Informist, Thursday, Sep 19, 2024

NEW DELHI – The Financial Action Task Force--a global anti-money laundering watchdog--has recommended India to speed up the prosecution process in money laundering cases and conclude proceedings on a timely basis, it said in a release today. "The country needs to address the backlog of money laundering cases pending conclusion of court processes," global body said in its 'Mutual Evaluation Report' for India released today.

While the report acknowledged India's robust economic growth and financial ecosystem, it said that the country needs to ensure money laundering and terrorist financing trials are completed and offenders are subject to appropriate sanctions, and a risk-based and educative approach towards non-profit organisations is taken. These were the primary recommendations made by the 40-member body that rated India "moderately" effective on its parameter of "money laundering investigation and prosecution" in the report, while saying the country was compliant in majority areas.

The Financial Action Task Force urged India to boost its "conviction-based confiscation" efforts by significantly increasing the capacity of both the courts and the Enforcement Directorate. The Enforcement Directorate recovered 393.7 mln rupees as conviction-based confiscations during the period under review--April 2018 to October 2022.

"On average, the Enforcement Directorate completes four confiscations each year with an average 17.2 mln rupees per confiscation following a conviction, and three confiscations with an average 9.7 bln rupees confiscated each year on a non-conviction basis," the report said. "....the backlog of cases is considerable and will require additional resourcing for these cases to be concluded," it added.

The number of money laundering convictions during the evaluation years has been impacted by a series of constitutional challenges and by the saturation of the court system, the global watchdog said.

On answering a question on India's future efforts to address this issue, Additional Secretary of the Revenue Department Vivek Aggarwal said that the newly launched Bharatiya Nyaya Sanhita provision which identifies criminal breach of trust, forgery, financial scams, Ponzi schemes, mass marketing frauds and cybercrimes will help in tackling money laundering-related prosecutions. Launched in December and effective from July this year, the provision under India's criminal laws will lead to severe penalisation of such organised crimes in India, Aggarwal told Informist.

"Our evaluation period ended before the BNS (Bharatiya Nyaya Sanhita) was launched, which is why we could not take the benefit of its provisions. This new classification will help in prosecution significantly and help us align with FATF's recommendation," said Aggarwal, who is also the Director of the Financial Intelligence Unit in India and was representing India at the Financial Action Task Force.

While India's Enforcement Directorate is able to investigate and prosecute more complex cases, and money laundering related to fraud and forgery, it is not able to succeed so much in human trafficking, migrant smuggling, and drug trafficking, the report further added.

Interestingly, when India was making a case for its success with financial fraud prosecutions, the representatives made an example of former Rajya Sabha member and businessman, now a fugitive, Vijay Mallya. After inheriting his father's business empire, Mallya had started Kingfisher Airlines in 2005, but the airline went defunct in 2012 after a burgeoning debt burden made it impossible for the loss-making airline to continue operations. The airline was also being investigated for suspected diversion of funds and financial irregularities.

The Enforcement Directorate had identified proceeds of crime to the tune of 112.9 bln rupees, of which 50.4 bln rupees were seized through two provisional attachment orders in 2016, the report released today said. That same year, Mallya was declared a proclaimed offender due to having absconded from India after facing heat from lenders following the collapse of the airline.

The Indian government is continuing to make efforts to extradite Mallya from the UK. In February 2019, UK Home Secretary approved the extradition, but the case is now pending in the London High Court, where Mallya filed an appeal against the order. In this regard, Aggarwal said that he was "very hopeful" that India will progressively do better in bringing back fugitives into the country and undertake relevant prosecution. "These are also political decisions," Aggwarwal added.

The Financial Action Task Force is an intergovernmental organisation established in 1989 as the international watchdog to combat money laundering, terror financing, and other related threats to the integrity of the international financial system. India became its member in 2010. In its report, the task force said the country was "compliant" and "largely compliant" on 37 out of 40 parameters evaluated as part of its assessment.

The three areas in which there is partial compliance include bank scrutiny of political figures' source of wealth and oversight of the finances of non-profit organisations and non-financial businesses and professionals.

Aggarwal said that India's primary risks to terror financing from non-profit organisations emanate from the fact that they are not centrally registered, so tracking their transactions becomes difficult. The Income Tax department's data is the only dependable data for central agencies, which shows 286,000 operational NGOs are in India, whereas the total number of NGOs in India is over 3 mln, Aggarwal said.

The report urged India to impose strict limits on cash transactions involving precious metals and stones as they posed risks for monitoring.

All said and done, the Financial Action Task Force placed India in the "regular follow-up" category--the highest rating given by the global watchdog and a distinction shared by only four other G20 countries. Countries rated under the 'regular follow-up category' are required to submit a follow-up report to the watchdog once in three years on a voluntary basis, which Aggarwal said the country will, in 2025.

Mutual evaluation of any country is a once-in-a-decade event and India's next round of mutual evaluation is likely to be undertaken in 2031. End

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

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