Internet banking could turn out a high risk for the Indian banking industry when the country moves towards total convertibility.
Free access by bank customers to transact on-line is seen as a high risk services area, which without the necessary checks and balances, could see increase activity in money laundering.
Money laundering is a process to make illegitimate funds appear legitimate. About $1 trillion of illicit funds circulate worldwide, and approximately $400-500 billion is associated with the drug trade, and another $250 billion with US drugs sales.
Aside from electronic banking, high-risk industries prone to money laundering include diamond, auto dealerships, travel agencies, casinos, leather goods industries, stock brokers, retail chains, art and antique dealers, and off-shore corporations, among a host of others.
Even correspondence banking is of high risk nature as clearing banks overseas depending upon Indian banks to have undertaken a proper know your customer check. Indian banks have yet to wake up to the need of 'knowing your customer' and keeping a track on customers' accounts.
Citibank vice president and country compliance and regulatory head S Venkatachalam said that the government is going slow in moving towards full convertibility as the system has yet to gear up and put the necessary checks and balances in place.
"With the huge Indian population exceeding one billion, 40 per cent of whom have bank accounts, this leaves a wide door open for possible money laundering activities unless banks have the necessary checks and balances in place," he added.
"Today we do not have convertibility, but when it does come into force and one can remit funds worldwide, this will increase the risk of money laundering," said Venkatachalam. He was speaking on the sidelines of a one-day money-laundering seminar 'Practical Implications of the Money Laundering Prevention Act in India.'
Today an Indian cannot remit dollars overseas when he is earning in rupees, with the exception in the case of hospitalisation overseas, education and foreign travel.
In his presentation, Venkatachalam said that banks and financial institutions become victims of money laundering unless proper trigger points are enforced for individual accounts, especially those identified as high risks.