Title: Money Laundering: Combating the Menance in Global & Indian Context
Author: Arya Ashok Kumar
Edition: November 2003
Publisher: Taxmann
Cost: Rs 195
The Finance Minister, while presenting the budget for 2005-05, caused a pandemonium in the Parliament when he proposed a charge of Rs 10 on each cash withdrawal of Rs 10,000 from the banks. The rationale given was that the movement of cash in the economy should be monitored to discourage generation of black money. Brazil was quoted as a country where such a measure was taken. The critics rightly said that the economies of Brazil and India are very different and what is good for Brazil may not necessarily be the right for India. However, if the learned FM and his colleagues would have browsed through the book on Money Laundering, authored by one of the top officers of his own Ministry, they would have found out the following facts as given in chapter 5:
- Many countries have passed laws like the Bank Secrecy Act 1970 (BSA) of USA and the Financial Transactions Reports Act 1988 (FTRA) of Australia to counteract the use of banks and Financial Institutions by criminals to launder the proceeds of their illegal activities. The aim of the above Acts is to create a paper trail of suspicious activities and to reduce the secrecy regarding certain financial transactions.
- Every FI should file a Suspicious Activity Report (SAR) if it suspects or has reasons to suspect that a transaction involves illegally derived funds and is designed to evade BSA requirements. The FI enjoys a safe ‘harbour’ from any civil liability for any disclosure contained in the SAR.
- A Financial Institution should file a Currency Transactions Report (CTR) for each deposit, withdrawal, currency exchange or other payments or transfer exceeding US Dollars 10,000, giving details like who conducted the transaction and on whose behalf, amount and description of the transaction, its origin and destination.
Our own Prevention of Money Laundering Act (POMLA) does stipulate that the banks and FIs should maintain records of all transactions with relevant details, furnish information to the authorities with in the prescribed time in case the bank or FI has reason to believe that a particular transaction has been valued below the prescribed value so as to defeat the purpose of POMLA. Thus the budget-makers could have taken valuable data from the aforesaid book, which is a very useful compendium for those who are interested in the subject.
In addition to the above, the same chapter throws light on various other measures taken by many countries to combat black money. The USA has passed Money Laundering Control Act 1996 (MLCA) while Australia has enacted Proceeds of Crime Act 1987 (PCA), These Acts give a very comprehensive list of 170 criminal offences relating to money laundering. The USA PATRIOT ACT (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act) is a landmark law that provides effective tools to detect, investigate and prosecute money laundering. It has comprehensive instructions for FIs, securities brokers/dealers, foreign correspondent banks, enforcement agencies and ‘shell banks. It has international ramifications. The book also discusses the Financial Action Task Force (FATF) created by Group of Seven (G 7) nations covering 29 countries. The Task Force made 40 recommendations to combat money laundering covering general framework, law enforcement, financial system and its regulation and international cooperation. Recommendation Number 23 says that each country should have a system whereby the banks and FIs should report all domestic and international currency transactions above a fixed amount to a national central agency for monitoring. In fact, the measures taken by other countries appear to be far more stringent than the half-hearted provisions made in our own POMLA.
It appears that due to vested interests of different players in the political and industrial/business arena and the infamous nexus between the politicians and the criminals, the law-makers want go soft on this subject. The parallel economy has been accepted to be a fact of life and there is a lot of lip service and animated discussions on how to combat the evil, with out ensuring implementation of various provisions of the related law available on the Statute. There is no attempt by our lawmakers to make modifications in POMLA on the lines of legislation passed by other countries.
Chapter 6 of the book discusses the Indian scenario and the measures taken to scuttle money laundering like POMLA, relevant provisions of the Central Excise and Customs Act, Foreign Exchange Management Act, Income Tax Act, Benami Transactions Act, IPC, CRPC, Prevention of Corruption Act, COFEPOSA, Smugglers and Foreign Exchange Manipulators Act, Narcotics Act, etc.
The author draws his conclusions and recommendations in the last chapter, ie No. 7, and says there are a number of obstacles in combating money laundering, such as non-cooperation of certain countries that are reluctant to pass proper legislation what to say of implementation. There should be constant review of the implementation and any faults and weaknesses perceived should be rectified according to a specific action plan. There should be a nodal agency consisting of representatives drawn from the concerned departments of the government and Public/Private bodies on the lines of Financial Intelligence Unit (FIU) envisaged by FATF. There should be a separate cadre of Compliance Officers. Investment in technology should be made to prepare software to detect dubious transactions.
Chapter 1 of the book gives an overview and genesis of illegal money. Chapter 2 discusses the sources of black money and the criminal organizations involved in such nefarious activities in India and abroad. Chapter 3 goes into the details of the need and techniques of money laundering like by smurfing which means creating confusion in the minds of authorities watching such activities by using a large number of channels and personnel to carry and remit small sums that may not attract attention. Cash couriers are used and front companies are formed where illicit money is ‘layered’ by undervaluation and overvaluation of invoices, particularly in exports. Shell companies and nominee corporations provide obscure corporate ownership while there is hardly any manufacturing or value addition, generally at offshore centers. USA has banned shell banks from having access to US financial system under the PATRIOT Act. This chapter spells out in detail the use of banks and FIs as well as non-bank money dealers and insurance companies in the creation of black money. Use of derivative markets, e-commerce and cyber banking as emerging tools of money laundering has been discussed. India’s own contribution to the tools of black moneymaking, viz. Hawala, has been highlighted.
Chapter 4 states the volume and dangerous implications of black money in the economy and its deleterious impact on national security.
In fine, the book under review has succeeded in compiling comprehensive information along with analytical comments in a very lucid manner. One of the criticisms raised against the book is that it lacks anecdotal evidence, which the author could have included in view of his rich repository of experience as an officer at the apex of the Indian Revenue Service. Author’s position in the hierarchy must have hampered him to incorporate in the book information on the basis of his actual experience gathered in the course of his career.
For all those who are concerned with the monitoring and implementation of money laundering laws, the book will prove to be of immense use.
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