## _cr1126 ## Source details **Canonical URL:** [_cr1126](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr1126.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr1126.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr1126.pdf.json) --- ### Introduction — scope and purpose and key findings - Scope and purpose: - Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering and 9 Special Recommendations Combating the Financing of Terrorism prepared by the Financial Action Task Force (FATF). - Summarises AML/CFT measures in place in India as of the time of the on-site visit (30 November – 12 December 2009) and shortly thereafter, the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on strengthening the AML/CFT system. - Views have been agreed by the FATF but do not necessarily reflect the views of the Boards of the IMF and World Bank. - Key findings (numbered as in source): - 1. PMLA enacted 2002, came into force in 2005, amended in 2009; UAPA amended 2004 and December 2008 to broaden scope toward FT Convention requirements. - 2. Main ML sources: drug trafficking; fraud; counterfeiting of Indian currency; transnational organised crime; human trafficking; corruption. - 3. ML methods: - Domestic: opening multiple bank accounts; intermingling criminal proceeds with assets of legal origin; purchasing bank cheques against cash; routing through complex legal structures. - Transnational organised crime: use of offshore corporations and trade based money laundering. - India has several domestic co-ordination mechanisms at policy and operational levels. - 4. India is a significant target for terrorist groups; main FT sources: funds/resources from organisations outside India, including foreign NPOs; counterfeiting of currency; criminal activities including drug trafficking and extortion. - 5. Since mid-2009 increased focus on ML investigations; unresolved legal issues include threshold condition for domestic predicate offences; absence of any ML convictions raises effectiveness concerns. - 6. Strong prosecutorial focus on FT but few convictions and limited case law. - 7. Preventive measures progressively expanded and now apply to all but one required financial activity; gaps remain and supervisory effectiveness for AML/CFT not yet demonstrated; sanctions not effective, dissuasive or proportionate. - 8. DNFBP sectors (except casinos in Goa) not subject to PMLA and not regulated/supervised for AML/CFT; casinos recently covered raising implementation concerns. - 9. Key recommendations include addressing technical shortcomings in ML and FT criminalisation and confiscation frameworks; broadening CDD obligations (beneficial ownership); improving ID reliability, pooled accounts, PEPs, non-face-to-face business; ensuring India Post implements AML/CFT; enhancing STR effectiveness; strengthening supervisory regimes and sanctioning powers; extending PMLA to full DNFBP range. ### Legal and institutional framework (ML, FT, confiscation, freezing) - Criminalisation and threshold issues: - ML criminalised under PMLA (2002; amended 2005 and 2009) and NDPS Act, 1985 (amended 2001); NDPS ML provisions relate only to predicate drug offences. - Extension of predicate offence lists since 1 June 2009 (Schedules A and B and addition of Schedule C) aimed to align PMLA with FATF, though shortcomings remain. - Section 3 PMLA attempts to capture Convention ML elements but omits full coverage of physical concealment and sole acquisition, possession and use of proceeds of crime. - Schedule B restrictions include threshold of INR 3 million (USD 60 000) before qualifying as predicate offences unless they have “cross-border implications” (Schedule Part C) — characterised as a major deficiency. - INR 500 000 (USD 10 000) maximum fine for legal persons under PMLA considered low. - Effectiveness and prosecutions: - At on-site visit total absence of ML convictions; only six prosecutions underway with first proceedings starting in 2008. - On 31 December 2009, ED had registered 798 investigations, including 43 provisional restraining of proceeds of crime. - Terrorist financing (UAPA): - Combined application of sections 15, 17 and 40 of the UAPA makes important progress but technical deficiencies remain (e.g., sole financing of Treaty offences, inclusion of certain offences, coverage of international organisations, attempts, and sole wilful financing of terrorist individuals/organisations). - Since 2006, 29 FT prosecutions initiated under UAPA; at on-site visit 28 trials underway and only one conviction. - Confiscation and freezing: - Confiscation regime allows broad seizure/forfeiture but not fully comprehensive; current legislation does not allow confiscation of the money laundered as subject of the ML offence and is contingent on a conviction for the predicate offence. - UAPA and NDPS Acts lack full equivalent value confiscation provisions. - India has an adequate freezing system for terrorist-related assets mainly based on UAPA provisions tied to S/RES/1267(1999) and S/RES/1373(2001); mechanisms exist to freeze assets based on other jurisdictions’ lists. - When funds are frozen, affected persons have no access to assets necessary for basic expenses but can obtain free legal aid; persons or entities can challenge freezes in court; rights of bona fide third parties are adequately covered. - Guidance issued to financial sector regulators (RBI, SEBI, IRDA) and on 22 February 2010 guidance for DNFBP sector (issued outside scope of on-site visit). ### Financial Intelligence Unit and enforcement agencies - FIU-IND: - Established 18 November 2004; operational March 2006; independent body reporting to Economic Intelligence Council (EIC). - Statutory powers under PMLA to access financial, administrative and law enforcement information; same powers as civil court for inspection, attendance, production of records, and affidavit evidence. - FIU periodically issues a newsletter and annual report but no specific section on typologies and trends; dissemination to State Police relatively low. - Enforcement: - Directorate of Enforcement (ED) vested 1 July 2005 with exclusive federal powers to investigate ML under PMLA. - Investigation and prosecution of FT primarily with State Police; CBI empowered by UAPA; National Investigation Agency (NIA) constituted under NIA Act, 2008 for specialised investigation/prosecution including UAPA offences. - Law enforcement has legal basis for undercover operations, interceptions and surveillance; PMLA lacks specific controlled deliveries provision. ### Preventive measures — financial institutions (framework, coverage, CDD, STRs, record-keeping, monitoring) - Framework and instruments: - Primary framework: PMLA and PML Rules; Chapter IV sets obligations for banking companies, financial institutions and intermediaries with rule-making under section 73. - Most PML Rules effective 1 July 2005; additional Rules notified 24 May 2007 and 12 November 2009; short amendment 12 February 2010 included general definition of “beneficial owner”. - AML/CFT requirements further elaborated via binding circulars by RBI, SEBI and IRDA. - Sectoral coverage: - With exception of commodities futures brokers, all financial activities required under FATF standards covered by PMLA; omission of commodities futures brokers described as limited materiality but repeatedly highlighted as a gap. - India Post included under PMLA before June 2009 but uncertainties remain about implementation effectiveness. - Money service businesses and foreign exchange houses licensed/authorised by RBI under FEMA and PSSA; MVT sector brought into AML/CFT regime 1 June 2009. - Casinos included in definition of financial institutions by June 2009 amendments; Goa Home Department issued guidelines 24 December 2009. - Customer due diligence and beneficial ownership: - No evidence of systematic failings but specific concerns: - No practical definition of “beneficial ownership” in PML Rules or regulators’ circulars. - Reliance on a range of official ID documents raises concerns about underlying reliability. - Pooled client accounts common among accountants, lawyers, company secretaries; strict professional secrecy prevents disclosure of beneficial owner names. - IRDA obligations on tied agents raise concerns about basic CDD oversight. - Inconsistent PEP scope across regulators. - Insurance circulars lack guidance on non-face-to-face transactions and special technological misuse measures; term life policies exempted at inception in some guidance. - Assessors concluded Recommendation 9 terms not applicable to India; universal view that third-party introduced business is not permitted. - STR/CTR regime and reporting: - STR reporting effective since PMLA came into force July 2005; reporting obligation includes terrorist financing since 2007. - FIU operational and receiving STRs since March 2006; STR numbers rising but filings appear extremely low relative to system size and proceeds-generating crime levels. - Terrorist-related STRs extremely low given vulnerability and number of attacks. - Section 14 PMLA provides protection from civil liability for reports filed; directors/employees not expressly covered by PMLA safe harbour; no criminal liability protection in PMLA (provided by Indian Penal Code instead). - Amendment 12 November 2009 requires strict confidentiality of furnishing information; tipping-off provision broad. - CTRs required for all cash transactions greater than INR 1 million (USD 20 000) or equivalent in foreign currency, including integrally-connected series within a month; CTRs filed monthly. - Record-keeping: - Regime largely complies with FATF after February 2010 amendments corrected most prior deficiencies. - Gap: records pertaining to transactions pre-dating February 2010 may be unavailable. - PMLA/Rules do not clearly require retention period for customer ID records to run from termination of account/business relationship rather than last transaction date; clarified only in OEM, not in other laws/regulations. - Monitoring, PEPs, cross-border: - Institutions required to pay special attention to complex, unusual large transactions or unusual patterns lacking apparent economic purpose. - Securities intermediaries must pay special attention to relationships with persons from countries that do not/insufficiently apply FATF; no explicit bank/insurer obligation. - FATF advisories dissemination appears effective despite delay; isolated institutional/regulator actions fall short of counter-measures. - Internal controls and training: - PML Rules require internal AML/CFT procedures, policies and controls and appointment of a Principal Officer to handle reporting. - PML Rules do not expressly require procedures to address detection/reporting of unusual transactions but appointment of Principal Officer implies need. - Regulatory obligations in banking, securities and insurance require risk-based AML policies (customer acceptance, identification, transaction monitoring, risk management, record retention). - Guidance in securities sector satisfies Recommendation 15; banking and insurance guidance has technical shortcomings. - Application of PMLA to India Post and related training/programmatic requirements not yet effectively implemented. - Recommendation 22 fully implemented for foreign branches/subsidiaries of relevant banks, securities intermediaries and authorised money changers; not applicable to insurance sector. - Supervision, inspections and sanctions: - Regulators have authority under Rules 5 and 7 of PML Rules and governing legislation to issue instructions; broad operational independence observed. - Licensing applied with focus on fitness and probity but fit and proper tests often applied after appointments and generally do not extend to non-executive directors — does not meet FATF standard. - Regulators routinely use inspection and information-gathering powers. - No supervisory regime covering banking operations of India Post. - Assessors concerned AML/CFT risks not given sufficient weight in inspection targeting (particularly RBI). - Legal provisions and