Money laundering

Dear Editor,

This is to bring to the notice of your readers issues surrounding money laundering and in particular trade-based money laundering. The use of trade channels by money launderers is a fast growing menace not only in India but also the world as a whole.

The term money laundering came to prominence in India with the so-called hawala case, Vineet Narain v Union of India (1997). Hawala, which is from Arabic, refers to the transfer of money or information between two persons through a third person. India’s numerous efforts to curb money laundering are in keeping with the protocols at the international level. Yet there is consensus that domestic laws need to be strengthened.

In 2013, an article in the Sunday Guardian named India as one of the major money laundering countries of the world. The report highlighted the lack of proactive analysis and long-term investigations by law enforcement agencies in India. It also questioned the lack of follow-up on leads supplied by the US law enforcement agencies to Indian agencies.

International measures to combat money laundering include the Financial Action Task Force (FATF) – a multi-disciplinary body established by the heads of state of the G7 countries to encourage and develop anti-money laundering practices. In addition, INTERPOL, which today has 190 members, also works to combat cross-border crime.

Recently a fraud at Bank of Baroda came to light, when its foreign exchange business jumped from ₹449.8 million in 2013-14 to ₹215.3 billion in 2014-15. An internal audit report that was shared with Central Bureau of Investigation said this increase pointed to a money laundering fraud.

Investigations found that while all transactions were kept below the US$100,000 limit, as per the Reserve Bank of India rules, Bank of Baroda had failed to ask for proper documentation to establish that the imports had indeed taken place. There was also a lack of due diligence as required under know-your-customer norms. In addition, there had been slip-ups in the generation of exceptional transaction reports and suspicious transaction reports.

A report in the Business Standard quoted the Enforcement Directorate as saying that the problem is that traders evade custom duties and over-claim duties to generate slush funds. In this manner, unaccounted black money residing abroad is returned to India as white money. In addition, exporters generate extra income by misusing the government’s export incentive schemes.

How is this to be combated? While there is no doubt that domestic laws need to be strengthened, there is scope for regional cooperation to deal with illicit financial flows, mainly from tax frauds. In this regard a South Asian Regional Intelligence and Coordination Centre that is to be set up will allow quick and secure information exchange to combat global crimes. Such measures will ensure a holistic approach in the fight against money laundering across the world.

Devolina Chakravarti
LLM (Criminal & Security Law) student
Symbiosis Law School
Pune