Wednesday, August 27, 2008

Diamond trade, hawala, PNs and Soverign Wealth Funds in foreign bank accounts

Diamond trade, hawala, PNs and Soverign Wealth Funds in foreign bank accounts

Participatory notes (PNs) are a clever way to convert black money into foreign currency. With the FIIs managing the PNs based in Mauritius, a route exists for corrupt politicians and money-sharks to destabilise the Indian economy and fiscal system by the PN route which ensures anonymity for these traitors.

Here is a remarkable acccount on how diamond trade is abused for money laundering.

A Hindusthan Patriot Act should be passed including severest penalties for the criminals indulging in such activities.

It doesn't take a brain surgeon to recognize the use of money power by the political chamcha-s as evidenced in the recent horse-trading of MPs' votes to stay in sattaa by 10 Janpath chamchas.


Report Calls for Curbing Abuses in Diamond Trade to Combat Money Laundering

By Jeff Miller Posted: 08/05/08 15:25

RAPAPORT... A 2008 International Narcotics Control Strategy Report, prepared by the U.S. Department of State and KPMG, found that India's status as an emerging financial center and its informal cross-border money flows have contributed to the country’s money laundering activities.
The report specifically blamed the diamond trade, illegal drugs and weapons, and wildlife smuggling as key factors on the criminal side. KPMG predicted that India's challenge going forward is to bring these activies under control.
"Historically, because of its location between the heroin-producing countries of the Golden Triangle and Golden Crescent, India continues to be a drug-transit country," the U.S. Department of State wrote in the report.
The report suggested reducing informal money transfer channels, focus upon anti-money laundering policies and procedures, and ensuring sanctions compliance.
"India should devote more law enforcement and customs resources to curb abuses in the diamond trade. It should also consider the establishment of a Trade Transparency Unit (TTU) that promotes trade transparency; in India, trade is the 'back door' to underground financial systems. The government also needs to strengthen regulations and enforcement targeting illegal transactions in informal money transfer channels," according to the report.

"...Large portions of illegal proceeds are often laundered through 'hawala' or 'hundi' networks or other informal money transfer systems. Hawala is an alternative remittance system that is popular among not only immigrant workers, but all strata of Indian society. Hawala transaction costs are less than the formal sector; hawala is perceived to be efficient and reliable; the system is based on trust and it is part of the Indian culture. According to Indian observers, funds transferred through the hawala market are equal to between 30 to 40 percent of the formal market. The Reserve Bank of India (RBI,) India’s central bank, estimates that remittances to India sent through legal, formal channels in 2006-2007 amounted to $28.2 billion. Due to the large number of expatriate Indians in North America and the Middle East, India continues to retain its position as the leading recipient of remittances in the world, followed by China and Mexico," according to the report.

The hawala system can provide the same remittance service as a bank with little or no documentation and at lower rates and provide anonymity and security for their customers. Hawala is also used to avoid currency restrictions, assists in capital flight, facilitates tax evasion, and avoids government scrutiny in financial transactions. India neither regulates hawala dealers nor requires them to register with the government. The RBI argues that hawala dealers cannot be regulated since they operate illegally and therefore cannot be registered. Indian analysts also note that hawala operators are often protected by some politicians.
In December 2005, the RBI issued guidelines requiring financial institutions, including money changers, to follow “know your customer” guidelines and maintain transaction records for the sale and purchase of foreign currency.

Foreigners and nonresident Indians are permitted to receive cash payments up to $3,000 or its equivalent in other currencies from moneychangers. Recently, the RBI has been taking additional steps to crack down on unlicensed money transmitters and increase monitoring of nonbanking money transfer operations like currency exchange kiosks and wire transfer services. In September 2007, the RBI asked Western Union’s subsidiary, Western Union Services India, to desist from appointing any more sub-agents until further instruction. Western Union officials have explained to U.S. government officials that this is due to a new policy the Ministry of Home Affairs is formulating to require wire transfer businesses to perform due diligence on sub-agents and seek RBI and MHA approval before appointing new sub-agents.
Historically, in Indian hawala transactions, gold has been one of the most important commodities. In recent years, the growing diamond trade has been considered an important factor in providing counter-valuation; a method of “balancing the books” in external hawala transactions. Invoice manipulation is also used extensively to avoid both customs duties, taxes, and to launder illicit proceeds through trade-based money laundering, the report found.

