International Cooperation in AML/CFT & India
Financial intelligence is a field within the purview of the central government that helps Indian law enforcement and intelligence agencies understand the nature, capabilities, and intentions of entities of interest so as to identify such threats. Activities in this field include the collection, receipt, analysis, collation, and dissemination of intelligence, both foreign and domestic, related to financial services, taxes, international trade, and foreign and domestic currency.
India need to become an international leader in financial intelligence considering its size of the economy and
population.
Forms of International Cooperation
International
cooperation has both “nonjudicial” and “judicial” aspects (Bassiouni 2008). Nonjudicial
cooperation refer to the exchange of information between competent authorities,
including law enforcement, FIUs, and intelligence agencies, while the judicial
components of international cooperation are aimed at sharing information or
gathering evidence in the context of a judicial proceeding involving MLA and
extradition requests. The spectrum of authorities relevant for CFT efforts can
be quite broad and include customs, intelligence services, FIUs, supervisory
authorities, and the judiciary, depending on the particular procedural aspects
of each jurisdiction. A significant amount of cooperation on takes place
through global and regional law enforcement channels. Cooperation also occurs
between FIUs through the Egmont Group. An important aspect of international
cooperation occurs between intelligence agencies, but information on the
nature, extent, and amount of such cooperation has not been collected for the
purpose of this publication. In this chapter, competent authorities refer to
FIUs and law enforcement in the context of information sharing and to
investigators and prosecutors in the context of judicial cooperation.
Non-judicial Forms of Cooperation
Nonjudicial forms
of cooperation occur mostly at the operational/administrative level and
encompass the many ways states cooperate regarding terrorist financing.
FIU-to-FIU exchanges allows the sharing of financial intelligence on a
bilateral and multilateral basis. Cooperation between FIUs can be facilitated
by the Egmont Group’s platform for the secure exchange of expertise and
financial intelligence. Security agencies are also critical partners in the
detection of terrorist financing at both national and international levels.
They, too, exchange information with counterpart organizations in other states
on a discretionary basis and generally through reciprocal liaison officers.2 Law enforcement
cooperation can involve joint investigations by the agencies of two or more
jurisdictions. For example, the EU Agency for Criminal Justice Cooperation
(Eurojust) promotes and facilitates the creation of joint investigation teams
between EU member states to bridge or overcome MLA difficulties. They can also
include non-EU members (an example being the investigation into the shooting
down of Malaysian Airlines flight MH17 in 2014, where Ukraine and Australia
were included). Such operational cooperation tends to be on a “like-to-like”
basis (such as police-to-police or FIU-to-FIU); however, in recent years,
attempts have been made to improve indirect3 cooperation,
which is also envisaged by the FATF standard.
Legal/Judicial
Forms of Cooperation
Legal/judicial
cooperation in operational matters is generally undertaken to acquire evidence
across national boundaries, secure material evidence, seize assets, or seek the
detention and extradition of suspects through judicial proceedings. In this
regard, authorities in one jurisdiction may seek MLA from the investigative or
prosecutorial authorities4 in another, in
line with an MLA convention or treaty. Authorities generally seek MLA when
conducting or facilitating an investigation or collecting evidence for use in
judicial proceedings in the requesting state. A country may also seek
assistance in locating suspects or witnesses bilaterally or may request other
states, through INTERPOL communications, to arrest or detain a suspect pending
initiation of extradition proceedings. Assistance specific to terrorist
financing cases may also include locating and freezing suspected terrorist
assets in another country under UN conventions or UN Security Council
Resolutions (UNSCRs).
Indo-US cooperation in AML/CFT
Joint Statement of the Co-Chairs of the ‘U.S.-IndiaAnti-Money Laundering and Countering the Financing of Terrorism Dialogue’ was
published on 14 DEC 2023 3:57PM by PIB Delhi
The forum shared
perspectives and best practices on how to strengthen the collective
efforts of both the countries to address illicit finance risk across our
countries and the international financial systems.
In forum sessions, the participants discussed each country’s
experience with virtual assets and virtual asset service providers, given the
focus area of both sides to promote responsible innovation while mitigating
illicit finance risks. Both parties recognised the pressing need to
accelerate global implementation of AML/CFT standards for virtual assets, in
line with the Financial Action Task Force (FATF) Recommendations, to
effectively addressing the issue of regulatory arbitrage.
Participants discussed each country’s efforts
to enhance transparency in beneficial ownership, including the implementation
of beneficial ownership registries, tools to improve data quality, and
verification of the information. This is a crucial step in combating money
laundering and other financial crimes, as it allows authorities to track the
flow of funds and identify those who are ultimately responsible for them.
