Enforcement Directorate

13-05-2023

Latest Context

Recently, the Centre has informed the Supreme Court (SC) that the Chief of Enforcement Directorate (ED) will not continue in office beyond November 2023.

Issue

Duration of Tenure: The President of India issued two ordinances in November 2021 to permit the extension of the tenure of the Director of the ED from two years to up to five years. It was upheld by the SC but only in rare and exceptional cases for a short duration. The Top Court stated that there is no restriction on the power of the Central Government to appoint ED beyond a two-year period.
Restriction on Central Government: Additionally, it also clarified the meaning of the phrase "not less than two years" mentioned in Section 25(d) of the Central Vigilance Commission Act, 2003. It should not mean "not more than two years" by stating that - “there is no limit on the power of the Central Government in appointing the Director of Enforcement beyond a period of two years”.

Reason for Extension of the Tenure of the Director of ED

Administrative Reasons: The Union Finance Ministry in an affidavit stated that an extension in the tenure of the director of ED was necessary due to administrative reasons. Continuity of the head of the organization is required for several cases. These cases are at crucial junctures and require historical knowledge and background for the supervision of such cases. The government’s recent extension of the tenure is cited as a reason for a pending review by the Financial Action Task Force (FATF).
Optimize Efficiency: A newly appointed director will take considerable time to familiarize with the new office and the functioning of the ED will get affected which will reduce its functional efficiency. It has been challenged in SC by questioning the legality of extending the tenure beyond what was previously deemed acceptable by the court.

Enforcement Directorate

Objective: The ED is a multi-disciplinary organization that has a mandate for investigating the offences of money laundering and violations of foreign exchange laws. It works under the Department of Revenue of the Ministry of Finance. It is a premier financial investigation agency of the Government of India and functions in strict compliance with the Constitution and Laws of India. The Director of Enforcement heads this organization. It is headquartered in Delhi.
Structure: It consists of five regional offices in Mumbai, Chennai, Chandigarh, Kolkata and Delhi headed by Special Directors of Enforcement.
Recruitment: It recruits officers directly by drawing officers from other investigation agencies. It includes several officers of the IRS (Indian Revenue Services), IPS (Indian Police Services) and IAS (Indian Administrative Services) and Income Tax officers, Excise officers, Customs officers, and police.
Tenure: The tenure of the officers of ED is two years, but the tenure of directors can be extended from two to five years by giving three annual extensions. The Delhi Special Police Establishment (DSPE) Act, 1946 (for ED) and the Central Vigilance Commission (CVC) Act, 2003 (for CV Commissioners) have been amended to enable the government to keep the two chiefs in their posts for one year after they have completed their two-year terms.

Functions:

Foreign Exchange Management Act, 1999 (FEMA): It is meant to consolidate and amend the laws relating to facilitate external trade and payments in addition to promoting the orderly development and ensuring the smooth functioning of the foreign exchange market in India. It has been charged with the responsibility to conduct an investigation into suspected infringing of foreign exchange laws and regulations and adjudicating and imposing penalties on those adjudged to have contravened the law.
COFEPOSA: Under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), it is empowered to sponsor cases of preventive detention regarding the contraventions of FEMA.
Fugitive Economic Offenders Act, 2018 (FEOA): The Government of India introduced the Fugitive Economic Offenders Act, 2018 (FEOA) by observing the increase in the number of cases of economic offenders who take shelter in foreign countries. ED is charged with its enforcement. Its goal is to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. It attaches and confiscates the properties of fugitive economic offenders who have escaped from India warranting arrest.
Prevention of Money Laundering Act, 2002 (PMLA): On the recommendations of the FATF India enacted PMLA. ED is entrusted with the responsibility of executing the provisions of PMLA by conducting an investigation to trace the assets derived from proceeds of crime and provisionally attaching the property and ensuring prosecution of the offenders and confiscation of the property by the Special court.

Issues Regarding ED

Misuse of Power: Due to having immense power and discretion in investigating economic crimes like money laundering they don't need permission from the government to prosecute politicians or government officials. However, this power has been misused because even minor crimes have been brought under the purview of PMLA which was originally meant to combat money laundering related to Drug Trafficking.
Lack of Transparency: There is also a lack of transparency in selecting the cases to investigate, and that is the reason they are targeted by opposition parties. There are very few cases of conviction but the media ruined the reputation of the accused when trial is done by ED. For instance, between 2005 and 2013-14, there were zero convictions, and between 2014-15 and 2021-22, only 23 cases were under conviction out of 888 cases registered.
Political Bias: Many allegations are levelled against ED like those political figures who switched to the ruling party have been given favorable treatment by the ED. In some cases, these individuals have reportedly been given "clean chits" or ED slows down in its investigations against economic offences committed by these persons. These criticisms have raised concerns about a politically biased approach and lack of independence in the ED's actions.

Way Forward

The ED has extensive powers but these powers should not be used to abuse political opponents. Investigations should not become punishments and cases should be resolved quickly to ensure speedy trials and convictions. To fight against corruption, transparency is required in investigations and fairness in the adjudication process. Rather than taking extreme measures, the focus should be on finding fault in the system. There is a need of the hour to change the functional mechanism to substantially reduce corruption.

Q. Discuss how emerging technologies and globalization contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels (2021)