Government trains crosshairs on sectors exposed to money laundering and terror financing

The gems and jewellery sector is used for both consumption and generation of black money. Black money hoarders launder their money through this sector for protecting the value of their money from inflationary depreciation. On the other hand the real estate sector in India constitutes around 11% of the Indian GDP. Property investments are a common means of parking unaccounted money.

A large number of real estate related transactions are either under reported or not reported at all. This is mainly on due to the very high levels of property transaction taxes. Also real estate is a haven for parking black money due to its nature of appreciation.

These two sectors are most susceptible to money laundering. Currently these two sectors are particularly on the government’s crosshairs to prevent organized crime syndicates from using financial institutions to launder money and endanger the Indian economy.

According to the ED, the real estate sector in India has the maximum vulnerability towards money laundering activities. Also India is amongst those countries that use funds from money laundering in the diamond as well as gems & jewellery business.

The Finance Ministry has notified traders of precious metals and stones to maintain records of cash transactions (single or cumulative), worth Rs 10 lakh and over with any single customer. The Ministry has also announced that real estate agents having turnovers of over Rs 20 lakh will come under the ambit of Prevention of Money Laundering Act (PMLA).

The Indian government’s one more area of concern is that of international finances coming to non-profit organizations (NPOs). Some terror outfits have access to funds through some NPOs particularly in the northeastern states and Jammu & Kashmir. Last year, banks, financial institutions and RBI-authorized money changers had been alerted by the CEIB to keep a close eye on small deposits in dormant bank accounts and huge monetary flows linked to some of these NPOs operating in these regions.

A risk assessment is currently under way on a national level wherein various central agencies are tasked with scrutinizing sectors having exposure to money laundering and terror financing. India’s mutual evaluation of the Financial Action Task Force (FATF), a Paris-based inter-governmental body, is scheduled on the heels of this national risk assessment (NRA).

The FATF had recently retained Pakistan on its ‘Grey List’ following its non-compliance in taking actions against banned terrorist outfits as well as UN-designated terrorists. This resulted in denying them access to French financial institutions and banks.

India’s own FATF assessment has been postponed twice and is pending since 2019. Earlier, an internal assessment found lack of convictions in a large number of cases related to money laundering. Following this, the government had asked the Enforcement Directorate (ED) and CBI among other agencies to file time-bound chargesheets in a manner that will ensure convictions in cases where prosecution complaints have been filed.

The Central Economic Intelligence Bureau (CEIB) that comes under the wing of the finance ministry is in close coordination with various enforcement and intelligence agencies, including the RBI, to further improve the inter-agency cooperation. This will provide a boost in taking punitive actions against the entities engaging in terror financing and money laundering.

Moreover a plethora of shell firms have been deregistered by the Indian government over the past few years after they were found to be involved in money laundering without any real involvement in business activities. The department of revenue has been designated to conduct NRA on money laundering and terror financing. According to sources, India’s mutual evaluation of the FATF will be happening sometime around May 2022. Hence there is an urgent need to strengthen the legal and regulatory framework on the same foot with that of a changing environment.

Various efforts are under way in the area of central taxation laws, as well as many other laws, related directly or indirectly to the generation of black money. Curbing the menace of money laundering through vulnerable sectors will go a long way in impeding the threat of organized crime as well as terror financing.

Bibhudutt Ku. Das

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