India's Money Laundering Vulnerabilities Revealed In US Report

by Glen Shapiro, LawAndTax-News.com, New York

05 March 2004

According to a report published on Monday by the US Department of State, India is one of the countries of "primary concern" with regard to "major" money laundering activities.

The annual International Narcotics Control Strategy Report revealed that despite recently implemented reforms to the Indian tax system, income tax evasion is the primary source of money laundering activity in the country, followed by narcotics trafficking, illegal diamond trading, smuggling, trafficking in people, and corruption.

Although observing that India's strict foreign exchange laws make it difficult for criminals to use banks and financial institutions to launder illegal proceeds, the report revealed that the widespread use of the 'hawala' remittance system represents a potential money laundering vulnerability.

"Both terrorists and traffickers have used alternative remittance systems, such as “hawala” or “hundi”, and underground banking; these systems use trusted networks that move funds and settle accounts with little or no paper records. Such systems are prevalent throughout Asia and the Middle East as well as within expatriate communities in other regions," the Department of State announced this week.

With regard to the hawala system, the report explained that in response to questions from US Treasury officials concerning the possibility of registering hawala dealers, the Indian authorities announced that they had no intention of doing so.

The International Narcotics Control Strategy Report also suggested that invoice manipulation is rife in India, and is often used to avoid customs duties and taxes, and to launder illegal proceeds.

Recommended