FATF Team Visits
India, Ultimate Beneficial Owner (UBO) to be Identified on Import/Export
Transactions
·
Diamond houses, jewellers, and gem stores will
soon be blacklisted by banks if they fail to disclose the 'ultimate beneficial
owners' (UBOs) of their trading partners.
·
ECGC is demanding UBOs etc for giving cover
Diamond houses, jewellers, and
gem stores will soon be blacklisted by banks if they fail to disclose the
'ultimate beneficial owners' (UBOs) of their trading partners.
Identifying the UBOs, or the
true owners, would test the genuineness of foreign buyers and sellers, curb
sham exports and imports, and expose rogue firms using cross-border trades in
gold jewellery and other precious stones as a subterfuge for irregular fund
transfers and hawala deals.
The trading fraternity is in touch
with local banks to put in place a framework under which such firms using
overseas shell companies as trade counterparties would find it difficult to
access export credit and working capital. 9,500 jewellers and diamantaires,
assured this at a meeting last week to the Financial Action Task Force (FATF),
the global body to combat money laundering (ML) and terror funding (TF).
The initiative to trace UBOs in
the jewellery trade is being led by the main industry body Gem & Jewellery
Export Promotion Council (GJEPC), which had introduced the 'MYKYC' regime in
2019 in the wake of the Nirav Modi-Mehul Choksi scam, making it mandatory for members
to reveal UBOs of companies and IDs and personal details of proprietors of
domestic firms.
"However, such disclosures
are not compulsory in other countries, say in the UAE, where firms may choose
not to register themselves under a strict KYC (know your customer) system. So,
the onus would now be on Indian firms exporting jewellery or importing rough
diamonds or exporting polished stones to insist on asking their foreign buyers
and sellers to share the UBOs and other details. Already, ECGC is demanding
UBOs etc for giving cover," said another industry person.
The state-owned ECGC, under the
ministry of commerce and industry, provides credit risk insurance and related
services for exports. The stance taken by ECGC could make it easier to execute
the regime of linking bank credit with UBO details of offshore counterparties.
The last FATF evaluation of India
happened in 2010. Even though the FATF is not backed by a statute, its findings
may influence capital allocation by international investors in portfolio as
well as direct investments. A country which finds itself in the FATF grey list
or under enhanced monitoring regime stands the risk of losing out on hard
currency inflows.
The Prevention of Money Laundering
Act, The Unlawful Activities (Prevention) Act, 1967 (UAPA) (which was amended
in 2004 to criminalise, inter alia, terrorist financing), and subsequent and
recent amendments to the PMLA have strengthened the AML framework.
A finance ministry notification
earlier this year designated professionals such as a practising chartered
accountant, company secretary, certified management accountant as 'reporting
entities' under PMLA for certain transactions carried out on behalf of clients.