Accounting for best practices is sensible

The finance ministry has brought accountants within the purview of money laundering laws to harmonise with global norms. It has, however, kept other financial intermediaries, such as lawyers, outside its ambit. India is behind in money laundering rules suggested by global watchdog Financial Action Task Force (FATF). It is trying to catch up prior to an assessment by the international body later this year. Reporting requirements have been widened to include cryptocurrency exchanges as New Delhi drums up international support for coordinated global regulation of digital currencies. As current rotating president of G20, India is lending its voice to a host of developing world concerns, and cannot afford to be seen as dragging its feet on an international initiative to counter the financing of terror.

Chartered accountants (CA), company secretaries (CS) and cost accountants (CWA) managing client money for a specified set of financial transactions have been made reporting entities for the Prevention of Money Laundering Act (PMLA), which imposes stringent compliance but has a poor record of conviction. This pulls down the ease of doing business and could explain why the government has not widened the net of reporting entities to include lawyers, who are covered by the FATF guidelines. The Supreme Court has observed that the concept of the offence of money laundering in PMLA is very wide. The immunity granted by the law for acts of omission by reporting entities can be overridden by investigating agencies. This indirectly controls the pace of adding new sections of reporting entities.

FATF is shortening its evaluation cycle for countries with an increased emphasis on areas of highest risks in terms of money laundering, terrorism and arms proliferation. India can tailor its policing apparatus to the specific risks it faces, but cannot be a laggard given the size of its economy and its rising stature in global capital flows. It pays to be technically compliant with international best practices ahead of emergent risks.