Money Laundering

Siphoning off Money from Bank Accounts
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Agreement with other Countries on Money Laundering Information

The Government of India has entered into Double Taxation Avoidance Agreements (DTAAs), Tax Information Exchange Agreements (TIEAs) and Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) with over 130 countries including tax havens.

These agreements allow exchange of information between countries for tax purposes including information pertaining to money laundering and funding. On the request made by Government of India under the above agreements, these countries provide relevant information including information pertaining to money laundering and funding.

The Foreign Portfolio Investors (FPIs) which issue Offshore Derivative Instruments (ODIs) also known as Participatory Notes (PNs) are required to submit the details of their ODI/PN activity to Securities and Exchange Board of India (SEBI) in the prescribed format on monthly basis and the same is uploaded on the SEBI website.

The reporting format for ODI activities was modified in terms of SEBI Circular dated June 10, 2016. As per the submissions made by the ODI issuing FPIs the outstanding Notional value of ODIs issued by them during last few years.

Out of the total number of 354 Anti-Profiteering applications, the Standing Committee has forwarded 65 applications to the Directorate General of Safeguards for investigation. Notices of initiation of investigation have been issued by the Directorate General of Safeguards in respect of 53 applications. The Standing Committee has sent back 68 applications to the jurisdictional GST authorities as not being anti-profiteering applications and 59 applications to the respective State level Screening Committees for reconsideration.

 

In order to ensure transparency and in light of various recommendations of Special Investigating Team (SIT) on black money, appointed by the Honorable Supreme Court of India, SEBI has been constantly tightening norms for taking exposure in Indian Capital Markets through ODI/ PN route. Some of the recent steps taken by SEBI are as follows:-

 

  • In terms of SEBI (FPI) Regulations, 2014, ODIs/ PNs can be issued only to those entities which are regulated by the appropriate regulatory authority in the countries of their incorporation, after compliance with “Know Your Client” (KYC) norms. Further, only Category (I) and Category (II) FPIs can issue/subscribe or otherwise deal in ODIs/PNs whereas none of the Category (III) FPIs can deal in ODIs.
  • In terms of SEBI (FPI) Regulations 2014, an FPI shall ensure that transfer of ODIs/PNs are done to persons which are regulated by the appropriate regulatory authority in the countries of their incorporation, after compliance with “Know Your Client” (KYC) norms and prior consent of the FPI is obtained for such transfer, except when the persons to whom the ODIs/PNs are to be transferred to are pre-approved by the FPI itself.
  • In terms of SEBI circular dated November 24, 2014 the applicable eligibility norms between Foreign Portfolio Investors (FPI) regime and subscription through the ODIs have been aligned.
  • In terms of SEBI circular dated June 10, 2016 FPIs are required to maintain the BO information of its ODI subscribers in line with the Rule 9 of PMLA, i.e., BO information is to be furnished in case the holding of natural person(s) is above specified thresholds.
  • In terms of SEBI (FPI) Regulations, 2014 Resident Indians/NRIs or the entities which are beneficially owned by Resident Indians/NRIs cannot subscribe to Offshore Derivative Instruments.
  • In terms of SEBI (FPI) Regulations, 2014, an ODI issuing FPI is required to collect the regulatory fee, as specified in Part C of the Second Schedule, from every subscriber of the offshore derivative instrument (ODI), issued by it and deposit the same with the Board.
  • In terms of SEBI circular dated July 7, 2017 the ODI issuing FPIs were advised that from the date of the circular, they shall not be allowed to issue ODIs with derivatives as underlying, with the exception of those derivative positions that are taken by the ODI issuing FPI for hedging the equity shares held by it, on a one to one basis.