India’s financial failings and terrorism

Involvement of Indian political workers, bureaucrats in illicit financial activities is stain on nation’s reputation

Despite the grave consequences of money laundering and terrorist financing, which include the perpetuation of terror attacks, rebellion and violence, India remains alarmingly complacent. Even with its membership in FATF, India’s efforts are underwhelming at best. Praise for its anti-money laundering measures is largely misplaced, as a deeper probe exposes glaring inadequacies. The nation’s slow regulatory response to the rapid technological advancements not only jeopardises its own financial system but also poses a menacing threat to the stability of the South Asian region.

India, often self-praised for its anti-money laundering and terrorist financing frameworks, disappointingly reveals extensive gaps upon closer examination. Its dominant regional presence is overshadowed by its problematic informal financial systems, which pose a significant concern for South Asian stability. It’s evident that the rapid technological advancements have far outstripped India’s regulatory capacity, resulting in pronounced vulnerabilities in the digital financial realm. Given the ongoing regional tensions, India’s financial negligence could spell disaster for its neighbours.

While many countries strive to perfect their AML/CFT regimes, India’s efforts appear more like a stagnant and incomplete project rather than a proactive initiative. The nation boasts key legislations such as the Benami Law of 1988 and the AML Law of 2002. Numerous agencies, including CBI and NIA, supposedly oversee these efforts. Yet, the sheer population size, coupled with lacklustre oversight, renders these measures largely ineffective. The 2013 evaluation showcased India’s mere partial compliance, emphasising an overdue review. Unfortunately, this review was conveniently postponed, citing the pandemic as a reason. The recent 46-page shadow report paints a grim picture, spotlighting numerous instances of India’s defiance of FATF standards and its blatant disregard for implementing recommendations from the 2010 MER report. This report glaringly underscores the absence of a holistic assessment of India’s financial institutions. The FATF has recently disclosed a case of a 60 million INR fraud that hasn’t been properly investigated by the enforcement directorate (ED). It is concerning that India has a lot of loopholes in their laws and regulations while tackling AML and TF. The enforcement directorate (ED) secured convictions of only 15 entities, During the past 14 years, ED has registered 2,300 cases of ML and 14,000 cases of forex violation. ML Conviction and Confiscation Outcomes do not commiserate with one of the largest economies in the world ($2.67 trillion GDP).

The involvement of Indian political workers and bureaucrats in illicit financial activities is a stain on the nation’s reputation. While India parades its democratic ideals, the reality paints a far grimmer picture. Rampant corruption, inadequate oversight and a blatant disregard for international standards are becoming synonymous with India’s financial landscape. In the Suspicious Activity Report submitted by the Bank of New York it was disclosed that multiple transactions ranging from $50,000 to $100,000 were sent from the US to India. These transactions involved businessmen, Indian shippers or individuals, with addresses, in jurisdictions.

It’s no secret that FATF has continually spotlighted India’s inadequate efforts. Yet, instead of taking these observations as a call to action, India seems more interested in sidestepping responsibility. The nation’s financial institutions, which should be the bulwark against illicit activities, are repeatedly caught in scandals, further eroding trust.

The international community’s patience is wearing thin. India’s inability, or perhaps unwillingness, to address its glaring AML and CFT deficiencies is not only a domestic concern but a global one. While other nations invest time, resources and expertise to bolster their financial systems, India seems content playing a dangerous game of catch-up.

FinCEN, the Financial Crimes Enforcement Network, has recently discovered cases of corruption and illegal activities in 44 banks in India. These banks have been involved in money laundering schemes amounting to $1.53 billion executed through a total of 3,201 transactions. FinCEN discovered several transactions totaling over two trillion dollars. These transactions took place between 1999 and 2017, raising concerns as they were mentioned in more than 2,100 reports submitted by almost 90 various financial institutions.

India demonetised its INR500 and INR1000 currency notes in 2016 to curb AML and TF but it has failed severely. India is investigating 1.8 million bank accounts and 200 individuals who are related to unusual bank deposits and transactions during the demonetisation process. Demonetising currency does little to impede the fresh creation of undeclared income or black money. Most of India’s black money has been invested in real state, gold and jewellery and other forms of property. It is way easy for India’s people to convert their black money into white money and Indian government is not taking any measures to prevent it.

India has become the fastest-growing hub for cryptocurrency globally, boasting the largest share of crypto users worldwide. The total number of crypto users reached almost 674 million in 2023, marking a significant increase of 244 million from the previous year, with around 30% coming from India. Bitcoin casinos report that the number of crypto users in India has surged from under five million in 2017 to over 206 million in 2023. Chainalysis, in its 2023 report on crypto adoption, ranks India at the top globally. These impressive strides showcase India’s noteworthy performance in the cryptocurrency network. There’s a surge in significant scams involving cryptocurrencies, causing widespread financial losses for the public. One prominent example is the Himachal Pradesh scam, where approximately $300 million has been fraudulently taken from around 100,000 people. The victims include 5,000 government officials and 1,000 police personnel, highlighting a lack of awareness among the general public and even law enforcers.

India’s posture on AML and TF is not just inadequate, it’s a glaring example of negligence. It’s high time for the nation to recognise the gravity of its shortcomings and take swift, decisive action. The world is watching, and India’s current trajectory is unsustainable and perilous. India has demonstrated deficiencies in proactive risk assessment, including a lack of regulation for laws for the formation of legal persons (LPLAs), difficulties in obtaining proprietary information and poor policy implementation, especially for companies listed in India. India delayed information on unresolved regulatory issues, including vague definitions, fiscal constraints, and the need for coordination, which hinder its ability to investigate and commit money laundering in the process of implementing effective AML strategies.

Published in The Express Tribune, January 21^th, 2024.

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