A report by the Asia/Pacific Group on Money Laundering (APGML) in 2005 assesses India's anti-money laundering (AML) regime. However, this report assesses the AML regime existing in India prior to March 2005 and does not incorporate, in its ratings, the Prevention of Money Laundering Act (PMLA) since the implementing rules to the PMLA came into effect only in 2005. India passed the PMLA in 2002 to establish a centralized Anti-Money Laundering/Combating Financing Terrorist (AML/CFT) system. The implementing Rules of the PMLA that came into force on 1 July 2005 have resulted in increased levels of compliance with the Financial Action Task Force (FATF) Recommendations. The PMLA criminalizes money laundering, establishes fines and sentences for money laundering offenses, imposes reporting and record keeping requirements on financial institutions, provides for the seizure and confiscation of criminal proceeds, and provides for the creation of a financial intelligence unit (FIU). As of December 2006, India is a FATF observer and has a two year probationary period to become compliant with FATF norms to become a member. Full FATF membership has been one criterion identified to help India move towards a sufficient AML/CTF regime. In this context, the Government of India (GoI) is seeking to amend the PMLA to block terrorism financing through banking and financial institution channels. However, subsequent to the APGML 2005 assessment, there is no information publicly available as to India's compliance with the Financial Action Task Force (FATF) 40+9 recommendations.

General Overview

A report by the Asia/Pacific Group on Money Laundering in 2005 assesses India's anti-money laundering (AML) regime. However this report assesses the AML regime existing in India prior to March 2005 and does not incorporate, in its ratings, the Prevention of Money Laundering Act (PMLA) of 2002 since the implementing rules to the PMLA came into effect only in 2005. India passed the Prevention of Money Laundering Act (PMLA) in 2002 to establish a centralized Anti-Money Laundering/Combating Financing Terrorist (AML/CFT) system. Implementing Rules that came into force on 1 July 2005 have resulted in increased levels of compliance with the FATF Recommendations. (APGML 2005, p. 3)

India has not undertaken any comprehensive threat assessment of money laundering or terrorist financing. Its legislative efforts have been concentrated on fighting tax evasion and the large 'black money' component in its economy. There has been an implicit assumption by Indian authorities that many of the laws dedicated to identify and eradicate tax evasion would also capture money laundering activities. Prior to the introduction of the PMLA, the only legislation to explicitly provide for the seizure and forfeiture of the proceeds of crime has been the Narcotics and Psychotropic Substances Act 1985 (NDPS Act), which criminalizes the dealings in proceeds associated with drug offences in specific circumstances. However, India has developed comprehensive anti-terrorist legislation due to its first hand experience with terrorism, and has recognized the need to combat the financing of terrorism through amendments to the Unlawful Activities (Prevention) Act 1967 (UAPA) in 2004 and amendments to the PMLA in early 2005 which made terrorist financing a predicate offence. (APGML 2005, pp. 3-4)

The Prevention of Money Laundering Act (PMLA) was signed into law in January 2003. This legislation criminalizes money laundering, establishes fines and sentences for money laundering offenses, imposes reporting and record keeping requirements on financial institutions, provides for the seizure and confiscation of criminal proceeds, and provides for the creation of a financial intelligence unit (FIU). Implementing rules and regulations for the PMLA were promulgated in July 2005. Penalties for offenses under the PMLA are severe and may include imprisonment for three to seven years and fines as high as $10,280. If the money laundering offense is related to a drug offense under the NDPSA, imprisonment can be extended to a maximum of ten years. The PMLA mandates that banks, financial institutions, and intermediaries (such as stock market brokers) maintain records of all cash transactions exceeding $21,740. However, to date, there have been no prosecutions or convictions under the PMLA. (U.S. DoS 2007)

With the notification of the PMLA in July 2005, a financial intelligence unit (FIU) was established in January 2006 with the mandate to combat money laundering and terrorist financing. The FIU is the central repository to receive process, analyze, and disseminate information from suspicious transaction reports (STRs) and general cash transaction reports from financial institutions, banking companies, and intermediaries. It acts independently to refer such cases to the appropriate enforcement agency. Since it was initiated, India's FIU has received about 450 suspicious transactions reports (STRs). (U.S. DoS 2007)

