External Affairs

US Money Laundering Report Drops Dawood Reference, Hits India for Ignoring 'Investigative Leads'

US report also says that while demonetisation "addresses the problem of counterfeit currency, it does little to mitigate long term money laundering risks."

Hyderabad: Shortly after the United States arrested the notorious Pakistani hawala trader Altaf Khanani in 2015, the treasury department explicitly acknowledged his ties to the fugitive Indian mafia don Dawood Ibrahim. The link was repeated in the State Department’s annual report on Money Laundering and Financial Crimes in 2016. But in the 2017 edition of the report, released last Friday, Dawood’s name is missing from the description of the Khanani money laundering organisation (MLO).

The State Department document comes five months after Khanani was sentenced by a US court for money laundering, raising questions about whether Dawood’s omission is an oversight or the result of a plea bargain, or insufficient evidence or follow-up by the Indian government – which is also criticised in the same report for “a lack of follow-through on investigative leads”.

Khanani, who was trapped by a sting operation that began in December 2014, was finally arrested on September 11, 2015 in Panama pursuant to a grand jury sealed indictment by the US Drug Enforcement Administration (DEA). On December 11, 2015, the US treasury imposed sanctions on the Khanani MLO and the Dubai-based Al Zarooni Exchange that was accused of “owned or controlled by, or acting for or on behalf of, directly or indirectly, the Khanani MLO.”

It also gave details of the modus operandi of the organisation, including Khanani’s ties to Dawood Ibrahim, and terrorist organsations like the Lashkar-e-Tayyaba and Jaish-e-Mohammed:

“The Khanani MLO is a TCO (transnational criminal organisation) composed of individuals and entities operating under the supervision of Pakistani national Altaf Khanani, who the U.S. Drug Enforcement Administration (DEA) arrested this September.  The Khanani MLO facilitates illicit money movement between Pakistan, the United Arab Emirates (UAE), United States, United Kingdom, Canada, Australia, and other countries, and is responsible for laundering billions of dollars in organised crime proceeds annually.  The Khanani MLO offers money laundering services to a diverse clientele, including Chinese, Colombian, and Mexican organised crime groups and individuals associated with Hizballah.  The Khanani MLO has also laundered funds for designated terrorist organizations.  Altaf Khanani, the head of the Khanani MLO, and Al Zarooni Exchange have been involved in the movement of funds for the Taliban, and Altaf Khanani is known to have had relationships with Lashkar-e-Tayyiba, Dawood Ibrahim, al-Qa’ida, and Jaish-e-Mohammed.”

According to the Pakistani newspaper Dawn, Altaf Khanani pleaded guilty to money laundering charges before a United States court in Florida. He now faces a maximum penalty of 20 years in prison plus a fine of $250,000. The plea agreement between Khanani and the prosecutor was signed on Oct 27, 2016. Thanks to this deal, Khanani was convicted on only one count and may be released in a few years. He was originally charged on 14 counts and faced a maximum of 280 years jail. Javed Khanani, Altaf’s brother and a co-accused in this case, was mysteriously found dead in Karachi on December 4, 2016.

On March 3, 2017, the State Department released its 32nd International Narcotics Control Strategy Report, the second part of which deals with money laundering and financial crimes.  US assistant secretary of state for the bureau of international narcotics and law enforcement affairs, William R. Brownfield, told a briefing in Washington that this is “the first time that we are discussing and rolling this report out before the media in nine years.”

The 2017 report uses the same paragraph that 2016 edition of the report used but curiously excludes the lines which said that the Khanani MLO has also been involved in laundering funds for the Lashkar-e-Tayyaba, Dawood Ibrahim, al-Qaeda, and Jaish-e-Mohammed. The omissions are not explained.

No follow up action in India

The State Department report also criticised India for not taking follow up actions on the information the US had supplied.

“US investigators have had limited success in coordinating the seizure of illicit proceeds with Indian counterparts. While intelligence and investigative information supplied by US law enforcement authorities have led to numerous money seizures, a lack of follow-through on investigative leads has prevented a more comprehensive offensive against violators and related groups. India is demonstrating an increasing ability to act on mutual legal assistance requests but continues to struggle with institutional challenges, which limit its ability to provide assistance.” (emphasis added)

The report also suggests, ‘India should address noted shortcomings in the criminalisation of money laundering, as well as its domestic framework for confiscation and provisional measures. The government should ensure all relevant DNFBPs (designated non-financial businesses and professions) comply with AML )anti-money laundering) regulations. India should extend its safe harbour provision to also cover all employees. The government of India should seek to use data and analytics to systematically detect trade anomalies that could be indicative of customs fraud, TBML (trade-based money laundering), and counter-valuation in hawala networks.”

‘Note ban won’t prevent money laundering’

The US government report also takes note of India’s recent demonetisation of high denomination notes and says that while the action “addresses the problem of counterfeit currency, it does little to mitigate long term money laundering risks.”

“Illicit funds are sometimes laundered through real estate, educational programs, charities, and election campaigns. Laundered funds are derived from narcotics trafficking, trafficking in persons, and illegal trade, as well as tax avoidance and economic crimes. Counterfeit Indian currency has also been a problem. Notably, however, in November 2016, the Reserve Bank of India demonetised the 500 and 1000 rupee notes and introduced new banknotes to try to crack down on “black money” stemming from corruption, tax evasion, and other illicit financial activity. While this action addresses the problem of counterfeit currency, it does little to mitigate long term money laundering risks.

Finally, the report recommends the speedy implementation of mobile banking as a way of curbing money-laundering in India:

“India should recognise the vulnerability of and consider the regulation of traditional MVTS (money and value-transfer services) and further facilitate the development and expansion of new payment products and services, including mobile banking. Such an increase in lawful, accessible services would allow broader financial inclusion of legitimate individuals and entities and shrink the informal network, particularly in the rural sector.”

D-Company in India-US diplomacy

The first time Dawood Ibrahim’s network got mentioned in an Indo-US joint statement was during the visit of Prime Minister Narendra Modi to the US in September 2014. “The leaders stressed the need for joint and concerted efforts, including the dismantling of safe havens for terrorist and criminal networks, to disrupt all financial and tactical support for networks such as Al Qaeda, Lashkar-e Tayyaba, Jaish-e-Mohammad, the D-Company, and the Haqqanis”.

This phrase has since been mentioned in all bilateral joint statements, including the one issued during Modi’s last trip to Washington in June 2016. “The leaders committed to strengthen cooperation against terrorist threats from extremist groups, such as Al-Qa’ida, Da’esh/ISIL, Jaish-e Mohammad, Lashkar-e-Tayyiba, D Company and their affiliates, including through deepened collaboration on UN terrorist designations. In this context, they directed their officials to identify specific new areas of collaboration at the next meeting of U.S.–India Counterterrorism Joint Working Group,” said the 2016 joint statement.

Gulam Shaik Budan is a Hyderabad-based journalist specialising in financial reporting.

With inputs from Devirupa Mitra