New Delhi: A global task force which tracks money laundering and terrorist financing across national borders, has raised doubts about the efficacy of India’s laws in combating this dual menace.
The multi-national Financial Action Task Force (FATF) is an inter-governmental organisation founded in 1989 by the G-7 (Group of seven industrialized nations) to develop policies to combat money laundering and terrorist financing.
FATF, which admitted India as its the 34th member in June this year, has in its report identified fund transfers from foreign non-profit organisations (NPOs), counterfeiting of currency, drug trafficking and extortion as “major sources for terrorist financing” in the country.
“India does not maintain a unified database for NPOs... statistics on the number of registered NPOs under the various statutes are not generally available in India. However, by government estimates, there are approximately two million foreign and domestic NPOs operating in India.
“India has not yet undertaken a review of its NPO sector, as envisaged by the FATF standards. There has been no effective outreach to the NPO sector by the Government of India or by state governments in relation to risks and vulnerabilities of the sector to terrorist financing abuse,” the report says.
In a scathing indictment of the effectiveness of the Indian laws to monitor and counter terror funds and money laundering, the report said, “except under the Income Tax Act and the Foreign Contribution (Regulation) Act, the NPO sector is subject to limited or no monitoring and supervision, but the NPOs registered under these Acts only account for a small number of entities within the sector.”
The FATF also expressed doubts about the effectiveness of laws like the Narcotic Drugs and Psychotropic Substances Act (NDPS) in existence since 2001 and the Prevention of Money Laundering Act, in force from 2005 in the country but there being a “total absence” of any money laundering convictions in these cases till date.
“In addition, given India’s vulnerability to terrorism and the large number of actual terrorist attacks per year, the number of terrorist related Suspicious Transaction Reports (STRs) also appears to be extremely low, raising further questions about the implementation and effectiveness of the STR reporting obligation,” the report added.
Banks and financial institutions submit STRs to the finance ministry’s Financial Intelligence Unit (FIU) which forwards to other investigative agencies all reports suspected to involve terror funding and money laundering.