As of December 2006, India is a FATF observer and has a two year probationary period to become compliant with FATF norms to become a member. Full FATF membership has been one criterion identified to help India move towards a sufficient anti-money laundering and terrorist financing (AML/CTF) regime. In this context, the Government of India (GoI) is seeking to amend the PMLA to block terrorism financing through banking and financial institution channels. After PMLA changes are fully enacted, the Securities and Exchange Board of India (SEBI) Act will also be revised to include similar offenses. (U.S. DoS 2007)

India's strict foreign-exchange laws and transaction reporting requirements, combined with the banking industry's due diligence policy, make it difficult for criminals to use banks or other financial institutions to launder money. Accordingly, large portions of illegal proceeds are laundered through the alternative remittance system called "hawala" or "hundi." The hawala market is estimated at anywhere between 30 and 40 percent of the formal market. Remittances to India reported through legal, formal channels in 2005-2006 amounted to $24 billion (reportedly the largest in the world). (U.S. DoS 2007)

The Principles

1. Legal Systems and Related Institutional Measures

II

A report by the Asia/Pacific Group on Money Laundering (APGML) in 2005 assesses India's anti-money laundering (AML) regime. However this report assesses the AML regime existing in India prior to March 2005 and does not incorporate, in its ratings, the Prevention of Money Laundering Act (PMLA) of 2002 since the implementing rules to the PMLA came into effect only in 2005. (APGML 2005, p. 3) Subsequent to the APGML 2005 assessment, there is no information publicly available as to India's compliance with the Financial Action Task Force's (FATF) recommendations relating to this Principle.

India has criminalized money laundering under two pieces of legislation: (1) section 8A of the Narcotics and Psychotropic Substances (NDPS) Act and section 3 of the Prevention of Money Laundering Act (PMLA). The NDPS specifically criminalizes the laundering of the proceeds of drug trafficking, and does not require a conviction for the predicate offence. The NDPS came into operation in 2001, and there has only been one prosecution under section 8A, which is still under way. At the time of 2005 APGML assessment, the PMLA had not yet come into effect. India passed the Prevention of Money Laundering Act (PMLA) in 2002 to establish a centralized Anti-Money Laundering/Combating Financing Terrorist (AML/CFT) system and its implementing rules in July 2005 (after the APGML assessment). The PMLA requires a conviction for a predicate offence before a conviction for money laundering can be obtained. Predicate offences are listed in a schedule to the PMLA, but these do not include many of the predicate offences listed as essential by the Financial Action Task Force (FATF) Recommendations, including organized crime, fraud, smuggling and insider trading. (APGML 2005, p. 4)

In October 2006, the Finance Ministry stated that India had agreed to reconcile its list of predicate crimes with that of the Financial Action Task Force (FATF) and not set minimum property value thresholds on predicate crimes. As of December 2006, India is a FATF observer and has a two year probationary period to become compliant with FATF norms to become a member. Full FATF membership has been one criterion identified to help India move towards a sufficient anti-money laundering and terrorist financing (AML/CTF) regime. (U.S. DoS 2007)

Terrorist financing is an offence under the Unlawful Activities (Prevention) Act 1967 (UAPA), which is the main anti-terrorist legislation in India. The UAPA criminalizes the raising of funds for the purpose of committing terrorist acts and holding property derived from terrorist acts or acquired through terrorist funds. It is not clear that the legislation extends to those who provide funds to terrorists in the knowledge that those funds will be used for terrorism, and the position of someone who merely provides funds to terrorists without raising money specifically for that purpose is also not clear under the legislation. The UAPA does not define 'funds', which may lead to problems before the courts. There have been no prosecutions under the UAPA, although under a previous incarnation of this legislation operating between 2002 and 2004, there were 26 prosecutions with 2 convictions. (APGML 2005, p. 4)

