Countries/Jurisdictions of Primary Concern - India
India is a regional economic power and financial center with both formal and informal financial systems. India’s extensive informal economy and remittance systems, persistent corruption, onerous tax administration, and currency controls contribute to its vulnerability to economic crimes that include fraud, cybercrime, identity theft, money laundering, and terrorism financing. India’s porous borders and geographic location between heroin-producing countries in the Golden Triangle of Southeast Asia and Golden Crescent of Central Asia make it a frequent transit point for narcotics trafficking. Proceeds from Indian-based heroin traffickers are widely known to re-enter the country via bank accounts, the hawala system, and money transfer companies.
The high degree of corruption in Indian society generates and conceals illicit proceeds. The most common money laundering methods include opening multiple bank accounts to hide funds, intermingling criminal proceeds with assets of legal origin, purchasing bank checks with cash, and routing funds through complex legal structures. Transnational criminal organizations use offshore corporations and trade-based money laundering (TBML) to disguise the criminal origin of funds, and companies use TBML to evade capital controls. Illicit funds are also sometimes laundered through real estate, educational programs, charities, and election campaigns. Laundered funds are derived from narcotics trafficking, trafficking in persons, and illegal trade, as well as tax avoidance and economic crimes. Counterfeit Indian currency is also a problem, as criminal networks exchange high-quality counterfeit currency for genuine notes.
India remains a target of foreign and domestic terrorist groups. Several indigenous terrorist organizations coexist in various parts of the country; some are linked to external terrorist groups with global ambitions. Terrorist groups often use hawala and currency smuggling to move funds from external sources to finance their activities in India. Indian authorities report they have seized drugs for sale in India purchased by India-based extremist elements from producers and/or trafficking groups in neighboring countries.
India has licensed seven offshore banking units (OBUs) to operate in Special Economic Zones (SEZs), which were established to promote export-oriented commercial businesses. As of March 2015, there were 202 SEZs in operation, and 413 SEZs which have received formal approval but have yet to start operations. Customs officers control access to the SEZs. OBUs essentially function as foreign branches of Indian banks, but with defined physical boundaries and functional limits. OBUs are prohibited from engaging in cash transactions, can only lend to the SEZ wholesale commercial sector, and are subject to the same AML/CFT regulations as the domestic sector.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: NO
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: List approach
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks, merchant banks, and depositories; insurance companies; housing and non-bank finance companies; casinos; payment system operators, authorized money changers, and remitters; chit fund companies; charitable trusts that include temples, churches, and non-profit organizations; financial intermediaries; stock brokers, sub-brokers, and share transfer agents; trustees, underwriters, portfolio managers, and custodians; investment advisors; foreign institutional investors; credit rating agencies; venture capital funds and collective schemes, including mutual funds; and the post office
Number of STRs received and time frame: 76,149: July 2014 - April 2015
Number of CTRs received and time frame: 5,612,751: April 2014 - March 2015
STR covered entities: Banks, merchant banks, and depositories; insurance companies; housing and non-bank finance companies; casinos; payment system operators, authorized money changers, and remitters; chit fund companies; charitable trusts that include temples, churches, and non-profit organizations; financial intermediaries; stock brokers, sub-brokers, and share transfer agents; trustees, underwriters, portfolio managers, and custodians; investment advisors; foreign institutional investors; credit rating agencies; venture capital funds and collective schemes, including mutual funds; and the post office
money laundering criminal Prosecutions/convictions:
Prosecutions: 174: July 2014 - May 2015
Convictions: Not available
Records exchange mechanism:
With U.S.: MLAT: YES Other mechanism: YES
With other governments/jurisdictions: YES
India is a member of the FATF, as well as two FATF-style regional bodies, the Asia/Pacific Group on Money Laundering (APG) and the Eurasian Group on Combating Money Laundering and Terrorist Financing (EAG). Its most recent mutual evaluation can be found at: http://www.fatf-gafi.org/countries/d-i/india/
Enforcement and implementation issues and comments:
Although India has taken steps to implement an effective AML/CFT regime, deficiencies remain. While 2012 amendments to the Prevention of Money Laundering Act (PMLA) widen the definition of money laundering, the government has not changed its enforcement model. Observers and law enforcement professionals express concern about effective implementation and enforcement of the current laws, especially with regard to criminal prosecutions. Between July 2014 and April 2015, legal action against properties worth $769 million were confirmed at the initial level of appellate review. As of November 2014, the government had not won any court cases involving money laundering or confiscations. Law enforcement agencies typically open substantive criminal investigations reactively and seldom initiate proactive analysis and long-term investigations. Reportedly, a predicate offense is usually needed in order for a money laundering investigation to be truly successful, particularly in terms of sentencing. Money laundering investigations without a predicate offense are rarely successfully prosecuted in the Indian judicial system and even if they are, the resulting punishment is often minimal. Furthermore, while India has taken action against certain hawala activities, these successes generally stem from prosecuting primarily non-financial businesses that conduct hawala transactions on the side. A positive development is a significant increase in the reporting of suspicious transactions relating specifically to terrorist financing, especially with respect to transactions not involving sanctioned individuals and entities.
In October 2015, India began implementing its controversial Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act in an attempt to fulfill the government’s electoral promise to repatriate to India previously undisclosed and non-taxed financial assets. Some tax analysts and members of the business community call the new law draconian, given its potential for 10-year jail terms, hefty financial penalties, and lack of immunity from prosecution. India’s tax department has attempted to allay taxpayer fears of harassment and corruption by assigning enforcement responsibilities to senior officers and publicly clarifying the Act’s guidelines before any action is taken.
According to Global Financial Integrity, over the last decade India is one of the top four countries worldwide regarding the level of illicit financial outflows primarily based on TBML and abusive trade mis-invoicing.
Levels of training and expertise in financial investigations involving transnational crime or terrorist-affiliated groups vary widely at the federal, state, and local levels, and depend on the particular jurisdiction’s financial capabilities and perceived necessities. U.S. investigators have had limited success in coordinating the seizure of illicit proceeds with their Indian counterparts. While intelligence and investigative information supplied by U.S. law enforcement authorities have led to numerous money seizures, a lack of follow-through on investigative leads has prevented a more comprehensive offensive against violators and related groups. In 2015, the U.S. Drug Enforcement Administration worked a joint money laundering investigation with Indian counterparts that resulted in a series of arrests of Indian nationals involved in the laundering of narcotic proceeds derived from international drug trafficking organizations. These individuals had substantial money laundering ties to the United States and are currently pending trial in the Indian judicial system.
Although India is showing increasing capacity with regard to extradition, U.S. requests for extradition continue to be hampered by long delays which make the process of obtaining a fugitive from India slow. As with extradition, India is demonstrating gradually increasing ability to act on mutual legal assistance requests but continues to struggle with institutional challenges which limit their ability to provide assistance.
India should consider the regulation of traditional money or value transfer services and further facilitating the development and expansion of new payment products and services, including mobile banking. Such an increase in lawful, accessible services would allow broader financial inclusion of legitimate individuals and entities and reduce overall AML/CFT vulnerabilities by shrinking the informal network, particularly in the rural sector.
India should address noted shortcomings in the criminalization of both money laundering and terrorism financing, as well as its domestic framework for confiscation and provisional measures. The government should ensure all relevant designated non-financial businesses and professions comply with AML/CFT regulations. India’s current safe harbor provision is too limited and only protects principal officers/compliance officers of institutions who file STRs in good faith. India should extend its safe harbor provision to also cover staff or employees of institutions. The Government of India should seek to use data and analytics to systematically detect trade anomalies that could be indicative of customs fraud, TBML, and perhaps counter-valuation in hawala networks.