Loopholes in the law

Print edition : April 19, 2013

THE recent expose by the online news portal Cobrapost of the staff of three private banks—ICICI Bank, HDFC Bank, and Axis Bank—allegedly offering to help out clients in money-laundering activities once again brought to the fore the loopholes in the regulatory mechanisms.

Speaking to Frontline, Pooja Rangaprasad, a consultant for the Centre for Budget and Governance Accountability (CBGA), said: “When the Prevention of Money Laundering Act (PMLA) was amended in November 2012, the issue of making tax crimes a criminal offence had come up in Parliament, but it was not implemented. The amended law is still not as strong as it should be. Also, there is a need to have a public registry of all transactions so that the beneficial ownership rather than just the legal ownership of a transaction can be determined.”

In February 2012, the Financial Action Task Force (FATF), an inter-governmental body, had released a revised set of 40 recommendations to provide governments with stronger tools against financial crime. The FATF’s recommendations addressed areas of money–laundering, terrorist financing, transparency and beneficial ownership of legal persons, and powers and responsibilities of competent authorities. At present, the Financial Intelligence Unit of the Finance Ministry is empowered to undertake investigations under the provisions of the PMLA.

“We need to have in place heavy penalties to ensure strict compliance with existing regulations,” said Nagesh Kumar, chief economist at the United Nations Economic and Social Commission for Asia and the Pacific. Pooja Rangaprasad added: “The fact that [employees of] three banks were allegedly involved in these activities shows that there is a systemic issue involved. But the larger question is whether the people in management are going to be pulled up and there will be a proper fixing of accountability. We need laws that make such acts punishable.”

Sagnik Dutta

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