Powers of confiscation, freezing and forfeiture of the proceeds of crime in India stem from three different sources depending on the nature of the crime: the NDPS Act, the UAPA and the PMLA. The police and the prosecution authorities have a full range of powers to identify and trace assets. The PMLA provides for the confiscation of the proceeds of crime, but not of the instrumentalities used or intended to be used in an offence. Property of corresponding value cannot be seized where there is no direct link to the crime itself. The legislation requires there to be a conviction for the predicate offence before property can be forfeited and there are no civil forfeiture procedures available. The UAPA does allow for property derived directly or indirectly from the proceeds of terrorism to be confiscated whether it is held by a terrorist or not. The UAPA also provides for the proceeds of terrorism to be attached and confiscated without a conviction. The NDPS Act is similarly constructed to the UAPA but does not allow for seizure of property with a corresponding value. (APGML 2005, pp. 4-5)

United Nations Security Council Resolutions (UNSCR) S/RES/1267(1999) and S/RES/1373(2001) have been implemented through the Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions) Order 2004. The Order provides the Indian Government with broad powers to issue such directions as are necessary to implement the Order including the powers to prevent and suppress terrorist acts falling within the UNSCR, such as the power to freeze assets. A Schedule appended to the Order lists proscribed persons and organizations. The Reserve Bank of India (RBI) issues circulars to the financial institutions for which it is responsible and the circulars provide updated UNSCR lists issued by the Indian Government. However, little guidance is provided in the circulars and there are no follow up procedures to ensure the effective operation of the lists and application of the law. (APGML 2005, p. 5)

India is a party to the 1988 United Nations (UN) Drug Convention, and is a member of the Asia/Pacific Group (APG) on Money Laundering. India implements the 1988 UN Drug Convention through amendments to the NDPSA (in 1989 and 2001) and the PMLA. It is a signatory to, but has not yet ratified, the UN Convention against Transnational Organized Crime. (U.S. DoS 2007)

With the notification of the PMLA in July 2005, a financial intelligence unit (FIU) was established in January 2006 with the mandate to combat money laundering and terrorist financing. The FIU is the central repository to receive process, analyze, and disseminate information from suspicious transaction reports (STRs) and general cash transaction reports from financial institutions, banking companies, and intermediaries. It acts independently to refer such cases to the appropriate enforcement agency. Since it was initiated, India's FIU has received about 450 STRs. The FIU is also responsible for strengthening efforts amongst the intelligence, investigative, and law enforcement agencies towards reaching global standards to prevent money laundering and related crimes. The FIU reports directly to the Economic Intelligence Council, which is headed by the Finance Minister. Administratively, it falls under the supervision of the Ministry of Finance's (MoF) Department of Revenue. The FIU is not a regulatory agency but is permitted to exchange information with foreign FIUs on the basis of reciprocity, mutual agreement, or critical threat information on a case-by-case basis. There have been approximately 20 such information exchanges since FIU's establishment. As an Egmont observer, India's exchange of information with foreign FIUs is limited whereas full membership enables access to a global framework of sharing and obtaining terrorism financing information. (U.S. DoS 2007)

Since March 2006, the FIU has been receiving reports on suspicious transactions and cash flows from banks, financial institutions, and intermediaries involving over USD $22,490. About 50 percent of such transactions are reported electronically by public and private banks (led by the large private banks) while the other institutions are only equipped to report manually. The FIU is in the process of developing a secure gateway for submission of electronic STRs which should be in place by December 2007. (U.S. DoS 2007)

The MoF's Enforcement Directorate is responsible for investigations and for the prosecution of money laundering cases. The Government of India (GoI) has established an Economic Intelligence Council (EIC) to enhance coordination among the various enforcement agencies and directorates in the MoF. The EIC provides a forum for enforcement agencies to strengthen intelligence and operational coordination, to formulate common strategies to combat economic offenses, and to discuss cases requiring interagency cooperation. In addition to the EIC, there are eighteen regional economic committees in India. The Central Economic Intelligence Bureau (CEIB) functions as the secretariat for the EIC. The CEIB interacts with the National Security Council, the Intelligence Bureau, and the Ministry of Home Affairs on matters concerning national security and terrorism. The Central Bureau of Investigation (CBI), the Directorate of Revenue Intelligence (DRI), Customs and Excise, RBI, the FIU, and the MoF are all active in anti-money laundering efforts. During 2004, DRI referred four hawala-based money laundering cases with a U.S. nexus to the U.S. Department of Homeland Security/Immigration and Customs Enforcement (DHS/ICE). DHS/ICE carried out successful investigations on three of these cases and forwarded tangible results to the MoF's Department of Enforcement. During 2005, the Directorate of Enforcement (DoE) forwarded two additional hawala-linked money laundering cases to DHS/ICE and DHS/ICE in turn has provided investigative assistance. (U.S. DoS 2007)

