Hawala money in India linked to terror funding: US

2 03 2009

Source: Dailytimes

* State Dept report recommends New Delhi prioritise cooperation with international initiatives for increased transparency

Daily Times Monitor

LAHORE: ‘Hawala’ money in India is directly linked to terrorist financing, the US has warned, suggesting New Delhi should strengthen its anti-money laundering and counter terrorism-finance legislations.

Citing a US State Department report, the Times of India reported that Washington had also recommended New Delhi work towards becoming a full-fledged member of the Financial Action Task Force (FATF), an inter-governmental body that develops policies to combat money laundering and terrorist financing. Noting the Indian parliament’s move to pass the Prevention of Money Laundering (Amendment) Bill, the report suggest India should make necessary legislative amendments to bring its anti-money laundering finance regime in conformity to FATF.

Prioritise: “Given the number of terrorist attacks in India and the fact that in India hawala is directly linked to terrorist financing, India should prioritise cooperation with international initiatives that provide increased transparency in alternative remittance systems,” said the report.

Released by Assistant US Secretary of State for International Narcotics and Law Enforcement Affairs David Johnson, the report quotes Reserve Bank of India estimates that remittances to India sent through legal, formal channels in 2007-2008 amounted to $42.6 billion. It cites Indian observers as saying funds transferred through hawala are equal to between 30 to 40 percent of the formal market.

The report noted that India’s strict foreign-exchange laws and transaction reporting requirements, combined with the banking industry’s due diligence policy, makes it difficult for criminals to use formal channels to launder money. However, large portions of illegal proceeds are often laundered through ‘hawala’, ‘hundi’, or other informal money transfer systems.

Listing out the steps New Delhi still needs to take, the report said India should become a party to the UN Conventions against Transnational Organised Crime and Corruption. “Also, India should pass the Foreign Contribution Regulation Bill for regulating non-governmental organisations, including charities,” it said. “India should devote more law enforcement and customs resources to curb abuses in the diamond trade. It should also consider the establishment of a Trade Transparency Unit that promotes trade transparency; in India, trade is the back door to underground financial systems,” the report said.

The hawala system can provide the same remittance service as a bank with little or no documentation, at lower rates and with faster delivery, while providing anonymity and security for its customers, the report said. It claimed that while most money laundering in India was aimed towards facilitating widespread tax avoidance, criminal activity contributes substantially