Anti Money Laundering (AML) in India

Money laundering in India is an emerging problem. India has consistently maintained a robust Anti-Money Laundering (AML) system. Historically, the country’s strict foreign-exchange laws and transaction reporting requirements, together with the banking industry’s Know Your Customer (KYC) policy, make it difficult for criminals to use banks or other financial institutions to launder money. Large portions of illegal proceeds are accordingly laundered through the alternative remittance system called "hawala" or "hundi."

Under the hawala system, individuals transfer value from one location to another, often without the actual movement of currency. Key features of the hawala system are that it transfers value without actually moving funds. When accounts need to be balanced between hawaladars, a number of techniques are used, including cash and bank transfers. But historically and culturally, trade is the most common vehicle to provide "counter valuation." This is often accomplished through invoice manipulation such as over and under valuation. Any commodity can be used in hawala value transfer, but gold remains most popular. The hawala system provides anonymity and security to transacting individuals. The Government of India (GOI) neither regulates hawala dealers nor requires them to register with the government. The Reserve Bank of India (RBI), the country’s Central Bank, argues that the widespread hawala dealers operate illegally and therefore cannot be registered and are beyond the reach of regulation. Reportedly, the RBI does intend to increase its regulation of non-bank money transfer operations by entities such as currency exchange kiosks and wire transfer services.

On November 27, 2002, the lower house of Parliament passed the Prevention of Money Laundering Act (PMLA), which had first been introduced in 1998. The bill was amended in August 2002 by the upper house to include terrorist financing provisions. India’s President signed the law in January 2003. This legislation criminalizes money laundering, establishes fines and sentences for money laundering offenses, imposes reporting and recordkeeping requirements on financial institutions, provides for the seizure and confiscation of criminal proceeds, and provides for the creation of a Financial Intelligence Unit (FIU).

The Amendment to PMLA in 2012 became operational from February 2013.

AML Training in India

India's Prevention of Money Laundering Act of 2002 requires financial institutions to develop training programs to combat money laundering and terrorist financing activities within the country.

The Economy of India

The economy of India is the 12th largest in the world. For the fiscal year of 2007–2008, it was the second fastest big emerging economy, after China, in the world.

India's economy is diverse, encompassing agriculture, handicrafts, textiles, manufacturing, and a multitude of services. Although two-thirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture, services are a growing sector and play an increasingly important role in India's economy.

Banking in India

The Reserve Bank of India is India’s central bank. It also serves as the banking regulator in the country.

The Reserve Bank of India serves as the monetary authority, formulating and implementing monetary policy. Its also is the regulator and supervisor of the financial system. The Bank also manages foreign exchange and issues currency in India

India's Currency

The Rupee is the currency of India, as well as neighboring countries Nepal and Bhutan. The rupee is divided into 100 paise. The largest rupee issued is the 1,000 rupee note, with the smallest being the 1 rupee coin.

Other Key Statistic of India

Time Zone: IST (UTC+5:30).

Location: Southern Asia, bordering the Arabian Sea and the Bay of Bengal, between Burma and Pakistan.

Population: 1,210,193,422 (2014 estimate.)

Capital: New Delhi.

Languages Spoken: Hindi and English.