Cautioning that the ‘hawala’ money in India is directly linked to terrorist financing,the US has suggested to New Delhi to strengthen its anti money laundering and counter terrorism-finance legislations.
It also recommended that New Delhi should work towards becoming a full-fledged member of Financial Action Task Force (FATF),an inter-governmental body for development of policies to combat money laundering and terrorist financing.
While noting that the Indian Parliament passed the Prevention of Money Laundering (Amendment) Bill,early this week,a US State Department report has suggested that India should make necessary legislative amendments to bring its anti money laundering and counter terrorism finance regime in conformity to FATF.
“Given the number of terrorist attacks in India and the fact that in India hawala is directly linked to terrorist financing,India should prioritise cooperation with international initiatives that provide increased transparency in alternative remittance systems,” said the report in its section on India related to money laundering.
The report,released by Assistant US Secretary of State for International Narcotics and Law Enforcement Affairs,David T Johnson,quoted RBI estimates that remittances to India sent through legal,formal channels in 2007-2008 amounted to USD 42.6 billion.
According to Indian observers,the report said funds transferred through the billion dollar hawala market are equal to between 30 to 40 per cent of the formal market.
“In that case the hawala market could amount to between USD 13 billion to USD 17 billion,” the report on International Narcotics Control Strategy,said.
Given the large number of expatriates,India continues to retain its position as the leading recipient of remittances,according to the World Bank.
India’s strict foreign-exchange laws and transaction reporting requirements,combined with banking industry’s due diligence policy,makes it difficult for criminals to use formal channels to launder money,the report said.
However,large portions of illegal proceeds are often laundered through hawala or hundi networks or other informal money transfer systems.
The report appreciated the steps taken by India post 9/11 with regard to money laundering and its possible use by terrorist network. However,several key steps are still required to be taken by New Delhi,it felt.
Listing out the steps New Delhi still needs to take,the report said India should become a party to the UN Conventions against Transnational Organised Crime and Corruption.
“Also,India should pass the Foreign Contribution Regulation Bill for regulating nongovernmental organizations including charities,” it said.
“India should devote more law enforcement and customs resources to curb abuses in the diamond trade. It should also consider the establishment of a Trade Transparency Unit (TTU) that promotes trade transparency; in India,trade is the back door to underground financial systems,” the report said.
The hawala system can provide the same remittance service as a bank with little or no documentation,at lower rates and with faster delivery,while providing anonymity and security for its customers,the report said.
According to the report,while most money laundering in India aims to facilitate widespread tax avoidance,criminal activity contributes substantially.
Some common sources of illegal proceeds in India are narcotics trafficking,illegal trade in endangered wildlife,trade in illegal gems (particularly diamonds),smuggling,trafficking in persons,corruption,and income tax evasion,it said.