As part of the global strategy to combat terrorism, the government is to strengthen the monitoring mechanism to track the flow of funds that go into terrorist activities through the hawala and money laundering routes.

Highly placed sources in the finance ministry told Deccan Herald that the government was considering amendment to the Prevention of Money Laundering Act (PMLA) to widen its scope to enhance vigilance against undisclosed and suspicious transactions.

The operations of casinos, full-fledged money changers and off-shore banks would be covered under the Act, sources said. Currently, all banks and financial institutions come under the PMLA and are supposed to keep records of all foreign exchange transactions for a period of ten years and report shady transactions to the government.

The PMLA requires banks and financial institutions to report individual transactions of over $23,000 to the government. If the Cabinet approves the proposal of the ministry the legislation amending the PMLA may be introduced in the forthcoming monsoon session of Parliament, sources said.

A report prepared by the ministry says though further tightening of the Prevention of Money Laundering Act will enhance vigilance against money laundering, the real challenge is how to track the flow of terror funds filtering through the hawala route.

A study by the US State Department on money laundering and terrorist financing in the Middle East and South Asia has pointed out that South Asia, especially Pakistan, is a hot spot for terrorist financing due to the presence of Al Qaida and other terrorist groups, porous borders, and cash-based economies that often operate through informal mechanisms, such as hawala.

India has recently agreed to exchange of information between the Financial Intelligence Units (FIU) and similar agencies abroad. It is considering joining the Financial Action Task Force (FATF) as a full-fledged member, sources said.