Money laundering and terror financing by India?

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Amjed Jaaved

Indian media is never tired of describing Pakistan as a hub of money laundering and terror financing in the world.  Indian representatives echoed their babble in recent United Nations meetings also.

India makes no bones in declaring its intention to link Pulwama blasts with money trail to Pakistan. By doing so India hopes to get Pakistan blacklisted by Financial Action Task Force.

Little focus on money laundering and terror financing by India: Nowadays, Major powers’ geopolitical and economic interests have forced them to ignore suspicious financial transactions by India. However, not long ago, the world was more concerned about money laundering in India than in Pakistan.

Even the USA called upon India to do more to prevent the financing of terror networks. USA’s Assistant Secretary of State for Economic and Business Affairs Anthony Wayne told the Senate Banking Committee, ‘In India, two accounts belonging to terrorist individuals/entities have been identified, but the Government of India has not frozen any assets to date. It is aware of the UN 1267 Committee List, however’, Wayne noted that India’s Prevention of Money Laundering Act `criminalises money laundering and requires banks and other financial institutions and intermediaries to report individual transactions valued over US$ 23,000 to the financial-investigation unit’. Wayne added, ‘India has also indicated it wants to join the Financial Action Task on Money Laundering. However, at a recent FATF plenary meeting in Paris, concerns were raised regarding its ability to provide effective international cooperation in a timely manner and to extend mutual legal assistance’.

Here is a glimpse of corrupt India. World Bank estimated that capital flight of Rs 50 to 100 crore took place in four fertilizer plants projects via Italian firm Snam Projetti.  A minimum commission of seven percent was charged on imports of the public sector. Indian government paid no regard to the recommendations adopted by the Financial Action Task Force on money laundering, set up in July 1989 by the Paris summit of the seven most developed countries.  The conventional money-laundering techniques (smurfing, cover companies, etc.) are used to the hilt in India.  The average amount stashed away from India during 2002-06 is US$27.3 billion (about 136,466 crores). It means that during the 2007-2018 period, the amount stashed away is 27.3×15=US$ 4, 095 billion. Just imagine the volume of money stashed abroad since 1947, including the Nehruvian era when Birlas and Tatas gave a blank cheque to Congress.

Lid on laundered money lifted: To what end, the laundered money is put is anyone’s guess. However, a recent document-based report by the International Consortium of Investigative Journalists has blown the lid off the suspicious financial transactions by Indian banks, public and private sector companies.

The ICIJ report based on Financial Crimes Enforcement Network (FinCEN) files “represents less than 0.02% of the more than 12 million suspicious activity reports that financial institutions filed with FinCEN between 2011 and 2017.”

Earlier a study, conducted by Conflict Armament Research, had confirmed that seven Indian companies were involved in the supply chain of over 700 components including fuses or detonating cords used by the Islamic State to construct improvised explosive devices. Even the Sri Lanka blasts were linked to terrorists hiding in the Indian Southern States. As an eyewash, India arrested Islamic State moles. To bypass banking channels, even gold and diamond are `legal tender’ for money laundering.

How the FATF favoured India: In both India and Pakistan, money laundering is popularly known as hawala, or hand –to-hand-transaction. The Financial Action Task Force was scheduled to review India’s money laundering and terrorist financing regime, a ten-year cycle, in September-October 2020. But, it has been tentatively postponed to January February 2021 ostensibly `in view of COVID19 pandemic in India. The year-long review evaluates the `Indian legal system against financial crimes at its plenary meeting in February 2022 and subsequently issue a statement and recommendation about the country.

The FATF happily agreed with India that `it is impossible for assessed jurisdictions and accessories alike to conduct on-site visits and in-person meetings’ (no relaxation for Pakistan).

How India hoodwinked the 2013 FATF team: In the 2013 review, India managed to hoodwink the FATF by pleading that `it has set up a joint working group comprising 22 central investigation, intelligence-gathering and regulatory agencies to check illegal financial transactions. The agencies include the Central Bureau of Investigation. Enforcement Directorate, Income Tax Department, Directorate of Revenue Intelligence, Financial Intelligence Unit, Customs, Market regulator, Securities and Exchange Board of India,  banking regulator and insurance regulator TRDAL.

The 2013 review team was much impressed by Rahul Navin, a 1993-batch Indian Revenue Service Officer of the Income Tax Department debuted with the Enforcement Directorate. Navin who had earlier worked with the Organisation for Economic Cooperation and Development had authored a book Information Exchange and Tax Transparency: Tackling Global Tax Evasion and Avoidance.

How the ICIJ blew the lid off India’s US$ 2 trillion money laundering and terror financing: The International Consortium of Investigative Journalists based its report on two million Suspicious Activity Reports filed by prestigious banks with Financial and Crime Enforcement Network (FinCEN). The ICIJ report is just the tip of the iceberg. Its revelations are based on `only  0.02% of the more than 12 million suspicious activity reports that financial institutions filed with FinCEN between 2011 and 2017’. The US banks who filed reports include Deutsche Bank Trust Company Americas, BNY Mellello, Citibank, Standard-Chartered and JP Morgan. The reasons mentioned in the reports include `high-risk jurisdiction for money laundering or other financial crimes, adverse media or public information on the client’, unidentified parties, and the fact that source of funds and purpose of the transaction could not be ascertained’. Not only the banks but also the public and private sector companies were the culprits. They include Hindustan Aeronautics Limited, Bhushan Steel Limited, Bharti Airtel and Essar. Heretofore is a bird’s-eye view of the findings.

Indian banks figure in over 2000 transactions, linked to Indian entities, valued at over US$ 1 billion (Rs. 7, 369 crores) between 2011 to 2017. These banks include State  Bank of India,  Punjab National Bank, Canara Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank, and Indus Ind Bank.

Open Question: While the ICIJ has shared the information with Buzzword and 108 other media outfits, India’s `Special Investigation Team on Black Money’ stays mum. The SIT was formed on the directions of India’s Supreme Court.

Inference: The FATF should undertake an even handed investigation to India’s multi-faceted money laundering and terror financing.


Bio-page

Mr. Amjed Jaaved has been writing freelance for over five decades. He has served the federal and provincial governments of Pakistan for 39 years. His contributions stand published in the leading dailies and magazines at home and abroad (Nepal. Bangladesh, et. al.). He is the author of eight e-books including The Myth of Accession. He knows many languages including French and Arabic.