Money laundering clouds loom over India

Too much of a good thing can sometimes boomerang. The booming Indian economy and, specifically, the rapid expansion of the financial services industry has exposed the country to a very high risk of becoming a haven for money laundering. Particularly alarming is the fact that banks in the country have not been doing enough to make their businesses foolproof, warns a recent survey by KPMG Forensic.

The global consultancy firm, which surveyed 224 banks in 55 countries, including India, to find out how they are facing up to the twin challenges, says the vulnerability of the Indian banking system stems from a host of factors such as the presence of a large number of international banks, growth of alternative asset classes like hedge funds, private equity and commodities being fuelled by a low interest regime, and, most importantly, the abysmal monitoring of illegal activities.

The survey notes that while banks in India and other emerging economies are generally aware of the risks, and have also been spending huge sums to counter these—expenditure on anti-money laundering (AML) systems and processes has risen at an average of 58 per cent over the past three years—the problem has not been accorded the seriousness it warrants.

“In India, although it is common for banks to provide training that meets the minimum regulatory requirements, the quality of the training needs to improve to bring it up to international standards,” says Deepankar Sanwalka, Head, Forensic Services, KPMG, India. “Banks will need to work extremely hard from here if they are to maintain any advantage in the war against money laundering and terrorist financing.”