The FIU and the MoF are actively working to amend regulations in order to be compliant with international standards. The MoF has organized a committee of the relevant departments and ministries to amend the PMLA, which are likely to be introduced in the July-August, 2007 parliamentary session. Amendments will include provisions to criminalize terrorism financing and incorporate most of the FATF recommended categories of offenses. (U.S. DoS 2007)

2. Preventive Measures - Financial Institutions

II

A report by the Asia/Pacific Group on Money Laundering (APGML) in 2005 assesses India's anti-money laundering (AML) regime. However this report assesses the AML regime existing in India prior to March 2005 and does not incorporate, in its ratings, the Prevention of Money Laundering Act (PMLA) of 2002 since the implementing rules to the PMLA came into effect only in 2005. (APGML 2005, p. 3) Subsequent to the APGML 2005 assessment, there is no information publicly available as to India's compliance with the Financial Action Task Force's (FATF) recommendations relating to this Principle.

Supervision of the financial services sector is divided between three main agencies, the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA). The roles of the RBI and the SEBI are well established, with the RBI being responsible for the licensing and supervision of banking business and non-bank financial institutions (which include finance companies, hire purchase companies, dealers in government securities, investment companies and lottery-type schemes); while the SEBI is responsible for the licensing and supervision of stock exchanges, market intermediaries, depositories and custodians, and collective investment schemes. The IRDA was established in 2000 to regulate, promote and ensure orderly growth of insurance business, but it has been slow to develop its operations and has yet to roll out a full supervisory regime. (APGML 2005, pp. 5-6)

At the time of the 2005 APGML assessment, there was no unified set of customer due diligence (CDD) standards for the financial sector. Some form of customer identification requirements were applied to most of the key financial institutions, but these varied enormously in the detail of the obligations imposed, many of which, outside the banking sector, were not introduced specifically to enforce Anti-Money Laundering/Combating Financing Terrorist (AML/CFT)controls. The rules under the PMLA provides the first common set of minimum CDD standards, although they will continue not to apply to exchange houses and money remitters, which are subject to the provisions of the PMLA. (APGML 2005, p. 6)

The RBI is the most advanced of the regulators in promulgating CDD requirements for the institutions that it supervises, having published a set of guidelines in November 2004 that very closely match the language of the Basel Committee's paper on this issue. These replace earlier, far less detailed guidelines issued in 2002. The SEBI has, over the years, imposed some customer identification obligations on the securities sector, but these have been targeted primarily at preserving market integrity, and do not address specific AML/CFT measures. With respect to the insurance sector, the IRDA has yet to put in place a substantive regulatory regime, and has not so far imposed any requirements that equate to customer identification procedures. Foreign exchange houses and money remitters are regulated by the RBI but only for the purposes of foreign exchange controls. RBI regulations require authorized businesses to obtain basic customer identification data, but the focus of this process appears primarily to be to assist the authorities to identify potential evasion of income tax. Informal remittance systems (especially hawala) are illegal in India (although the offence became administrative rather than criminal in 1999), but it is known that there are a large number of agents involved in this activity, and opinions differ markedly on the scale of the problem and on the implication for the overall AML regime. (APGML 2005, p. 6)

The 2004 guidelines on due diligence ensures that CDD requirements comply with Financial Action Task Force (FATF) recommendations. The guidelines include the requirement that banks identify politically-connected account holders residing outside India and identify the source of funds before accepting deposits from these individuals. The UNSCR 1267 Sanctions Committee's consolidated list is routinely circulated to all financial institutions. The RBI also asked all commercial banks to become FATF-compliant in terms of customer identification for existing as well as new accounts. These guidelines went into effect in December 2005. Banks have been enforcing the guidelines strictly with new customers and gradually phasing in the procedures with old customers. High-risk accounts are subject to intense monitoring. (U.S. DoS 2007)