sanction data indicate framework does not provide effective, dissuasive or proportionate measures. - Shell banks and correspondent banking: - No specific legal prohibition on shell banks in Banking Regulation Act but RBI licensing and Banking Act requirements effectively prevent shell banks. - RBI guidance on shell banks should be expanded to require respondent institutions to ensure not entering relationships with shell banks or allowing accounts to be used by shell banks. - Money transfer sector and informal remittances: - MVT sector included under AML/CFT as of 1 June 2009; limited evidence on effectiveness at on-site visit. - Sizeable informal sector operating illegally though scale unknown; ED identified significant Hawala-type FEMA breaches. ### DNFBPs, legal persons/arrangements, and NPOs - DNFBPs: - DNFBPs include casinos, lawyers, real estate agents, accountants, company secretaries, gold dealers, dealers in precious metals and stones. - Except for casinos, DNFBPs not subject to PMLA; formal risk assessment undertaken to decide inclusion of remaining DNFBP sectors. - Legal persons and arrangements — beneficial ownership access: - Corporate registry focuses on immediate owners/controllers; does not focus on ultimate beneficial owner/controller. - Possibility of nominee directors acting for undisclosed principals. - HUFs (Hindu undivided families) can hold assets and present challenges for beneficial ownership identification; no specific requirements ensure beneficial ownership information collection/maintenance. - No assurance competent authorities have access to accurate and current ultimate beneficial ownership information for all legal persons on a timely basis. - Bearer shares not permitted; Companies Act permits bearer share warrants for public companies with safeguards to identify beneficial owners. - Trust law categories: private trusts; charitable/public trusts (including religious trusts); wakfs. - Trust instruments may be registered but private trusts not strictly required to have written instruments; no statistics on types of trusts. - Robust systems for public trusts; measures for private trusts limited. - Service providers (primarily lawyers) not required to obtain/verify/retain records on beneficial ownership/control of trusts or retain copies of trust instruments; competent authorities not guaranteed timely access to beneficial owner information on private trusts. - NPO sector: - Approximate government estimate: two million foreign and domestic NPOs operating in India. - No unified NPO database; each registering authority maintains its own database; statistics on registered NPOs under various statutes not generally available. - No FATF-style review of NPO sector undertaken. - No effective outreach to NPO sector by central or State Governments on FT risks and vulnerabilities. - Except under Income Tax Act and FCRA, NPO sector subject to limited/no monitoring; NPOs registered under these Acts account for a small number of entities. - Authorities believe FT risk in NPO sector small but cannot substantiate due to lack of size/wealth/activity data for majority of NPOs. ### National and international co-operation, resources and statistics - Domestic coordination: - Inter-agency coordination mandated by Central Government and embedded across AML and national security functions. - ED provided assurances on capacity to gather evidence and work alongside predicate investigators; increased registered cases since 2009 supports improved coordination. - Absence of ML convictions limits demonstration of effectiveness of domestic coordination. - International instruments and cooperation: - India has not yet ratified the Palermo Convention (Union Cabinet approved ratification 19 March 2010; process ongoing). - Technical shortcomings exist in ML and FT criminalisation and preventive regime; AML/CFT system not fully aligned with relevant Conventions. - MLA and extradition: - India provides MLA via treaties and reciprocity; few restrictions on MLA, not refused solely for fiscal matters or financial secrecy. - MLA for coercive measures limited by criminalisation and confiscation deficiencies; dual criminality requirements pose problems; some countries reported delays or failures in responses. - Extradition regime comprehensive; ML and FT offences meet minimum punishment threshold and are extraditable; strict dual criminality and criminalisation deficiencies negatively impact extradition possibilities; India can extradite its own nationals; where partner bars extradition of its citizens India may reciprocate; prosecution in India possible if extradition does not occur. - Informal international cooperation: - FIU, law enforcement and customs provide rapid, constructive cooperation outside formal MLA processes. - Financial sector supervisors (partial exception SEBI) lack specific legal basis for exchanging confidential information with foreign supervisors; exchanges often limited to high-level information, not customer-specific. - Agencies operate on principle to take appropriate measures unless explicitly prohibited; procedures permit confidential information exchange. - Resources and statistics: - Majority of competent authorities appear adequately resourced and structured for current designated functions. - IRDA staff strength growing; technology used but need for more qualified experts. - Uncertainties about future regulatory regime for banking activities of India Post. - India maintains comprehensive STR statistics and statistics on ML/FT investigations, prosecutions and convictions; keeps comprehensive MLA and extradition statistics. - Customs do not keep statistics on number of Currency Declaration Forms completed at land borders or detections of smuggling of currency and BNI through mail/containerised cargo. ### FATF Recommendations — selected ratings and factors (highlights) - Legal system: - Recommendation 1. ML offence — Rating: PC - Issues: high monetary threshold condition for most ML predicates; ML provision does not cover physical concealment; does not cover sole knowing acquisition, possession and use; effectiveness concerns: absence of ML convictions; high evidentiary standard untested. - Recommendation 2. ML offence – mental element and corporate liability — Rating: LC - Issues: inadequate sanctions for legal persons; absence of ML convictions; corporate liability contingent on prosecution of natural person. - Recommendation 3. Confiscation and provisional measures — Rating: PC - Issues: confiscation of laundered property not covered; UAPA does not allow confiscation of intended instrumentalities/funds for individuals; UAPA and NDPS lacking equivalent value confiscation; limited confiscations relative to ML/FT offences. - Preventive measures (selected): - R.4 secrecy — Rating: C (fully observed). - R.5 CDD — Rating: PC (scope limitation: commodities futures brokers; no CDD renewal provisions when suspicions/doubts; no proactive requirement to determine acting on behalf of another; lack of beneficial ownership clarity; professional secrecy barriers; term life policy exemption; implementation issues re India Post). - R.6 PEPs — Rating: PC (scope limitation: commodities futures brokers; gaps in RBI/SEBI/IRDA requirements on ongoing risk management and enhanced measures for close relatives/entities where beneficial owner is PEP). - R.12 DNFBP — Rating: NC (PMLA does not apply to DNFBPs except casinos; basic requirements for casinos insufficient; recent extension to casinos lacks evidence of effective implementation). - R.13 STRs — Rating: PC (scope limitation: commodities futures brokers; no definition of “activities of terrorism” in PMLA; effectiveness: low STR numbers). - Institutional: - R.26 FIU — Rating: LC - Effectiveness: dissemination of financial information for State Police relatively low; public FIU information lacks typologies/trends. ### Law enforcement (R.27 & related) — findings, shortcomings, recommended actions - Key effectiveness issues: - India has yet to achieve ML convictions. - Effectiveness of inter-agency co-ordination and co-operation not demonstrated. - Supervisory/regulatory shortcomings: - PMLA does not apply to commodities futures brokers. - Financial sanctions across sectors not effective, proportionate or dissuasive. - No supervisory regime for banking operations of India Post. - Concerns about IRDA staffing adequacy. - Information/statistics gaps: - No statistics on CDFs at Land Customs Stations or detections of currency/BNI smuggling via mail/container cargo. - No requirements to collect beneficial ownership beyond immediate owner in corporate registry or company records. - No measures preventing unlawful use of HUFs; authorities cannot timely access beneficial ownership information for legal persons in all cases. - No requirement to obtain/retain adequate beneficial ownership information on private trusts. - International co-operation ratings and issues: - Conventions: PC — Palermo not ratified; ML criminalisation not aligned with Vienna/TOC; restricted seizure/confiscation; inadequate sanctions; supervisory deficiencies; absence of convictions. - MLA, dual criminality, extradition and other cooperation: LC — MLA/coercive measures hampered by domestic deficiencies and dual criminality; India does not provide MLA/extradition in timely manner per some reports; RBI and IRDA lack clear legal gateways for confidential exchanges with foreign counterparts. - Terrorist financing and Special Recommendations: - SR.I Implement UN instruments — Rating: PC (FT criminalisation not fully in line with FT Convention; confiscation deficient; UN RES not fully implemented; effectiveness concerns re convictions). - SR.II Criminalise terrorist financing — Rating: PC (FT provisions not fully in line; no criminalisation of sole knowing funding of terrorist individuals/organisations; minimal convictions). - SR.III Freeze/confiscate terrorist assets — Rating: LC (no effective DNFBP guidance implementation; lack of monitoring outside financial sector; no procedures for affected persons to access funds for basic expenses). - SR.IV STR reporting — Rating: PC (PMLA scope gaps; no definition of “activities of terrorism”; low number of FT-related STRs). - SR.V International co-operation — Rating: LC (MLA/extradition hampered by legal deficiencies; supervisory gateways lacking). - SR.VI MVTS — Rating: LC (MVTS application suffers from same deficiencies as financial sector). - SR.VII Wire transfer rules — Rating: LC (PMLA did not apply to India Post until June 2009). - SR.VIII NPOs — Rating: NC (no sector review; no reassessments; no outreach; limited information on owners/controllers; majority not registered). - SR.IX Cross border declaration & disclosure — Rating: PC (low currency declarations, false declarations and seizures raise effectiveness concerns; system applied mainly to airports; land borders and unaccompanied movements via mail/cargo not covered). - Selected recommended action plan items relevant to law enforcement and related areas: - Criminalisation of ML (R.1 & R.2): - Abolish INR 3 million monetary threshold for Schedule Part B predicate offences. - Amend section 3 PMLA to align with Vienna and Palermo Conventions to fully cover physical concealment and sole acquisition/possession/use of proceeds. - Test evidentiary interpretation before courts to develop case law. - Raise maximum fine for legal persons or leave at court discretion. - Abandon practice of making legal person conviction contingent on prosecution/conviction of a natural person. - Criminalisation of Terrorist Financing (SR.II): - Criminalise sole financing of Treaty offences; include section 16A UAPA offence in section 15 list; ensure terrorist acts target international organisations; fully cover attempts to commit section 17 and 40 UAPA offences; criminalise sole wilful financing of terrorist individuals/organisations. - Confiscation, freezing and seizing (R.3, SR.III): - Allow confiscation of laundered money as subject of ML offence not contingent on predicate conviction (stand-alone ML). - Ensure proceeds