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It also recommended that New Delhi should work towards becoming a full-fledged member of Financial Action Task Force (FATF), an inter-governmental body for development of policies to combat money laundering and terrorist financing.
While noting that the Indian Parliament passed the Prevention of Money Laundering (Amendment) Bill, early this week, a US State Department report has suggested that India should make necessary legislative amendments to bring its anti money laundering and counter terrorism finance regime in conformity to FATF.
"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, released by Assistant US Secretary of State for International Narcotics and Law Enforcement Affairs, David T Johnson, quoted RBI estimates that remittances to India sent through legal, formal channels in 2007-2008 amounted to USD 42.6 billion.
According to Indian observers, the report said funds transferred through the billion dollar hawala market are equal to between 30 to 40 per cent of the formal market.
"In that case the hawala market could amount to between USD 13 billion to USD 17 billion," the report on International Narcotics Control Strategy, said.
Given the large number of expatriates, India continues to retain its position as the leading recipient of remittances, according to the World Bank.
India's strict foreign-exchange laws and transaction reporting requirements, combined with banking industry's due diligence policy, makes it difficult for criminals to use formal channels to launder money, the report said.
However, large portions of illegal proceeds are often laundered through ‘hawala’ or ‘hundi’ networks or other informal money transfer systems.
The report appreciated the steps taken by India post 9/11 with regard to money laundering and its possible use by terrorist network. However, several key steps are still required to be taken by New Delhi, it felt.
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 nongovernmental organizations 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 (TTU) 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.
According to the report, while most money laundering in India aims to facilitate widespread tax avoidance, criminal activity contributes substantially.
Some common sources of illegal proceeds in India are narcotics trafficking, illegal trade in endangered wildlife, trade in illegal gems (particularly diamonds), smuggling, trafficking in persons, corruption, and income tax evasion, it said.
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the lack of awareness amongst innocent illiterate labours and affluent few are responsible for the menace
Most of the Indians including Chartered Accountants,Income Tax Officers and Advocates are not aware about the Anti Money Laundering Act.It is high time that Government of India takes special actions to make sure that the Act/Law is understood by 100% by the concerned people like Income Tax Officers and Chartered Accountants. To ensure the effective of Anti Money Laundering Act, the corruption has to be stopped.The Corrupted Officers must be hanged to death in Public.
Corruption is the biggest contributor to Jawala Money. Money extorted by bureaucrats and politicians is the main reason, and hence it is difficult for the govt, of India to curb Hwala, because that will curb the illegal activities of the rulers. Law makers are the biggest law breakers in India.
I wonder how the trillions of dollars were transacted that led to blighting lives of millions because they chose to trust the government institutions. I do not think that any laws made by a government manipulated by a few diserves trust.Unbridled greed can not be used as an excuse to indiscrimate exploitation.
Prevent generation of black money in India. This will automatically curb most of the financial as well as other crimes. People sitting in Dubai knows who has black money. Since Govt does not collect tax from them Extortionist collect from them causing law and order problems.
Finally we have it now that all the noise being made by Indian leaders is a smoke screen for their incapability, incompence as well as corruption. Indian politics is mother of more than half of Indian ills and this is planned to be covered with loud noise.
The UPA Government is sponsor of this racket as such. Will they ever try to bring the funds back from Swiss banks? This is the party/group where all the corrupt people like Azhar/Mulayam/Lalu/...... get safe shelter. Vote for Congress, slaves of Ghazhi-Khans in the coming election.
How do you think money from saudi shekhs end up to hardline muslims? How does Dawood control congress funding from Karanchi and Dubai? Where does Sonia Gandhi has her money in (Swiss Bank, Dutch Bank or RBS)? How does fake money gets tolerated at election times? It is not possible to eliminate terrorist financing because congress is root of terrorism. No war for mumbai carnage and talks with pakistan? Barak Obama needs to do his intelligence gathering properly before bombing houses of congress folks.
INDIAN POLITICIANS ARE ATTUNED TO ACCEPT ONLY THOSE ADVICES WHICH SERVES THEIR OWN SELFISH INTEREST.TO THEM NATIONAL INTEREST IS NONEXISTENCE..THEIR INTEREST IS TO SECURE VOTE BANK.FACTS FIGURES OF EVERY COUNTY VOUCHSAFE AN UNDIPUTABLE FACT THAT ALL THE TERRORISTS SO FAR INVOVED IN ALL SUCH ATTACKS ARE ISLAMISTS.HAVALA ROUTE IS ADOPTED FOR TERROR ATTACKS.READERS MUST KNOW A SIMPLE ARITHMETIC 1 1=2.
Chidambaram's legacy as FM continues with him as HM
indian leaders dont know this already? i cant believe this. the politicians get a cut out of this business and so do law enforcement guys. because of this nexus hawala will never be eliminated completely it can only be reduced. unless of course all the politicians decide to become completely honest and stay that way forever. usa mssg is not informative but telling the indian political class to get out of hawala.
Our politician are the main source of funding. The have bank a/c's abroad. I stay in singapore and there are politicians who have a/c's here handled by finance companies. Do you think they will make this happen.
Indian politicians are not serious about this crime? Why ? are they getting benefits from this crime? Indian politicians and administration is unable to tackle this problem as seriously as it should be, Why?. There must be some reasons that Criminals like Dawood are still able to run their busienesses in Mumbai through his agents, as reported repeatedly in press.
How many of our corrupt politicians and ministers are connected with the hawala gang? Hawala operations in India are carried out with the connivance of the politicians in power. How else can Jayalalitha explain the dollars she received few years ago. The investigation is still ongoing and we all know that it will be forgotten. How many of our politicians have account in Swiss bank? Possibly Chidambaram may be knowing well. There is a saying in Tamil that "Pambin kal Pambu ariyum", the meeaning is that only a snake knows the leg of other snake. Even if Mr. Manmohan Singh would like to eradicate this cancer, he will face tremendous opposition. Democracy is not the right form of government for India if we have to erase this menace.
How can India become member of FATF. Our select citizens have 1400 BN Dollars in Swiss banks. If they come under investigation as a routine step--what will happen ? No US ADVSORS SIR JI no. First understand our political system, then suggest.
I hope this advice/suggestion by the US is taken positively and does not turn into a US-bashing political banter. I do overall believe that we have a lot of "House Cleaning" to do vis-a-vis legislation, policies, priorities with regards to internal anti-terrorist security.