TAKING a leaf out of Kautilya's Arthashastra, the Government of India is contemplating a comprehensive legislation against money laundering. With the Jain hawala case exposing the deep links between top politicians and hawala operators, the conversion of slush money into legitimate wealth has suddenly become a focal point for reforms. In a coordinated approach, mandarins in the Finance Ministry have been burning the midnight oil to evolve a foolproof mechanism that can strike at the root of the menace.
Says a member of the five-member committee, set up by the Government in July 1995 to prepare the draft legislation: "The final touches are being given to the draft and once it is ready it will be sent to the Law Ministry for sanction, and then it will be put up before Parliament."
The committee's brief is to look into all aspects of the problem—at the twin levels of policy and enforcement—so that a comprehensive law can be made. The committee is to study all existing laws pertaining to the issue, identify areas of strength, suggest modifications to remove the weaknesses, and draft a new law minus the loopholes that plagued its predecessors. This exercise will include a fresh look at the provisions of FERA and other laws which have become redundant in the wake of liberalisation and the open-door policy.
Resources are being pooled in from other quarters too. A subcommittee has been constituted—comprising officials from various law enforcing agencies—to approach the issue from another angle, drawing on their experience. It too will prepare a draft, to be passed on to the Law Ministry, the nodal agency, which will compare notes.
The question of having a new law does not have complete unanimity, though. "A new legislation will be brought only if the existing provisions are found to be inadequate to deal with the problem of money laundering," says a dissenting official.
At present, there are six different laws to deal with illegitimate wealth—the Income Tax Act, the Foreign Exchange Regulation Act, the Customs Act, the Smugglers and Foreign Exchange Manipulators (forfeiture of property) Act, the Benami Transaction (prohibition) Act and the Narcotic Drugs and Psychotropic Substances Act—but "they are not effective enough to prevent money laundering," says a Narcotics Control Bureau (NCB) report.
Fearing that vested interests in business might try to scuttle the move, the entire process—right from the formation of the committee—has been kept a well-guarded secret. Among the committee members are the chief general manager of the Exchange Control Department of the Reserve Bank of India, the NCB director general, the director of the Directorate of Enforcement (DoE) and a joint secretary in the Department of Economic Affairs. C.V. Gupte, member of the Central Board of Direct Taxes (legislation), is the convenor. "We have decided to keep a low profile as the matter has the full potential of snowballing into a major political controversy," says an official in DoE.
"A comprehensive law to stop money laundering is necessary because the problem is threatening our economy," says Gupte. But even within the committee, there are conflicting views on the issue. A section of the committee feels that underdeveloped countries like India can't spare much legal energy on phenomena like money-laundering as they have bigger problems to tackle. This section believes that with liberalisation and the opening up of economies, underdeveloped countries desperately need foreign investment and as such cannot be bothered overmuch about whether the money being invested is legitimate or not. They feel that developed countries have a vested interest in having a universal law against money laundering as there has to be 'dual criminality' to restrict and prosecute an offender. For example, no action can be taken against an economic offender who invests his ill-gotten wealth in a country where money laundering is not a crime.
The same officials maintain that developed countries in the West fear that huge illegitimate funds—which are derived mainly from narcotics—will be invested in fund-starved underdeveloped countries like India to make them appear legitimate. And there is simply no way of checking this investment as India—like most other developing countries—lacks a money transaction monitoring system.
"There must be a lot of pressure on India from the US and other advanced countries to have an anti-money laundering law. And we are complying in a hurry even without knowing whether we'll be able to implement it or not," says a subcommittee member. Sources in the Finance Ministry too confirm that the finance secretary is "more keen to have a legislation as early as possible—maybe because of pressure from the West".
ACCORDING to sources, the draft legislation seeks, among other things, to modify banking rules to bring about a higher degree of transparency in transactions. The idea is to make more cases of money laundering through banking channels open to detection, though it will be difficult to monitor each and every transaction throughout the country. "In a vast country like India it's practically impossible to watch and stop money laundering at all levels. If you cannot catch a tax evader, how are you going to stop money laundering?" wonders an official in the DoE. However, the draft legislation would cover transactions only above Rs 20-25 lakh.
It was at the United Nations convention against illicit trafficking in narcotics held in Vienna in 1988 that the first concrete suggestions were thrown up on ways to curb drug trafficking and money laundering. Six years later, the problem was again discussed threadbare at the Commonwealth Finance Ministers' meet. This was followed by an official-level meeting in Colombo in June 1995, where a suitable anti-money laundering legislation was recommended. A month later, the Indian Government decided to constitute a committee with that brief.
The information available with the committee is that funds derived from drug trafficking amount to nearly $500 billion. Rough estimates put money held illegally by Indians abroad at several billion dollars. Reports suggest that India loses Rs 8 billion annually to the western countries as a result of hawala racketeering—used commonly in siphoning off crime proceeds to tax havens. This money is routed back to India through NRI accounts for investment in legitimate business.
However, in India, the whole concept of money laundering continues to be vague. Enforcement agencies here neither have a clear idea of what exactly money laundering is, nor do they have spe-cific laws to identify and prosecute those who engage in it. For example in August 1992, the DEA cell in the US Embassy informed the NCB that the Humberto Gonzalez money laundering organisation was operating out of India. Two dozen bank accounts were being used by Gonzalez, a top Colombian cocaine don and money launderer for the Medellin and Cali cartels. One of the bank accounts identi-fied was No.29451 in the Jalandhar Cantt branch of the Bogota-based Indian national. The NCB officers froze the accounts but further investigation was stalled due to lack of coordination among the different law enforcing agencies. "Finally the accounts had to be released," say NCB sources.
On the other hand, a shocking revelation was made when a government report confirmed that underworld dons like Dawood Ibrahim have worked as informants and got huge rewards from government agencies. The subcommittee No 1 of the High Level Committee on narcotics administration, in its preliminary draft report (September 5, 1995), notes: "It is a strange paradox that the drug lords in India have at various stages received rewards from the Indian Government for acting as informants. For example, Dawood Ibrahim and his brother Anis, and all other involved in the Bombay serial bomb blasts have all at one time or another received crores of rupees for acting as informants."
And as long as such paradoxes abound, it becomes imperative for the Government to ensure one colour for money. White.
