FATF‘s review on India must be crucial | By Syed Qamar Afzal Rizvi


FATF‘s review on India must be crucial

FATF’s review on India is overdue as it has been a decade since the international anti-graft body had made its review.

Slated to commence in 2020, the review process was delayed owing to the Covid-19 pandemic.

The upcoming mutual evaluation will be conducted by the Asia Pacific Group of the FATF, an inter-governmental body — to identify India’s national-level vulnerabilities with the aim of protecting the international financial system from misuse of money laundering and terror financing.

The last such review of India’s anti-money laundering and terrorist financing regime was held in June 2010 and it is usually taken up again after a period of 10 years.

Taking these petitions on record, the Indian Supreme Court issued a notice on a petition filed inter alia by Congress Member of Parliament, Karti P Chidambaram, on 25 August 2022 which seeks to review its 27 July judgment that upheld the power of arrest, attachment, search and seizure, conferred on the ED by the PMLA.

A bench, headed by the then Chief Justice N V Ramana, opined that prima facie, two aspects of the judgment upholding the provisions of the PMLA must be reconsidered.

The first provision is the absence of a legal requirement to provide an ECIR copy to the accused.

Whether a person being arrested can be denied a copy of the ECIR – the equivalent of an FIR in a criminal case – on the ground that it is just an internal document of the ED.

The second provision is on the reversal of the presumption of innocence or whether the law can ascribe the presumption of guilt on an accused as against the presumption of innocence in contrast to the cardinal common law principle of being innocent till proven guilty.

As per this re-scheduled assessment calendar, the technical evaluation of Indian anti-money laundering, countering terrorist financing and the role of relevant legal framework and agencies enforcing these measures would shortly be followed by an on-site visit of FATF experts to the country in February 2023, another official privy to the development said.

During this evaluation, Indian financial, regulatory and enforcement agencies are expected to showcase their action taken reports and dossiers for the enforcement, regulatory and investigative work undertaken by them under the anti-money laundering law, criminal tax evasion instance and for strengthening the CFT (combating financing of terrorism) regime.

The enactment of the Fugitive Economic Offenders Act in 2018, the anti-black money Act of 2015, amendments brought in the PMLA over the years, curbing tax evasion under indirect taxes by bringing in the GST (Goods and Services Tax), new protocols to better regulate suspect transactions in banks and financial intermediaries and the 2016 demonetization of two large currencies are part of the Indian presentation, an officer had said last year.

The high number of domestic and international attachment of assets and penalties issued under the PMLA 2002, amended in 2005, and charge sheets filed by various probe agencies under criminal sections of the law against financial crimes and terror funding will also be part of India’s presentation to the FATF review team.

Given a fair analysis of the Indian economy, there are certain areas where economic disarray appears, which should be seriously taken into account by the FATF body.

Most notably, black money defined by different terms—such as unaccounted income, underground income, black wealth, or black economy, shadow economy and unofficial economy–is rampantly used in India.

Findings show that every money regulator sector in India generates and uses black money for its survival in local and international market, society, etc.

And most exclusively, these sectors include the real estate, the financial market, the bullion & jewelry market, non-profit organisations and external trade.

In India, black money persists due to the existence of a demonstration effect model— the way to live a life in terms of other points of view— looking at others livelihood.

This overwhelming quest for a rapid social change in India has drastically affected the lifestyles of other people of the society who are maintaining considerable high status and in turn want to be like them.

For this, they want to generate money by any means. ‘’The Government of India came out with a White Paper on Black Money in May 2012 (Ministry of Finance, 2012), presenting the different dimensions of black money and its complex relationship with policy and administrative regime in the country which also reflected upon the policy options and strategies, the Government has been following to address the issue of black money and corruption in public life’’.

Nonetheless, the task of curbing black money is far more complex and prolonged which fundamentally requires new strategies and modalities to be exercised at the governmental level via stronger intervention of the State.

Despite the fact that the Benami Transaction Act 1988 was enacted in India, this Act could not stop the flow of black money/money laundering in India.

That said, the Non-Governmental Organisations (NGOs) in India, often have complex financial operations, including multiple donors, investments and currencies, often receiving and using cash, having to account for high volume of small transactions and using informal money transfers.

A total of 43,527 NGOs is registered under the Foreign Contribution (Regulation) Act, as of March 31, 2012.

As per the new stipulations, NGOs responsible of receiving more than Rs.11,500 crore ($1.9 billion) in foreign funds annually will have to be accountable.

The Indian Home Ministry has recently warned that the NGOs could be vulnerable to risks of money laundering and terror financing.

And arguably, some NGOs may work within or near those areas that are most exposed to terrorist activity or the money laundering activity.

NGOs may have unpredictable and unusual income and expenditure streams, so suspicious transactions may be harder to identify.

It can be further argued that since FATF’s last review on India in 2010, there remains a high magnitude of financial and economic anomalies that come under the ambit of the FATF technical review.

Thus, the cases of money laundering and terror financing in India require apolitical and impartial scrutiny by the international anti-graft body.

In order to prevent FATF’s grey list benchmarking, India needs a comprehensive reform model in its tax laws.

And above all, a comprehensive financial scrutiny at both domestic and international levels, is an all-time need.

—The writer, an independent ‘IR’ researcher-cum-international law analyst based in Pakistan, is member of European Consortium for Political Research Standing Group on IR, Critical Peace & Conflict Studies, also a member of Washington Foreign Law Society and European Society of International Law.

He deals with the strategic and nuclear issues.