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Created on Saturday, 07 December 2024 10:41
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Reform FATF's Mechanism Against Money Laundering
(Edited Image of FATF's 2024 Report on India)
The global anti-money laundering body, Financial Action Task Force (FATF’s) latest report on India has got a lot of positive reportage. Named Mutual Evaluation Report of India (MERI), it marks a substantial improvement over FATF’s previous MERI published in 2010. Released on 19th September 2024, the Report requires guarded welcome as it is silent on certain key issues.
The silence is deafening on 2016 demonetization, which actually turned out to be an institutionalized driver of money laundering (ML). Same is the case with the electoral bonds (EBs), which too institutionalized ML.
The Report has also not banked on ML concerns flagged by Comptroller and Auditor General (CAG) in its reports. MERI has also not touched on big spurt in ML resulting from botched implementation of Goods and Services Tax (GST). It has also not delved into misuse of statutory corporate social responsibility (CSR) funds for ML & nexus between CSR-Trusts controlled or aligned with politically exposed persons (PEPs).
Some of issues would be elaborated later in this column to drive home the need for FATF to reform. Time has come to enlarge FATF’s 40 recommendations on AML and countering the financing of terrorism (CFT).
FATF, an inter-governmental entity, should consider incorporating 41st recommendation, specifying ML risks and safeguards for big-bang tax reforms such as GST. The risk of tax frauds and other crimes is very high during the transition period till new taxation system gets stabilized.
Its 42nd recommendation should deal with foreseeing risks & planning AML safeguards before unleashing tectonic moves such as demonetisation. This disruptive move is undertaken ostensibly to target black money that awaited laundering.
Read more: Introspect Exuberance Over FATF's Report on India
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Created on Thursday, 14 July 2022 15:17
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(Image Courtesy: taxindiaonline.com)
“The depreciation of the rupee, measured in terms of exchange or price of gold or sovereign, ranged somewhere between 25 to 30 per cent. So great was the depreciation that it redoubled the difficulties confronting the Government when the rupee was not fixed to gold”, wrote B.R. Ambedkar, in his 1923 book - The Problem Of The Rupee: Its Origin And Its Solution.
The solution to the plummeting value of rupee is more elusive today than what it was under the British Raj. It had constituted few committees to fix the problem of currency and finance.
The issue of both external and internal value of Rupee was vigorously debated in Council of States and Legislative Assembly during the Raj era. After Independence, the debates spilled over to the Constituent Assembly of India (Legislative) and the Provisional Parliament. Nothing could, however, stop the Rupee from tumbling.
Fifteen years after Dr. Ambedkar’s seminal work, F.E. James, European Member from Madras, spoke against devaluation in Legislative Assembly on 18th December 1938.
Participating in debate on RBI Bill, Mr. James stated: “I would like to say that we do not think that rupee devaluation will solve any of the ills from which the country is at present suffering”.
He added: “My whole purpose is to claim that devaluation of the rupee today will take us nowhere. It must be considered along with the other great forces which are going to make for disorganisation in the economic and financial spheres”.
What Mr. James stated about devaluation applies equally well to depreciation in the external and internal values of Rupee (twin values) that has occurred over the decades. The depreciation of Rupee against hard currencies has been more frequent since the launch of market-determined exchange rates in 1993.
Read more: When Prudence is made Subservient to Populism - The Rupee Problem
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Created on Monday, 22 February 2021 04:38
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(Debt Wave. Edited Image Courtesy: A 2019 UNCTAD Report)
The Covid-19 virus is turning out to be more lethal than dozens of Hydrogen Bomb. Leave aside for a while human tragedy reflected in the death of a few million & health issues faced by countless survivors. Think of pandemic-linked economic destruction including steep rise in unemployment and poverty.
Worry now over the Covid-crafted foundation for the next global meltdown. This might occur in next 5-10 years, if there is no multi-facet global cooperation. The West should take the lead in debt restructuring & fair global trade in all spheres.
According to Global Risks Report 2021 released last month, “businesses might suffer future paralysis or collapse under debt obligations. Reports already predict defaults on a significant proportion of public and private loans in Brazil, India, and the United Kingdom. Global Risks Perception Survey (GRPS) respondents echo these concerns: ‘asset bubble burst’ and ‘debt crises’ appear as critical threats in the medium term”.
The Virus coaxed regimes to embrace lockdowns, pushing the global economy into unprecedented contraction. Lockdowns thus wiped out the income gains of 10 years in several developing countries. The lockdowns also exacerbated other diseases such as tuberculosis and AID due disruption in non-covid healthcare services.
As put by the World Bank President, David Malpass, Covid has “knocked more economies into simultaneous recession than at any time since 1870. It has ended a two-decade streak of steady global progress in poverty reduction, pushing up to 150 million people into extreme poverty by 2021”.
Read more: World Needs A New Order To Avoid Covid-fired Debt Crisis
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Created on Friday, 23 November 2018 08:59
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“Credit targets are sometimes achieved by abandoning appropriate due diligence, creating the environment for future NPAs. Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk. The Credit Guarantee Scheme for MSME (CGTMSE) run by SIDBI is a growing contingent liability and needs to be examined with urgency”.
This is one of the steps proposed by former RBI Governor Raghuram Rajan in hisresponse to a query on how to prevent recurrence of NPA crisis. The querist is Parliament’s Estimates Committee.
Mr. Rajan’s timely alert, that hit headlines during last two months, should have prodded the Government to examine the entire business of populism-driven lending. It largely comes in 3 formats: 1) as interest subsidy on loans, 2) as loan write-offs or rescheduling & 3) as guarantees for repayment of loans on behalf of beneficiaries. Guarantees for such collateral-free loans are different from guarantees that Government gives to companies for borrowings from the capital markets.
Where there is a Government Guarantee Policy for latter guarantees that was laid in 2010, no policy exists for credit guarantee funds (CGFs).
An enlightened Government must provide guarantees for repayment of loans given to sectors that are prone to high risks of failure. Such sectors are also the backbone of economy and can’t thus be left starved of the capital.
Read more: Why no Governance Framework for Credit Guarantee Funds?
