Plan of Action after Receiving an ED Notice
The Enforcement Directorate (“ED”), a multi-disciplinary law enforcement agency in India initially formed under the Department of Economic Affairs, later transferred to Department of Revenue, Ministry of Finance is responsible for enforcing economic laws concerning the fight against financial crimes, with a primary focus on money laundering offenses, foreign exchange violations, and other financial irregularities. Pursuant to the enormous and wide-ranging powers given to the ED, receiving a notice from the ED can be a dreadful, formidable and intimidating process for the receiver. The complications associated with the ED notice and the rigorous effects it may have makes it crucial to get the right legal guidance and following an unerring procedure timely.
Receiving a notice from ED, whether it is issued for a violation of the Prevention of Money Laundering Act, 2002 (“PMLA”) or Foreign Exchange Management Act, 1999 (“FEMA”), does not always equate with receiver’s guilt; on the contrary it speaks about the initiation of an investigation worthy to be taken most seriously. The receiver needs to be aware of what consequences may follow after receiving the ED notice and shall essentially know the action points required to ward-off the grievous effects of the notice.
Through this elaborate guide, lets divulge into understanding the intricacies of receiving the ED notice along with the ways to navigate through the whole daunting procedure, right from response to the notice, extending to the in-person appearance and the investigation.
Grounds for issuance of notice by ED
The ED commands great plenitude of authority with respect to PMLA and FEMA to summon individuals for statements, investigate financial records, call for witnesses, and even forfeit and confiscate properties wherever necessary. Pursuant to this, it is imperative to understand the suspected reasons that may have subjected a person to receive an ED notice. In general, an ED may send out notices to you due to the following reasons:
- Suspicion of money laundering: Under the PMLA, the ED investigates individuals and businesses suspected of dealing with funds from illegitimate sources. ED may issue notice against the proceeds of crime derived from the offences scheduled under the PMLA.
- Alleged foreign exchange violations: If a person has committed a violation under FEMA and dealt with foreign exchange without proper authorization, then he may receive an ED notice.
- Unauthorised International remittances: Any foreign remittances carried out contrary to the laws of foreign exchange in India or disallowing the foreign investment regulations may also become a reason for receiving ED notice.
- Suspected involvement in financial crimes: If a person has facilitated transactions connected to illegal activities such as drug trafficking, organized crime, or corruption, then he may receive an ED notice.
- Connections to suspicious financial networks: If a person has indirect involvement or nexus with a suspicious financial transaction which is already subjected to investigation, then to understand the gravity of involvement the ED may issue notice to all the persons even if they have a minuscule connection with the financial transaction under investigation.
Pre-Investigation Stage
During the pre-investigation phase, the ED derives an internal review based on the information at their disposal. This could stem from leads developed by the police, information possessed by financial institutions, or suspicious activity reports (SARs) filed against the said subject. This review assists them in deciding whether there exists a prime facie case whereby a further investigation is warranted.
Issuance of summon by ED for document submission
After the pre-investigation phase, a summon may be issued by the ED, to provide details or cause an appearance, which shall be considered with utmost seriousness. The type of documents that the ED may ask for submission includes:
- Bank statements: Depending upon the nature of the investigation, ED may demand the bank statements whether personal or corporate.
- Property and investment details: ED may demand submission of documents of properties and/or investments owned by the receiver of the notice and his family.
- Tax returns: ED may ask for tax returns whether income tax returns or the goods and service tax (GST) returns.
- Corporate financial records: Financial records including balance sheets, profit and loss accounts, trial balance, etc may be demanded by the ED and various other corporate financial records.
- Foreign exchange transaction details: ED may on the basis of the nature of the case may ask details of the remittances, repatriation or any cross border foreign exchange dealings.
Response to the Summon:
After receiving the summon one should determine the nature of the offence that is being investigated. In most of the cases, the ED through a summon wants to know your role in the suspected transaction or how you may help in the investigation. The cooperative approach of the accused at this step may go a long way in his favour. Peruse the summon meticulously to understand what is required from you, and what the specified timelines for the documentation to be produced or your appearance before the ED.
The accused shall gather the requested documents carefully. If any records are missing the same shall be communicated to the ED in writing and request additional time if needed. The accused shall ensure that a lawyer reviews all documents before it is submitted, to avoid inaccuracies or omissions that could potentially complicate the case.
Appearance Before ED Authorities
After the documents are submitted the accused might have to appear in person before officials of ED for questioning. The summons mentioned here will specify the date, time, and location of the appearance. It is pertinent to note that the summon for appearance shall be taken with utmost seriousness as avoidance of the same may give grounds to ED for potential arrest of the accused. However, on the basis of the gravity of the case there are no guarantees that there will be no arrest on appearance before the ED.
During the appearance the ED will ask elaborative questions concerned with the case itself, connected persons, suspected networks, sources of funds and details of properties. Depending on the complexity of the case, there might be more than one occasion for questioning.
Initiation of investigation or inquiry by ED
Once the ED completes its initial inquiry by going through the documents and questioning the witnesses and/or accused, they will set in motion the formal investigation process. The powers that the ED has during this phase are broad and includes:
- Summoning for further documents and witnesses: In case the ED belief that any additional information or documents are required they may summon anyone holding such information/ document.
- Searching place, property, vehicle or person: The ED has power to search any place, property, or vehicle, break any safe or locker of the accused in order to carry out investigation or inquiry if they believe that carrying out such investigation will give him an opportunity to look into the requisite records that might aid in determining whether an illegal activity was conducted or not. Further, if ED have sufficient reasons to believe the involvement of any person in the alleged crime, they have power to search such person.
- Seizure and confiscation of properties and assets: The ED is bestowed with the power under PMLA and FEMA to provisionally seize or confiscate any property if they have sufficient reasons to believe the involvement of the property in the money laundering or other financial crimes.
- Tracing the money flow and interconnected transactions: The ED is empowered to freeze the bank accounts and finally related documents so that it can trace the money flow and interconnected transactions.
Attachment of Property
As per section 5(1) of the PMLA, the ED has power to provisionally attach any property or assets (including but not limited to bank account, real estate property, or movable property such as a vehicle or jewellery, etc) which they believe is related to the proceeds of crime. The said attachment at a later stage may or may not be confirmed by the Adjudicating Authority. The accused may contest the provisional attachment order in a special court if he has claims to prove that the attached property or assets are held through legitimate means.
Arrest of a person
ED can arrest a person under the PMLA if they have reasons to believe that the person is guilty of a scheduled offence. However, it is pertinent to note that the courts in various decisions have taken a stand that this power of ED is subject to certain restrictions and shall not be exercised arbitrary.
Conclusion
Receiving a notice from ED and undergoing the whole procedure may be menace, however engaging the right legal counsel at the right time may reduce or even obviate the grave impact of the ED proceedings. The ED works in solemn legal frameworks that have been introduced to eradicate economic offenses, hence a mere notice doesn’t imply guilt but in all the circumstances should be taken with utmost seriousness pursuant to the massive powers ED possess.
A&A team with their vast experience and expertise of economic, civil and criminal laws provide the required support services ranging from drafting accurate response to the summon along with documentation, evaluating the likelihood of arrest and offering strategic advice on securing bail on time, property attachment dispute resolution. It is pertinent to note that providing accurate information and the required cooperation to ED may avoid repeated appearances and summons and may go a long way in favour of the receiver of the notice. Thus content is originally posted on: https://www.ahlawatassociates.com Source: https://www.ahlawatassociates.com/blog/plan-of-action-after-receiving-an-ed-notice