If India Is Serious About FATF Review, ED Director's Term Shouldn't Be its Prime Concern

During the previous FATF review in 2012, the ED's low conviction rate had been pointed out. That remains a challenge which the agency and government do not seem to be addressing.

New Delhi: The Supreme Court on Thursday extended the tenure of the current Enforcement Directorate (ED) director up to September 15, following the Union government’s appeal for an extension till October 15. The Union government had said this is required in view of peculiar circumstances as the country is in the middle of a peer country review of a UN body, the Financial Action Task Force (FATF).

The court, which had earlier held that the extension in the director’s tenure was illegal while allowing him to continue up to July 31 so that the government could find his replacement, lambasted Solicitor General Tushar Mehta and said, “Are you saying all other officers are incompetent? Only one officer can do?” The extension was nevertheless given in “larger public interest” and for smooth functioning of the agency.

Experts are questioning whether the FATF review is a fig leaf. Finance ministry sources point out that rather than preparing reports for the FATF, the ED would be better served if its conviction rate in the various cases pending in court went up.

Interestingly, the last time the FATF took up a review of India was in 2013, when a mutual evaluation was done.

Ten years later, the FATF will be looking at the ground situation now, or as SG Mehta told the court at a previous hearing, “Experience has shown that having the laws in the books is not enough, the main focus is now on effectiveness.”

“Effectiveness” is one challenge that remains ten years later.

“The absence of any conviction for ML (money laundering), and the high evidentiary standard untested before the courts, particularly in respect of the proof of the foreign predicate offence,” the 2013 FATF review report said quoting statistics from the ED, the lead agency for investigating money laundering. Trials were underway in courts at various stages then.

“In May 2013, India provided an update of the number of ML investigations and prosecutions underway. The number of ML investigations increased from 798 on 31 December 2009 (at the time of the ME on-site visit), to 1 405 on 15 December 2011, to 1 510 on 31 August 2012, to 1 530 on 30 November 2012, and 1 561 on 30 April 2013. After an increase in the number of ML prosecutions from 6 on 31 December 2009 to 36 on 31 March 2011, this number remained almost status quo in 2012 (37 on 30 November 2011 to 40 on 31 August and 42 on 30 November 2012). India reported that in March 2013, 7 new prosecution complaints were filed. India clarified that all 49 cases are at various stages of trial before the designated special courts,” the report had said.

The report went on to point out that a total of 49 prosecution complaints had been filed and values of properties under attachment were $65,000.

The report had raised concerns about the conviction rate. “The absence of any ML conviction remains a serious effectiveness issue.”

Also read: Extension Directorate: Why Is the Union Govt Hell-Bent on Yet Another Term for S.K. Mishra?

If the FATF was concerned about the lack of conviction in cases then, it will have much to worry about now, going by the ED’s performance statistics. Of the nearly 6,000 cases filed since inception, there has been a conviction in 24 out of only 25 cases in which a Prevention of Money Laundering Act trial was completed. Or as the ED would like to see the glass as full, it has a conviction rate of 94%.

As The Wire reported, between 2018-19 and 2021-22, cases registered by the ED rose by 505%, from 195 cases in 2018-19, to 1,180 in 2021-22. The number of searches the ED conducted rose by a huge 2,555% between 2004-14 and 2014-22. As per the Union finance ministry’s own data, 112 searches were carried out by the ED between 2004 and 2014, resulting in attachment of alleged proceeds of crime worth Rs 5,346 crore.

The Wire had sent a questionnaire to the ED. There are several questions that it did not respond to. For example, in how many cases has investigation been completed so that trial can commence? How many cases have been registered and closed by way of discharging or quashing or acquittal?

How many accused have been discharged after a complaint was filed in court? Of the properties attached, how many have been confiscated so far by the ED? While the ED had broken its silence and sent The Wire a lengthy response, it remained silent on these issues.

Contrary to what the government told the court, the lead officer for the review, sources point out, is additional secretary revenue Vivek Agarwal. He is also holding additional charge of the Financial Intelligence Unit (FIU). The FIU is a key department in the FATF review and the top post is vacant after Pankaj Mishra was prematurely repatriated in 2022 after six years.

Yet the Union government, in its affidavit, said the ED director is key. In an appeal filed on Wednesday, the Union government told the court that “It is extremely essential that Enforcement Directorate is in the state of full readiness during this period till on-site (visit in November.) During this period, agencies are often required to provide responses, statistics, case studies etc in short spans of time to provide better understanding to assessment team…

“For this purpose, guidance and leadership at a very senior level is required…The intricacies of complex money laundering investigation may also need to be explained to them which can be done only by a person with hands-on experience…The present Director, Directorate of Enforcement has been engaged in preparation of documents …since beginning of year 2020, accordingly, his continuation in this ardous and delicate process is essential.”

Officials say a country is judged on 40 parameters relating to law, justice, revenue, banking, insurance etc. and another nine on terror financing. The ED’s remit is just one of many.  The FATF website says the lead ministry or authority for FATF is the Department of Economic Affairs. The other key authorities are Central Board of Excise and Customs, FIU and Union law ministry.

The review is within an 18-month time frame and began early this year. The final report will not be submitted before the end of 2024. India is a rare country whose FATF review has been postponed at least once on account of COVID-19.

The FATF had concluded in 2013, “Overall, India has reached a satisfactory level of compliance with all of the core and key recommendations… Consequently, it is recommended that India is removed from the regular follow-up process.”

The reason for this was a large number of amendments to extant laws on money laundering, banking and terrorism.