The PMLA instituted a suspicious transactions report (STR) regime; however, it is not comprehensive. Suspicious transactions are defined in such a way that, in most cases, there will be no obligation upon an institution to report a transaction unless it believed that the funds related directly to proceeds exceeding Rs. 3 million (approximately US$75,000) derived from one of the named predicate offences. The only exception will be in relation to those actions (specifically, violent acts against the state or drug offences) for which there is no threshold for consideration as a predicate offence. Moreover, there will be no obligation to report attempted transactions, nor does the PMLA create an offence of "tipping off". (APGML 2005, p. 7)

The PMLA and its Implementing Rules do not contain a specific obligation to implement appropriate systems and controls, and they provide only limited general direction to financial institutions in this regard. However, this situation would change, were measures taken to tie the RBI guidelines fully into the Implementing Rules. Prudential supervision of the banking and securities sectors (and those non-bank financial institutions within the remit of the RBI) has been in place for many years and is relatively well developed. On the other hand, the IRDA has yet to roll out a comprehensive supervisory regime for the insurance sector, while the exchange houses and money remitters are subject to oversight only for the purposes of compliance with the foreign exchange management arrangements. Market entry is controlled in all the sectors subject to prudential supervision, but the focus, in terms of "fit and proper" criteria, is largely upon management. (APGML 2005, p. 7)

Both the RBI and the SEBI are well resourced in terms of staffing, and have extensive on-site inspection procedures that address, among other things, the adequacy of internal controls and systems. Each agency conducts between 100 and 150 inspections each year. However, only those institutions subject to supervision by the RBI currently have any explicit AML obligations. At the time of 2005 APGML assessment, the IRDA had yet to implement an examination program and it was not entirely clear what the IRDA's role in AML compliance procedures will be, since no reference is made to the powers of this agency in the PMLA Rules. All three regulatory agencies have similar powers to require regulated institutions to furnish information on demand, and there is no apparent restriction on the type of information that may be requested. The RBI and the SEBI have broad powers to impose penalties for failure to comply with a disclosure request or, more generally, to comply with any rules, orders or directions issued under the statutes. The IRDA has no such similar enforcement powers under its governing legislation, and it is unclear on what legal authority it would seek to ensure compliance with its regulations or instructions. (APGML 2005, pp. 7-8)

Since March 2006, the financial intelligence unit (FIU) has been receiving reports on suspicious transactions and cash flows from banks, financial institutions, and intermediaries involving over USD $22,490. About 50 percent of such transactions are reported electronically by public and private banks (led by the large private banks) while the other institutions are only equipped to report manually. The FIU is in the process of developing a secure gateway for submission of electronic STRs which should be in place by December 2007. A circular to all intermediaries registered with SEBI was issued on the obligations to prevent money laundering. The circular included information on the maintenance of records, preservation of information with respect to certain transactions, and reporting to the Director of the FIU suspicious cash flows and financial transactions. (U.S. DoS 2007)

3. Preventive Measures - Designated non-Financial Business and Professions

II

A report by the Asia/Pacific Group on Money Laundering (APGML) in 2005 assesses India's anti-money laundering (AML) regime. However this report assesses the AML regime existing in India prior to March 2005 and does not incorporate, in its ratings, the Prevention of Money Laundering Act (PMLA) of 2002 since the implementing rules to the PMLA came into effect only in 2005. (APGML 2005, p. 3) Subsequent to the APGML 2005 assessment, there is no information publicly available as to India's compliance with the Financial Action Task Force's (FATF) recommendations relating to this Principle.

The following Designated Non-Financial Businesses and Professions (DNFBPs) are subject to Anti-Money Laundering/Combating Financing Terrorist (AML/CFT) obligations: real estate agents, gem and precious metal dealers, lawyers and accountants. Land-based casinos are not permitted in India, although authorities acknowledge there is a significant gambling problem in India. Trust and company service providers do not exist as a separate entity. Lawyers are regulated by the Bar Council of India, which enrolls lawyers, represents their interests and conducts disciplinary proceedings. There is, however, no on-going continuing education requirements linked to practicing license renewals. Lawyers are specifically prohibited from undertaking any financial transactions for their clients and there are no AML/CFT requirements for the profession. Accountants are supervised by the Institute of Chartered Accountants of India (ICAI) but, again, there are no specific AML/CFT obligations attached to their professional obligations. Gem dealers are regulated by the Reserve Bank of India (RBI) to the extent that their businesses engage in import/export transactions, but there is no regulation in relation to their retail operations other than obligations under tax legislation to report certain transactions. They are obligated to operate through banking channels, and therefore must comply with banking requirements. The 2005 APGML assessment recommended that the Indian authorities conduct a threat assessment of the DNFBP sector and establish uniform customer due diligence (CDD) and record keeping requirements in line with the FATF Recommendations. (APGML 2005, p. 8)

