Currently, the US Department of Treasury’s watchdog (Financial Crimes Enforcement Network, FinCEN), has released a revelatory report that exposed India’s financial malversation and illegalities as at least 44 Indian banks are involved in money laundering of $1.53 billion through 3,201 suspicious transactions.The said report unravels the money laundering and facilitation to terrorists in India after the US banks filed a set of Suspicious Activity Reports (SARs) against 44 Indian banks over transactions made by different entities and individuals who committed illegal transactions. Obviously, India’s case of money laundering highly correspondswith the FATF’s pointed red flag regulators/ indicators. India’s suspicious transactions may also be alleged to economic terrorism.
Currently, the FinCEN files investigation identified more than two trillion dollars’ worth of transactions stipulating the period- between 1999- 2017. The transactions had been flagged in more than 2,100 reports by nearly 90 financial institutions. Indian banks with suspicious transactions as alleged in the SARs domestically include Punjab National Bank, State Bank of India, Bank of Baroda, Union Bank of India, Canara Bank, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank and IndusInd Bank, among others. US banks that have filed SARs about Indian banks include Deutsche Bank Trust Company Americas (DBTCA), BNY Mellon, Citibank, Standard Chartered and JP Morgan Chase, among others. As per the investigative reports, five banks – Deutsche Bank, Bank of New York Mellon, Standard Chartered, JPMorgan and HSBC – have had violated their official promises of good behavior.
The International Consortium of Investigative Journalists (ICIJ reported, ” these banks kept profiting from powerful and dangerous players even after U.S. authorities fined these financial institutions for earlier failures to stem flows of dirty money.The ICIJ worked with BuzzFeed News and 108 other media partners on the investigation. The ICIJ investigation revealed that over an 18-year period, banks moved over $2 trillion globally, which they believed were suspicious. ICIJ said the SARs only describe the potential illegal activity and are not considered to be, and do not purport to be, proof of any violation of the law. Clearly, these documents show that Indian banks are listed in SAR related to over 2,000 transactions valued at over $1 billion between 2011 and 2017.
For justice and fair play, the FATF’s institutional functioning must be void of political polarization. Given the current revelations/ optics of the FinCEN report, it is argued that FATF must put India on its grey-list while reviewing India’s case next year
The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. The first mutual evaluation report (MER) of India was adopted on 24 June 2010. India was placed in a regular follow-up process for mutual evaluation processes. Nonetheless, in the context of its membership application and discussion that took place at the June 2010-FATF Plenary, India presented a detailed Action Plan to improve compliance of its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime.
The Reserve Bank of India (RBI) — formed under the RBI India act 1934– has authority over banks and financial institutions, and non-banking finance companies in India and sets the legal parameters by which those institutions must operate. RBI is the central bank of the country whereas SBI is the oldest and largest public sector bank.As a central bank, the RBI issues currency, manages foreign exchange and acts as a banker for both the government and commercial banks. The RBI’s supervisory authority is directed by its Board for Financial Supervision, which meets once every month to deliberate on regulatory issues. In its regulatory and supervisory role, the RBI has a broad range of duties and responsibilities, including; issuing licenses to banks wishing to conduct business in India or open new branches; inspecting banks and financial institutions for compliance with RBI regulations; developing and implementing AML/CFT regulations; pursuing FATF AML/CFT policy; and issuing directives to non-banking financial institutions that are not influenced by monetary policy.The Foreign Exchange Management Act 1999 (FEMA) was enacted to promote the orderly development and maintenance of India’s foreign exchange market.
As per the records investigated by The Indian Express show that four- wire transfers totalling $5.6 million were made to Adani Golbal PTE’s Trust and Retention account at ICICI Bank in Singapore in July 2013. In its SAR, BNYM underlined that in addition to the shell-like nature of the sender (Thionville Financier Ltd), the wire transfers looked “suspicious” since they were sent in “high round-dollar amounts.” (Round-dollar amounts refer to transactions rounded off to exact hundred or thousand, like 50,000 or 100,000). These suspicious transactions are related to Indian entities and businessmen where the Indian shippers or recipients have addresses in foreign jurisdictions.
Rightfully, when the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolving swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the ‘grey list’. Furthermore, the FATF and FATF-style regional bodies (FSRBs) continue to work with the respective jurisdictions to report on the progress made in addressing the identified strategic deficiencies. The FATF calls on these jurisdictions to complete their agreed action plans expeditiously and within the proposed timeframes.
Objectively, the FATF conducts “peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF recommendations and provides an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system.” Yet interestingly, the FATF, in its 2013-review stated, “India had made significant progress in addressing deficiencies identified in its mutual evaluation report and (the FATF) decided that the country should be removed from the regular follow-up process. As for the FATF’s assessment of India, the FATFmutual evaluation of India’s anti-money laundering regime and legal measures framed to check financial crimes, scheduled for this year, has been postponed till early next year in view of the coronavirus pandemic”, officials said. The last such review was conducted in June 2010.
Against the FATF’s recommendation, presently, India’s anti-money laundering rules do not talk about monitoring Politically Exposed Persons, or PEPs, as there is no mention of PEPs in the Prevention of Money Laundering Act (PMLA).Though the Financial Action Task Force (FATF) in June 2018 had placed Pakistan on the grey list of countries whose domestic laws are considered weak to tackle the challenge; the new report on India’s financial illegalities /irregularities is an eye-opener to the FATF member states. For justice and fair play, the FATF’s institutional functioning must be voidof political polarization. Given the current revelations/ optics of theFinCEN report, it is argued that FATF must put India on its grey-list while reviewing India’s case next year. Whereas currently, Pakistan has taken a bold initiative on making legislations as per the FATF’s recommendation, Pakistan’s case is a great fit for coming out of the FATF’s grey list.
The writer is an independent ‘IR’ researcher and international law analyst based in Pakistan