India must do more to prevent money laundering: KPMG

19 June 2009

As India wakes up to the threat of 'laundered' money being used by terrorist outfits to finance their operations, it is seeking membership in the Financial Action Task Force. However, this is unlikely to happen before next year, according to a study by global audit and taxation advisor KPMG.

Membership in the FATF, an inter-government body formed to tackle money laundering and terrorist financing, would enable India to get international cooperation in such cases and would change perception of India abroad, said Arpinder Singh, executive director, forensic services, KPMG. Membership would also mean that Indian banks would face fewer regulatory hurdles in setting up of overseas branches.

With slush funds being increasingly used for financing terrorism, Indian financial institutions are planning to increase investment in their anti-money laundering systems, the KPMG survey has found. It said India's financial institutions require more investment and improvement in their anti-money laundering systems.

The survey of India's financial institutions showed that 79 per cent of them had a positive attitude towards the regulations, and believed that the level of burden placed on them was acceptable. ''Though financial institutions in India have covered a large ground in AML (anti-money laundering) compliance, still significant investment and improvement in AML systems is required,'' KPMG said.

"India's escalating global exposure is rendering its financial institutions vulnerable to money laundering. Transaction monitoring and implementation of an automated solution are rated among areas requiring largest investments," KPMG said.

More than 2,000 respondents believed introducing policies and procedures in line with global best practices would be one of the major areas for investment. Though almost 70 percent of the respondents stated they have an effective system for transaction monitoring, it still remained a priority area for investment, according to the survey.