Take steps to curb terror funding, America tells India

NEW DELHI: The US, which has linked hawala money to terror financing, said India should fortify its legislations that deal with money laundering and terror financing.

A US state department report noted that India recently passed the Prevention of Money Laundering (Amendment) Bill last week but suggested that legislative amendments should be brought in to further strengthen the provisions and make it in conformity with the Financial Action Task Force, an inter-governmental body that looks at making policies to fight against money laundering and terror financing.

���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 in its section on India related to money laundering.

The report, which was compiled by the Bureau of International Narcotics and Law Enforcement Affairs, further recommended that India should work towards becoming a full-fledged member of Financial Action Task Force (FATF).
The report said the Mumbai terrorist attacks had further increased concerns about terror financing in India and the US has appreciated the steps taken by the government after the attacks. But the report said that other measures needed to be taken.

Among the steps the report suggested include India becoming a party to the UN Conventions against Transnational Organized Crime and Corruption. ���Also, India should pass the Foreign Contribution Regulation Bill for regulating non-governmental organisations including charities,��� the report said, and added, ���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 (TTU) that promotes trade transparency; in India, trade is the back door to underground financial systems,��� the report said.

The report said that most of the hawala money in India used for facilitate tax avoidance but criminal activity is also a major contributor. The illegal proceeds come from narcotics trafficking, illegal trade in endangered wildlife, trade in illegal gems (particularly diamonds), smuggling, trafficking in persons, corruption, and income tax evasion, the report said.

The report also quoted RBI estimates that $42.6 billion worth remittances were sent to sent through legal, formal channels in 2007-2008. The report further quoted Indian estimates and said that funds transferred through the hawala market were equal to between 30% and 40% of the formal market.

���In that case the hawala market could amount to between $13 billion and $17 billion,��� the report on International Narcotics Control Strategy 2009 said.

The report said the hawala system provided the same kind of remittance service as a bank with no documentation, lower rates and faster delivery. It also provided anonymity and security for the customers, the report added.