New Delhi: The Union government has introduced changes to rules on money laundering which significantly widen the net under which the Enforcement Directorate (ED) can access the financial history of individuals and organisations. This has implications on all those the powerful central agency can now act against.
What are the changes?
The expansions were announced through two gazette notifications by the Department of Revenue under the Ministry of Finance on March 7.
The notifications say that the 2023 Prevention of Money Laundering Rules will now have a clause that deals with what the government calls “Politically Exposed Persons” or PEPs. They are defined as “individuals who have been entrusted with prominent public functions by a foreign country, including the heads of States or Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials”.
The new rules have it that every banking company or financial institution or intermediary will need to maintain detailed records of the nature and value of transactions of PEPs along with non-governmental organisations.
Mint reports that financial institutions will need to conduct know-your-customer (KYC) checks for PEPs under Reserve Bank of India guidelines.
In addition, the definition of a non-profit organisation has been expanded to cover all charitable entities registered as a trust, society or Section 8 company. Financial institutions will need to secure details on their founders, settlers, trustees and authorised signatories.
The notification also says that every financial institution will need to register the details of a non-profit organisation on the DARPAN portal of the NITI Aayog. Banks also have to maintain these registration records for a period of five years after the business relationship between a client and a reporting entity has ended or the account has been closed, whichever is later.
“The provisions virtually include everyone important in politics, senior government officials and even heads of the states, for financial reporting purposes under PMLA,” an unnamed senior official of the Enforcement Directorate, the agency entrusted with executing the PMLA, told Mint.
ED’s powers increase a year before elections are due
The powers of the ED stand vastly expanded by this move.
In July 2022, in what the BJP had held as a “landmark judgment“, the Supreme Court bench headed by Justice A.M. Khanwilkar had already upheld the ED’s sweeping powers relating to arrest and attachment of property, and its ability to search and seize under the PMLA.
The apex court also said the supply of Enforcement Case Information Report (ECIR) in every case to the person concerned is not mandatory. The ECIR is the ED’s equivalent of a police FIR.
Several opposition parties – including the Congress, Trinamool Congress and Aam Aadmi Party – expressed “deep apprehension on the long-term implications” of the judgment.
A bench headed by Chief Justice N.V. Ramana of the apex court, a month later, said that the same court’s judgement on the ED’s powers to take possession of a property before trial in exceptional cases leaves scope for arbitrary application and needed further explanation.
The Supreme Court is also hearing the case against the tenure extension granted to ED director Sanjay Kumar Mishra in 2021. The Union government has called the petitions against the extensions “politically motivated”.
Mishra was first appointed the ED director for a period of two years by an order on November 19, 2018. He was set to demit office in November, 2020, and in May that year, he had reached the retirement age of 60. But, through an office order on November 13, 2020, the appointment letter was modified retrospectively by the Union government and Mishra’s term of two years was replaced by three years.
Senior Advocate K.V. Viswanathan, who is the court-appointed amicus curiae in the case, recently said that such an extension was illegal.
ED and opposition
The changes come as the Union government has been accused of using the Enforcement Directorate, among other central agencies, against the Bharatiya Janata Party’s political opponents. With general elections quickening the pulse of political activity in the country, charges of misuse of central agencies have been repeatedly made by Opposition parties.
In September 2021, the Financial Express reported that 121 political leaders were booked by the ED since 2014, when Narendra Modi came to power, and out of that number, as many as 115, or 95% of them are opposition party members.
Just today, ED officials carried out raids at the Delhi home of Bihar deputy chief minister and Rashtriya Janata Dal leader Tejashwi Yadav in the land-for-jobs case.
Buzz is also being created around the ED’s summons to Telangana chief minister K. Chandrasekhar Rao’s daughter K. Kavitha. In Delhi a day ahead of the questioning, Kavitha told NDTV that “questioning by any central investigative agency is equivalent to being questioned by Prime Minister Narendra Modi”.
Today, a day-long sit-in by BRS’s Kavitha at Jantar Mantar is also being attended by leaders of at least 12 opposition parties. Kavitha has said that she believes that she was summoned because her party had publicised posters amping up agitation for a Women’s Reservation Bill.
Kavitha has been summoned in connection with the Delhi liquor excise policy case. Just a day ago, the ED arrested Delhi’s deputy chief minister and Aam Aadmi Party leader Manish Sisodia in this case. Sisodia is already in jail as the Central Bureau of Investigation probes the same case.
Eight opposition parties wrote to PM Modi against the alleged misuse of central investigation agencies against them after Sisodia’s arrest.
NGOs and non-profit organisations – many of which had offered priceless service in feeding and sheltering the poor during the pandemic – had already been under the scanner after the Foreign Contribution (Regulation) Act rules were tightened. Several think tanks, including the Centre for Policy Research, and charitable organisations, including one founded by Mother Teresa, have additionally run into trouble with their registrations.
The second finance ministry gazette notification covers cryptocurrencies or “virtual digital assets” and brings it under the ambit of the 2002 Prevention of Money Laundering Act.
The Act will now include activities that deal with virtual assets, including:
(i) exchange between virtual digital assets and fiat currencies;
(ii) exchange between one or more forms of virtual digital assets;
(iii) transfer of virtual digital assets;
(iv) safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital
(v) participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.
Notably, third party portals carrying out crypto transactions now come under the PMLA.