The Telegraph
Since 1st March, 1999
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In January, the president gave his assent to the prevention of money laundering bill, 2002. It was the culmination of a process which began two years ago, when the problem of money laundering first received serious attention.

Checking money laundering has become one of the biggest challenges for global law enforcement agencies. It helps criminal groups to legitimize their ill-gotten gains from terrorism, smuggling, illegal arms sales, trafficking in narcotics and women as well as insider trading, embezzlement, bribery and computer fraud. With the internet, it has become more difficult to trace the illegal origins of criminal profits.

The Prevention of Money Laundering Act, 2003 is basically an endorsement of various international conventions to which India is a party. It declares laundering of money a criminal as well as an extraditable offence besides working out modalities of disclosures by financial institutions regarding reportable transactions. However, the act deals only with money that is being laundered out of the country, not with the offences committed within India. This has blunted the efficacy of the legislation.

In fact, political parties have largely diluted the stringent provisions of the original legislation. The parliamentary committee to which the bill was referred watered it down. The reworked bill, however, took a stronger stance against narcotics and terrorist funding, as it did against rebellion, culpable homicide, extortion, kidnapping, dacoity and prostitution.

Plug the holes

While including corruption by public servants, the act does not cover businessmen who falsify accounts and generate black money by under- or over-invoicing. Politicians or their relatives are not covered at all as they do not fit the act’s definition of “public servants”. Economic offences, barring counterfeiting and forgery, are not covered by this act. Strangely, even the Foreign Exchange Management Act, which is a much weaker act, takes into account these other offences.

The act, however, shows India’s commitment in the battle against hawala and the informal Islamic global money transfer system which channels money to terrorist groups like al Qaida. The government had earlier done little about the parallel banking system, since politicians used it to launder money from bribes. But now that there is enough evidence to show that it has been used by Kashmiri militants and the Mumbai mafia to access funds from Pakistani agencies, the government could no longer sleep on it.

Hawala operations in the Indian subcontinent are estimated to be worth Rs 20,000 crore annually. Only Pakistan appears serious in resisting moves to register and license hawala operators, though the United States of America and the European Union have stepped up pressure on it.

World wide net

The Securities and Exchange Board of India has signed agreements with its counterparts in the US, Malaysia and Mauritius for firmer control of the capital market. Mauritius, in particular, has long been a safe haven for money laundering.

By sharing confidential information on portfolio funds, market regulators will be able to keep tabs on money laundering. Mauritius has invited India to join the Egmonds Group, set up by the developed nations to curb economic offences and check tax evasion.

The United Nations general assembly has also decided to launch an international convention against corruption. A comprehensive anti-corruption treaty would commit the 189 member nations to return illegally transferred funds to their country of origin and enhance global cooperation against money laundering, financing of terrorism and similar crimes.

India has a long experience of difficulties in getting details of bank transactions owing to secrecy laws of banks in countries like Switzerland. Conventional ways of seeking international assistance on crime, such as gathering information through letters rogatory, take years bear fruit.

The UN convention against corruption is scheduled to be worked out by the end of this year.

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