Why in News ?
US financial watchdog, Financial Crimes Enforcement Network (FinCEN) of the treasury department, has received 3,201 red flags or suspicious activity reports (SARs) involving Indian entities for suspected money laundering, terrorism, drug dealing or financial fraud.
- This investigative report is a collaborative effort of International Consortium of Investigative Journalists (ICIJ) and BuzzFeed News.
- It aims to trace the Indian entities and banks named in these SARs filed with FinCEN between 1999 and 2017.
Suspicious Activity Reports
- SAR are documents filed by financial institutions from banks to money exchanges and security brokers, to US authorities to report suspicious transactions.
- Such transactions have to be reported within 30 days of occurrence.
- There are a total of 3,201 transactions which have been listed as suspicious in nature
- These add to $1.53 billion but this is only those where complete Indian addresses linked to different entities (senders, banks, beneficiaries) are available
- These are just transactions highlighted for suspicious activities such as alleged round tripping, alleged layering of transactions, weak checks and balances, movement of wealth, alleged tax avoidance.
- Banks Involved
- Domestic branches of Indian banks have been used to receive or remit the funds.
- Also foreign branches of Indian banks have been used for suspicious transactions.
- A total of 44 Indian banks figure in these files.
- SARs nonetheless serve as signals to alert regulators and authorities regarding possible irregular activities.
About Financial Crimes Enforcement Network (FinCEN)
- FinCEN is a bureau of the U.S. Department of the Treasury and its mission is receiving and maintaining financial transactions data.
- FinCEN’s mission is to safeguard the financial system from illicit use.
- Also global cooperation with counterpart organizations in other countries and with international bodies.
- FinCEN serves as the foreign financial intelligence unit (FIU) for the United States.
- They act as a watchdog in order to combat money laundering and terrorism financing.
- Besides FinCEN used to follow money trails also have been applied to investigating and disrupting terrorist groups, which often depend on financial and other support networks.
Financial Intelligence Unit – India (FIU-IND)
- Financial Intelligence Unit – India was set by the Government of India as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions.
- FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes.
- FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
- Main function of FIU-IND is
- Collection of Information
- Analysis of Information
- Sharing of Information
- Act as Central Repository
- Coordination, Research and Analysis
What are the concerns over the transaction ?
- To what extent are the Indian investigative agencies aware of these suspicious transactions involve Indian citizens and firms
- Did these banks report these particular transactions, and flag them to the Financial Intelligence Unit-India (FIU-IND)?
- Considering the report the details of banking transactions indicate round-tripping, money laundering or dealings with shell companies that have to come under the shadow of the investigative agencies in India.
Money Laundering in India
What is Money Laundering : Defined under the (Indian) Prevention of Money-Laundering Act, 2002 (PMLA) as the offence of ‘directly or indirectly attempting to indulge, or knowingly assisting, or knowingly being a party or being actually involved in any process or activity connected with the proceeds of crime, including its concealment, possession, acquisition or use and projecting or claiming it as untainted property’.
- Money Laundering Enforcement Agencies are
- Primary enforcement authority under the PMLA
- Financial Intelligence Unit – India (FIU-IND) was set by the Government of India as the central national agency
- Securities and Exchange Board of India (SEBI) : SEBI has prescribed various know your customer (KYC) norms.
- Reserve Bank of India (RBI) : RBI has laid down anti-money laundering guidelines for banks and other financial institutions to follow.
- Insurance Regulatory & Development Authority of India (IRDAI) : IRDAI has issued anti-money laundering and anti-terrorism financing guidelines applicable to certain categories of insurers.
- Central Bureau of Investigation (CBI) – Economics Offences Wing
- Income Tax Department : The Income Tax Department under the Income Tax Act, 1961 is also authorised to take steps to prevent the offence of money laundering by imposing tax on undisclosed foreign income and assets on Indian residents.
- Enforcement Directorate (ED) : It is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
- Various Acts
- Benami Transactions (Prohibition) Amendment Act, 2016
- Foreign Exchange Management Act, 1999
- Narcotics, Drugs and Psychotropic Substances Act, 1985
- Fugitive Economic Offenders Act, 2018
- Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
- Various Forms of Money laundering Activity
- Smurfing
- Drug trafficking one of the complex form
- Bulk Cash Smuggling
- Cash intensive Businesses
- Trade based Laundering
- Shell companies
- Round tripping
- Gambling
- Stock Marketing and Insurance
- Smuggling of Gold and converting into money once received.
- Black salaries
- Tax amnesties
- Transaction laundering
- Some cryptocurrencies
- Convert money into virtual goods, services, or virtual cash
- Steps involved in Money Laundering
- Placement : Placing ill-gotten gains into the financial system.
- Layering : Once deposited the money is layered, or shifted through a series of transactions designed to create confusion and complicate the paper trail for investigators.
- Integration : During the final step laundered funds become legitimate and involves legal transactions, integration is regarded as the lowest-risk part.
International Agencies and Efforts
- Financial Action Task Force (FATF) : Global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society.
- FATF monitors countries to ensure they implement the FATF Standards fully and effectively, and holds countries to account that do not comply.
- United Nations Office on Drugs and Crime (UNODC)
- The Global Programme against Money Laundering, Proceeds of Crime and the Financing of Terrorism (GPML) of the United Nations Office on Drugs and Crime (UNODC) now administers and maintains IMoLIN on behalf of the following 11 partner organizations.
- International Organization of Securities Commissions (IOSCO)
- The International Organization of Securities Commissions (IOSCO) is the international body that brings together the world’s securities regulators and is recognized as the global standard setter for the securities sector.
- They also fight against Money Laundering in securities and futures markets.
Source : Indian Express
Topic
GS III : Money-laundering and its prevention
Current Affairs Compilation : 23 September 2020