of terrorism definition allows confiscation of instrumentalities/funds used to finance an individual terrorist. - Explicitly provide for full equivalent value confiscation in UAPA and NDPS Act. - Include provisions on assets if criminal proceedings halt due to defendant death. - Ensure DNFBP freezing guidelines are effectively implemented and monitored; procedures for access to basic expenses established. - FIU (R.26): - Enhance capability in intelligence and dissemination to all competent authorities including State Police. - Enhance dissemination of public information regarding trends and typologies. - Law enforcement and prosecution (R.27 & 28): - Build on large number of ML investigations to secure convictions. - Cross Border Declaration & Disclosure (SR.IX): - Undertake in-depth analysis of arrival card and CDFs at land borders; introduce targeted action to detect smuggling of currency and BNI via mail/container cargo. - Preventive measures / CDD (R.5–8): - Bring commodities futures brokers fully under PMLA. - Amend PML Rules to require CDD renewal on suspicion/doubt and require proactive determination if customer acts on behalf of another. - Amend circulars to: prohibit low-risk procedures when suspicion exists; provide guidance on beneficial ownership; require professionals to provide beneficial owner information; require understanding of ownership/control of legal persons; require filing an STR when identity cannot be satisfied; remove term life policy exemption; introduce consistent PEP measures across regulators. - STR and reporting (R.13–14, SR.IV): - Examine STR reporting rates overall and sectorally; focus on banking sector and FT-related STRs; intensive outreach to MSBs and banks; clarify STR language re “activities of terrorism”; expand safe harbour to expressly cover directors or employees. - Supervision, inspections, sanctions (R.23, 29, 17 & 25): - Bring commodities futures brokers within PMLA. - Review levels/procedures for financial sanctions to ensure focus on systemic failings. - Extend fit and proper tests to non-executive directors. - Develop/provide inspection and monitoring procedures for India Post. - Ensure regulators’ inspection targeting accounts adequately for AML/CFT risk; review NABARD and NHB procedures for alignment with RBI. ### Internal controls, compliance, audit and DNFBP-specific recommendations - Internal controls, compliance and audit: - Extend Principal Officer responsibilities in banking beyond STR/reporting to overall compliance. - Expressly require audit function independence and adequate resourcing in all sectors. - Shell banks (R.18): - RBI to provide guidance to ensure institutions can satisfy they are not entering relationships with shell banks or that foreign respondent institutions do not permit shell bank usage. - Supervisory and oversight: - Bring commodities futures brokers fully under PMLA. - Review and strengthen sanction regimes, fit and proper application to non-executive directors, inspection procedures for India Post, and AML/CFT inspection targeting by regulators and SROs. - DNFBP — casinos and other sectors: - Goa Home Department to review FATF standards and implement additional instructions for casinos; extend PMLA to businesses and professions on a risk-sensitive basis. - For casinos: grant statutory powers for fit and proper tests of owners/operators/managers; grant inspection/enforcement authority; increase penalties for obstructing regulator access; specify sanctions for PMLA breaches; broaden sanctions scope. - Extend guidance and obligations to other DNFBP sectors once brought under PMLA. - Legal persons and arrangements: - Ensure beneficial ownership information is collected by corporate registry, corporate records, or company secretaries; prohibit or mitigate nominee directors/shareholders; require measures for HUF beneficial ownership information (e.g., registration, PAN requirements); ensure competent authorities’ timely access to accurate ultimate beneficial owner/controller information. - For private trusts: require trustees to maintain full beneficial ownership/control information or require trust service providers to obtain/maintain such information accessible to law enforcement on request. - NPOs (SR.VIII): - Undertake comprehensive NPO sector review and detailed risk assessment for FT. - Conduct comprehensive outreach on abuse risk, good governance and accountability. - Ensure NPOs maintain identity information for owners/controllers/senior officers; demonstrate measures to sanction violations beyond Income Tax Act/FCRA registered NPOs. - Implement measures to ensure all NPOs are licensed/registered and make such information available to competent authorities. ### Other national and international cooperation recommendations and resource/statistics actions - National co-operation (R.31): - Continue to build prosecutions to demonstrate effectiveness of inter-agency coordination; at 31 December 2009 India had 798 ML investigations, six prosecutions underway and no convictions. - Conventions and UN resolutions (R.35 & SR.I): - Ratify Palermo Convention and review ML/FT provisions to align with relevant Conventions. - (Union Cabinet approved Palermo ratification 19 March 2010; process ongoing.) - MLA and extradition (R.36–39 & SR.V): - Prioritise providing MLA and extradition assistance in a timely manner; rectify domestic legal deficiencies on criminalisation, confiscation and provisional measures to enhance MLA and extradition capabilities. - Other cooperation (R.40 & SR.V): - Ensure clear and effective gateways/mechanisms for prompt formal exchanges between supervisory authorities and foreign counterparts, including customer-specific information. - Resources and statistics (R.30 & 32): - Review human resourcing of IRDA. - Establish and implement supervisory regime for banking activities of India Post. - Keep statistics on number of CDFs at Land Customs Stations and detections of smuggling of currency and BNI via mail/containerised cargo. *Source: _cr1126 - Introduction; 3. Preventive Measures – Financial institutions; 44. NPO sector; 27. Law enforcement authorities; 3.8 Internal controls, compliance — content provided in the source PDF.* ### Introduction ### Introduction ### Scope and purpose - Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering and 9 Special Recommendations Combating the Financing of Terrorism prepared by the Financial Action Task Force (FATF). - Summarises AML/CFT measures in place in India as of the time of the on-site visit (30 November – 12 December 2009) and shortly thereafter, the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on strengthening the AML/CFT system. - Views in the document have been agreed by the FATF, but do not necessarily reflect the views of the Boards of the IMF and World Bank. ### Key findings (numbered as in source) - 1. The AML/CFT regime in India is relatively young. The Prevention of Money Laundering Act, 2002 (PMLA) came into force in 2005 and was amended in 2009. The Unlawful Activities (Prevention) Act, 1967 (UAPA) was amended in 2004 to criminalise, inter alia, terrorist financing. The UAPA was further amended in December 2008 to broaden its scope and to bring the legislation more in line with the requirements of the United Nations Convention for the Suppression of the Financing of Terrorism (FT Convention). - 2. India faces a range of money laundering and terrorist financing risks. Main sources of money laundering include drug trafficking; fraud; counterfeiting of Indian currency; transnational organised crime; human trafficking; and corruption. - 3. Money laundering methods are diverse: - Domestic: opening multiple bank accounts; intermingling criminal proceeds with assets of a legal origin; purchasing bank cheques against cash; routing through complex legal structures. - Transnational organised crime: use of offshore corporations and trade based money laundering. - India has several mechanisms for domestic co-ordination and co-operation at policy and operational levels to identify trends and formulate responses. - 4. India continues to be a significant target for terrorist groups and has been the victim of numerous attacks. No published figures of terrorist cells operating in the country. Based on a threat assessment, major sources for terrorist financing identified: funds/resources from organisations outside India, including foreign NPOs; counterfeiting of currency; and criminal activities including drug trafficking and extortion. - 5. Since mid-2009, India has increased its focus on money laundering and the use of the ML provisions. Important legal issues remain unresolved, including the threshold condition for domestic predicate offences. Effectiveness concerns are primarily raised by the absence of any ML convictions. - 6. India’s serious commitment to combating terrorism is reflected in active pursuit of financial aspects of terrorism and prosecutorial focus on FT. However, this has not yet been convincingly followed up by convictions and firm case law. - 7. Preventive measures for the financial sector have been progressively expanded and strengthened and now apply to all but one of the financial activities required under the FATF standards. Several preventive provisions need to be brought more closely into line with the FATF standards and more time is needed before all requirements are substantially implemented. The supervisory regime for financial institutions is generally sound, but its effectiveness with regard to AML/CFT has not yet been sufficiently demonstrated. Sanctions applied by supervisors for AML/CFT deficiencies cannot be considered effective, dissuasive or proportionate. - 8. With the exception of casinos (which operate only in the State of Goa), the DNFBP sectors are not subject to the PMLA and are not regulated and supervised for AML/CFT purposes. AML/CFT preventive measures were only recently extended to casinos, raising effectiveness concerns regarding implementation and the regulatory and supervisory regime. - 9. Key recommendations to India include the need to: - address technical shortcomings in the criminalisation of both money laundering and terrorist financing and in the domestic framework of confiscation and provisional measures; - broaden the CDD obligations with clear and specific measures to enhance the current requirements regarding beneficial ownership; - improve the reliability of identification documents, the use of pooled accounts, PEPs, and non-face-to-face business; - ensure that India Post, which recently became subject to the PMLA, effectively implements the AML/CFT requirements; - enhance the effectiveness of the STR reporting regime; - enhance the effectiveness of the financial sector supervisory regime and ensure that India Post is adequately supervised; - ensure that competent supervisory authorities make changes to their sanctioning regimes to allow for effective, proportionate and dissuasive sanctions for failures to comply with AML/CFT requirements; - extend the PMLA requirements to the full range of DNFBPs, and ensure that they are effectively regulated and supervised. ### Legal systems and related institutional measures - 10. ML criminalised under the PMLA (2002, amended 2005 and 2009) and the NDPS Act, 1985 (amended 2001). NDPS ML provisions relate only to predicate drug offences; PMLA applies to a broader range of predicate offences, including narcotics. Since 1 June 2009, extension of predicate offence lists (Schedule A and B and addition of Schedule C) represented a serious effort to align PMLA with FATF standards, though shortcomings remain. - 11. Section 3 PMLA attempts to capture all mental and physical elements of the Convention’s ML provision but does not fully cover physical concealment and sole acquisition, possession and use of all relevant proceeds of crime. Restrictions in Schedule B include a threshold of 3 million INR (USD 60 000) before they qualify as predicate offences unless they have “cross-border implications” (Schedule Part C), constituting a major deficiency. The INR 500 000 (USD 10 