India: Scope Of Information Sharing By ED Under Section 66 Of PMLA

In the complex landscape of the Prevention of Money Laundering Act, 2002, s. 66(2) is gaining increasing importance, governing the sharing of information by the Enforcement Directorate when it suspects the violation of other laws. This article delves into the nuances of s. 66(2) and its implications, scope of ED's power and the duty of the agency which receives such information.

I. Need for sharing information

Information collected during investigations are personal and private and are supposed to be kept confidential. Of course, the agency conducting the investigation may use it for the purpose of bringing in legal consequences under the very law through which such information was collected. The information, however, may be useful for and required under proceedings or investigations under other laws also. For instance, information and evidence collected during an income tax search may also be needed by the GST department for measuring tax evasion.

The Enforcement Directorate ('ED'), similar as above, frequently comes across scenarios where its investigation leads it to information and evidence suggesting violation of laws besides the Prevention of Money Laundering Act, 2002 ('PMLA'). For this reason, the legislation has enacted s. 66 of PMLA which empowers the ED to share information with various government agencies subject to the satisfaction of certain conditions.

The provisions of s. 66 of PMLA are contextualized within the broader landscape of global advancements in anti-money laundering regulations. For instance, UK's money laundering regulations ¹ necessitate the establishment of internal protocols for reporting instances involving information or other financial activities that raise suspicions of money laundering involvement. While information sharing is not restricted to investigative bodies, the concept's origins trace back to such practices. The definition of money laundering includes acts conducted beyond a jurisdiction border that would be offences if performed within that jurisdiction ².

Now, while the PMLA provides for sharing of information with other government agencies, some interesting questions arise. Firstly, what is the scope of such power given to the ED? Secondly, once the information is shared, does the ED have the power to follow-up with or compel the recipient agency to act on the basis of the shared information?

This note discusses these questions and answers them on the basis of a bare reading of the law, borrowed understanding from pari materia provisions under other laws, and judicial precedents.

II. Scope of information sharing under section 66(1)

S. 66(1) of PMLA ³ outlines directives for the ED authorities to furnish or facilitate the provision of information to various government agencies, in case such information is necessary for such agencies to perform their functions under the respective laws.

Under this provision, information can be shared with certain specified agencies only. These include bodies responsible for enforcing tax laws (e.g., income tax department, GST agencies), foreign exchange laws (e.g., RBI), and anti-narcotics or drugs laws.

Additionally, the central government can gazette-notify other agencies to receive information. The agencies would be notified by the central government provided there is involvement of public interest. The Ministry of Finance has recently issued a notification ⁴, expanding the list of agencies with which the ED can share information. This amendment added 15 agencies to the existing 10, including the National Investigating Agency, Serious Fraud Investigation Office, State Police Departments, besides others. This means that prior to this notification, the ED could not have shared information with, say, the State Police Department under s. 66(1).

Information can be shared either upon the receipt of a request for information from an agency, or suo moto by the ED. For instance, a government agency which is carrying out any legal proceedings and would require the information for the purposes of such proceedings, may request for it from the ED.

The only decision making by ED is that whether in its opinion such information would be necessary for the purpose of the recipient government agency to perform its functions under law. The ED need not apply its mind regarding the contravention under such other law or form any opinion in that regard.

To summarize, under s. 66(1), information can be shared:

• With a limited number of government agencies – this includes tax, foreign exchange, and anti-narcotics agencies, and also certain central government notified agencies.
• Either upon a request from any of such specified agencies or suo moto by the ED.
• If the ED is of the opinion that it would be necessary for enabling the agency to perform its functions under law – there is no need to opine regarding any contravention of law.

S. 66(1) is modelled after a similar provision under other laws which deal with discovery of private information for their purposes. For instance, s. 138 of the Income-tax Act, 1961, very similarly provides that income-tax authorities can disclose information to some specific agencies to enable them to perform legal functions under law. S. 138 of such Act in fact goes a step further and lays down a detailed procedure wherein persons may make an application in a prescribed manner and if the disclosure would further public interest, the income tax department may disclose the information sought. The section also, to add some reins, provides that the central government may notify certain matters or types of information which cannot be disclosed. Similarly, s. 158 of the Central Goods and Services Act, 2017 provides for scenarios where information can and cannot be disclosed by the GST authorities to other government agencies and departments.

III. Scope of information sharing under section 66(2)

While the above-discussed s. 66(1) limits the agencies to whom information may be shared by ED, it allows information sharing even for regular, suspected, inconclusive purposes under any law. For instance, the ED may regularly share information with the income tax department regarding any cash recovery it makes during a search, because income tax department is a specific agency named in s. 66(1), even when the ED does not believe that such cash is attributable to tax evasion.