As far as the reporting of suspicious transactions is concerned, accountants are obligated as part of the licensing provisions set by the ICAI to report illegal transactions, as are lawyers under the licensing requirements set by the Bar Council of India. Gem dealers must operate through banking channels, and therefore obligations concerning suspicious transactions rest with the banks they deal with. The PMLA does not include any obligations for DNFBPs to report suspicious transactions, conduct specific customer due diligence, or maintain records consistent with those applied to the formal financial sector, and it is recommended that DNFBPs be brought within the framework of the PMLA and be provided with guidance and training on their obligations. (APGML 2005, p. 8)

4. Legal Person and Arrangements & Non-Profit Organizations

EN

According to a 2005 assessment by the Asia/Pacific Group on Money Laundering (APGML), India is largely compliant with recommendation 33, compliant with recommendation 34 and partly compliant with special recommendation 8 - Financial Action Task Force Recommendations relating to this Principle. (APGML 2005, pp. 18, 20)

India has a central registry, the Registrar of Companies Affairs (RCA), for legal persons, which operates 21 Registries regionally throughout India. All persons wishing to form a company must register with the RCA. Irrespective of where the company is intended to operate, it can be registered at any of the regional branches upon application by at least two subscribers. Companies fall into three categories: private companies, unlisted public companies and listed public companies. (APGML 2005, pp. 8-9)

For private companies, subscribers must inform the RCA of any additional shareholders and describe the make up of and changes to the board, as well as at each year's end, the changes to or relinquishing of ownership of shares. At year's end, an internal managerial and financial audit must be conducted to determine what the holding situation is, and what has transpired in terms of beneficial ownership for the year. Outside of the two initial subscribers, ownership can change, enter or divest in any way as determined. For unlisted public companies, the RCA performs the technical scrutiny of the final accounts, and full disclosure requirements are necessary, similar to that of private companies. Finally, for publicly listed companies, shares are not held in physical form, and any changes to the make up of ownership must be submitted to the registrar yearly accompanied by formal third party audit. The RCA does not intervene in a publicly listed company's affairs unless a shareholder specifically communicates to the RCA - at which time they can recommend for investigation to the Serious Frauds Investigation Office (SFIO). For these companies, there is no proactive audit mechanism on the part of the RCA itself, however all records (on ownership, directors, financial statements, etc.) are open to investors and others - changes in management of publicly listed companies are regulated by the SEBI Act. (APGML 2005, p. 9)

Charitable organizations are required to register with the State-based Registrar of Societies. The purpose of all such organizations wishing to register must be for the promotion of a number of issues including: literature, science, sports, social welfare or any other charitable purpose, as defined by the Registrar, and can be formed by an association of seven or more persons associated with one of those objectives listed above who subscribe their names to a memorandum of association and file officially with their State's Registrar. Registration in a particular state does not obligate a Society to confine its activities to that State. There are an estimated 60,000 registered societies in Delhi alone, of which 25,000 are operational. The Registrar requires an annual list of the names of managing bodies and any change made thereof, but does not have a regulatory role with regard to auditing finances, management or any other activity of the Society. Upon registration, and if tax exemption is sought by a particular organization, all audit and supervisory capacity rests with the appropriate tax authorities. (APGML 2005, p. 9)

If a charitable organization seeks to have a tax exemption status, they must apply separately to the Exemptions Department of the Central Board of Direct Taxes. To receive tax exemption status, the organization must adhere to a number of requirements including providing a full disclosure of activities, management details and financial operations including the details of disposal of funds, and they must keep all associated funds in a bank. Annual audits are conducted on roughly 5% of exempt charitable organizations based on criteria determined by the Exemptions Department or on the basis of complaints, but there is no specific oversight or mechanism for providing guidance on AML/CFT issues. The Exemptions Department estimates that there approximately 50,000 - 60,000 exempt organizations operating throughout India, but do not have an estimate on those operating outside formal regulation. The APGML assessment recommended that the Indian authorities conduct a self-assessment of their non-profit and charitable sector more generally, to determine the size and scope of the sector, particular vulnerabilities to money laundering and terrorist financing, and work to build a more rigorous supervisory regime, which would include greater auditing powers over the management and financial operations of all non-profits, not just those that are tax exempt. (APGML 2005, p. 9)

