PM IAS EDITORIAL AUG 01

PMLA verdict, an erosion of constitutional buffers

Context:

In the judgement of a three judge bench in Vijay Madanlal Choudhary vs Union of India, 2022 case, Supreme Court (SC) has upheld the constitutionality of vast parts of the Prevention of Money Laundering Act (PMLA), 2002, despite the law’s inversion of widely accepted maxims of criminal jurisprudence, including the Fundamental Right under Article 20 of Indian Constitution.
Article 20

• This article provides for protection in respect of conviction of offences. It prohibits:
  • Ex post facto law (Art. 20(1))
  • Double Jeopardy (Art. 20(2))
  • Self-incrimination (Art. 20(3))
• However, various provisions of PMLA, 2002 violate these constitutional rights.

Money laundering:

• It refers to the process through which the proceeds from criminal activity are masked with a view to concealing their illegitimate source.
• PMLA defines money laundering in vague terms. Section 3 of the Act says, “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money laundering.”

Proceeds of crime and scheduled offences under PMLA:

• This phrase is separately defined to mean property that is obtained out of the commission of a crime “relating to a scheduled offence”. The schedule contains 30 different statutes ranging from specific offences
• under the Indian Penal Code, 1860, like murder, extortion and kidnapping, the Arms Act, 1959, the Immoral Traffic (Prevention) Act, 1956, to minor infractions under the Copyright Act, 1957, Trade Marks Act, 1999 as well.
• Unless the proceeds of crime relate to a “scheduled offence” — or what is also described as a predicate offence — no case can be made out under the statute. If a person is ultimately acquitted or discharged in a case concerning the predicate offence, the charge under the PMLA can no longer be maintained.

Origin of PMLA and its nature:

• India enacted the law to give effect to its international commitments, specifically the UN Convention against Illicit Trafficking in Narcotic Drugs and Psychotropic Substances, 1988 (Vienna Convention) and UN Convention against Transnational Organised Crime, 2000 (Palermo Convention).
• The court has acknowledged this obligation of India while upholding some controversial provisions of PMLA, saying that PMLA is not a penal statute, but a sui generis one, which means that the law can, according to the Court, overlook several constitutional safeguards, including the right against self incrimination.
   

Controversial provisions of PMLA and Judicial verdicts:

Bail Conditions:

• Section 45 of the Act imposes twin conditions for bail. Apart from mandating that the prosecutor is allowed a hearing before bail is granted, the clause also requires the court to be satisfied that there are “reasonable grounds” for believing that the accused is not guilty of the offence and that he or she is not likely to commit any offence while on bail.
• In its previous version, prior to an amendment made in 2018, the law classified the predicate offences contained in the schedule into two categories. It separated those which carried with it an imprisonment for a term no less than three years from other offences. The twin requirement was mandated only for those cases where the predicate offence was viewed as more serious.
• A two judge Bench in Nikesh Tarachand Shah case declared this version unconstitutional. The Court found the classification between offences unreasonable and the conditions too disproportionate.
• The Parliament could have introduced a new provision for bail by removing the defects pointed out by the Court. But instead it chose to delete the classification itself, and imposed through Section 45 the twin conditions for all offences under the PMLA, including for minor offences like copyright infringement.

Amendability of laws struck down:

• The petitioners in Vijay Madanlal Choudhary case argued that Parliament can not amend a law that had already been declared unconstitutional by SC. The Court, however, held that the judgement in Nikesh Tarachand Shah case did not obliterate the provision and that Parliament was entitled to revive the law by deleting its defects.
• Vijay Madanlal Choudhary verdict not only grants sanction to Parliament’s effort at reintroducing a law previously declared unconstitutional but also holds that the requirements for bail are by no means arbitrary or unreasonable.

Test of proportionality:

• Nikesh Tarachand Shah case also distinguished crimes of terror from crimes under the PMLA and pointed out that in requiring proof of innocence at the stage of bail, Section 45 of the Act far outweighed the ordinary demands of a penal law. This is violative of the Constitutional value of proportionality of punishment to its offence.
• In K.S. Puttaswamy/ Aadhar case, SC held that fundamental rights operate not in silos, but by giving and taking meaning from each other and that any invasion of a constitutionally guaranteed freedom must satisfy a test of proportionality. This meant that every time the state impinged on a right, it had to justify that such infringement was outweighed by some benefit to the public and that there were no less invasive means available to achieve the same aim.

Issues with the powers of and misuse of ED:

• The Directorate of Enforcement or the ED is a multi-disciplinary organisation mandated with investigation of economic crimes and violations of foreign exchange laws. PMLA gives wide-ranging and unchecked powers to ED.
• ED registers an ‘Enforcement Case Information Report’ (ECIR), the equivalent of an FIR. It is not required to share the ECIR with the accused. So any money-laundering probe is mired in opacity.
• When a summons is issued to a person, he is unaware of the reason, but must, nevertheless, attend and answer all questions and submit the documents asked for. The powers of search, seizure or arrest are left completely at the whim of ED officials. Unlike in other criminal cases, there is no judicial oversight of the process, and the accused are forced to seek bail after arrest without knowing the exact nature of the charges against them.
• ED also has the power of a civil court to enforce the attendance of a person summoned under Section 50. Giving a statement and producing documents are mandatory obligations and it is an independent offence not to do so, and giving a false statement amounts to perjury. Also, such a statement should be signed by the person summoned and it can be used against him in a trial. This amounts to testimonial compulsion specifically barred by Article 20 (no self incrimination).

