In process of tweaking laws to check money laundering: FM

Stressing the need for mutual legal assistance, especially in extradition and exchange of information and intelligence among enforcement agencies, finance minister Pranab Mukherjee said technical assistance and cooperation must be strengthened in a 'robust manner'

Kochi: Committed to the full implementation of international standards to combat money laundering and terror financing, India on Tuesday said it was making suitable amendments to converge the country's existing laws with the recommendations of the global Financial Action Task Force, reports PTI.

In order to make the Prevention of Money Laundering and Unlawful Activities (Prevention) Acts more effective, India was in the process of making 'suitable' amendments to the two acts to bring them in line with the core and key recommendations of the Financial Action Task Force, Indian finance minister Pranab Mukherjee said while inaugurating the five-day meeting of the Asia-Pacific Group on 'Money Laundering' here in the south Indian state Kerala.

He said, "The capabilities against money laundering and terrorist financing should be strengthened by all nations to ensure an effective, efficient and more productive crusade against this menace."

Global responses to the challenges of money laundering could be in the form of raising awareness about the phenomenon, especially the socio-economic impact, creating the necessary legal and institutional frameworks and effective law enforcement and international cooperation, among others.

Stressing the need for mutual legal assistance, especially in extradition and exchange of information and intelligence among enforcement agencies, he said technical assistance and cooperation must be strengthened in a 'robust manner'.

Although it was not possible to make a suitable estimate of the amount of money laundered, the quantum of money generated from criminal activities and laundered throughout the world is believed to be several billions of dollars, up to as much as 2% to 5% of the global gross domestic product (GDP), he said.

Left unchecked, money laundering can undermine the integrity of any financial system and embroil individual financial institutions in share-crippling financial scandals, he said, calling for collective efforts to deal with it 'ruthlessly'.

The huge quantum of money being generated from criminal activities and money laundering gave the beneficiaries a 'lot of muscle' and 'certainly enough means to threaten political stability worldwide', Mr Mukherjee said.

He said the cross-border linkages of money laundering made it increasingly necessary to make collective efforts in dealing with it 'ruthlessly'.

Liberalisation and deregulation of national economies had together created both 'opportunities and risks' for society, he said.

Noting that the socio-economic effects of money laundering are crippling, he said illicit funds generated from criminal activities such as fraud, corruption, extortion, gun running, drug and human trafficking and other forms of organised crime were laundered into clean currency and in turn used to fund more illegal firearms, more violent crimes and-'most disconcertingly'-more international terrorism.

India's anti-money laundering legislation, the Prevention of Money Laundering Act, 2002, presently covers 156 offences under 28 different statutes as predicate offences. The Unlawful Activities (Prevention) act deals with terror and combating funding of terror.

The country has established a Financial Intelligence Unit and evolved a system of reporting suspicious financial transactions. The manpower in the Directorate of Enforcement, which is spearheading money laundering investigations, was recently augmented three-fold, he said.

India has been playing a proactive role in the comity of nations in dealing with money laundering and would continue to contribute significantly in global efforts to prevent money laundering and maintain the integrity of financial systems, Mr Mukherjee said.
FATF President Giancarlo Del Bufalo, APG co-chair and Australian Federal Police commissioner Tony Negus, APG executive secretary Gordon Hook and APG co-chair and secretary to the government of India K Jose Cyriac are among the 350 senior officials from the Asia-Pacific region and around the world participating in the meeting.

The meeting will provide a platform for high level discussion and cooperation and evaluation of progress made by APG members in implementing the international standards to combat money laundering and financing of terrorism.


Are Indian asset reconstruction companies really under stress, or simply happy to misuse the law?

Asset reconstruction companies in India are very different from the global model and they have been operating contrary to the purpose they are meant to fulfil

The top headline in a financial newspaper on Monday reported a seemingly-sensational matter of leading asset reconstruction companies operating under pressure of its major shareholders (all of them major banks) and consequent breach of laws and regulations by these companies.

But for those people, many of them professionals, who have had some experience of dealing with these asset reconstruction companies (ARCs), the issues are hardly surprising. For, these people know how ARCs arm-twist troubled companies into accepting loans at steep interest rates from private lenders; how they even allowing the private lenders to enforce security interest on assets without satisfying claims of banks and financial institutions; how they get allotment of shares in troubled companies; and force changes in management in violation of Reserve Bank of India (RBI) norms on the takeover of management, and so on.

However, many not know that the ARCs are vested with special legal powers that need to be deployed in strict compliance with the law and, therefore, many things that ARCs are doing are outright illegal.

In fact, in a larger context, the very institution of ARCs, vested with special powers of recovery, is as much a misconceived idea as the parent legislation under which the ARCs were created.

In India they are ARCs, but globally AMCs

While the term 'asset reconstruction company' may be a typical Indian expression, possibly from the heritage of the Narasimham Committee that referred to an 'asset reconstruction fund', in the global model of dealing with non-performing assets (NPAs) it is called an asset management company (AMC).

