Panel bats for system to check money laundering

Says rules must be stringent to stop menace

Concerned over possible flow of tainted money in capital markets, a Parliamentary committee suggested setting up of monitoring and coordination mechanism by all regulatory and intelligence agencies including RBI, Sebi and Enforcement Directorate to deal with the menace of money laundering.

While approving the Prevention of Money Laundering (Amendment) Bill, 2011 with some modifications, the Standing Committee on Finance said that scrutiny of fund flows into the markets cannot be left to individual banks.

“As tainted money flowing into markets remains a distinct possibility...suitable amendments may be made in the Bill to monitor and curb possibly money laundering taking place through stock/securities markets,” said the report which was tabled in Parliament. The committee is headed by former Finance Minister and senior BJP leader Yashwant Sinha.

It further said “all the regulatory and intelligence agencies including the RBI, Sebi, FIU (Ind), the Enforcement Directorate, the Director of Revenue Intelligence and Investigation Wing of Income Tax Department should set up a monitoring/coordination mechanism for this purpose, while remaining alert to financial flows”.

The government had proposed to amend the Prevention of Money Laundering Act, 2005, to update the provisions for combating money maundering and terror financing. This is in line with standards set by the inter-governmental body Financial Action Task Force (FATF) and its own experience in dealing with the menace. The Committee has also suggested the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) should set up their own coordination mechanism to “properly monitor” flow of funds into stock and securities markets. Noting the Participatory Notes (PNs) being issued by the Foreign Institutional Investors (FIIs) are being regulated by the Sebi, it regretted that “other investments in the stock markets including foreign currency flows by both individual and institutional investors are not being monitored by Sebi”.

In view of widespread perception of tax avoidance and evasion and incidence of under-reporting of production and over-invoicing of imports, the Committee suggested that Revenue Department should plug loopholes in the existing framework to prevent generation of unaccounted money.

It also wanted the department to monitor and check possible incidence of trade-based money laundering, which mainly include over-invoicing of imports and under-invoicing of exports. “The committee would recommend that the definition of reporting entities may be widened so as to include categories such as travel agents, vehicle sellers or dealers, who deal in large value cash transactions,” the report said.

The Committee has suggested that appropriate parameter should be developed to define the nature and scope of “suspicious transaction and its beneficial ownership” in the Act.

The Panel recommended that an “appropriate declaration from the consumers may be secured in the case of safe deposit lockers maintained by banks, so that the ordinary bank customer is not inconvenienced”. The Committee also wanted the fine for violation of PMLA provisions to be imposed only on those directors and employees who are responsible for day-to-day functioning of the business entities.