With tax evasion a widespread problem in India, the government is gradually making changes to the tax system and now requires individuals to use a personal identification number to pay taxes, purchase foreign exchange, and apply for passports. The government also introduced a central value added tax (VAT) in April 2005 which replaced numerous complicated state sales taxes and excise taxes with one national uniform VAT rate. As a result, the incentives and opportunities for entrepreneurs and businesses to conceal their sales or income levels have been reduced. Except for Uttar Pradesh, all Indian states have implemented the national VAT mandate. Uttar Pradesh announced in late October 2007 that it would also implement the VAT.

In the aftermath of September 11, India joined the global community in addressing concerns about money laundering and terrorist finance by implementing the Prevention of Money Laundering Act (PMLA) in January 2003. The PMLA criminalized money laundering, established fines and sentences for money laundering offenses, imposed reporting and record keeping requirements on financial institutions, provided for the seizure and confiscation of criminal proceeds, and established a financial intelligence unit (FIU.) In July 2005, the PMLA’s implementing rules and regulations were promulgated. The legislation outlines predicate offenses for money laundering. Predicate offenses are listed in a schedule to the Act, but these do not include many of the predicate offenses listed as essential by the FATF recommendations, including organized crime, fraud, smuggling, and insider trading.

Penalties for offenses under the PMLA are severe and may include imprisonment for three to seven years and fines as high as $12,500. The PMLA mandates that banks, financial institutions, and intermediaries of the securities market (such as stock market brokers) maintain records of all cash transactions (deposits/withdrawals, etc.) exceeding $25,000 and keep a record of all transactions dating back 10 years.
Economic Intelligence Council

To assist in enhancing coordination among various enforcement agencies and directorates, India established an Economic Intelligence Council (EIC.) This provides a forum to strengthen intelligence and operational coordination, to formulate common strategies to combat economic offenses, and to discuss cases requiring interagency cooperation. In addition to the central EIC, there are eighteen regional economic committees in India. The Central Economic Intelligence Bureau (CEIB) functions as the secretariat for the EIC in the MOF. The CEIB interacts with the National Security Council, the Intelligence Bureau, and the Ministry of Home Affairs on matters concerning national security and terrorism.
Prompted by the RBI’s 2002 notice to commercial banks to adopt due diligence rules, many of these institutions have taken steps to combat money laundering. For example, most private banks and several public banks have hired anti-money laundering compliance officers to design systems and training to ensure compliance with these regulations. The Indian Bankers Association has also established a working group to develop self-regulatory anti-money laundering procedures and assist banks in adopting the mandated rules.
The RBI and SEBI have worked together to tighten regulations, strengthen supervision, and ensure compliance with "know your customer" norms. This includes, for example, provisions that banks must identify politically involved account holders who reside outside of India and identify the source of these funds before accepting deposits of more than $10,000. The RBI continues to update its due diligence guidelines based on FATF recommendations. For banks that are found noncompliant, the RBI has the power to order banks to freeze assets.
"The government should move forward expeditiously with amendments to the PMLA that explicitly criminalize terrorist financing, and expand the list of predicate offenses so as to meet FATF’s core recommendations," the report concluded. "Further steps in tax reform will also assist in negating the popularity of hawala and in reducing money laundering, fraud, and financial crimes. The government should ratify the U.N. Conventions against Transnational Organized Crime and Corruption, and it needs to promulgate and implement new regulations for nongovernment organizations including charities.
"Given the number of terrorist attacks in India and the fact that in India hawala is directly linked to terrorist financing, the government should prioritize cooperation with international initiatives that provide increased transparency in alternative remittance systems," the report concluded.