The first and most important point to note is that AMCs are created to resolve the problem of NPAs that result from a systemic crisis. That is, if a systemic crisis leaves the banking system infested with bad loans, there has to be a one-time, central remedy to resolve the problem. AMCs are not envisaged, and intuitively could not have been envisaged, to resolve the problem of loans that go bad due to bad lending.

Therefore, most countries brought about AMCs as a one-time measure with a sunset clause. The classic example is the Resolution Trust Corporation in the United States which acquired assets of savings and loans associations in the 1990s. Closer home, Danharta in Malaysia took over loans that went bad in the 1997 Southeast Asian crisis, and once the loans were resolved, it wound up its affairs.

Whether one-time or continuing, AMCs in most countries have taken the centralised AMC model; that is, one AMC formed to resolve a systemic crisis.

In India, our unique ARC model has a lot of differences from the global model.

First, there has not been any systemic crisis that ARCs have had to resolve. Most of the bad loans in India are a product of bad lending; they represent what is called the flow problem, rather than the stock problem.

Second, and also a key difference, is that we have not envisaged a sunset clause for ARCs. The SARFAESI Act envisages ARCs to be an ongoing business model. Hence, it could not have been a response to a systemic crisis. On a policy plane, it sounds completely counter-intuitive for an agency armed with special powers conferred by the law to rescue a loan that goes bad due to bad lending. What are insolvency laws, winding up laws and civil laws on recoveries meant for, if another special law is going to be used to resolve every loan that goes bad? (SARFAESI Act is short for the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.)

Hence, the very concept of ARCs in India seems to be a paradox. It is easy to attribute the concept of ARCs to the Narasimham Committee; but the Narasimham Committee had not thought of profit-seeking  companies fitting the bill of ARCs in the country.

That brings us to the third significant difference - a single AMC versus multiple ARCs. In India, over the years, several ARCs have come into existence. In fact, ARC has become a business model.

Vesting special powers with a profit-driven entity

From a legal policy perspective, how does one envision a profit-driven, shareholder-wealth-maximising entity resolving the problem of bad loans?

Sure enough, bad loan resolution is a business model, but such a business model has to fit into the overall regime of the recovery of loans, enforcement of security interests, and so on. It would be hard to think of entities having special powers that buy bad loans and resolve them. If power corrupts, then special powers can corrupt specially.

Of course, there is no equity and justice for a borrower who does not pay a loan; but then one cannot close one's eyes to the fact that lenders who foreclose loans often commit excesses.

While one cannot expect a borrower-centric fair deal from an entity that has to focus on shareholder wealth, the sale of assets is not transparent and is far too commonly done at prices that do not represent fair values.

Trust route: Easy escape from regulations

Another very unique feature of the Indian ARC model is that virtually all NPAs are bought in the name of trusts, of which the ARC becomes the trustee. This is a simple device to wish away RBI regulation. For, the regulations require capital adequacy, NPA treatment and income recognition norms in case of ARCs almost in the same tone as is applicable to NBFCs. However, if assets are bought in the name of ARCs, other than the mandatory investment requirement, much of the regulation is not applicable. This may sound strange, but the legal privileges of the special powers are presumably available even where the assets are sitting in the books of the trusts.

In fact, the question whether the powers of ARCs are exercisable where the assets are sitting on trust books, is a significant matter that has not been discussed adequately at legal forums. For the exercise of the special powers the asset must be an NPA, in accordance with the directions of the RBI, which directions are not applicable in the case of trusts. So, the issue is, if the directions are not applicable to trusts, do the trust's assets become NPAs as per directions of the RBI?

Going beyond business that is allowed by law

ARCs have very limited powers under the law; powers limited by the SARFAESI Act. Whatever else they do has to be incidental or ancillary to what they are permitted to do under the law. An ARC is not a normal business entity that can buy equity shares, takeover management of businesses, engage finance companies to acquire loans of defaulting companies, and so on. However, in the real world, ARCs are being run like bania shops (small neighbourhood stores).

Sale of assets not transparent

Also, the sale of assets conducted by ARCs-in spirit-is no different from the sale of assets by state finance corporations or others vested with similar special powers of recovery.

Courts have, over the years, ruled that there exists no scope for obscurity on the sale of a borrower's assets, as every single penny realised from the sale goes to the credit of the borrower.

It is also clear in the SARFAESI Act that the ARC acts as trustee of the borrower, in the exercise of rights of sale of property. Hence, any opaqueness in the sale process is intolerable in law. There have been numerous instances where ARCs have sold assets through so-called private auctions, and simply served a notice on the borrower, giving credit to the extent of sale proceeds. In these cases, no account of the sale proceeds, description of the buyer or competing bidders, information on how the asset was sold or expenses on the sale have been provided to borrowers. Worse, ARCs are on record saying that they are not obliged to disclose the particulars of the sale, but this is completely erroneous.

