Will RBI answer serious concerns that it had raised about financing terrorism and money laundering before reluctantly agreeing to use Aadhaar in 2011?
On the 11 August 2015, the Supreme Court of India reiterated for a fourth time that Aadhaar number cannot be a condition for obtaining any benefits otherwise due to citizens. The apex court also asked the Union of India to give wide publicity in the electronic and print media including radio and television networks that it is not mandatory for a citizen to obtain an Aadhaar card. It also directed that Unique Identification Number (UID) or the Aadhaar number will not be used for any purpose other than the public distribution scheme (PDS) and in particular for the purpose of distribution of food grains and cooking fuel, such as kerosene and the LPG distribution scheme.
Surprisingly, market regulator Securities and Exchange Board of India (SEBI) too has asked for clarification.
Implementing this order means that the Aadhaar can no longer be used by banks for know-your-customer (KYC), linking with bank accounts or transferring money.
Since January 2011, the RBI had accepted the use of Aadhaar number as one of the documents that may be used for KYC. Since it is only one of the documents used for opening a bank account, the SC’s orders should not really concern the RBI. Furthermore, the RBI's own KYC standards actually prohibit the use of non-document based methods like the Aadhaar for opening bank accounts. Since only 0.03% of those who were issued Aadhaar have not had other documents, no great achievement of ‘including the poor’ can be accomplished by insisting on Aadhaar.
Linking a bank account with an Aadhaar number has no advantage either to the bank or the customer. This is because the customer’s permanent account number (PAN) number which has been issued by the Income Tax Department is already linked to all bank accounts. The PAN number actually provides much more information than the Aadhaar number and is linked with all financial instruments of the banks’ customers.
The RBI runs National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) to transfer money. Neither of these needs an Aadhaar number to effect money transfers. None of these electronic transfers which are regulated by RBI are impacted by the order. So why is the RBI really upset?
The order does affect the Aadhaar Based Payment System (ABPS) run by National Payments Corporation of India (NPCI), a section-8-company under the Companies Act. This payment system requires Aadhaar. Serious concerns about money laundering through Aadhaar
-based payment systems have gone unaddressed since they were first raised in Moneylife more than a year ago.
RBI, as the regulator, has not stepped in to cancel the payment system or even to investigate the serious "design" flaws that can facilitate money laundering. Neither the NPCI nor the RBI has issued any clarification to allay the concerns.
Strangely, the government's direct benefit transfer (DBT) is using ABPS (and not RBI’s NEFT or RTGS) to transfer lakhs of crores of rupees to uncertified, unverified, unaudited bank accounts that are highly volatile and mobile in their linkages to effect money transfers that ironically become anonymous and untraceable like bitcoins. It is not possible to distinguish between PDS and LPG subsidy transfers from any other money transfers making it very easy to siphon subsidy or effect money laundering.
RBI itself has no information about authenticity, security and auditability of NEFT or RTGS and ABPS. It has no information about the comparative capital and operating costs for these platforms or the means to cover these costs.
The regulator’s indifference, nay bias, has been most surprising. By raising the need for clarification, it now becomes ever more important for the regulator to answer the serious concerns that RBI's own had raised about financing terrorism and money laundering before reluctantly agreeing to the use of Aadhaar in 2011. It is even more important that an independent court monitored probe investigate the serious Pandora box of money laundering and financing terrorism unleashed by the Aadhaar linkage to bank accounts and money transfers.
"Transformational" banking through third party IDs
- An ID number is issued to you by an “Authority” based on the data submitted to them by private enrollment agencies.
- These agencies are allowed to keep the data and the number and also get paid for the data they submit.
- Banks accept this ID number as the sole KYC.
- Banks accept remote electronic submission of IT as e-KYC, no need for the account holder to physically go to the bank.
- Who is responsible to certify and verify the ID and hold liability for frauds?
- Who is in possession of your bank account if a rogue enrollment agency submits your ID number to open a bank account under the new transformed process?
- How are shell accounts prevented in this?
- If neither the third party nor the bank ever audit or verify the ID, how can shell accounts be prevented?
| |(Dr Anupam Saraph is a Professor, Future Designer, former governance and IT advisor to Goa’s former Chief Minister Manohar Parrikar and the Global Agenda Councils of the World Economic Forum.)