India, which has witnessed numerous terror attacks and still remains a potential target for such strikes, faces significant money laundering and terrorist financing risk, the International Monetary Fund (IMF) has warned.
IMF, in its report ‘India: Observance of Standards and Codes Financial Action Task Force Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism’, however, appreciated the steps taken by New Delhi to counter these threats.
The report, dated July 2010, was released on Monday.
“As a leader among the emerging economies in Asia, with a strongly growing economy and demography, India faces a range of money laundering and terror financing risks,” it said.
“The main sources of money laundering in India result from a range of illegal activities within and outside the country, mainly drug trafficking, fraud, counterfeiting of Indian currency, transnational organised crime, human trafficking, and corruption,” the report said.
“India continues to be a significant target for terrorist groups and has been the victim of numerous attacks. There are no published figures of terrorist cells operating in the country,” it said.
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Based on a threat assessment, India has identified the following major sources for terror financing: Funds/resources from organisations outside India, including foreign NPOs; counterfeiting of currency; and criminal activities, including drug trafficking and extortion.
According to the report, since mid-2009, India has increased its focus on money laundering and the use of the money laundering provisions.
However, there are still some important and, in some instances, long-standing legal issues, such as the threshold condition for domestic predicate offences, which are yet to be resolved.
Effectiveness concerns were primarily raised by the absence of any money laundering convictions, it said.
Key recommendations include the need to address the technical shortcomings in the criminalisation of both money laundering and terror financing and in the domestic framework of confiscation and provisional measures; and broaden the due-diligance obligations, with clear and specific measures to enhance requirements regarding beneficial ownership.
It also recommended India improve the reliability of identification documents, the use of pooled accounts, PEPs, and non-face-to-face business; ensure India Post, which recently became subject to the Prevention of Money Laundering Act, effectively implemented the anti-money laundering/combating the financing of terrorism requirements; and enhance effectiveness of the suspicious transaction reporting regime.