Arbitrary execution of foreign Letters of Request under the PMLA

In a debilitating blow to their functioning, the Enforcement Directorate (ED), while acting on a foreign government’s Letter of Request (LoR), recently froze a number of bank accounts belonging to a few Indian companies. This was done on the basis of an unsubstantiated allegation (by a foreign government) of monies in these bank accounts being ‘proceeds of crime’.

The ED acted on a foreign LoR, without any independent evaluation and appreciation of the tenability of the request and the underlying evidence, and in total disregard of the domestic law, including the provisions of the Prevention of Money Laundering Act, 2002 (PMLA) and various international instruments.

This, unfortunately, is not an isolated instance. It is another one in a series of extremely harsh actions taken by the ED, which, in the recent past, has acquired the unenviable reputation of an agency that’s a bit too trigger happy. The ED’s aggressive approach becomes starker given the fact that the constitutionality of many PMLA provisions is currently under serious challenge and being contested in various cases. The serious design flaws that make PMLA extremely amenable to misuse and constitutionally suspect, are being pried upon in various cases.

In this background, we argue that the ED’s act of attaching assets and freezing bank accounts - solely at the ipse dixit of a foreign government and in disregard to domestic law - is legally untenable and arbitrary. But before that, let us start at the start with a few quick words on what really is a Letter of Request.

In criminal law parlance, an LoR is a formal written request from a foreign government/court to a court/authority in another country seeking assistance in relation to a criminal investigation/inquiry or trial. Usually, these requests are made on the basis of a Bilateral Treaty/Agreement, Multilateral Treaty/Agreement or International Convention, or on the basis of an assurance of reciprocity.

LoRs are important. The investigation of cross-border crime often involves gathering evidence in foreign countries. National sovereignty and international law obligations, however, prevent a country from just flying into another country to collect evidence or attaching assets alleged to be involved in criminal activity. This is where LoRs become important. With increasing internationalisation of crime and the need for international cooperation to fight against transnational organised crime, the significance of LoRs can hardly be emphasised enough. To put it simply, when crime crosses borders, so should law enforcement. But how, is the question.

The legal framework in respect of an LoR can be traced to the arrangements between two countries and the respective domestic laws. An LoR is forwarded through Mutual Legal Assistance Treaty (MLAT), special multilateral treaties (such as the United Nations Convention Against Corruption/UNCAC), a Memorandum of Understanding (MoU), or on the basis of reciprocity.

The implementation/origination of such LoRs within a country is governed by domestic laws such as the Code of Criminal Procedure, 1973 (CrPC) and special laws such as the PMLA, among others.

CrPC provisions on execution of LORs

Under the CrPC, Section 105 deals with the service of summons and execution of warrants/search warrants received from a foreign government.

Chapter VII-A (Sections 105A to L) of the CrPC lay down the procedure of attachment and forfeiture of property pursuant to a foreign government’s request.

A perusal of Sections 105-A to 105-L reveals that merely because a foreign government makes a request under a treaty, it does not mean that the same has to be executed without any further enquiry. An LoR, prior to execution, is required to be scrutinised by the Central government (or the specific nodal agency) for compliance with Indian laws and the treaty/treaties. Thereafter, the Indian court to which the request is sent for execution once again examines the request independently and executes it only if it is in accordance with the domestic law.

For instance, in a case of a request by foreign government seeking assistance in freezing of assets situated in India, as per Section 105-G of the CrPC, the domestic court is under an obligation to independently formulate an opinion as to the existence of ‘reasons to believe’ (sufficient cause) that the property in question is ‘proceeds of crime’. It is only when the domestic court is independently satisfied that there is sufficient cause and prima facie merit in the request that it proceeds further. In fact, as per the statutory scheme, the domestic court cannot even issue notice to the person affected without or before recording its satisfaction as to the existence of sufficient cause.

Further, Section 166-B of the CrPC makes a similar provision in case of LoRs seeking assistance in investigation in India, which is required to be executed in the same manner as an investigation in India would entail. That is, with the same safeguards, checks and balances as if the investigation originated within the territory of India.

