India toughens law to check money laundering

NEW DELHI, June 11 (UPI) -- In a move to prevent money laundering, India has decided to bring all international payment gateways under the purview of a domestic law by amending the current Prevention of Money Laundering Act, which would be placed in Parliament in its next session scheduled to be held in July.

The federal Cabinet in a recent meeting took a tough measure against growing crimes relating to money laundering by bringing casinos, international credit card payment gateways such as VISA and MasterCard, full-fledged money changers and money transfer service providers such as Western Union under the purview of Indian laws.

It approved the amendment of the Prevention of Money Laundering Act, making it mandatory for these financial intermediaries to report all suspected transactions involving international transfers. A new category of offenses having cross-border implications also was included to the provisions of the act to prevent the transfer of funds related to international crime.

"The amendment bill will enable the government to meet certain domestic needs and international obligations," Information and Broadcasting Minister Priyaranjan Dasmunsi said.

The existing law against money laundering says only banks and other financial institutions are obligated to report suspicious transactions regularly to the financial intelligence unit set up under the Finance Ministry. Such transactions are forwarded by the FIU to enforcement agencies for action after scrutiny. The government decided to amend PMLA following reports of transfer of funds through credit cards by a number of persons with a criminal background. Besides, certain traders are engaged in under-invoicing of export bills.

Dasmunsi said deals struck through under-invoicing of export bills do not come under the purview of the act currently. In effect, through money laundering, monetary proceeds derived from criminal activity can be transformed into funds with an apparently legal source such as these financial intermediaries. The government said under the PMLA or any of the existing Indian Acts, FFMCs, MTSPs and international payment gateways are not within the scope of the reporting regime.

In order to remove this discrepancy, new definitions of authorized persons and payment system operators would be incorporated and the definition of financial institution would also be amended in the draft of the new law, which is being prepared by the Ministry of Law and Justice.

India's lone banking regulator, Reserve Bank of India, recently blocked the application of Swiss bank UBS for a banking license in India on the ground that it was involved in $8 billion money-laundering racket. RBI said it put the UBS application on hold because the bank failed to cooperate in a money-laundering case in which controversial Bombay-based businessman Hasan Ali Khan was involved. Khan is charged with large-scale breaching of India's currency controls. RBI investigators found the link between UBS and Khan, as the businessman had deposited $8 billion at a Zurich branch of UBS. They cited it as direct evidence for blocking the license of the bank.

The Finance Ministry has sought changes to the PMLA, which was enacted in 2002, as the Reserve Bank of India controls only domestic banks while money transfer service providers operate without any controls. The move is aimed at bringing global money transfer operators under the control of the Indian banking regulator. With the changes in the existing law, the government would be able to meet certain domestic and international obligations that it has committed at various international forums.

"The main objective of enacting PMLA, which was implemented from July 2005, was depriving terrorists and drug lords of money to fund their activities. The act failed to achieve its prime objective in the absence of an adjudicatory mechanism to deal with matters or disputes that arose under the law," said Avtar Singh Rawat, a senior lawyer at the Supreme Court.

The government decided to amend the Prevention of Money Laundering Act on the recommendations of the Financial Action Task Force, an intergovernmental body founded by the Group of Seven countries to develop policies to combat money laundering and terrorist financing.

India's intelligence and security agencies have been warning the government that money laundering has become an essential operating tool between terrorist groups and criminal gangs having transnational links. They have been receiving huge amounts of foreign funds to carry out their terror-related activities through hawala, a popularly known alternative remittance system in South Asia. A large number of India-based terror and insurgent groups and criminal gangs have been using hawala trade to receive large amounts from overseas to carry out their activities.

"Possessing means to launder huge sums is key for a terror group to successfully carry out its operations. It is important because financial institutions and many businesses are susceptible to money launderers," said Ravindra Dubey, a expert in security-related issues.

Of late, RBI has launched a pilot program at the national level to educate banks about money laundering and ways to counter it. RBI Governor Dr. Y.V. Reddy said the banking regulator commends the fund on the overall success of the pilot program and also welcomes the participation by the Financial Action Task Force and the FATF-backed regional bodies in the pilot program prepared to check money laundering. The primary objective of the pilot program has been achieved through the increase of international attention to Anti-Money Laundering/Countering the Financing of Terrorism issues.