Swiss Bank Accounts: Separating Fact From Fiction
By Mark Koba
Web Editor
| 20 Aug 2008 | 11:38 AM ET
Mention the words Swiss bank account and it can bring to mind corrupt politicians hiding vast sums of money, drug lords laundering ill gotten gains or filthy rich American citizens trying to avoid paying taxes. The reality, however, is quite different from the myths.
“Swiss banks must verify your identity and won’t accept your business if they think it is illegal, says Ken Wassell, CEO of Los Angeles, California-based Offshore Company, a firm that aids its customers in overseas financial services. “About five percent of applications a year are turned down because of possible fraud,” says Wassell.
It doesn't stop there. James Nason, spokesman for the Swiss Bankers Association, adds that Swiss banks must not only verify your identity but also verify the source of the funds you are putting in the bank. “And besides that,” says Nason, “the beneficiary of the funds must also be positively identified.”
That’s not to say there isn’t secrecy in having a Swiss bank account. Any Swiss banker today who reveals your information without your consent risks prison time by law. And there is secrecy when it comes to issues like inheritance or divorce. It’s up to plaintiffs to prove someone has a bank account in Switzerland, if they want access to it through a lawsuit. Full Coverage Of European News
There are, of course, exceptions to the secrecy rule, especially concerning crimes such as gun running and drug trafficking. Swiss banks are forbidden by law to accept money which they know might be as a result of a crime.
And when it comes to names, the so-called secret numbered accounts in Swiss banks are not completely secret.
"Yes, banks can set up an account by number only," says Nason," but you will have to go through the same process to open the account as a named account—at greater expense. Your name will be known to several upper management types in the bank and there are records of ownership."
Origins Of Secrecy
The concept got its start in the 18th century, when a group called The Great Council of Geneva passed a law in 1713, preventing banks from sharing information about their clients.
The modern Swiss banking system started in 1934 during the global depression era when France and Germany pressured Switzerland to divulge depositor information as part of an effort to prevent capital flight. Switzerland, in trying to maintain sovereignty, passed a law making the disclosure of such information a crime. And in 1984, some 73-percent of all Swiss citizens voted to keep bank secrecy.
Any American Swiss bank account holder does not pay taxes to Switzerland. But if an American is looking to hide money from the IRS, a Swiss bank account won’t do much good. As of January 1, 2001, unless a foreign bank obtained a status of QI or “qualified intermediary,” the bank must report to the IRS all earnings received from the U.S. and the names of the beneficial owners. If the bank does have a QI, which keeps a bank’s secrecy if it follows strict regulations, U.S. citizens can only have money in the bank if they are willing to disclose their identity to the IRS.
Opening An Account
If you still want to open an account, it's not complicated but it does take some time, effort and of course, money. A search on the Internet for Swiss bank accounts suggests that you don’t need much money to open an account, but that is one of the myths about how the system works.
Nason says that while the deposit amount varies for each of the more than 400 banks in Switzerland, most of them are looking to invest the money for a depositor, and not just hold it to generate a minimal amount of interest.
“I get letters nearly once a month from Americans asking about Swiss banks,” says Nason. “I recently got one from a man in Virginia, asking for help in finding a bank to hold his retirement savings account for him and his wife. But that’s not what Swiss banks really do. They are into professional asset management. A six-figure sum is usually the starting point for opening an account.”
Wassel says it’s more like $250,000. “Most people opening a Swiss bank account or doing so for privacy and from potential litigation,” says Wassel, “and to protect their assets.”
Besides the right amount of money, there is also the vast amount paper work to consider. Here’s what you more than likely need to have to set up an account:
● Valid Passport ● Verification of Address ● Documents to prove economic background ● Documents to prove economic origin of money being deposited ● Identification of any beneficiaries of the account ● You must be 18 years old● You must go in person or have a financial service company open it for you
"Americans account for a very small percentage of our business currently," says Francois Xavier of Micheloud & Co., an immigration and financial consultancy based in Switzerland, which helps people set up accounts in Swiss banks.
"The QI regulations are definitely slowing banks down when it comes to Americans opening Swiss accounts," says Nason." It's a lot of regulation for these banks to conform with."
“There are less Americans now then during the Reagan administration because inflation was so high then,” explains Xavier. “People tried to escape the erosion of the American dollar. Maybe if things [economically] get worse in the U.S., that will change and more of them will open accounts.”
© 2008

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