Fearing possible money laundering and terror-financing risks from Iran and North Korea, the Reserve Bank of India (RBI) has asked banks and other financial entities to be cautious in dealings with entities and funds from these countries.
The RBI warning follows a fresh global caution notice issued by the Financial Action Task Force (FATF) on Iran and Democratic People's Republic of Korea.
The FATF is an inter-governmental body responsible for making policies at national and international levels to combat money laundering and terror-financing.
The RBI said the FATF has issued a fresh public statement on February 25, 2011, "calling its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and the Democratic People's Republic of Korea (DPRK)."
"All banks and all-India financial institutions are accordingly advised to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including financial institutions) from or in these countries/jurisdictions," the RBI said in a March 24 circular.
A similar circular could be issued soon by the market regulator Sebi to warn market entities against their dealings with funds and entities related to these two countries.
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An FATF public statement in this regard is always followed up by various regulators in India and other member countries asking the entities regulated by them to exercise extra caution in dealings with countries where anti-money laundering and terror-financing regulations have deficiencies.
The RBI and Sebi had last issued such a warning in January about Iran, pursuant to a directive from the FATF.
India became a member of the FATF last year. Following the nation's accession into the global body, it is required to follow the global standards prescribed by the FATF to check money laundering and terror-financing activities.
As per the FATF warning, all financial institutions have been advised to give special attention to business relationships and transactions with Iran and North Korea, as well as their companies and financial institutions.
The FATF has urged member countries to take into account the risk of money laundering and terror-financing when considering requests by Iranian and North Korean financial institutions to open branches and subsidiaries.
Iran and North Korea have been subjected to various sanctions by the US and some European countries to thwart the flow of funds allegedly used to finance their nuclear weapon ambitions and sponsor terror-related activities.