Finally, they discussed the current challenges each
jurisdiction is facing with regard to sanctions implementation, as well as
opportunities to improve cooperation and information sharing to better combat
sanctions evasion and terrorist financing in the region and globally.
Indian and US delegations identified various areas in
AML/CFT where India and U.S. can jointly work together and share experiences
and best practices. Specifically, they agreed to convene the dialogue
again next year to build on this week’s productive discussions. They also
agreed that in advance of next year’s dialogue, ongoing technical-level
discussions will continue to advance their priorities and identify additional
areas for cooperation. Finally, they agreed to pursue opportunities to enhance
coordination and cooperation bilaterally and multilaterally, including working
together within the FATF.
Reconvening and co-chairing the India-U.S.
AML/CFT Dialogue reaffirms the commitment of India and the United States to
work jointly to address illicit finance risk in the international financial
system
FACTA & CRS
Both
FATCA and CRS prevent offshore investors from avoiding taxes and hoarding
unaccounted cash overseas. However, both FATCA and CRS require cooperation from
the tax authorities from all the G20 and OECD countries.
The
United States Tax Department came up with FATCA guidelines in 2010 to enforce
tax compliance and avoid tax evasion. FACTA stands for Foreign Account Tax
Compliance Act.
CRS
is roughly a more international version of FATCA. While FATCA is only for US
persons, CRS is applicable for citizens of every registered country.
According to the agreement, Indian tax officials are
required to obtain specific account information from US investors. The goal was
to ensure tax compliance by the US citizens while increasing transparency for
their Internal Revenue Service (IRS). This gave a legal basis for the reporting
financial institutions to maintain and report personal and income
details.
To
accommodate FATCA, the government had inserted Rules 114F to 114H and Form 61B
in the Income Tax Act in 2014.
Foreign Account Tax Compliance Act (FATCA) 2010
United States persons including individuals who live
outside the United States, to report their financial accounts held outside of
the United States, and requires foreign financial institutions to report to the
Internal Revenue Service(IRS) about their American clients.
FATCA was designed primarily to combat offshore tax evasion and to recoup federal tax revenues. This also has AML/CFT implications
FATCA
obligates every Indian financial institutions/mutual funds to provide required
tax related information to Indian Tax authorities of accounts held by specified
US Persons.
Reporting requirement under Foreign Account Tax
Compliance Act (FATCA) and Common Reporting Standards (CRS)
Under FATCA and CRS, REs shall adhere to the provisions
of Income Tax Rules 114F, 114G and 114H and determine
whether they are a Reporting Financial Institution as defined in Income Tax
Rule 114F and if so, shall take following steps for complying with the
reporting requirements:
(a) Register on the related e-filling portal of Income
Tax Department as Reporting Financial Institutions at the link https://incometaxindiaefiling.gov.in/ post
login --> My Account --> Register as Reporting Financial Institution,
Steps for complying with the reporting requirements:
(b) Submit online reports by using the digital
signature of the ‘Designated Director’ by either uploading the Form 61B or
‘NIL’ report, for which, the schema prepared by Central Board of Direct Taxes
(CBDT) shall be referred to.
Explanation: REs shall refer to the spot reference
rates published by Foreign Exchange Dealers’ Association of India (FEDAI) on
their website at http://www.fedai.org.in/RevaluationRates.aspx for
carrying out the due diligence procedure for the purposes of identifying
reportable accounts in terms of Rule 114H.
(c) Develop Information Technology (IT) framework for carrying out due diligence procedure and for recording and maintaining the same, as provided in Rule 114H.
Crypto-Asset Reporting Framework (CARF)
One of the major highlights of the joint declaration 2023, during India's Presidency, is the G20’s call for the swift implementation of the Crypto-Asset Reporting Framework (CARF) and amendments to the ‘Common Reporting Standard’ (CRS).
CARF, developed in light of the rapid growth of the crypto-asset market and pursuant to a mandate from the G20, provides for the reporting of tax information on transactions in crypto assets in a standardized manner, with a view to automatically exchanging such information with the jurisdictions of residence of taxpayers on an annual basis. So, now crypto transactions undertaken by Indians on foreign-domiciled crypto exchanges will also come under the purview of automatic exchange of information protocol under CARF, and as such it will no longer be possible to hide or conceal such crypto transactions. Similarly, under the amended CRS, requiring more tax transparency with respect to financial accounts held abroad, it would become next to impossible for Indians not to disclose their foreign bank accounts and assets holdings abroad to the tax authorities.
2. Financial Intelligence Unit (FIU-Ind)
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