On the other hand, in cases where ED is of the clear opinion that any law has been contravened, has thought it befitting to empower ED to share information with any government agency that may be concerned with such law. Under s. 66(2) of PMLA ⁵, the law stipulates that if ED is of the opinion that any other prevailing law has been contravened, it shall share the information with the concerned agency for necessary action.

This provision was introduced through the Finance Act, 2018, with effect from 19.04.2018. The inclusion of s. 66(2) in PMLA mandated the ED to share pertinent information with other agencies or authorities. This step aimed to facilitate effective information sharing, aligning with the recommendations by the Financial Action Task Force.

Information under s. 66(2) can be shared with any government agency which may be concerned with the law that has been contravened in ED's opinion. There is no limitation or list of agencies or need for notification in this regard.

The decision making by ED, under this provision, involves forming an opinion regarding the contravention of any law. Of course, the formation of opinion should be on a reasonable basis and there should be incriminating material available with the ED to lead to such opinion. Regular and routine information cannot be shared under this sub-section.

To summarize, under s. 66(2), information can be shared:

• With any government agency.
• Either upon a request or suo moto by the ED.
• If the ED is of the opinion that there has been a contravention of any law.
• For necessary action by the concerned agency.

Fig: Flowchart view of the provisions and conditions laid down in s. 66 of PMLA.

IV. Procedure at the recipient agency upon receiving information

Reiterating the above, ED shares the information to the recipient agency either (i) for the purposes of the latter's legal functions or (ii) for necessary action if some contravention of law has been found by ED.

In both the cases, the procedure at the recipient agency upon the receipt of information would be as per the law governing such agency. The ED is not empowered under PMLA or any other law to make decisions or give findings under any other law apart from PMLA (and laws borrowed into PMLA such as the Criminal Procedure Code, 1973). Also, PMLA does not restrict the powers of, or mandates ED's findings to be treated as conclusive by, the recipient agency.

For instance, though the ED may share information either under s. 66(1) or s. 66(2) with the income tax department with a finding that there is tax evasion discovered by the ED, it is not mandatory upon such department to agree with the finding. The income tax department may end up passing an assessment order where no addition is made to the income of the person concerned and no tax evasion is ultimately found. Simply put, ED cannot arrive at conclusions which only rightfully can be made under the Income-tax Act, 1961 by the income tax authorities.

Recently, in the case of Harish Fabiani v. ED⁶, the court addressed the question as to whether s. 66(2) of PMLA automatically results in the initiation of action based solely on information disclosure by the ED. The Delhi High Court held that the provision (s. 66(2)) enables the disclosure and sharing of information inter se authorities, however mere disclosure does not crystallize a scheduled offence. It is merely an 'assumption' till it precipitates as being 'registered with the jurisdictional police or pending inquiry by way of complaint before a competent forum'. The court relied upon and referred to the landmark judgment of the Supreme Court in Vijay Madanlal Choudhary v. Union of India⁷, emphasizing that a money laundering case cannot be initiated solely based on the assumption of a scheduled offence. S. 66(2) of PMLA empowers the ED to share information, but the act of information sharing by itself does not establish a scheduled offence.

The above findings of the High Court establish that even though the ED may have shared the information with a government agency, such agency has to carry out its own investigation, apply its own mind to the information received and other records of the case, and reach its own decision regarding registering the scheduled offence. Because the ED has shared the information under the belief that a scheduled offence has been committed, it cannot be assumed that such scheduled offence does not need to be examined by the recipient agency. The application of mind by the recipient agency is obvious and flows from the general principles governing procedural laws.

The opinion of ED formed under s. 66(2) regarding the contravention of another law is limited in its applicability to such section alone and its purpose is only to enable the ED to share information for necessary action by the government agency. The opinion cannot be simply borrowed by the recipient agency and action be initiated.

It cannot even be said that such opinion is 'advisory' in nature because there exists no provision in law to communicate such advise. A careful reading of s. 66(2) would reveal that if the ED has an 'opinion' that a law has been contravened, it would communicate 'information' to the concerned agency. Had the intent of law been anything further, the provision would have stated that the ED can communicate its opinion and the recipient agency would take action based on such opinion. Such phraseology is absent from s. 66.

The Delhi High Court recently in Prakash Industries Limited v. Union of India⁸, held that the ED can prosecute money laundering offences but not investigate offences beyond those under s. 3 of PMLA. In this case it was highlighted that the Supreme Court in Vijay Madanlal Choudhary (supra) ruled that the ED can share information on potential predicate offences, allowing authorities to evaluate if the acts constitute a scheduled offence.