000) maximum fine for legal persons under the PMLA is considered low. - 12. Effectiveness concerns arise from total absence of any ML convictions. At time of on-site visit only six prosecutions were underway, with first proceedings starting in 2008. Case law on interpretation and evidentiary requirements is yet to be developed. Indian authorities expect significant improvement because (1) information sharing between Directorate of Enforcement (ED) and law enforcement agencies (LEAs) has been institutionalised, and (2) the 2009 PMLA amendment allows ML investigations to be initiated immediately after registration of a predicate offence by a LEA, facilitating parallel investigations by the ED. - 13. Combined application of sections 15, 17 and 40 of the UAPA (amended 2004 and 2008) takes important steps toward meeting international standards for criminalisation of terrorist financing. India is party to all Treaties annexed to the FT Convention and goes beyond Article 3. However, technical deficiencies remain, including: - sole (intentional or knowing) financing of offences covered by the Treaties annexed to the FT Convention should be criminalised as terrorist financing; - the UAPA offence of making demands for nuclear material, etc. should be included in the list of terrorist acts; - terrorist acts covered by the UAPA should also target international organisations; - attempt to commit section 17 and section 40 UAPA offences should be fully covered; - sole wilful financing of terrorist individuals and terrorist organisations as such, without requiring specific intention or knowledge that funds should or are to be used to commit a terrorist act, should be criminalised. - 14. Since 2006, 29 FT prosecutions have been initiated on the basis of the UAPA; at the time of the on-site visit the trial was still underway in 28 cases and only one case had ended in a conviction. The length of court proceedings creates an impression of ineffectiveness. - 15. Confiscation regime allows a broad spectrum of seizure and forfeiture measures but is not fully comprehensive and shows technical deficiencies. Current legislation does not allow confiscation of the money laundered as subject of the ML offence and is contingent on a conviction for the predicate offence. Definitions of proceeds of crime and property in the PMLA are broad and allow for confiscation of property derived directly or indirectly from proceeds of crime relating to a scheduled (predicate) offence, including income, profits and other benefits, and allow for confiscation of corresponding value. The UAPA and the NDPS Acts do not provide for full equivalent value confiscation. Effectiveness of confiscation provisions under the PMLA, NDPS Act, and UAPA cannot be assessed due to low numbers of confiscations under these Acts. Confiscations of proceeds derived from predicate offences are frequent under the Indian Penal Code. - 16. India has an adequate system for freezing terrorist related assets mainly based on a UAPA provision allowing freezing of terrorist funds or other assets of persons and entities designated in accordance with S/RES/1267(1999) and S/RES/1373(2001). Mechanisms exist to freeze assets based on lists from other jurisdictions. When funds are frozen, affected person has no access to assets necessary for basic expenses but can obtain free legal aid. Persons or entities can challenge freezing measures in court. Rights of bona fide third parties are adequately covered. - 17. Ministry of Home Affairs (IS-I of the MHA) issued instructions and guidance to ensure freezing takes place without delay and without prior notice. Financial sector regulators (RBI, SEBI and IRDA) issued guidelines to banks, stock exchanges, depositories, intermediaries regulated by SEBI and insurance companies concerning obligations consistent with India’s freezing mechanism. On 22 February 2010 Indian authorities issued guidance for the DNFBP sector (ten days after the two months following the on-site visit and outside the scope of this mutual evaluation), but there is no indication these instructions are effectively implemented. Except for the financial sector, there are no appropriate measures to monitor compliance with relevant legislation and guidelines and to impose sanctions for non-compliance. - 18. FIU-IND established 18 November 2004 as an independent body reporting to the Economic Intelligence Council (EIC). FIU-IND became operational in March 2006. FIU-IND is the central national agency for receiving, processing, analysing and disseminating information relating to suspicious financial transactions, and coordinates and strengthens national and international intelligence, investigation and enforcement efforts against ML, FT and related crimes. - 19. PMLA provides FIU-IND with statutory basis to access financial, administrative and law enforcement information for analysing STRs and processing references. FIU-IND has same powers as a civil court in matters such as inspection; enforcing attendance; compelling production of records; and receiving evidence on affidavits. Every financial institution can be requested to provide additional information, even if it has not submitted a STR or CTR to the FIU. FIU-IND periodically issues a newsletter and publishes an annual report covering several FIU core areas, but does not contain a specific section on typologies and trends. Effectiveness concern: dissemination of financial information for investigation or action by the State Police is relatively low, compared with the State Police’s primary responsibility for investigating and prosecuting FT and ML predicate offences and for confiscating proceeds of crime. - 20. On 1 July 2005 the Government of India vested at the federal level the Directorate of Enforcement (ED) with exclusive powers to investigate ML offences under the PMLA. Investigation and prosecution of FT offences rests primarily with the State Police, though the UAPA empowers the Central Bureau of Investigation (CBI) to investigate FT offences. Under the National Investigation Agency Act (NIA Act), 2008, the Central Government constituted the National Investigation Agency (NIA), a specialised agency for investigation and prosecution of offences under the Acts in the schedule to the NIA Act, including the UAPA. - 21. Law enforcement authorities have an adequate legal basis for a wide range of investigative techniques, including undercover operations, interceptions and other surveillance. The PMLA does not contain a specific provision authorising controlled deliveries. - 22. Until June 2009 ML prosecutions were almost non-existent (only two ML prosecution proceedings commenced and no convictions). Two key legislative changes in 2009 cleared the way for the ED to increase the number of active ML investigations. On 31 December 2009, a total of 798 investigations were registered, including 43 cases involving provisional restraining of proceeds of crime. During the on-site visit the ED presented cases illustrating investigative powers and capability. - 23. To implement SR IX India uses a combination of a declaration system under the Foreign Exchange Management Act (FEMA) using Currency Declaration Forms (CDFs), and a disclosure system. These apply to currency and Bearer Negotiable Instruments (BNI) carried by incoming and outgoing persons via airports and land borders. There are restrictions on sending currency and BNI to and from India through post and cargo. Failure to file a CDF upon entry to India or to disclose carriage of currency out of India, or filing a false declaration, is a breach of the Customs Act and gives customs officers power to request further information on origin and intended use. The number of cash seizures on an annual basis is very low given the very large number of people moving across India’s borders; the cash-based nature of India’s economy; the number of CDFs declared; and the number of false declarations detected. This raises an issue regarding the effectiveness of implementation of both the declaration scheme for importing and the disclosure regime for export of currency and BNIs, as required by Special Recommendation IX. *Source: _cr1126 - Introduction.* ### 3. Preventive Measures – Financial institutions ### 3. Preventive Measures – Financial institutions ### Framework and legal instruments - Primary domestic framework: Prevention of Money Laundering Act (PMLA) and Prevention of Money Laundering Rules (PML Rules). - Chapter IV of the PMLA sets obligations for banking companies, financial institutions and intermediaries; contains four short sections, two of which (on record-keeping and reporting to the FIU) provide for further elaboration through measures that may be prescribed later. - Rule-making authority under section 73 of the PMLA. - Most PML Rules became effective on 1 July 2005; additional Rules notified on 24 May 2007 and 12 November 2009; short amendment on 12 February 2010 included a general definition of “beneficial owner”. - Structure of PML Rules qualifies as “law or regulation” suitable for introducing core elements of Recommendations 5, 10 and 13. - AML/CFT requirements further elaborated via binding circulars issued by RBI, SEBI and IRDA; these circulars fall within the FATF definition of “other enforceable means”. ### Sectoral coverage and scope - With the exception of commodities futures brokers, all financial activities required under FATF standards are covered by the PMLA; omission of commodities futures brokers is of limited materiality. - India Post now governed by the PMLA (scope issue corrected before June 2009), but uncertainties remain about implementation effectiveness. - Money service businesses and foreign exchange houses licensed/authorised by RBI under FEMA and Payment and Settlement Systems Act (PSSA); MVT sector brought into AML/CFT regime with effect of 1 June 2009. - Casinos included within definition of financial institutions by June 2009 amendments; Home Department, Government of Goa issued enforceable guidelines on 24 December 2009. ### Customer due diligence (CDD) and beneficial ownership - No evidence of systematic failings by financial institutions in implementing broader CDD obligations, but several specific issues give rise to concern: - Neither PML Rules nor regulators’ circulars provide a practical definition of what constitutes beneficial ownership; need for further clarification from regulators. - Considerable reliance on a range of official ID documents available to Indian nationals during CDD; concerns exist among financial institutions and some parts of Government about the underlying reliability of those documents. - Pooled client accounts are common in accountancy, legal and company secretary professions; strict professional secrecy provisions prevent disclosure to financial institutions of the name(s) of the beneficial owner(s) of funds. - IRDA circular places obligation on insurer to oversee tied agents, but assessors had concerns about how this is achieved in basic customer identification procedures. - All three regulators issued instructions on PEPs, but inconsistencies exist in scope across sectors, creating no assurance of a common understanding across the financial industry. - Insurance circulars are much less robust: fail to mention need for special measures to prevent misuse of technological development and offer no material guidance on non-face-to-face transactions, despite mentioning remote account-opening options. - Assessors concluded Recommendation 9 terms are not applicable to India; universal view among financial institutions is that third-party introduced business is not permitted. ### Reporting, record-keeping and STR/CTR regime - STR reporting requirements effective since PMLA came into force in July 2005; reporting obligation specifically included terrorist financing, effective 2007. - FIU operational and receiving STRs since March 2006; total number of STRs has been rising. - Despite training, outreach and sanctions threat, STR filings appear extremely low relative to size of financial system, scale of economic activity