Tighten regulation to curb money laundering: US to India

The Indian Government amended the Prevention of Money Laundering Act (PMLA) in order to strengthen its anti-money laundering/combating the financing of terrorism (AML/CFT) regime, the Obama Administration in its report 'International Narcotics Control Strategy Report Volume II Money Laundering and Financial Crimes' said.

The 238-page report, released on Monday at the Foggy Bottom headquarters of the State Department, said India "should extend the PMLA to dealers in precious stones and metals; real estate agents; lawyers, notaries and other independent legal professionals; and accountants."

Further tax reform, loosening of currency controls and facilitating the development of money transfer services should enhance the availability of legal alternatives to hawala and reduce money laundering/terrorist financing (ML/TF) vulnerabilities.

"Given the fact that in India hawala is directly linked to terrorist financing, the GOI (Government of India) should take action to provide increased transparency in alternative remittance systems," it said.

According to Indian observers, funds transferred through the hawala market are equal to between 30 to 40 per cent of the formal market, totalling between USD 13 and 17 billion.

The Reserve Bank of India estimates that remittances to India sent through legal, formal channels during fiscal year 2009 amounted to USD 46.4 billion.

"India should take measures to demonstrate that it is also applying the full range of its AML/CFT measures to transactions conducted under the Asian Clearing Union with Iran and other participating countries. India should become a party to the UN Conventions against Transnational Organised Crime and Corruption," it said.

"Also, India should pass the Foreign Contribution Regulation Bill for regulating nongovernmental organisations, including charities. India should devote more law enforcement and customs resources to curb abuses in the diamond trade,” the report added.

New Delhi should also consider the establishment of a Trade Transparency Unit (TTU) to promote trade transparency; in India, trade is the "back door" to underground financial systems.

Observing that some religious trusts and charities operate as sources of funds for terrorist organisations under anonymous/fictitious names, the report said India requires charities to register with the Registrar of Societies but enforcement of its regulations governing charities remains weak.

"The Foreign Contribution Regulation Act (FCRA) of 1976 regulates the use of foreign funds received by charitable/ non-profit organisations. Their coverage under the PMLA is a good step toward more effective oversight but is too recent to evaluate, it said.

"There are over a million charitable and private organisations registered in India. There is insufficient integration and coordination between charities' regulators and law enforcement authorities regarding the threat of terrorist financing, the report added.

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