FATF and India’s Hawala transactions

There are numerous steps and activities that India has taken over the years that define Indian character as a rogue state that destabilizes its neighbours and the region. For example, India has been found using Hawala money for terror financing. As per the US Treasury Department’s study, India is one of the largest countries to move money secretly through Hawala worldwide. India was categorized by the US State Department as “Jurisdiction of Primary Concern” in respect of Money Laundering and Financial Crimes. The US State Department’s 2020 report states that for Indian government, money laundering and terror financing are lower priorities while it appreciated the current Pakistan government for taking measures to address the gaps. As per essential measures of FATF, India has failed to identify the risks, and develop policies and domestic coordination to counter money laundering. Under the FATF recommendations, New Delhi is obligated to provide “the widest possible range of mutual legal assistance” to Pakistan in relation to money laundering, associated predicate offences and terrorist financing investigations, prosecutions and related proceedings. Recently, suspicious activity reports were filed by the US banks with US watchdog, the Financial Crimes Enforcement Network against 44 Indian banks (both state and privately owned).

The global money laundering and terror funding watchdog Financial Action Task Force is expected to undertake a review of once-a-decade India’s mechanisms to deal with suspicious transactions and financial crimes in 2021, which was deferred in 2020 due to COVID-19 pandemic. The FATF undertakes peer reviews of each member on an ongoing basis to assess the implementation of its recommendations and provides a detailed analysis of each country’s system for preventing criminal abuse of the financial system.

According to reports, a worried State Bank of India’s compliance head recently stressed the need for financial institutions to raise the bar on monitoring such activity. He said that we should get our act together. “We want to have a good image of India when the FATF [review] happens,” said SBI’s group compliance officer and deputy MD Soma Sankar Prasad at a news conference on anti-money laundering and combating terror financing. His worries due to recent events are more or less justified. At a FATF plenary meeting in Paris, concerns were raised regarding India’s ability to provide effective international cooperation in a timely manner and to extend mutual legal assistance.

But the most damage was done by document-based report by the International Consortium of Investigative Journalists, which has blown the lid off the suspicious financial transactions by Indian banks, public and private sector companies. The ICIJ report based on Financial Crimes Enforcement Network (FinCEN) files represented less than 0.02 per cent of the more than 12 million suspicious activity reports that financial institutions filed with FinCEN between 2011 and 2017. Not only banks but public and private sector companies were found culprits. They included Hindustan Aeronautics Limited, Bhushan Steel Limited, Bharti Airtel and Essar.

The Indian banks figured in over 2,000 transactions, linked to Indian entities, valued at over one billion dollars between 2011 and 2017. These banks included the State Bank of India, Punjab National Bank, Canara Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank and IndusInd Bank.

Earlier, a study conducted by Conflict Armament Research had confirmed that seven Indian companies were involved in the supply chain of over 700 components, including fuses or detonating cords used by the so-called Islamic State to construct improvised explosive devices.

The FATF, with a balanced and fair approach, should probe India’s financial system and terror financing and expose it before the world.