The words of the Supreme Court in Vijay Madanlal Chaudhary (supra) were reiterated when the court emphasized that the dual approach in PMLA aims to strike a balance while preventing hindrance in attaching and confiscating proceeds of crime. It empowers the ED to take swift action under s. 5 of PMLA based on its investigation findings and simultaneously requires the ED to share the relevant information with the concerned agency under s. 66(2) of PMLA for necessary action. The court stressed that the ED's role is to share information with the relevant authority, which may then evaluate if the alleged acts indeed amount to a scheduled offence.

Another aspect of such information sharing concerns the statements recorded by ED under s. 50 of PMLA. Such statements carry evidentiary value under and for the purposes of PMLA proceedings. The statements are also often shared by the ED with government agencies along with other documents and information, under s. 66 of PMLA. It is important to note that statements recorded under PMLA do not carry evidentiary value under other laws.

In the landmark decision of the Supreme Court titled K.T.M.S. Mohd v. Union of India⁹, it was held that statements recorded under one law can be used for the purposes of such law alone and no proceedings can be initiated under another law on their basis. In such case, the income tax department had sought to initiate prosecution proceedings under the Income-tax Act, 1961 on the basis of statements recorded by the ED under the erstwhile Foreign Exchange Regulation Act, 1973, which act was declared as illegal by the court.

For the instant discussion, it would thus be relevant to state that the recipient agency would, besides applying its own mind to the information received from the ED, need to ignore the statements recorded by the ED under PMLA or record such statements under their own respective law.

V. Can ED follow-up with or compel the agency to initiate action?

The ED frequently writes back to, in a manner suggestive of compelling, the recipient agency regarding action(s) taken in pursuance of the information shared under s. 66 of PMLA. It is to be noted that s. 66 envisages only a unidirectional flow of information from the ED to the recipient agency and does not establish any reverse mechanism for either a follow-up or taking any action compulsorily on the basis of such information. There is no provision requiring the recipient agencies to provide feedback or share their findings with the ED.

Such provision is absent from the PMLA for obvious reasons. Firstly, it would result in an encroachment on the powers of such agencies who need to act independently and as per the law governing their functions alone. Secondly, it would give undue weight and relevance to the ED's opinion under a law which it does not either specialize in or enforce. Thirdly, it would go against the established 'unidirectional' scheme of information sharing that is present in other laws. If the income tax department wished to share information with the ED, or if the ED needed such feedback from the department, s. 138 of the Income-tax Act, 1961 already provides a mechanism for income tax authorities to share the information. Lastly, the protection given under the Right to Information Act, 2005 ('RTI Act') wherein certain government agencies have been kept outside the purview of sharing information, would be violated. If the information shared by ED resulted in any investigation by the recipient agency, the progress and findings of such investigation would (most probably) be excluded from sharing with any person, including any other government agency such as the ED, under the RTI Act.

Thus, where s. 66 only contemplates a flow of information from the ED to the recipient agency, and nothing beyond that, the ED cannot follow-up or compel the agency to take any action on the basis of such information.

VI. Conclusion

In the intricate tapestry of PMLA, s. 66 emerges as a vital thread, weaving together the principles of information dissemination, enforcement, and legal safeguarding. The judicial landscape surrounding this provision elucidates a nuanced understanding of its scope and implications.

The legal journey unveils a pivotal distinction - while s. 66(2) imposes a legal obligation upon the ED to share information with relevant agencies when it believes that a contravention of another prevailing law has occurred, the converse is not mandated. The authorities receiving this information are not bound to furnish a response, furnish updates, or enter into an ongoing discourse with the ED. This unidirectional flow of information signifies that the shared data, although a catalyst for necessary action, does not metamorphose into an immediate declaration of guilt. Instead, it navigates through the channels of proper legal procedures, gradually transforming assumption into substantiated fact.

The judicial precedents enumerated above collectively underscore a crucial tenet - while the ED is empowered to trigger the process of action through information sharing, the subsequent trajectory of the matter lies within the realms of the recipient agency's jurisdiction. The recipient agency's role becomes not one of compelled reaction, but rather a judicious evaluation of the shared information, with the prerogative to embark upon further investigation or not.

Footnotes

1. Regulation 14 of the Money Laundering Regulations, 1993 legislated by the UK Treasury to prevent the use of financial systems for the purpose of money laundering.

2. Peter Alldridge, Money Laundering & the Professions, in Money Laundering Law – Forfeiture, Confiscation, Civil Recovery, Criminal Laundering, and Taxation of the Proceeds of Crime 259–260 (2003).

3. Section 66(1) reads as under:

4. Notification No. G.S.R. 832(E) [F.No. 12011/8/2020-ES Cell-DOR], dated 22-11-2022.

5. Section 66(2) of PMLA reads as under:

6. 2022 SCC OnLine Del 3121

7. 2022 SCC OnLine SC 929

8. (2023) 1 HCC (Del) 399

9. (1992) 3 SCC 178

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