Top agencies set up committee to probe trade-based money laundering

Mumbai: In an effort to check illicit money flows, three of the top investigative agencies in India have joined hands to set up a committee to probe cases related to trade-based money laundering, according to two senior government officials familiar with the development.

The committee, which was formed earlier this month, will include officials from the enforcement directorate (ED), directorate of revenue intelligence (DRI) and the income tax (I-T) department. The panel will share resources and jointly probe cases of trade-based money laundering, estimated to comprise 65% of the total money laundering cases that are currently being investigated in the country.

All the three agencies fall under the ministry of finance. While DRI looks into violations of customs law, including smuggling, ED probes violation of foreign exchange regulations.

Trade-based money laundering is the process of legitimizing illegal money transfers by misrepresenting the price, quantity and quality of imports or exports and circular trading of gold and diamonds among others to avoid direct and indirect taxes. The formation of the committee could play a part in checking increased instances of gold smuggling, which are believed to have risen due to quantitative restrictions placed on gold imports by the Reserve Bank of India last year.

“There has been a steady increase in the number of money laundering cases involving trade transactions. The DRI alone has registered over 400 cases related to trade-based money laundering in 2013,” said one of the officials mentioned earlier.

Instances of trade-based money laundering have doubled since 2009 to 1,561, according to data compiled by DRI in 2013.

Typically, the most common method used for trade-based money laundering involves over and under-invoicing of goods and services, multiple invoicing and under-shipments of goods.

In the last two years, the estimated loss to the exchequer through overvaluation of imports is estimated at ₹ 900 crore, according to a December 2013 DRI report reviewed by Mint.

“Conservative estimates suggest undervaluation to the tune of ₹ 2,000 crore per year on electronic goods alone,” the DRI report said.

The Financial Action Task Force has also identified trade-based money laundering as one of the three main channels through which criminal organizations move money.

The task force is a global inter-governmental body that promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and threats to the integrity of the international financial system. India is a member of the task force.

“Since all these agencies (ED, DRI and IT) have different expertise to tackle cases related to trade-based money laundering, a domestic task force combining the three can effectively utilize the resources to combat the menace,” said the second official.

A December 2013 report from Global Financial Integrity has also pointed out that from 2002 to 2011, India lost $343.93 billion to illegal outflows, making it the fifth-largest exporter of illicit money in the world. According to the report, India’s illegal outflows stood at $84.93 billion in financial year 2011.

The report said that trade mis-invoicing comprises the major portion of illicit outflows. It added that illegal capital flows accelerated following economic liberalization in 1991.