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Although India has made a serious bid to bring the criminalisation of money laundering in its Prevention of Money Laundering Act-2002 (PMLA) and amendment in 2005 and 2009 with “significant improvements,” the measures that were implemented did not do away with all shortcomings.
This is the broad conclusion of a report on observance and standards and codes by the Financial Action Task Force (FATF), an inter-governmental body comprising 34 member jurisdictions, including India, other developed countries and two regional organisations, representing most major financial centres in all parts of the globe.
Legal issues
Releasing the report in the public domain recently, the International Monetary Fund (IMF) has said the views voiced in the report — using the assessment methodology adopted by the FATF in 2004 and endorsed by the Executive Board of the IMF — are those of the FATF and do not necessarily reflect the views of the Government of India or the Executive Board of the fund.
It said the main sources of money laundering in India result from a range of illegal activities committed within and outside the country, mainly drug trafficking, fraud, counterfeiting of Indian currency, transnational organised crime such as human trafficking and corruption. While India has since mid-2009 increased its focus on money laundering, there are still some important and, in some instances, long-standing legal issues such as the threshold condition for domestic predicate offences that remain to be resolved.
Stating that effectiveness concerns are primarily raised by the absence of any money laundering convictions, the report said the very length of the court proceedings must be a matter of concern for the authorities as this does create an impression of ineffectiveness. It noted the efficacy of the confiscation provisions under the PMLA, the Narcotic Drugs and Psychotropic Substances Act-1985 and the Unlawful Activities (Prevention) Act-1967 as amended in 2004 and 2008 could not be assessed due to low numbers of confiscations under these Acts. However, confiscations of proceeds derived from predicate offences are frequent under the Indian Penal Code, it said.
Prosecutions
Pointing out that that there are only six prosecutions for money laundering and no convictions, the report said until there are convictions that illustrate the ability to gather evidence effectively and prosecute money laundering in separate proceedings, “the effectiveness of India's domestic coordination and cooperation mechanism cannot be demonstrated.”
In order to implement FATA Special Recommendation Rule IX, India uses a mix of declaration system, pursuant to the Foreign Exchange Management Act , which uses currency declaration forms (CDFs) and a disclosure system. The declaration and disclosure regimes apply to currency and Bearer Negotiable Instruments (BNI) carried by incoming and outgoing persons via airports and land borders checkpoints.
Yet, it said, the number of cash seizures on an annual basis is very low, given the very large number of people moving across India's borders; the cash-based nature of India's economy; the number of CDFs declared and the number of false declarations detected.
All this raises an issue about “the effectiveness of the implementation of both the declaration scheme for importing and the disclosure regime for export of currency and BNI's as required by SR IX.”
Even as India's record-keeping regime largely complies with the requirements of the FATF standard, with the February amendments to the PML rules having corrected most deficiencies, the report said a gap existed in the record-keeping requirements before those amendments could potentially have an impact, “since relevant records pertaining to transactions pre-dating Feb 2010 may be unavailable.”
Not under scanner
With approximately two million non-profit organisations (NPOs), foreign and domestic, India has not undertaken a review of its NPO segment, as envisaged by the FATF standards.
There has been no effective outreach to the NPO sector by the Government of India or State governments in relation to risks and vulnerabilities of the sector to terrorist financing abuse, it cautioned, questioning the Indian authorities response that the risk in the NPO sector is small.
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