and reported levels of proceeds-generating crimes; raises significant concerns about overall effectiveness of STR reporting regime. - Number of terrorist-related STRs appears extremely low given India’s vulnerability and large number of actual terrorist attacks per year. - Section 14 of the PMLA provides covered institutions and their officers protection from civil liability for reports filed with the FIU; directors or employees are not expressly covered by PMLA’s safe harbour provision. - No protection from criminal liability in the PMLA for reports filed with the FIU; protection from criminal liability provided by a provision in the Indian Penal Code. - 12 November 2009 amendment to PML Rules requires covered entities and employees to keep fact of furnishing information on suspicious transactions strictly confidential; tipping-off provision broad enough to cover before, during and after submission of an STR. - PMLA and PML Rules require reporting to the FIU of all cash transactions greater than INR 1 million (USD 20 000) or equivalent in foreign currency, including all series of integrally-connected cash transactions within a month that together exceed the INR 1 million threshold; currency transaction reports (CTRs) must be filed monthly. - RBI, SEBI and IRDA circulars provide instructions on procedure and manner of furnishing CTRs to the FIU. ### Record-keeping - Record-keeping regime largely complies with FATF requirements after February 2010 amendments corrected most previous deficiencies. - Gap: records pertaining to transactions pre-dating February 2010 may be unavailable due to earlier deficiencies. - PMLA and Rules do not clearly require retention period for customer identification records to run from termination of account/business relationship rather than from date of last transaction; clarified only in OEM and not addressed by other general or sector-specific laws/regulations. ### Monitoring of suspicious and high-risk transactions, PEPs and cross-border concerns - Financial institutions required to pay special attention to all complex, unusual large transactions, or unusual patterns of transactions that have no apparent or visible economic or lawful purpose. - Securities intermediaries must give special attention to business relationships and transactions with persons from or in countries that do not or insufficiently apply FATF Recommendations; no express requirements in law/regulation/OEM obligating banks and insurance companies to take similar measures. - Dissemination mechanism for FATF advisories appears effective despite delay; isolated institution/regulator actions do not rise to level of counter-measures. ### Internal controls, AML/CFT programs and training - PML Rules require covered institutions to establish and maintain internal AML/CFT procedures, policies and controls covering CDD and record retention and to communicate these to employees. - PML Rules do not expressly require internal AML/CFT procedures to address detection and reporting of unusual and suspicious transactions, but require appointment of a Principal Officer to handle reporting, implying need for such procedures. - Regulatory obligations in banking, securities and insurance require effective risk-based AML policies and procedures regarding: customer acceptance policy; customer identification procedures; transaction monitoring; risk management and record retention. - Guidance in securities sector satisfies Recommendation 15; guidance for banking and insurance sectors has some technical shortcomings. - Application of PMLA to India Post, including AML/CFT training and programmatic requirements, has not yet been effectively implemented. - India has fully implemented requirements of Recommendation 22 with respect to foreign branches and subsidiaries of relevant banks, securities intermediaries and authorised money changers; Recommendation not applicable to insurance sector (insurance companies not legally permitted to conduct business overseas through branches or subsidiaries). ### Supervision, inspections and enforcement - Regulators have authority under Rules 5 and 7 of PML Rules and under governing legislation to issue specific and general instructions. - Central Government has extensive powers over appointment/dismissal of senior personnel in regulatory authorities and can give directions, but no evidence of government interference in day-to-day operations; regulators appear to have broad operational independence in budgetary resources and regulatory procedures. - Licensing provisions applied rigorously with focus on fitness and probity of management; however, legal duty to approve subsequent managerial appointments does not generally extend to non-executive directors, and fit and proper tests are generally applied at stages after appointments—this practice does not meet FATF standard requiring supervisor to apply fit and proper criteria prior to appointment. - Regulators have very extensive inspection and information-gathering powers used routinely via regular reporting, on-site examinations and special instructions. - No established supervisory regime covering banking operations of India Post, which holds a very large number of small accounts. - Assessors concerned AML/CFT risks not given sufficient weight in identifying which institutions should be inspected (particularly RBI) and what degree of attention should be paid to AML/CFT risks during inspections. - Legal provisions and sanction data indicate framework does not provide for effective, dissuasive or proportionate measures. ### Shell banks and correspondent relationships - No specific legal prohibition on establishment of shell banks in Banking Regulation Act, but Banking Act requirements and RBI licensing process ensure shell banks do not operate in India. - RBI has issued guidance to financial institutions regarding shell banks; guidance should be expanded to require institutions to satisfy themselves they are not entering relationships with shell banks or that foreign respondent institutions do not permit their accounts to be used by shell banks. ### Money transfer sector and informal remittances - MVT sector captured under AML/CFT regime as of 1 June 2009; limited evidence available on effectiveness at time of on-site visit. - Legitimate businesses are captured under FEMA and PSSA; a sizeable informal sector operating illegally exists though exact scale unknown. - Directorate of Enforcement (ED) identified a significant number of breaches of FEMA provisions relating to Hawala-type transactions. ### Designated Non-Financial Businesses and Professions (DNFBPs) — summary (from following section) - DNFBPs in India include casinos, lawyers, real estate agents, accountants, company secretaries, gold dealers, and dealers in precious metals and stones. - Except for casinos, these DNFBPs are not subject to PMLA provisions; formal risk assessment undertaken as part of deciding whether to include remaining DNFBP sectors within PMLA. ### Legal persons, arrangements, trusts and NPOs — access to beneficial ownership information - Corporate registry and information collection system does not focus on beneficial owner or controller of companies/limited liability partnerships; information maintained relates almost solely to immediate owners or controllers. - Possibility exists of nominee directors acting for undisclosed principals. - Hindu undivided families (HUF) are legal entities that can hold assets and present challenges for identifying beneficial ownership; no specific requirements ensure beneficial ownership information is collected and maintained. - No assurance competent authorities have access to accurate and current information on ultimate beneficial owners/controllers of all legal persons on a timely basis. - Bearer shares not permitted under Indian legislation; Companies Act permits ownership of public companies through bearer share warrants but adequate safeguards appear in place to identify beneficial owners of these instruments. - India has trust law with three general categories: private trusts; charitable/public trusts (including religious trusts); and wakfs. - Trust instruments may be registered but a written instrument is not strictly required for private trusts; no statistics available on number of private trusts, charitable/public trusts or wakfs. - Robust systems exist for public trusts (record-keeping and maintenance including financial records); measures relating to collection of beneficial ownership information for private trusts are limited. - Indian law does not require those who perform trust services (primarily lawyers) to obtain, verify, or retain records on beneficial ownership/control of trusts or to retain copies of trust instruments; competent authorities therefore not guaranteed timely access to adequate and accurate information concerning beneficial owners of private trusts. *Source: _cr1126 - 3. Preventive Measures – Financial institutions* ### 44. The NPO sector plays a vital social role in Indian society. India does not maintain a unified ### _cr1126 - 44. The NPO sector plays a vital social role in Indian society. India does not maintain a unified ### NPO sector: scope, monitoring, and risks - By government estimates, there are approximately two million foreign and domestic NPOs operating in India. - India does not maintain a unified database for NPOs; each registering authority maintains its own database. - Statistics on the number of registered NPOs under the various statutes are not generally available. - India has not yet undertaken a review of its NPO sector as envisaged by the FATF standards. - There has been no effective outreach to the NPO sector by the Government of India or by State Governments regarding risks and vulnerabilities of the sector to terrorist financing abuse. - Except under the Income Tax Act and the Foreign Contribution (Regulation) Act (FCRA), the NPO sector is subject to limited or no monitoring and supervision; NPOs registered under these Acts account for a small number of entities within the sector. - Indian officials indicated they believe the FT risk in the NPO sector is small; however, this confidence is difficult to substantiate given the inability to state the size, wealth, and activities of the majority of NPOs in India. ### National and international co-operation: mechanisms, limitations, and effectiveness - Domestic coordination: - Inter-agency coordination and cooperation is mandated by the Central Government and embedded in the Indian system across AML and national security functions. - The assessment team received assurances from the ED about its ability to gather evidence and work alongside the agency responsible for the predicate offence investigation. - The increase in the number of registered cases since 2009 supports improved coordination. - To date, there are only six prosecutions for money laundering and no convictions. The absence of convictions limits demonstration of effectiveness of domestic coordination and cooperation mechanisms. - International instruments and implementation: - India has not yet ratified the Palermo Convention. (Footnote: The Union Cabinet of India in its meeting held on the 19 March 2010 has approved the ratification of the Palermo Convention. India is in the process to complete the necessary formalities.) - Technical shortcomings exist in the criminalisation of ML and FT and in implementation of the preventive regime; India’s AML/CFT system is not fully in line with the relevant Conventions. - Mutual Legal Assistance (MLA) and extradition: - India provides MLA on the basis of MLA Treaties with contracting States, treaties containing MLA provisions, and requests for assistance based on reciprocity. - There are few conditions or restrictions on providing MLA; requests are not refused solely because the offence involves fiscal matters or secrecy/confidentiality of financial institutions or DNFBPs. - India’s ability to provide MLA for coercive measures is limited by deficiencies in criminalisation of ML/FT and domestic frameworks for confiscation and