New Delhi: The Financial Action Task Force (FATF) review of India currently underway is likely to take a dim view of signals emanating from the kid glove treatment meted out to the Adani group by various investigative agencies and market watchdog, the Securities and Exchange Board of India (SEBI).
An inability or unwillingness to get to the bottom of serious charges of round tripping or the flow of money from and to tax havens allegedly around India’s largest and fastest growing conglomerate could have a series of unintended consequences.
One consequence could be a shadow on India’s integrity as a responsible system having institutional heft to know about, and prevent, illegal flows of money across its borders.
The FATF is the global money laundering and terrorist financing watchdog. According to its own definition, it “sets international standards that aim to prevent these illegal activities and the harm they cause to society”. North Korea, Iran and Myanmar are currently on the FATF black list. It was only in October 2022 that Pakistan after four years of finding itself on the grey list and facing serious financial strictures, could manage to make its way off the list.
Last month, SEBI told the Supreme Court that in the matter of the alleged stock price manipulation in the Adani group, at least one investigation was contingent on receiving crucial data from overseas, pending which it cannot go ahead.
Such a submission will hurt India’s case as this is a direct violation of Outcome number two of the FATF guidelines.
By telling the court that it is awaiting information from overseas, SEBI is essentially admitting that a robust international cooperation is lacking, which is what Outcome 2 is all about.
The FATF review by the UN body follows 40 recommendations and 11 outcomes while doing a country review. The recommendations are in the nature of robust laws, rules and regulations being in place and the outcome is about the effectiveness of implementing these laws.
Officials who are familiar with the workings of the FATF told The Wire, “It is incumbent on the country to get the information it is asking for because if we are unable to get the information, it means our request was not as per the law or was lacking in some way. The FATF looks at the broader prospective of international cooperation as well as robust domestic coordination. Our ratings are likely to fall on the domestic front as well. Weak coordination between various law enforcement agencies is the reason why no case has been registered against the Adani group by any federal or state agency.”
SEBI had told the Supreme Court on August 25 that data from five offshore tax havens was awaited which will identify the end beneficiaries behind foreign investors who are engaged with the group.
Five days later, a report by a consortium of investigative reporters, from the OCCRP, The Guardian and Financial Times, asserted on the basis of documents accessed by them that the Adani group has invested millions of dollars in its own companies through a complex web of offshore companies.
The reports also said that India’s Directorate of Revenue Intelligence (DRI) had alerted SEBI about suspicious transactions of these off shore entities as early as in 2014.
However, SEBI told the Supreme Court it had information coming in only as late as 2020, after which it started its enquiries. SEBI has been silent on if it has investigated the leads given to it by the DRI.
SEBI’s actions or the lack of them impact Outcome 3 and 4 of FATF because of the failure of SEBI and RBI to be able to keep tabs on where funds for the Adani group are coming from. The RBI is supposed to maintain the balance of payments position. RBI’s role as the gatekeeper of the flow of money incoming and outgoing from India is also assessed during an FATF review. It too has not been able to raise questions about alleged illicit flow of money. RBI’s effectiveness is one of the 11 outcomes.
The Adani group has dubbed the Hindenburg report as baseless and and the OCCRP findings as “recycled allegations”. The January report which dubbed the Adani group as the “largest con in corporate history” shaved off a $100 billion worth of the conglomerate’s various verticals.
Immediate outcome 7 of FATF is also likely to be impacted going by this report from The Wire which shows a failure of a domestic federal agency, or its inability to take a prosecution to a logical conclusion.
The Wire had in February this year reported that an Adani company, Gudami International Pte Ltd, had been one of the alleged beneficiaries of the Agusta Westland VVIP chopper deal slush funds. The company figured in two chargesheets filed by the Enforcement Directorate in 2014 and 2015 where details of how the bribes were paid was shared. In 2016, the ED sent a Letter Rogatory to Singapore where Gudami International was registered. In the third chargesheet, while several other companies and the Singapore information were mentioned, Gudami’s name was dropped.
“Outcome 8 too is impacted because since there is no conviction in this case, there is no confiscation of property of the accused, Gudami International Pte Ltd,” officials familiar with the case say.
The primary anti money laundering agency, the Enforcement Directorate or ED’s not too stellar record also directly impacts Outcome 7 and 8 of the FATF. While Outcome 7 deals with prosecution and convictions, Outcome 8 deals with confiscation of proceeds of crime.
As The Wire reported earlier this year, according to its website, the agency has a conviction rate of 96%, politicians comprise only 3% of all cases and search warrants were issued in 8.99% of the cases. But, the ‘conviction rate’ is based on 24 out of 25 cases in which a PMLA trial was completed.”
IANS quoting finance ministry sources reported that between 2018-19 and 2021-22, cases registered by ED rose by 505%, from 195 cases in 2018-19, to 1,180 in 2021-22. The number of searches the ED conducted rose by a huge 2,555% between 2004-14 and 2014-22. As per finance ministry’s own data, 112 searches were carried out by the ED between 2004-14 resulting in attachment of proceeds of crime worth Rs 5,346 crore.
The ED gave The Wire a three-page response to its queries, but some questions regarding the role of the agency remain unanswered:
How many cases has the investigation been completed so trial can commence?
How many cases have been registered and closed by way of discharge or quashing or acquittal?
How many accused have been discharged after a complaint was filed in court?
Of the properties attached, how many have been confiscated by the ED?
In a response to The Wire, the ED had then said, “The tenor and content of your letter shows that it is based not only on incorrect and misleading facts but also shows that you have not conducted proper research including checking the website of the ED. Otherwise, you have not put certain questions relating to statistics and asked for answers from us. It is clear that the purpose of this letter is to do a roving inquiry for an oblique purpose,” the ED said.
The last time that FATF was in the news was when the Modi government was arguing for the retention of ED Director, Sanjay Mishra, in the face of stiff resistance from the Supreme Court. The Modi government had repeatedly invoked the FATF review as crucial and underlined the role Mishra was playing in seeing India through.