India faces money laundering, terrorist financing risk: IMF

Lalit K Jha

Washington, Jan 25 (PTI) India, which has witnessednumerous terror attacks and still remains a potential targetfor such strikes, faces significant money laundering andterrorist financing risk, the IMF has warned.

The International Monetary Fund in its report "India:Observance of Standards and Codes FATF Recommendations forAnti-Money Laundering and Combating the Financing ofTerrorism" however appreciate the steps taken by New Delhi tocounter money laundering and terrorist financing.

The report dated July 2010 was released Monday.

"As a leader among the emerging economies in Asiawith a strongly growing economy and demography, India faces arange of money laundering and terrorist financing risks," itsaid.

"The main sources of money laundering in Indiaresult from a range of illegal activities committed within andoutside the country, mainly drug trafficking; fraud;counterfeiting of Indian currency; transnational organisedcrime; human trafficking; and corruption," the report said.

"India continues to be a significant target forterrorist groups and has been the victim of numerous attacks.

There are no published figures of terrorist cellsoperating in the country," it said.

Based on a threat assessment, India has identifiedthe following major sources for terrorist financing (FT):funds/resources from organisations outside India, includingforeign NPOs; counterfeiting of currency; and criminalactivities including drug trafficking and extortion.

According to the report, since mid-2009, India hasincreased its focus on money laundering and the use of themoney laundering (ML) provisions.

However, there are still some important and in someinstances, long-standing legal issues, such as the thresholdcondition for domestic predicate offences, that remain to beresolved.

Effectiveness concerns are primarily raised by theabsence of any ML convictions, it said.

Key recommendations made to India include the needto: address the technical shortcomings in the criminalisationof both money laundering and terrorist financing and in thedomestic framework of confiscation and provisional measures;broaden the CDD obligations with clear and specific measuresto enhance the current requirements regarding beneficialownership. .

It also recommended India to improve the reliability of identification documents, the use of pooled accounts, PEPs,and non-face-to-face business; ensure that India Post, whichrecently became subject to the PMLA, effectively implementsthe AML/CFT requirements; and enhance effectiveness of the STRreporting regime.

The report recommended India to enhance theeffectiveness of the financial sector supervisory regime andensure that India Post is adequately supervised.

It also asked to ensure that the competent supervisoryauthorities make changes to their sanctioning regimes to allowfor effective, proportionate and dissuasive sanctions forfailures to comply with AML/CFT requirements; and extend thePMLA requirements to the full range of DNFBPs, and ensure thatthey are effectively regulated and supervised.