The Hindu Business Line : <I>Tracing source of terrorist funds </I>

The to-do in the media following the mention by the National Security Adviser, Mr M. K. Narayanan, at the Security Conference at Munich on February 11, of the likely sources of funds tapped by terrorist organisations was overblown. Actually, Mr Narayanan said nothing of which counter-terrorist agencies all over the world were not seized almost from the time of the catastrophic strike of 9/11.

It was known, for instance, that terrorist outfits, the LTTE being the most notable among them, set up legitimate business enterprises such as restaurants, real-estate, and shipping and utilised part of the proceeds to siphon off funds for terrorist activities. The possibility of misuse of banking channels, particularly from safe havens of Dubai or the UAE, and the use of bogus or genuine ATMs by terrorists is not also an earth-shaking revelation.

Similarly, terrorist groups plugging into stock markets through fictitious or notional companies and getting funds through seemingly normal transactions or downright manipulation was also something that had been within the ken of industrial nations for quite some years.

In fact, the modalities of tracing the source of terrorist funds in the form of stringent statutory provisions for watching over money laundering and strengthening surveillance mechanisms have been part of enactments of several countries.

The real surprise lies in Mr Narayanan's statement about some of the players in the Mumbai and Chennai stock exchanges being later found to be linked to terrorist organisations. From my best enquiries, no terrorist firm seems to have come, or been brought, to the notice of either stock exchange, or to the regulator, the Securities and Exchange Board of India (SEBI). The people are entitled to know when the stock exchanges were notified about this grave intrusion, and when they, in turn, passed on the information to the SEBI, as they were duty bound to do.

Looming threat

That India's capital markets are in danger of coming under the clutches of interests inimical to the country's security and stability opens up a terrifying prospect. Intriguingly, following the commotion over Mr Narayanan's remarks, the Government has observed total silence about the respective roles played by the departments and agencies in warding off the looming threat.

At first sight, the Finance Ministry and the Reserve Bank of India (RBI) seem to bear the primary responsibility in this respect. For, the Prevention of Money Laundering Act, 2002, makes it mandatory for "every banking company, financial institution and intermediary" to "maintain a record of all transactions, the nature and value of which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, and where such series of transactions take place within a month" and "verify and maintain the records of the identity of all its clients".

Also, it is the Capital Market Division of the Department of Economic Affairs that functions as the secretariat and convenor of the High Level Inter-Regulatory Coordination Committee on Financial Markets, established to act in a concerted fashion on issues affecting financial and capital markets. As such, people expect the Finance Ministry to set at rest the alarms created by Mr Narayanan's observations.

The SEBI launched an integrated market surveillance system in June 2005, intended, in the words of the Whole-Time Member, Mr G. Anantharaman, "to detect abnormalities in the trading patterns and market manipulations on a real-time basis and enable it immediately step into action and curb such unfair trade practices". The extent of its effectiveness as a handy weapon against anti-national interlopers is also a matter of public interest.

B. S. RAGHAVAN

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