provisional measures; dual criminality requirements also pose problems. - Some countries reported delays or failures in India’s response to MLA requests. - India has a comprehensive and basically sound extradition regime; ML and FT offences meet the minimum punishment threshold and are extraditable. - Strict application of the dual criminality principle negatively impacts India’s capacity to extradite for ML offences; deficiencies in FT definitions/criminalisation may affect extradition for FT when dual criminality is applied. - India can extradite its own nationals; where a treaty partner bars extradition of its own citizens, India may do the same. If extradition does not occur, prosecution in India is possible. - Some countries have experienced delays or refusals in extradition assistance from India, raising concerns about effectiveness. - Informal international cooperation and information exchange: - India has implemented effective measures to facilitate international cooperation by the FIU, law enforcement, and customs authorities outside formal MLA processes, generally providing rapid, constructive, and effective cooperation. - India does not refuse cooperation on the ground that offences involve fiscal matters. - Adequate precautions are in place for confidentiality and data protection. - Financial sector supervisors (with partial exception of SEBI) lack a specific legal basis for exchanging confidential information with foreign supervisors; information exchange is often limited to high-level information and may not extend to customer-specific information. - Authorities indicate agencies operate on the principle they may take appropriate measures to fulfil general objectives unless explicitly prohibited by law; agencies have developed procedures permitting confidential information exchange. ### Resources and statistics - Competent authorities: - The majority of competent authorities appear adequately resourced and structured to perform current designated functions effectively. - IRDA’s staff strength has been growing in pace with regulatory/supervisory requirements; IRDA uses technology to augment human resources but recognises need to expand its pool of qualified experts to effectively supervise the sector and keep pace with industry developments and growth. - Uncertainties remain about the future regulatory regime for the banking activities of India Post. - Statistics and reporting: - India maintains comprehensive statistics regarding STRs received, analysed, and disseminated, and statistics relating to money laundering and terrorist financing investigations, prosecutions and convictions. - India keeps comprehensive statistics of mutual legal assistance and extradition matters. - Indian customs authorities do not keep statistics regarding the number of Currency Declaration Forms completed at land borders and the detection of smuggling of currency and BNI through mail and containerised cargo. ### FATF Recommendations: ratings and key factors (selected highlights) - Legal system - Recommendation 1. ML offence — Rating: PC - (High) monetary threshold condition for most ML predicates. - ML provision does not cover physical concealment of criminal proceeds. - ML provision does not cover the sole knowing acquisition, possession and use of criminal proceeds. - Effectiveness issues: - the absence of any conviction for ML; - the high evidentiary standard untested before the courts, particularly in respect of the proof of the foreign predicate offence. - Recommendation 2. ML offence – mental element and corporate liability — Rating: LC - Inadequate sanctions for legal persons committing the ML offence. - Effectiveness issues: - the total absence of ML convictions; - interpretation of making corporate criminal liability contingent on prosecution of a natural person. - Recommendation 3. Confiscation and provisional measures — Rating: PC - Confiscation of property laundered is not covered in the relevant legislation and depends on a conviction for a scheduled predicate offence. - The UAPA does not allow for confiscation of intended instrumentalities used in terrorist acts or funds collected to be used by terrorist individuals. - The UAPA and NDPS Act do not allow for property of corresponding value to be confiscated. - No clear provisions and procedures on how to deal with assets when the defendant has died. - Effectiveness issue: concerns based on the limited number of confiscations in relation to ML/FT offences. - Preventive measures (selected) - Recommendation 4. Secrecy laws consistent with the Recommendations — Rating: C (fully observed). - Recommendation 5. Customer due diligence — Rating: PC - Scope limitation: the PMLA does not apply to commodities futures brokers. - No provisions requiring CDD renewal when there is suspicion of ML/FT or doubts about previously obtained customer identification data. - No provisions requiring proactive determination whether a customer is acting on behalf of another person. - Lack of clarity and divergent practices on identification and verification of beneficial ownership. - Professional secrecy provisions prevent identification of beneficial owners of client accounts. - No obligation in IRDA circular to understand ownership and control structures of legal persons. - RBI and IRDA circulars do not require specific override of low-risk procedures when suspicions arise. - No explicit requirement in RBI and IRDA circulars to consider filing an STR when the institution can no longer be satisfied it knows the true identity of the customer. - Term life policies exempt from AML requirements at stage of writing the policy. - Implementation issue: recent introduction of Authorised Persons within the PMLA (including India Post) raises questions over extent of implementation. - Recommendation 6. Politically exposed persons — Rating: PC - Scope limitation: the PMLA does not apply to commodities futures brokers. - No RBI and SEBI requirement to implement ongoing risk management procedures for identifying PEPs. - No RBI requirement to apply enhanced measures to close relatives of PEPs. - No IRDA obligation to apply enhanced measures to entities where the beneficial owner is a PEP. - Recommendation 12. DNFBP – R.5, 6, 8-11 — Rating: NC - Scope limitation: PMLA does not apply to DNFBP sectors, except casinos. - Basic PMLA requirements that apply to casinos do not address much of the detail required under FATF standards. - Effectiveness issue: extension of PMLA to casino sector is very recent with insufficient evidence of effective implementation. - Recommendation 13. Suspicious transaction reporting — Rating: PC - Scope limitation: the PMLA does not apply to commodities futures brokers. - No definition of “activities of terrorism” in the PMLA, leaving interpretation to reporting institutions concerning STR scope for financing of terrorism. - Effectiveness issue: concerns about low number of STRs filed in relation to ML and FT, especially in banking sector. - Institutional and other measures - Recommendation 26. The FIU — Rating: LC - Effectiveness issue: dissemination of financial information for investigation or action by the State Police is relatively low compared with the State Police’s primary responsibility for investigation and prosecution of FT and predicate offences and for confiscation of proceeds of crime. - Public information released by the FIU-IND does not include information on typologies and trends in ML and FT cases and related predicate offences. *Source: IMF country report content provided in the input.* ### 27. Law enforcement authorities LC ### 27. Law enforcement authorities LC ### Key findings and effectiveness issues - Effectiveness issue: - India has yet to achieve ML convictions. - Effectiveness issue: - the effectiveness of the inter-agency co-ordination and co-operation has not yet been demonstrated. ### Supervisory and regulatory shortcomings - Scope limitation: - the PMLA does not apply to commodities futures brokers. - Financial sanctions applied for AML/CFT deficiencies across all sectors are not effective, proportionate or dissuasive. - There is no established supervisory regime covering the banking operations of India Post. - Concerns about the adequacy of staffing levels in the IRDA. - Uncertainties about the future regulatory regime for the banking activities of India Post. ### Statistics and information gaps - No statistics available regarding the number of CDFs collected at Land Customs Stations and detections of smuggling of currency and BNI through the mail and containerised cargo. - Information on additional beneficial ownership of legal persons beyond the immediate beneficial owner is not required to be collected by either the corporate registry, within corporate records held by legal persons, or by company secretaries. - There are no measures in place to prevent the unlawful use of HUFs in relation to ML or FT – for instance, HUFs are not required to maintain information on beneficial ownership. - While law enforcement and other authorities have sufficient powers to access current and accurate information on beneficial ownership of legal persons (in particular foreign companies), this is not possible in a timely fashion. ### Legal persons and legal arrangements — beneficial ownership (Rating: PC) - Legal persons: - Information on additional beneficial ownership of legal persons beyond the immediate beneficial owner is not required to be collected by either the corporate registry, within corporate records held by legal persons, or by company secretaries. - There are no measures in place to prevent the unlawful use of HUFs in relation to ML or FT – for instance, HUFs are not required to maintain information on beneficial ownership. - While law enforcement and other authorities have sufficient powers to access current and accurate information on beneficial ownership of legal persons (in particular foreign companies), this is not possible in a timely fashion. - Legal arrangements: - There is no requirement to obtain, verify and retain adequate, accurate and current information on the beneficial ownership and control of private trusts. - That are no measures in place that guarantee that minimal adequate and accurate information concerning the beneficial owners of private trusts can be obtained or accessed by the competent authorities in a timely fashion. ### International co-operation and conventions (Ratings: PC / LC) - Conventions (PC): - Palermo TOC Convention not ratified. - Criminalisation of ML not in line with the Vienna and TOC Conventions (concealment, acquisition, possession and use). - Restricted ML seizure/confiscation regime. - Inadequate sanctions for the ML offence in the NDPS Act and the sanctions for legal persons in the PMLA. - Deficiencies in the regulatory and supervisory regime. - Effectiveness issue: - absence of convictions. - Mutual legal assistance (MLA) (LC): - MLA in coercive actions may be hampered as a result of domestic legal deficiencies (dual criminality). - Effectiveness issue: - India does not provide MLA in a timely manner. - Dual criminality (LC): - MLA in coercive actions may be hampered as a result of domestic legal deficiencies (dual criminality). - Limitations in the criminalisation of ML may limit the possibilities for extradition (dual criminality). - MLA on confiscation and freezing (LC): - Deficiencies in confiscation regime of laundered property, instrumentalities and proceeds of money laundering affect the MLA capability. - Extradition (LC): - Limitations in the criminalisation of ML may limit the possibilities for extradition (dual criminality). - Effectiveness issue: - India does not provide extradition in a timely manner. - Other forms of co-operation (LC): - There are no clear and effective gateways and mechanisms in place for the RBI and IRDA that allow for prompt and constructive exchanges of confidential information with foreign counterparts. ### Terrorist financing and Special Recommendations (summary) - SR.I Implement UN instruments (PC): - FT criminalisation not in line with the FT Convention (FT offences, international organisations, attempt). - Confiscation of terrorist funds is deficient. - UN RES are not fully implemented. - Effectiveness issue: - concerns regarding preventive regime and judicial follow-up in terms of final convictions. - SR.II Criminalise terrorist financing (PC): - FT provisions not in line with the FT Convention: - criminalisation of Treaty offences not consistent with art. 2.1(a); - not all Treaty offences included in the list of terrorist acts; - international organisations not covered; - FT attempt is not fully covered. - No criminalisation of sole knowing funding of terrorist individuals and terrorist organisations. - Effectiveness issue: - minimal number of convictions. - SR.III Freeze and confiscate terrorist assets (LC): - There is no indication of effective implementation of the guidelines recently issued for the DNFBP sector. - There is no monitoring mechanism in place to ensure compliance with the freezing mechanism outside the financial sector. - There are no procedures in place that allow affected persons to have access to funds for basic expenses. - SR.IV Suspicious transaction reporting (PC): - Scope limitation: - the PMLA does not apply to commodities futures brokers. - There is no definition of “activities of terrorism” in the PMLA, leaving it to reporting institutions to interpret the scope of the STR reporting requirement with respect to the financing of the activities of terrorism. - Effectiveness issue: - concerns about the extremely low number of STRs filed in relation to FT in comparison with India’s vulnerability with regard to terrorism. - SR.V International co-operation (LC): - MLA in coercive actions may be hampered as a result of domestic legal deficiencies (dual criminality). - Deficiencies in the confiscation regime related to FT affect the MLA capability. - Deficiencies in the criminalisation of FT may affect the extradition possibilities. - There are no clear and effective gateways and mechanisms in place for the RBI and IRDA that allow for prompt and constructive exchanges of confidential information with foreign counterparts. - SR.VI AML requirements for money/value transfer services (LC): - The application of the FATF Recommendations to MVTS providers suffers from the same deficiencies as identified in relation to the rest of the financial sector (see sections 3.1 to 3.10 of this report). - SR.VII Wire transfer rules (LC): - Effectiveness issue: - the PMLA did not apply to India Post, which is authorised to conduct both domestic and cross border wire transfers, until June 2009. - SR.VIII Non-profit organisations (NC): - There is no review undertaken of the adequacy of domestic laws in the NPO sector. - There are no periodic reassessments undertaken by reviewing new information on the sector’s potential vulnerabilities to terrorist activities. - There is no outreach to the NPO sector with a view to protecting the sector from abuse for terrorist financing takes place. - There is only limited information available on the identity of person(s) who own, control or direct their activities, including senior officers, board members and trustees. - India has not demonstrated that measures are in place to sanction violations of oversight measures or rules by NPOs or persons acting on behalf of NPOs for NPOs other than those registered under the Income Tax Act and under the FCRA. - The majority of NPOs are not registered as such with government agencies, including the tax authorities. - SR.IX Cross Border Declaration & Disclosure (PC): - Effectiveness issue: - concerns based on the low number of currency declarations, the detected false declarations, and the cash seizures, including seizures of unaccompanied cash or BNIs. - The Cross border declaration/disclosure systems appear to be applied only to currency and BNI via airports, with no information on movements of currency and BNI via land borders or unaccompanied movement of currency through postal and cargo systems. - The shortcomings identified with regard to the attachment, confiscation and forfeiture provisions discussed in Section 2.3 and to the freezing, seizing and attachment of property related to terrorist financing (as discussed in Section 2.4) have a negative impact on Special Recommendation IX. ### Recommended action plan — selected items relevant to law enforcement and related areas - 2.1 Criminalisation of Money laundering Measures (R.1 & R.2) - The monetary threshold limitation of INR 3 million for the Schedule Part B predicate offences should be abolished. - The section 3 PMLA definition of the ML offence should be brought in line with the Vienna and Palermo Conventions so as to also fully cover the physical concealment and the sole acquisition, possession and use of all relevant proceeds of crime. - The present strict and formalistic interpretation of the evidentiary requirements in respect of the proof of the predicate offence should be put to the test of the courts to develop case law and receive direction on this fundamental legal issue. - The level of the maximum fine imposable on legal persons should be raised or left at the discretion of the court to ensure a more dissuasive effect. - The practice of making a conviction of legal persons contingent on the concurrent prosecution/conviction of a (responsible) natural person should be abandoned. - 2.2 Criminalisation of Terrorist Financing (SR.II) - The sole (intentional or knowing) financing of the offences covered by the Treaties annexed to the FT Convention should be criminalised as terrorist financing. - The section 16A UAPA offence of making demands for nuclear material, etc. should be included in the section 15 list of terrorist acts. - The terrorist acts under section 15 of the UAPA should also target international organisations. - The attempt to commit the section 17 and section 40 UAPA offences should be fully covered. - The sole wilful financing of terrorist individuals and terrorist organisations should be criminalised. - 2.3 Confiscation, freezing and seizing of proceeds of crime (R.3) - Legal measures are taken to allow for confiscation of the money laundered as subject of the ML offence and which is not contingent on a conviction for the predicate offence (stand-alone ML offence). - The Indian authorities ensure that the definition of proceeds of terrorism is wide enough to allow for confiscation of instrumentalities and funds used to finance an individual terrorist. - The UAPA and the NDPS Act should explicitly provide for full equivalent value confiscation. - The confiscation regime should also include clear provisions and procedures on how to deal with the assets in case the criminal proceedings come to a halt because of the death of the defendant. - 2.4 Freezing of funds used for terrorist financing (SR.III) - The guidelines recently issued for the DNFBP sector regarding the freezing mechanism are effectively implemented. - A monitoring mechanism is set up to ensure compliance with the freezing mechanism outside the financial sector. - Procedures are put in place for authorising access to funds for basic expenses. - 2.5 The Financial Intelligence unit and its functions (R.26) - Should enhance its capability in relation to intelligence and information dissemination to all competent authorities, including the State Police. - Should enhance its dissemination of public information regarding trends and typologies, which could include strategic reporting. - 2.6 Law enforcement, prosecution and other competent authorities (R.27 & 28) - While India has initiated a large number of ML investigations, it has yet to achieve convictions for ML offences. - 2.7 Cross Border Declaration & Disclosure - Undertake an in-depth analysis and envisage taking the necessary actions based on the deficiencies identified in relation to the arrival card for passengers used at international airports, including the absence of the necessary guidance, and the use of Customs Declaration Forms at land borders. - Introduce targeted actions for the detection of smuggling of currency and BNI via the mail and containerised cargo. - Take action to address the deficiencies identified in relation to the implementation of the FATF Recommendations, as identified in Sections 2.3 and 2.4 of this report that have a negative impact on Special Recommendation IX. - 3.1 Risk of money laundering or terrorist financing - The authorities should undertake a comprehensive risk assessment of all the financial institutions operating in India. - 3.2 Customer due diligence, including enhanced or reduced measures (R.5 to 8) - Bring the commodities futures brokers fully within the scope of the PMLA. - Amend the PML Rules to: - require renewal of CDD when there are suspicions of money laundering or terrorist financing, or where there are doubts about the adequacy or veracity of previously obtained customer identification data; and - require institutions proactively to determine whether a customer is acting on behalf of another person. - Amend the regulatory circulars to: - implement a requirement that the low risk provisions should not apply when there are suspicions of ML/FT or when other factors give rise to a belief that the customer does not, in fact, pose a low risk (RBI and IRDA); - provide guidance on how to interpret the definition of beneficial ownership and on the procedures required to identify the ultimate natural person who owns or controls the customer (all regulators); - introduce measures to prevent the opening of client accounts unless the professional intermediary is willing and able to provide information on the beneficial owners (RBI); - introduce requirement to understand the ownership and control structure of legal persons (IRDA); - introduce a requirement that an institution should consider filing an STR when an institution can no longer be satisfied that it knows the true identity of a customer (RBI and IRDA); and - remove the exemption for term life policies from the AML obligations at the time that the policy is first written (IRDA); - introduce consistent requirements within all three sets of circulars to ensure that all institutions should have appropriate ongoing risk management procedures for identifying (and applying enhanced CDD to) PEPs, customers who are close relatives of PEPs, and accounts of which a PEP is the ultimate beneficial owner. - Review the procedures under which the insurers are entirely reliant on the basic identification procedures carried out by their agents (IRDA). - 3.5 Record keeping and wire transfer rules (R.10 & SR.VII) - Bring the commodities futures brokers fully within the scope of the PMLA. - Amend the PML Rules to require that: - the retention period for customer identification records extends at least five years from the termination of the account or business relationship (or longer if requested by a competent authority in specific cases upon proper authority). - Amend the regulatory circulars to remove the total exemption for term life policies from the AML obligations by requiring the maintenance of records of payout transactions (IRDA), including identification of beneficiaries. - 3.6 Monitoring of transactions and relationship (R.11 & 21) - Bring the commodities futures brokers fully within the scope of the PMLA. - Establish clear and direct requirements for the institutions in the banking and insurance sector to pay special attention to both business relationships and transactions with persons from or in countries that do not or insufficiently apply the FATF Recommendations. - Require all financial institutions to examine the purpose of transactions with persons from or in countries that do not adequately apply the FATF standards in order to determine whether there is an apparent economic or visible lawful purpose. - Develop adequate legal authorities to enable it to apply a range of appropriate counter-measures across all financial sectors where a country continues not to apply or insufficiently applies the FATF Recommendations. - In order to improve the effectiveness of the measures in place, make