India faces money laundering, terror-funding risk: IMF

India, which has witnessed numerous terror attacks and still remains a potential target for such strikes, faces significant money laundering and terrorist financing risk, the IMF has warned.

The International Monetary Fund, in its report 'India: Observance of Standards and Codes FATF Recommendations for Anti-Money Laundering and Combatting the Financing of Terrorism', however, appreciated the steps taken by New Delhi to counter money laundering and terrorist financing.

The report dated July 2010 was released Monday.

"As a leader among the emerging economies in Asia with a strongly growing economy and demography, India faces a range of money laundering and terrorist financing risks," it said.

. . . 

"The main sources of money laundering in India result from a range of illegal activities committed within and outside the country, mainly drug trafficking; fraud; counterfeiting of Indian currency; transnational organised crime; human trafficking; and corruption," the report said.

"India continues to be a significant target for terrorist groups and has been the victim of numerous attacks. There are no published figures of terrorist cells operating in the country," it said.

Based on a threat assessment, India has identified the following major sources for terrorist financing (FT):

1. Funds/resources from organisations outside India, including foreign NPOs;

2. Counterfeiting of currency; and

3. Criminal activities including drug trafficking and extortion.

. . . 

According to the report, since mid-2009, India has increased its focus on money laundering and the use of the money laundering provisions.

However, there are still some important and in some instances, long-standing legal issues, such as the threshold condition for domestic predicate offences, that remain to be resolved.

Effectiveness concerns are primarily raised by the absence of any money laundering convictions, it said.

Key recommendations made to India include the need to:

1. Address the technical shortcomings in the criminalisation of both money laundering and terrorist financing and in the domestic framework of confiscation and provisional measures;

2. Broaden the CDD (customer due diligence) obligations with clear and specific measures to enhance the current requirements regarding beneficial ownership.

. . . 

It also recommended India to improve the reliability of identification documents, the use of pooled accounts, PEPs, and non-face-to-face business; ensure that India Post, which recently became subject to the PMLA, effectively implements the AML/CFT requirements; and enhance effectiveness of the STR reporting regime.

The report recommended India to enhance the effectiveness of the financial sector supervisory regime and ensure that India Post is adequately supervised.

It also asked to ensure that the competent supervisory authorities make changes to their sanctioning regimes to allow for effective, proportionate and dissuasive sanctions for failures to comply with AML/CFT requirements; and extend the PMLA requirements to the full range of DNFBPs, and ensure that they are effectively regulated and supervised.