Money laundering poses a significant threat to the integrity of global financial system. According to UNDOC estimates, as Indian economy exceeded the US$3 trillion mark in 2021, the scale of money laundering reached approximately US$159 billion, equivalent to around 5% of GDP. This highlights the critical nature of the issue, driven by expansion of illicit markets, such as trade in illegal drugs and arms, as well as involvement of non-market actors.
In an article, Forbes has claimed that the Reserve Bank of India (RBI) documented bank frauds exceeding INR ₹302.5 billion during the fiscal year 2023. While this represents a decline from the staggering INR ₹1.3 trillion rupees reported in 2021, it marks a crucial departure from the trend of escalating bank frauds witnessed in India over the past decade. Both the total number of frauds and their monetary value have shown signs of reversal yet the current figure remains alarmingly high. Persistent threat posed by fraudulent activities in the banking sector demands continued vigilance from citizens to safeguard their financial interests necessitating robust measures to mitigate risks and ensure integrity of the financial system.
With each passing day, occurrence of money laundering and financial scams in India’s financial sector is on the rise. In recent years, Punjab National Bank scam has severely shaken the credibility of the Indian financial sector, casting doubt on RBI’s competence and commitment to addressing severity of the situation. Spanning over a decade, these scandals have had a significant financial impact, with estimates ranging from INR ₹114,000 billions to INR ₹135,000 billions, marking one of the largest frauds ever uncovered by an Indian bank.
Over the past decade, India has experienced remarkable digital growth, particularly in Unified Payment Interface (UPI) transactions, which have witnessed exponential expansion. According to the Finance Ministry, more than 95,000 fraud cases related to UPI were reported in the fiscal year 2022-23, posing marked risks to the overall system from misuse and financial crimes.
In an article on financial scams in India, Forbes International has revealed some astonishing facts. According to the Ministry of Finance, reported UPI fraud cases surpassed 95,000 in the fiscal year (FY) 2022–2023, compared to 84,000 cases reported in FY 2021–2022. Furthermore, an alarming 55% of all digital payment frauds in India are linked to UPI-based transactions. A revealing report indicates that 50% of these fraudulent activities have an average value of less than INR ₹10,000. Moreover, 48% of the scams fall within the value range of US$10,000 to US$1,000,000, with only 2% involving a value exceeding INR ₹1,000,000.
Frauds related to identity, particularly those involving accounts, are widespread across industries. In the financial services sector, account-related fraud accounted for 65% of all reported frauds in 2021, involving activities such as account creation and takeover. Similarly, the e-commerce sector reported that 54% of all reported frauds were related to accounts.
The combined effect of different scams, such as UPI fraud, bank frauds, and email scams, has led to an astounding financial loss, surpassing INR ₹2000 million in 2023. Furthermore, the retrieval of deceived funds has been dismal, with only 2% to 8% of the lost funds successfully recuperated. The issue has garnered the attention of the Indian Supreme Court, which has expressed apprehensions about this escalating threat. In the case of Arun Kumar v Asst Director Directorate of Enforcement (2023 INSC 1006), the Indian Supreme Court articulated the following concerns.
“With the advancement of technology and Artificial Intelligence, the economic offences like money laundering have become a real threat to the functioning of the financial system of the country and have become a great challenge for the investigating agencies to detect and comprehend the intricate nature of transactions, as also the role of the persons involved therein”.
These egregious scams underscore the profound inadequacies within India’s anti-money laundering and combating the financing of terrorism (AML-CFT) regulations governing the financial sector. This assertion gains further credence given that India’s informal economy constitutes approximately 38.9% of its GDP, equivalent to a staggering US$6564 billion at the Purchasing Power Parity (PPP) level. Moreover, India’s prominence in facilitating real-time banking transactions is undeniable, with over 41 million transactions processed daily.
Additionally, media reports reveal that India’s UPI has achieved a remarkable milestone by recording 9 billion transactions in May 2023 alone. This combination of significant gaps in regulatory oversight, coupled with the vast scale of informal economic activity and the burgeoning volume of digital transactions, highlights an urgent need for strong measures to enhance India’s AML-CFT framework and safeguard the integrity of its financial system.
However, as revealed by Indian Financial Intelligence Unit’s Annual Report 2021-22, the recorded count of suspicious transactions for the years 2019-20, 2020-21, and 2021-22 were 547,013, 602,057, and 433,761, respectively. These figures present a stark contrast in a country where the informal economy accounts for over 38% of GDP and leads in global leadership in daily real-time transactions. This volume of suspicious transactions does not align with India’s financial profile.
Moreover, India’s last Mutual Evaluation Report (MER), dates back almost fifteen years to 2010, with the subsequent follow-up report issued a decade ago, in 2013. The mutual evaluation of India, originally scheduled for 2020, was postponed to 2023 due to COVID-19 pandemic and the resulting halt in the assessment process of Financial Action Task Force (FATF).
The last Follow-Up Report (FUR), published in 2013, raised serious concerns, emphasizing the need for ongoing scrutiny and improvement in India’s AMFT/CFT regime. The FUR specifically stated: “India’s ML offence is not fully in line with the Palermo and Vienna Conventions, but the scope of the outstanding technical deficiencies is relatively minor without real impact on the effectiveness of India’s AML regime. On that basis, it can be concluded that India’s current level of technical compliance with R.1 is essentially equivalent to LC”.
India’s persistent failure to enhance its AML/CFT regime governing the financial sector is not merely a matter of oversight but a testament to a systemic issue. The egregious misuse of its Money Laundering Act, 2002 (PMLA 2002) and Unlawful Activities (Prevention) Act, 1967 (UAPA 1967) has tarnished its reputation on the global stage. The United Nations special rapporteurs have consistently condemned the flagrant violations of human rights resulting from misapplication of these laws. Furthermore, the discriminatory enforcement of the Foreign Contribution (Regulations) Act, 2010 (FCRA 2010) and the arbitrary revocation of licenses for non-governmental organisations (NGOs) assisting minorities and marginalized communities expose a pattern of selective persecution.
Despite India’s status as a full-fledged member of the FATF since 2012, its actions betray a flagrant disregard for international standards and norms. Its blatant disregard for accountability, transparency, and fundamental rights undermines the credibility of efforts to combat financial crimes and uphold the integrity of the global financial system.
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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media and cyber laws, ML/CFT, IT, intellectual property, arbitration and international taxation. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal). He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
Twitter: DrIkramulHaq
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
Twitter: Abdul Rauf Shakoori
The recent publication, coauthored with Huzaima Bukhari, is
Pakistan Tackling FATF: Challenges & Solutions
available at: https://www.amazon.com/dp/B08RXH8W46
