Foreign Exchange Management Act: India readies for its 2020 FATF review

A high-level inter-ministerial coordination committee has raised concern about absence of effective regulatory mechanism for gems & jewellery and real estate sectors to curb money laundering and counter terror financing ahead of India’s case coming up for review before the Financial Action Task Force (FATF) in October 2020.

A joint working group has been set up comprising members from 18 intelligence and enforcement agencies, including regulators Security and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (IRDA) and RBI. The decision to set up the group was taken at the last meeting of the inter-ministerial coordination panel, headed by the revenue secretary, last month.

The Central Board of Indirect Taxes and Customs has offered to make Directorate General of GST Intelligence (DGGSTI) an effective regulator for the gems & jewellery sector, sources said. After demonetisation of high value currency notes in 2016, the DGGSTI had conducted a countrywide survey on jewellers and bullion traders and has prepared a comprehensive database on the sector.

The inter-ministerial coordination committee was set up solely with the purpose of evaluating regulatory mechanisms across sectors and inter-agency coordination to curb money laundering and terror financing, a prime concern of the Paris-based FATF.

The FATF is an inter-governmental body that sets standards and monitors effective implementation of measures adopted by each country in combating money laundering and terror financing. Falling into the grey list of FATF could result in a country facing restrictions from the international financial system.

Among other issues the joint working group will look into is to ensure that enforcement agencies such as the CBI and Enforcement Directorate fast track filing of prosecution complaints (chargesheets) and ensure time-bound trial of cases registered by them.

At the FATF’s nudging, the government, a few years ago, had introduced enhanced due diligence for politically exposed persons (PEPs) and asked all its financial institutions to keep close watch on these high net-worth and politically influential persons and their family and friends facing criminal and corruption charges. Recently, the government had told Parliament that the CBI had registered 14 cases of economic offences against 18 MPs/MLAs during the last five years. Out of these 18, two are sitting MPs, nine ex-MPs, five MLAs and two ex-MLAs.

Similarly, the ED has registered 82 cases against current and former MPs/MLAs under the Prevention of Money Laundering Act and Foreign Exchange Management Act. Some of the public representatives are facing cases from the income tax department for tax evasion.