeds of crime. The pre-eminent example of this attachment / freezing order regime in India is the Prevention of Money Laundering Act 2002 ["PMLA"]. 

Broad Powers 

Currently, Section 5 of the PMLA confers upon investigating officers a power to provisionally (for upto 6 months) attach property which is believed to be "proceeds of crime" [Or property that is "involved in money laundering", which may or may not be understood to mean a different thing]. To appreciate the breadth of this power, take a look at how Section 2(u) of the PMLA defines the phrase "proceeds of crime"

"Proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad;

Explanation. — For the removal of doubts, it is hereby clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence;

[Emphasis mine] 

 

Keeping aside the fact that the exact scope of this definition is still uncertain even to courts and is almost infinitely broad, there are three key takeaways from the definition: (i) Proceeds of crime can either be the actual property obtained through criminal activity or its value; (ii) The criminal activity itself need only be relatable to a scheduled offence [the list of predicate offences which allow invoking the PMLA].

What we have, then, is a power conferred upon investigating officers to take away almost any asset or property that they can show as having links to the alleged acts of criminality in a case. For example, it means the agency can issue warrants of attachment of a house, as the accused would have invested some money in building / buying the house which will be shown to bear a link to the alleged acts of criminality that are connected to the scheduled offence. And where the property itself is not identifiable, then it would probably trigger an attachment order qua certain amounts lodged in bank accounts.  

 

Safeguards

The breadth of provisional attachment powers under the PMLA necessitates the existence of some legal safeguards to prevent undue hardship at the hands of executive officers. Enter, the three-step logic of the PMLA. The argument, essentially, is that the PMLA contains a multi-level system of safeguards to prevent abuse:*

1. First level — Provisional Attachment: Provisional attachment orders are time-barred and can only be issued if there are "reasons to believe" that property is the proceeds of crime / involved in money laundering. These reasons must be in writing. Further, such orders cannot interfere with enjoyment of immovable property;
2. Second level — Confirmation: Within thirty days of issuing a provisional attachment order, a complaint must be sent to the Adjudicating Authority which then decides whether or not to confirm the provisional order. This is an independent tribunal which operates totally separately from the criminal court. At this stage, everyone interested in the property has the chance to make their case to show why it shouldn't be attached, and a reasoned order must be passed by the Authority to justify its conclusions. This process is, again, time-bound.
3. Third level — Appeal: A right of statutory appeal before an Appellate Tribunal for Money Laundering exists for all persons aggrieved by the orders of the Adjudicating Authority.

In almost any writ petition challenging attachment orders, this is a standard response on behalf of the law enforcement agencies to argue that the matter should remain within the PMLA system and not be taken up by the court. 

The Need for Reasonable Exclusions

The three-step logic of the PMLA does offer some safeguards, in theory at least. But even so, this setup has critical design flaws. 

The broad attachment powers of the PMLA exist in a system where eventual confiscation of the proceeds of crime requires a prior criminal conviction for money laundering offences. Therefore, almost every attachment order will likely subsist for the several years that it takes for any prosecution to complete. It also means that once a person fails to secure any relief through the three-step PMLA process, she will not be entitled to any enjoyment of her own property.

While this might not be a problem for small, replaceable items, such as a watch or a laptop, it becomes an unimaginable problem where the property is a house. Or, far worse, is the situation where the property attached is money lying in bank accounts. Here, the three-step safeguards come to nought as all access to the property is gone the moment a provisional attachment order is passed. What this means, then, is that a person is rendered penniless, and crippled in her ability to sustain the long legal battle required to prove her case first before the tribunals and then later in the criminal trial. 

This is not the only drastic scenario that I can imagine. Consider, for instance, a case where money in bank accounts is attached as the actual proceeds of crime have since been sold. But now, these monies are held in the accounts of a company that has nothing to do with any money laundering allegation and offers gainful employment to hundreds of people. 

These routine examples from the world of PMLA prosecutions show just how unfair this legal regime is.  It is also squarely unconstitutional. This complete deprivation of property by passing attachment orders for the entire asset is by no means a reasonable or proportionate manner to secure state interests. If anything, it is a classic case of pursuing state interests by trampling upon the most basic rights of affected persons. 

A way to make this regime more palatable would be to start recognising reasonable exclusions from the scope of any attachment orders. For instance, allowing persons to remain in possession upon payment of rent; or allowing certain limited withdrawals to continue running a business and paying salaries; or paying lawyers' fees. These are not revolutionary ideas and are in fact already part of the law in other countries [See, e.g., Section 303Z5 of the U.K. Proceeds of Crime Act, 2002; Luis v. United States, 136 S. Ct. 1083]. By engrafting a process of recognising reasonable exclusions within the PMLA statutory framework — at the stage of provisional attachment orders for movable property and at the confirmation stage for immovable property — the core fairness and proportionality concerns would be answered to some extent. Moreover, it would also help save judicial time, as currently such reliefs are sought either through writ proceedings in High Courts or through interim orders before the Appellate Tribunal.  

Conclusions

The PMLA has not been a statute shy of legislative tinkering. Often, this has been a response to some or the other gaps being pointed out in the scheme of the Act. The absence of any reasonable exclusions from the attachment regime is as big a gap as there can be. It leads to a disproportionate deprivation of the basic rights (and needs) of innocent persons, and also wastes valuable judicial time and effort. Ergo, a happy ending? Remember, it is the hope that kills you. 

* The Three-level logic can also be used as a reference to the relief structure that exists besides the need under Section 5 for the officer to record reasons to believe. Here, the first step would be the Confirmation hearing, the second step the Appellate Tribunal, and the third would be the statutory right to move the High Court under Section 42 of the PMLA.

[This post was updated on 29.05.2020 to add a note on the three-step logic for reliefs within the PMLA]