Way Forward:

While SC has upheld many controversial provisions of PMLA, it is unlikely to go unchallenged. The provisions in question, by going against established norms of Constitutional values and legal precedences, need to be amended. But it must be done without compromising on the ability of our law enforcement agencies to implement India’s global commitments to combat money laundering and reducing corruption.

---

Editorial-2: India’s ‘wheat waiver’ WTO demand is risk fraught

Context:

At this year’s World Trade Organisation (WTO) Ministerial Conference at Geneva, India seems to have failed in achieving in its demands of WTO coming to a permanent solution for its public stockholding (PSH) scheme for food security and also allowing India a waiver to export wheat from such stocks given the ongoing food crisis in some countries.

India’s PSH policy:

• It is based on procuring food from farmers at an administered price (minimum support price or MSP), which is generally higher than the market price. The PSH policy serves the twin objectives of farmers’ income and food security- offering remunerative prices to farmers and providing subsidised food to starved citizens.

WTO and price support:

• However, under WTO law, such price support based procurement from farmers is counted as a trade distorting subsidy (TDS), and allowed only till the permissible limit, called the de minimis level (DML): which for Developed countries is 5% and for developing countries is 10%  of the value of their production.
• Domestic support/ subsidies and WTO: Domestic support refers to the government subsidies that guarantee some Minimum Price to farmers/ producers that are provided at the domestic level. WTO classifies them into 3 boxes:

1. Green Box Subsidies: subsidies that have zero or very minimal level distortion to global free trade.  They usually include government expenditure on agriculture research and development, agricultural training, subsidies under environmental programmes etc. Green box subsidies are not counted in price support and so are not taken while calculating Aggregate Market Support (AMS).
2. Blue Box Subsidies:  Direct payments under production limiting programmes (PLPs)-  imposing quota or limits on agriculture produce. Blue Box is the “amber box subsidy with conditions attached”.  Blue Box subsidies are also exempted from calculation of AMS. 
3. Amber Box Subsides: subsidies that are trade-distorting (TDS) in nature. So WTO seeks to reduce them based on the formula called “Aggregate Measure of Support” (AMS)– the amount of money spent by governments on agricultural production, except the money spent in the Blue Box, Green Box and production upto de minimis level.

A temporary arrangement:

• Currently, India has temporary relief due to a ‘peace clause’ which bars countries from bringing legal challenges against price support based procurement for food security purposes. However, a permanent solution to this issue eluded even the latest  WTO ministerial meeting in 2022 at Geneva.
• For India, the real issue is not about maintaining adequate food stocks, which WTO rules do not prohibit, provided food is stocked by employing non trade distorting instruments such as providing income support to farmers (cash transfers). India’s concern is that it should have the policy space to hold public food stocks using the MSP, which is a price support instrument. However, there is no mention of price support in the Geneva declaration either.

India’s new demand and its limitations:

• In the runup to the WTO ministerial meeting, India’s demand for a permanent solution to the PSH policy has acquired a new dimension. India now insists that it should also be allowed to export part of the stocked food, most notably wheat, from the pool of the foodgrain procured under the MSP.
• The Russia- Ukraine war has unleashed a food shortage crisis in many countries, pushing up global food prices, as Ukraine was global granary. India seeks to capitalise on this opportunity to expand its exports.
• However, WTO law bars countries from exporting foodgrain procured at subsidised prices because it would give the countries an unfair advantage in global agricultural trade. The country concerned will sell foodgrain in the international market at a very low price, which, in turn, might depress the global prices and have an adverse impact on the agricultural trade of other countries.
• However, the global food inflation forced the Geneva ministerial to concede a food security declaration, which states that countries may release surplus food stocks in the international market in accordance with WTO law. Thus, even such release of foodgrains must not violate existing WTO norms including those regarding various boxes (Amber, Blue, Green) and De Minimis Level.

Waivers at WTO and their conditionalities:

• WTO is unlikely to agree to a temporary waiver to allow the export of wheat from public stockholdings. But even if it does, India must be wary of the conditions likely to be attached to it. Afterall, the history of waivers at the WTO is disappointing.
• The recently adopted WTO waiver on intellectual property rights (IPR) for COVID- 19 medical products, for example, was restricted to only COVID- 19 vaccines and not diagnostics or therapeutics. It is also limited to only patents and not other IPRs.
• The WTO Agreement also says that waivers can be adopted only in “exceptional circumstances”. Developing and food surplus countries like India might find it difficult to prove that the current global foodgrain shortage amounts to such exceptional circumstances, given the reluctance of developed countries in the West to allow such subsidised exports. Developed countries have historically opposed India’s PSH programme as they apprehend that India might divert some of its public stock to the international market, thus depressing global prices. India actively pushing for exporting food from its public granaries gives fresh excuses to these countries in opposing a permanent solution to the PSH issue.

Way forward:

Thus, India should revisit its stand on asking for a waiver for wheat exports from its public stockholding. The laudable objective of helping countries facing food crises can be accomplished by strengthening India’s commitment to the United Nations World Food Programme (WFP). India can also do so through bilateral agreements as in the case of food assistance to Afghanistan following the Taliban takeover. Or, if the domestic situation ameliorates, India can lift the ban imposed on private traders to export wheat.

Conclusion:

Instead of adding newer objectives and shifting goalposts, India should stick to its original demands of WTO members finding a mutually acceptable and permanent solution to public stockholding which takes care of both food security in developing countries and fair trade for developed countries.