India has zero conviction on money laundering: US reports

India may have launched a strike on black money hoarders, criminals counterfeiting high value notes and financiers of terrorist groups with its demonetization move, but weak law enforcement and deficiencies in the system have meant zero conviction rate when it comes to nabbing these frauds, say recent reports by the US State Department.

The country report on terrorism (2015) and the 2016 International Narcotics Control Strategy Report (INCSR) released this year have pointed out India's problem areas in effective legislation for criminal convictions involving anti money laundering (AML) and counter financing of terrorism (CFT).

While India has taken steps and widened the definition of Prevention of Money Laundering Act (PMLA), "deficiencies remain...and the government has not changed its enforcement model'', states the INSCR on 'Money Laundering and Financial Crime'.

The PMLA was introduced in 2002 and was amended in 2012 to align with international laws related to AML/CFT. The country report on terrorism adds that while these amendments were enacted, "the government has yet to implement the legislation effectively, especially with regard to criminal convictions".

Last year, the Ministry of Finance signed an MoU with the US department of Treasury to enhance co-operation against money laundering and terrorism financing. Accordingly, the two countries conducted a joint-dialogue on AML/CFT. Based on the information submitted by Indian authorities to the US as part of this cooperation, the INSCR states, "…the government has not won any court cases involving money laundering or confiscations."

There were 174 prosecution cases filed until May 2015 involving money laundering or confiscations in the judicial courts. During the same period, legal action was taken against properties worth Rs528 crore ($769 million).

According to the latest information given by Minister of State for Finance Santosh Kumar Gangwar in a written reply to a question in the Lok Sabha last week, 283 prosecution complaints have been filed and properties worth Rs18,866 crore have been attached as of October 31, 2016.

Black money or dirty money — obtained illegally and not declared to evade taxes — is largely generated by rich businessmen, corporates, real estate developers, politicians, criminals, smugglers, drug dealers, and film stars. These funds are laundered to foreign shores or invested in real estates under fictitious identities but often through legal banking channels.

While agencies, like the Enforcement Directorate (ED), track and identify these frauds and file criminal cases in courts, both US reports say that the main reasons why no one faces any harsh punishment or prison term are reluctance by enforcement agencies to conduct deep investigation and proactive analysis of the cases once the seizure is made and a case filed. They "seldom initiate proactive analysis and long-term investigations".

"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,'' the INSCR report says.

Even in the case of hawala operators arrested by the authorities for illicit transactions, the 2015 country report on terrorism adds that the prosecution has primarily focused on "the non-financial businesses that conduct hawala transactions on the side'', as against the main financial businesses.

To ensure that enforcement agencies build a strong case for prosecution and prove the charges in the court of law, US authorities have trained more than 300 officials from the Enforcement Directorate (ED) on financial investigation, money laundering, foreign exchange contraventions, effective prosecutions, and cyber crimes. But US authorities rue that lack of follow up on investigation leads by their Indian counterparts has resulted in limited success in coordinating action on illicit financial cases.

MOU WITH US DEPARTMENT OF TREASURY

Last year, the Ministry of Finance signed an MoU with the US department of Treasury to enhance co-operation against money laundering and terrorism financing. Accordingly, the two countries conducted a joint-dialogue on AML/CFT. Based on the information submitted by Indian authorities to the US as part of this cooperation, the International Narcotics Control Strategy Report states, "…the government has not won any court cases involving money laundering or confiscations." It also said "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,'' the INSCR report says.