clear that covered institutions should go beyond the FATF statements and consider publicly available information when identifying countries which do not or insufficiently apply the FATF Recommendations. - 3.7 Suspicious transaction reports and other reporting (R.13-14, 19, 25 & SR.IV) - Bring the commodities futures brokers fully within the scope of the PMLA. - Thoroughly examine the STR reporting rate, to determine whether it is adequate, given the size of the financial sector and the number of proceeds-generating crimes; whether specific sectors or geographic regions are not reporting appropriate numbers of STRs; and, if STR reporting levels are inadequate, either overall or by specific sector/area of the country, the reasons for such low reporting and appropriate responses to correct the underlying problems. Particular attention should be paid to the banking sector. - Thoroughly examine the STR reporting rate with respect to terrorism-financing related STRs in particular, to determine why the number of such STRs appears to be extremely low, both in terms of the size of the financial system and relative to the terrorist financing risk, and why so few of the FT-related STRs have been identified by means other than automated alerts triggered by matching names to terrorist lists, and take appropriate steps to correct any underlying problems. - Conduct intensive outreach, focusing on MSBs and banks, to improve capacity to identify and report FT-related suspicious transactions. - Clarify the scope of the language of the STR reporting requirement covering transactions relating to the financing of the activities of terrorism to ensure that it requires covered institutions to report suspicious transactions where they suspect or there is reasonable grounds to suspect that the funds are linked or related to, or to be used for terrorism, terrorist acts or by terrorist organisations. - Expand the PMLA's safe harbour provision to expressly cover directors or employees. *Source: _cr1126 - 27. Law enforcement authorities LC* ### 3.8 Internal controls, compliance, ### 3.8 Internal controls, compliance, audit and foreign branches (R.15 & 22) ### Internal controls, compliance and audit - Extend the responsibilities of the Principal Officer in the banking sector beyond the STR and other reporting to overall compliance. - Expressly provide that the audit function in all sectors should be independent and adequately resourced. ### Shell banks (R.18) - The RBI should provide guidance to financial institutions regarding measures that should be in place in order for financial institutions to satisfy themselves that they are not entering into relationships with shell banks or that their foreign respondent institutions do not permit their accounts to be used by shell banks. ### The supervisory and oversight system – competent authorities and SROs. Role, functions, duties and powers (including sanctions) (R.23, 29, 17 & 25) - The commodities futures brokers should be brought fully within the scope of the PMLA. - A review should be undertaken of both the levels of financial sanctions for non-compliance with the AML/CFT requirements, and the procedures under which penalties are applied to ensure that they focus on systemic rather than transactional failings in institutions. - The “fit and proper” tests prior to appointment should be extended to non-executive directors. - The Ministry of Finance should develop and implement procedures for inspection and ongoing monitoring of India Post. - Reviews should be undertaken by all the regulators to ensure that their procedures for targeting on-site inspections take adequate account of the AML/CFT risks of individual institutions. - A review should be undertaken of the AML/CFT inspection procedures adopted by the NABARD and the NHB to ensure that they are in line with those adopted by the RBI itself. ### Money value transfer services (SR.VI) - India should take action to address the deficiencies identified in relation to the implementation of the FATF Recommendations, as identified in sections 3.1 to 3.10 of this report, in relation to MVTS providers. ### Preventive measures – Non-Financial Business and Professions #### Customer due diligence and record-keeping (R.12) - The Home Department of the Government of Goa should undertake a thorough study of the FATF standards and determine what additional instruction needs to be applied to the casinos in order to address the perceived risks and to comply with the standards; review circulars issued by the financial sector regulators and draw from their experience. - The Government should extend the PMLA to the businesses and professions as soon as possible; consider, on a risk-sensitive basis, the extent to which the range of requirements need to be applied to DNFBPs, since they are all perceived to present a material risk. #### Suspicious transaction reporting (R.16) - The authorities in Goa should review the need to issue further enforceable guidance to the casino sector, especially in relation to the implementation of appropriate internal systems and controls; this is especially important for offshore casinos. - Appropriate obligations will need to be introduced for the other DNFBP sectors once they are brought under the PMLA. #### Regulation, supervision and monitoring (R.24-25) - Extend the regulatory framework for the casino sector to: - give the authorities statutory powers to apply “fit and proper” tests to the owners, operators and managers of casinos; - give the regulator the statutory authority to use its powers of inspection, etc., in order to enforce compliance with the provisions of the PMLA; - increase the penalty for obstructing access by the regulator, in order to make it effective and dissuasive; - make specific provision for sanctions to be applied for breaches of the PMLA, the accompanying Rules and any relevant instructions that the regulator may issue from time to time; - broaden the scope of the sanctions that may be applied, so that there is a range of options that might be applied effectively. - The scope of the written guidance provided to the casino sector to assist with the implementation of the PML Rules needs to be extended. #### Other non-financial businesses and professions (R.20) - India should consider extending the AML/CFT provisions to non-financial businesses and professions (other than DNFBPs). ### Legal Persons and Arrangements & Non-profit Organisations #### Legal Persons – Access to beneficial ownership and control information (R.33) - Ensure that information on beneficial ownership of legal persons is collected by either the corporate registry, within corporate records held by legal persons, or by company secretaries. - Prohibit nominee directors and nominee shareholders, or (alternatively) establish measures to mitigate the risk of ML and FT associated with those kinds of directors and shareholders. - Ensure measures are in place so beneficial ownership information relating to Hindu Undivided Family (HUF) businesses is available either through a requirement for HUFs to register with a central registry and maintain beneficial ownership information or through other measures such as a requirement for all HUFs to obtain PANs and to maintain information on all beneficial ownership information available to law enforcement or other authorities on request. - Ensure competent authorities have access to accurate and current information on the ultimate beneficial owners and controllers of all legal persons on a timely basis; current powers are hampered because repositories of information do not maintain sufficient beneficial ownership information. #### Legal Arrangements – Access to beneficial ownership and control information (R.34) - Further develop requirements to ensure that information on the beneficial ownership and control of private trusts is collected and readily available to the competent authorities in a timely manner. Possible measures include requiring trustees to maintain full information on the trust’s beneficial ownership and control, requiring disclosure of the location of such information, or requiring trust service providers to obtain and maintain beneficial ownership information so that it is available to law enforcement and other competent agencies upon exercise of their existing powers. #### Non-profit organisations (SR.VIII) - Undertake a comprehensive NPO sector review capturing all relevant data necessary, including the adequacy of domestic laws in the NPO sector. - Undertake a detailed risk assessment of the sector for terrorist financing. - Undertake comprehensive outreach to the NPO sector with a view to protecting the sector from abuse for terrorist financing as well as wider outreach in relation to good governance and accountability. - Ensure that NPOs maintain information on the identity of the persons who own, control or direct their activities, including senior officers, board members and trustees. - Demonstrate that appropriate measures are in place to sanction violations of oversight measures or rules by NPOs or persons acting on behalf of NPOs, other than those registered under the Income Tax Act and the FCRA. - Implement measures to ensure that all NPOs are licensed and/or registered as such and make this new information available to the competent authorities. ### National and International Co-operation #### National co-operation and coordination (R.31) - India has initiated a large number of ML investigations: 798 at 31 December 2009; only six prosecutions are underway and there are no convictions so far. - India has yet to achieve convictions and additional prosecutions that demonstrate the effectiveness of its inter-agency co-ordination and co-operation. #### The Conventions and UN special Resolutions (R.35 & SR.I) - Besides ratifying the Palermo Convention, India should review its ML and FT provisions to bring them in line with the relevant Conventions, particularly in respect of the criminalisation and the implementation of the preventive regime. - The Union Cabinet of India in its meeting held on the 19 March 2010 has approved the ratification of the Palermo Convention. India is in the process to complete the necessary formalities. #### Mutual Legal Assistance (R.36-38 & SR.V) - India should give high priority to providing MLA in a timely manner. - By addressing identified legal deficiencies, the capacity for India for MLA would automatically be enhanced. - The Indian authorities should rectify domestic shortcomings regarding criminalisation, confiscation and provisional measures, which also affect the possibilities to provide MLA in coercive actions. #### Extradition (R.39, 37 & SR.V) - Within the legal boundaries of due process, India should give high priority to providing assistance with regard to extradition in a timely manner. - Indian extradition procedures would benefit from changes in the legal system; authorities should rectify domestic shortcomings regarding criminalisation which also affect possibilities to assist other countries with extradition. #### Other forms of co-operation (R.40 & SR.V) - Ensure clear and effective gateways and mechanisms that facilitate prompt and constructive formal exchanges of information between the supervisory authorities and their counterparts, including customer specific information. ### Other issues #### Resources and statistics (R.30 & 32) - A review should be undertaken of the human resourcing of the IRDA. - India should take necessary actions to establish and effectively implement a supervisory regime for the banking activities of India Post. - India should keep statistics regarding the number of CDFs collected at Land Customs Stations and detections of smuggling of currency and BNI through mail and containerised cargo. #### Other relevant AML/CFT measures or issues - There are no recommendations for this Section. #### General framework – structural issues - There are no recommendations for this Section. *Source: _cr1126 - 3.8 Internal controls, compliance,* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr1126.pdf_