(The writer is a chartered accountant, trainer and author. He is an expert in such specialised areas of finance as securitisation, asset-based finance, credit derivatives, accounting for derivatives and financial instruments and microfinance. He has written a book titled "Securitisation, Asset Reconstruction and Enforcement of Security Interests", published by Butterworths Lexis-Nexis Wadhwa. He can be contacted at [email protected] Visit his financial services website at




5 years ago

Comprehensive & well researched. But the readers would also like to know what should be the immendiate, concrete POA from the authorities with respect to regulation of ARC


Vinod Kothari

In Reply to Shekhar 5 years ago

I have brought to focus the fact that the entire policy behind the SARFAESI Act, legal powers given to ARCs, etc need a review from policy viewpoint. Currently, the law of security interests in India is a complete mess. The confusion has become evident in several SC rulings where courts have been tackling with conflicting provisions of various laws that each compete for the first right to grab the assets of a defaulter - Sick Industrial Companies Act, SARFAESI, state tax laws, liquidator under winding up provisions, claims of workers and so on. It is a serious issue. our constitution has been framed so as to protect workers' interests. If secured lenders or ARCs seize the productive assets of a borrower, what happens to workers' claims?

Courses like BMM and BMS appear lucrative, but do not offer employment opportunities

Degrees like Bachelors of Mass Media and Bachelors of Management Studies are all the rage now. But quality of faculty and treatment of the subjects in the curriculum have left a number of students in the lurch, with no job prospects

The admission season has come to a close. Statistics suggest that there is a rising demand from Mumbai students for so-called 'professional' courses like the degrees in media and management offered by the University of Mumbai; these degrees are preferred over traditional streams like commerce, arts and science, this year.
But students who have completed their graduation in courses such as Bachelors of Mass Media (BMM) and Bachelors of Management Studies (BMS), say that these courses are appear lucrative but do not offer any employment prospects. Even some professors are of the same view.

Take the case of Deepti Khera, who despite completing her BMM with specialisation in journalism, opted for a one-year post graduate (PG) diploma in media studies.

"I was hardly taught anything in BMM. First I thought I would take a break for a year and work with some newspaper. But I couldn't get through anywhere, so I took up (my) PG," she told Moneylife.

Abhisheik Patil (name changed), a BMS graduate, decided to pursue his Master of Business Administration (MBA). He said, "I was required to have skills essential to become a manager, which BMS did not teach me. Hence I went and completed my MBA."

Speaking to Moneylife, Harsha Mehta, principal of SIES College of Arts and Commerce said, "Courses like BMM and BMS are nothing but hollow and (appear to be) lucrative. There is a fad among students to take up these courses, thinking they might get a chance to enter the media and corporate world. The subjects offered are also similar to degrees like BA and BCom. In fact, students who have completed their standard 12th in Science take up these courses and end up having ATKT (allowed to keep terms) in the first year itself as they cannot cope with subjects like Economics, Sociology, etc."

Ironically, courses like BMM and BMS are becoming increasingly popular. The cut-off percentages for admission to these courses went skyrocketing this year for most of the colleges based in Mumbai.

"There were more applications for market-oriented courses like BMM, BMS than BA and BCom. We help students to get internships to gain some industry experience. But there is a lot of effort required from the students' side. These courses itself should make internships mandatory," says Dr Mary Fernandes, principal of St Andrews College, Bandra.

Experts say that the subjects taught in these courses only grant superficial knowledge to students. What is required is more in-depth experience. For instance, BMM has subjects such as photography, understanding cinema and public relations, taught just for one semester each. It is also true that most of the students become faculty members after completing their BMM or BMS. Often, these teachers fail to impart better, in-depth knowledge to the students pursuing these courses.  

BMM co-ordinator Manjula Srinivas from KC College, one of Mumbai's well-known educational institutes, said, "BMM students have a very niche employment preference. Some prefer only print media, others only production-related jobs while some want to get into movie making. So it becomes difficult for the college to arrange placements. But we try our best."

The total number of seats for the BMM course in Mumbai is 3,848 while that for BMS is 11,838. According to news reports, many colleges had written a letter to the University of Mumbai to increase the number of seats for these courses, due to rising demand.

But if the course content itself does not help in the job market, what is the point in increasing the number of seats for these degrees?




2 years ago

It is not the case with only BMM or BMS. It is with every field. Students will have to start from junior roles and learn the tricks of the trade by being in an area of interest. Where money is riding high, not every individual gets prime responsibility immediately. There are jobs available both in print and electronic media, one has to get in spend years and then apply what they have learned at the courses. I did it it the same way. Learned the hard way. Today, after 8 years of BMM graduation I am in a position to train aspirants in the same field with vital experience that I have gained.
Rajesh Rajgor


4 years ago

The article is entirely biased.
Where I agree that getting jobs for BMM/BMS is not very easy but then tell me which course can guarantee confirmed employment?

After 12th, students are at sea as to which course to join and end up taking the tried and tested routes of engineering, medicine, CA etc. They are not aware of professions like copy writing or various prospects in marketing.

So is the reason, courses like BMM/BMS is designed to throw open the gates of lesser known or lesser advertised professions.

Instead of devaluing a course and demotivating the countless students of this course or those who wish to join in, the authorities should work to improve it and bring it to the par of excellence it deserves.

A course in itself never good or bad, it's the course setters, teachers and the students who collectively make it work.

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