Money laundering counter measures assessment of the Indian financial institutions

Abstract

With the increasing Technical Sophistications and globalizations of economies, the jurisdictional barriers have just vanished. The globalization of economy came as boom for all including those who misuse the system. Money Laundering is one such activity where the criminals make use of the financial system to clean their criminally acquired moneys and plough them into legal economies for making profits. Investigations into 9/11 attacks on World Trade Towers have added additional dimension of Terrorist Financing to the problem. The variety and range of modern day financial crimes and frauds is vast, from writing bad cheques, misusing funds of insurance companies, defalcation of funds to robberies, selling false arts, to various forms and types of hawalas on one end to frauds like stock rigging, drug trafficking, commercial frauds, cybercrimes and tax evasion. The nature and complexity of these crimes makes the task of enforcement agencies truly daunting. The subject has relevance in a world which is indeed becoming a dangerous place with the emergence of a nexus between money launders and financial fraudsters, organized criminal groups and international terrorism. Quantum of money laundering has been estimated by the International Monetary Fund to amount to between 2 and 5percent of global gross domestic product, which is at least $600,000,000,000annually.The problem of Money Laundering is not a new one international bodies and institutions have been grappling with it since long. However in India we had more of a closed economy with strict exchange controls. In India Reserve Bank has been issuing certain Know Your Customer (KYC) guidelines to identify the suspicious transactions. However as we liberalized and relaxed the exchange controls i.e. our economy and financial system got integrated with the international financial systems and markets our economy became more prone to vagaries of these activities. How-ever the International Narcotics Control Strategy Report, 2005, lists India among jurisdictions which are susceptible to Money Laundering and various associated predicate offences. In 2002, Reserve Bank, prepared Money Integrity Report which was the first major attempt in India to recognize the Money Laundering menace. After creation of Financial Intelligence Unit in November 2004 some efforts are under progress to develop regulatory mechanism and reporting system to identify the misuse of financial institutions in banking, insurance and capital market sector for the purposes of money laundering. This dissertation work seeks to make an assessment of prevailing situation with regards to anti money laundering regime in India specifically with regards to financial institutions. Survey across the financial institutions in all the three sectors was undertaken and the data analyzed using various statistical tools. On the basis of these findings and available literature certain suggestions have been made for effective implementation of anti money laundering regime