This is the mechanism under the CrPC. Let us see what the PMLA says in this regard:

PMLA on LoRs seeking attachment and confiscation of property

Chapter IX of the PMLA deals with mutual legal assistance to and from contracting states. The relevant sections in this regard are Section 58 (which deals with recording of evidence in India pursuant to an LoR through an Indian Special Court) and Section 60 (which deals with execution of LoR in India and attachment and confiscation of property by the ED).

A perusal of these sections would reveal that in either case, the foreign government’s LoR is not to be taken at face value and executed mechanically. The recording of evidence or the attachment of assets in India (as the case may be) has to be in accordance with the provisions of the PMLA.

Therefore, the legislative intent and policy is absolutely clear and broadly in line with CrPC. An LoR cannot be executed mechanically and without an independent evaluation of its merits, in accordance with domestic law. This is in sync with the settled position that in a battle of supremacy between an international law provision/obligation and domestic law, it is the latter that triumphs.

In the larger scheme of things, the idea behind mandating compliance with domestic laws while implementing an LoR is rooted in sovereignty and the policy of non-intervention in a State’s domestic affairs. This principle of non-intervention covers both extra-territorial application of laws as well as extra-territorial exercise of power by foreign investigation authorities.

For instance, the United Nations Convention against Transnational Organised Crime (UNCATOC), which was brought in force with the primary intent to encourage mutual legal assistance between contracting states, in Article 4, recognises the principles of sovereign equality and territorial integrity of States and promoting the policy of non-intervention in domestic affairs.

At a micro level, the upshot of this is protection of fundamental rights and guaranties afforded to the citizens through domestic laws. So, despite receipt of an LoR from a competent court of a foreign country, the ED is still obligated to act in compliance with the provisions of PMLA. For instance, if the LoR seeks freezing of bank accounts, ED has to act in accordance with the provisions of Section 17 of the PMLA and record independent ‘reasons to believe’ as to the property being involved in money laundering.

This is an important bulwark against arbitrary State action, which seems to have been set at naught in the case under discussion, amounting to a violation of not only domestic law and constitutional rights but also various international instruments. In addition, it also raises concerns for the larger State policy of non-intervention and protection of sovereignty.

Position under international instruments

The obligation to act in accordance with domestic law is also reinforced by international arrangements. Take for instance, the United Nations Convention Against Corruption (UNCAC) - which seems to have been pressed into action by the ED (in the cases above) to freeze the bank accounts. Here, a bare reading of Articles 31, 43, 46, 54, 55, 57 of UNCAC manifests that all requests received under UNCAC can be executed only if the same are compatible with the domestic law and in strict accordance with the domestic law. Further, these articles also make it clear that all actions under UNCAC are to be without prejudice to the rights of bona fide third parties who have nothing to do with the offences in question.

There are similar provisions in the UNCATOC too, which make it absolutely clear that domestic law cannot be set at naught merely because a foreign government makes a request for attachment of assets.

This is also the position under the 2019 guidelines issued by Union Ministry of Home Affairs (MHA) in relation to executions of LoR/MLAT requests, where:

• Article 1.10 provides that the MHA has to ensure execution of requests “in accordance with Indian Laws and in the manner specified by the foreign country, if it is not contrary to Indian Law.”

• Article 1.14 further provides that execution of a request should not be refused “if it can otherwise be executed in accordance with the laws of Contracting State.”

• Article 2.2 provides that MHA has to be examine if a request is “complete and fit to be executed in India”.

• Article 2.4 provides that “All the incoming requests are executed in terms of provisions of extant Bilateral Treaties/Agreements, Multilateral Treates/Agreements or International Convention and in accordance with Indian Laws”.

Conclusion

The principles of comity and international cooperation in the fight against crime indeed merit that all LoRs are given serious consideration. However, in this endeavour, important safeguards under domestic laws should not be disregarded. In a country such as India which boasts of constitutional safeguards and the checks and balances it imposes on the legislative and executive exercise of power, the very idea of implementing LoRs without consideration of domestic laws amounts to circumvention of the entire protective constitutional framework.

Further, it speaks to a greater concern of national integrity - an unnerving willingness and callousness of nations to dilute their sovereignty when it comes to protection of individual rights and freedoms. We must remember that comity is good, but a comity of errors isn't.

Bharat Chugh is a former judge and an independent counsel. Nimrah Alvi is a Senior Associate at Shardul Amarchand Mangaldas & Co). Views of the authors are personal.