Tackling illegal transfer of funds

The national strategy to contain flow of illicit funds, both inward and outward, approved by the national coordination committee on anti-money laundering last Thursday, has been long overdue. The need for such a strategy and its strict enforcement was particularly being felt in recent years in view of the rise in the outward flow of funds amassed through illegal means. The release of data from time to time by a number of international research organisations, including the Global Financial integrity (GFI), has only confirmed this fact. The annual average outflow of fund amounting to $1.3 billion between 2003 and 2012, by any measure, is too high for a country where annual inflow of foreign direct investment (FDI) remains well below $1.0 billion.

The avowed objective of the newly-approved strategy is to curb financial flows through the prevention of black money accumulation, trade-based money laundering and cross-border tax evasion. The tasks, as demanded by the strategy, are formidable since the financial offences that are related to outward transfer of illicit funds are very extensive and hard to tackle. For instance, graft is one particular factor that remains the major source of black money accumulation. Despite all the hullabaloos made about tackling it, graft continues its domination in all spheres of society. With opportunities to indulge in corrupt practices remaining in place, a section of people would continue to generate black money and try to send a large part of the same to 'safe havens' of their choice.

Similarly, over- and under-invoicing are two well-known means of transferring funds outside the country illegally. It is not that such transfers are taking place only through imports. A section of exporters have been doing it as they are allegedly keeping a part of their earning outside the country through fraudulent practices, including miss-declaration of their export receipts. Duty evasion with regard to import is another traditional way of generating illegal funds. However, money earned through both legal and illegal means is transferred abroad using illegal routes. Legally-earned money at times goes out of the country when holders of the same feel insecure at home and decide to settle abroad. But the number of such transfers is negligible compared to the illegal ones.  

The situation of the illicit financial flows was not the same two to three decades back. The current state of information technology has made the job for the illegal fund transfers easy and the task of tackling the same on the part of the agencies concerned more difficult. Unless the relevant agencies are sincere and serious enough, it is not possible to curb the illegal transfer of funds.  A number of national-level agencies, including the central bank and the taxation authority, are involved in the task of curbing illicit fund transfer. It is of utmost import that all these agencies work in unison in keeping with the objectives set in the medium-term national strategy to tackle illegal inflow and outflow of funds effectively.