5. National and International Co-operation

II

A report by the Asia/Pacific Group on Money Laundering (APGML) in 2005 assesses India's anti-money laundering (AML) regime. However this report assesses the AML regime existing in India prior to March 2005 and does not incorporate, in its ratings, the Prevention of Money Laundering Act (PMLA) of 2002 since the implementing rules to the PMLA came into effect only in 2005. (APGML 2005, p. 3) Subsequent to the APGML 2005 assessment, there is no information publicly available as to India's compliance with the Financial Action Task Force's (FATF) recommendations relating to this Principle.

India has established the Economic Intelligence Council (EIC) to coordinate national efforts against economic crime between the various enforcement agencies and departments in the Ministry of Finance. The secretariat of the EIC is the Central Economic Intelligence Bureau, and the financial intelligence unit (FIU) reports to this body. India signed the United Nations Terrorist Financing Convention on 8 September 2000 and ratified it on 22 April 2003. India has largely implemented the Terrorist Financing Convention through the Unlawful Activities (Prevention) Act 1967 (UAPA). This Convention is also implemented through the Code of Criminal Procedure 1973 and the Extradition Act 1962. India has also acceded to the Vienna Convention on 27 March 1990 and signed the Palermo Convention on 12 December 2002 but has not yet ratified it. The Vienna Convention is largely implemented through amendments to the Narcotics and Psychotropic Substances (NDPS) Act in 1989 and 2001, and the PMLA. (APGML 2005, p. 10)

Powers to provide mutual legal assistance (MLA) are found in the Criminal Procedure Code, although MLA can also be provided through other legislation. The PMLA provides specific provisions for assistance in money laundering matters. While India has signed Mutual Legal Assistance Treaties (MLATs) with 19 countries (with a further 16 being negotiated), there is no requirement for an MLAT to be in existence for assistance to be provided. The powers of assistance provided in the legislation are wide. The efficacy of the system in place to deal with MLA requests, however, is unclear. The Ministry of External Affairs receives requests and passes them to the Central Bureau of Investigation (CBI) which is then responsible for coordinating processing of MLA requests. But at the time of APGML assessment there were no details available on targets for responding to MLA requests or statistics on the time taken to deal with individual requests. The 2005 APGML assessment recommended that India maintain accurate records on MLA requests in order to monitor and coordinate responses to such requests and that the authorities introduce measures to ensure that MLA requests are met in a timely and efficient manner. (APGML 2005, p. 10)

Terrorist financing is an extraditable offence in India pursuant to the Extradition Act 1962 and money laundering has become an extraditable offence through the PMLA. In order to carry out an extradition request, there must be a bilateral treaty or extradition agreement with the requesting country. India has signed extradition treaties with 29 countries, with agreements pending with a further 33 countries. India applies a dual criminality test in which the offence must be punishable in both India and the requesting country and the offence must be punishable by a minimum one year. There are no explicit legal gateways allowing for regulatory co-operation with foreign counterparts in any of the Acts governing the operations of the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) or the Insurance Regulatory and Development Authority (IRDA), and all employees of these agencies, as public servants, are covered by the Official Secrets Act. However, all three agencies indicated that, in practice, they were able to co-operate, on request, with foreign counterparts and did so on a regular basis. The PMLA does not have any explicit provisions relating to international cooperation. Other law enforcement agencies state that they have regular contact with international agencies such as INTERPOL. (APGML 2005, pp. 10-11)

The CBI is a member of INTERPOL. All state police forces and other law enforcement agencies have a link through INTERPOL/New Delhi to their counterparts in other countries for purposes of criminal investigations. India's Customs Service is a member of the World Customs Organization and shares enforcement information with countries in the Asia/Pacific region. (U.S. DoS 2007)