Indian officials are taking steps to overhaul their nation’s corporate crime statutes in a bid to boost commerce despite concerns that doing so could lead to impunity for large businesses, including financial institutions with subpar compliance programs.
The intended changes would “decriminalize” the country’s preeminent corporate law, the 2013 Companies Act, and related anti-financial crime statutes such as the 2002 Prevention of Money Laundering Act, or PMLA, and the 1961 Income Tax Act, Finance Minister Nirmala Sitharaman said at a public forum in Chennai, India, on Jan 19.
“I have gone through this [Companies Act] with a comb,” Sitharaman said. “We do not want a law that is going to treat every business house with suspicion.”
The past two years have already seen Prime Minister Narendra Modi’s government narrow the scope of certain bribery statutes, relax criminal liability for administrative violations of corporate bankruptcy laws and curtail provisions of the Companies Act that proscribe penalties for firms and individuals who fail to make regulatory disclosures.
“The recent amendments serve as a massive overhaul of the regulatory framework that seeks to clear the compliance thickets that companies need to traverse in order to operate in India,” Bharat Chugh, an attorney with L&L Partners in Delhi, told ACAMS moneylaundering.com in an email.
Prior to those changes, “overzealous” prosecution of even “minor” compliance lapses and “genuine errors or omissions” by firms and their managers is believed to have undercut domestic and foreign investment in India, the world’s fifth largest economy, Chugh wrote.
Reforms now on the table would similarly reduce or eliminate jail time and other criminal penalties for companies and their executives found to have violated another 46 provisions of the Companies Act, as well as the income tax statute, enabling suspect offenders to settle charges by paying civil fines.
The tweaks would only affect “procedural and technical” measures, bringing India’s corporate criminal law more in line with Western norms and leaving prosecutors’ ability to take action against egregious financial criminals untouched, said Amit Kumar, president of AAA International Security Consultants in McLean, Virginia.
“The reforms would help unclog the courts and facilitate resolution of cases,” Kumar said. “I think any financial institutions found handling dirty funds … would still be prosecuted to the full extent of the applicable laws of the land.”
Corporate fraud and money laundering
Other analysts voiced concerns that those and other reforms, including plans to amend the PMLA, could upend India’s defenses against financial crime and undermine the nation’s global standing.
The PMLA, which has already undergone several updates since coming into force 15 years ago, authorizes investigators to freeze and seize funds from dozens of predicate crimes and imposes know-your-customer and recordkeeping requirements on financial institutions.
Pursuant to the statute, Indian authorities last year moved to confiscate the assets of jeweler Nirav Modi and liquor baron Vijay Mallya for allegedly defrauding dozens of banks by obtaining and laundering hundreds of millions of dollars in sham loans for their companies, including Mallya’s now-defunct Kingfisher Airlines.
Both suspects absconded to the United Kingdom, where they face extradition back to India.
In 2019, India’s financial intelligence unit issued enforcement actions against 11 institutions accused of breaching the PMLA, singling out publicly-owned and cooperative lenders such as Punjab National Bank, the firm at the center of the Nirav Modi scandal, for failing to screen clients and monitor transactions.
The cases highlight Indian banks’ significant exposure to corporate fraud and the ease with which those who perpetrate the crimes can escape punishment, an AML consultant told moneylaundering.com on condition of anonymity, adding that further reforms are likely to amplify those vulnerabilities.
“Public banks’ financial-crime prevention staff are not up to the required standards and the ability to detect financial crimes is very weak,” the consultant wrote in an email. “It will become business as usual in coming time.”
The outcome of India’s reforms, whether enacted or suggested, will almost certainly draw scrutiny in one year’s time, when the Financial Action Task Force evaluates the country’s legal and regulatory framework against money laundering and other profit-motivated violations.
This time around, FATF’s evaluation—its second since India became a full member in 2010—will determine whether the nation has not only adopted the intergovernmental group’s recommended laws and regulations, but also enforced them.
According to former senior government official Arjun Raghavendra M., India’s “abysmally low” record of convicting accused money launderers and uneven compliance with several of FATF’s 40 technical recommendations will not escape notice.
“Any attempt at decriminalizing the anti-money laundering laws shall cause a serious negation of our international commitments and set us back in time by at least 50 years,” Raghavendra M., now an attorney in Delhi, wrote in a Jan. 30 op-ed for Moneycontrol.com, a financial news website based in Mumbai.
Contact Valentina Pasquali at email@example.com
|Anti-money laundering , Counterterrorist Financing
|March 6, 2020